SOCO International plc ("SOCO" or "the Company")

Preliminary Results for the year ended 31 December 2001


HIGHLIGHTS

* Realised value through Russian asset disposal generating proceeds of US$50 million

* Developed two new areas of future growth: Libya and Vietnam
* Entered into a new joint venture in Libya to exploit potential
* Vietnam exploration programme underway
* Second consecutive year of 75% drilling success in Mongolia
* Production increased to 8,817 BOPD (2000: 8,810 BOPD)
* Further strengthening of balance sheet: net cash of £58.6 million versus £38.0 million at year-end 2000
Ed Story, Chief Executive of SOCO, said:

"In 2001 we accomplished our goals of recognising opportunities, capturing potential and realising value. The disposal of our Russian interests and the creation of a new joint venture in Libya added a new dimension to the Company this year.

"With a strong balance sheet and a commitment to realise early value from our portfolio, we are well positioned to generate significant growth from an exciting high impact drilling programme in Vietnam."

ENQUIRIES:
SOCO International plc
Tel: 020 7457 2020 (today)
Tel: 020 7399 3300 (thereafter)
Ed Story, Chief Executive
Roger Cagle, Chief Financial Officer

College Hill Tel: 020 7457 2020
James Henderson
Kate Aquila

CHAIRMAN'S AND CHIEF EXECUTIVE'S STATEMENT

Results
The year 2001 encapsulated the goals of SOCO to recognise opportunity, capture potential and realise value. Profit before taxation reduced slightly to £22.9 million from £24.1 million as it could not keep pace with the record levels set during last year’s period of extremely high oil prices. Group production rose from 8,810 barrels of oil per day (BOPD) last year to 8,817 BOPD in 2001.

Cash Position
At the year-end 2001 cash and cash equivalents totalled £58.6 million, an increase of more than 50% over balances held a year ago.

Dividend
Even with the strength of the balance sheet, the Directors believe that in the near to intermediate term the interests of the Company's shareholders can best be served by conserving funds to finance further growth. Accordingly, the Board has decided not to declare a dividend.

Operational Highlights
In 2001, Group production rose to a new record of 8,817 BOPD. The Company continued its operating success in Mongolia as three of four wells drilled were successful. The Group completed its acquisition of the second block in Vietnam and conducted an extensive offshore 3D seismic acquisition programme. In November, the Group entered into a new joint venture in Libya to capture attractive development potential, forming the basis for future exploration in North Africa. The Group made progress in rationalising its portfolio with the disposal of its 50% interest in Permtex, the Russian joint venture, for US$50 million.

Libya
We have taken the first major step toward building a new core area in North Africa.

In November, SOCO North Africa Ltd (SOCO North Africa), a subsidiary of SOCO, entered into a joint venture with Oilinvest, a private Dutch holding company with interests in all sectors of the downstream oil industry. The joint venture, ODEX Exploration Limited (ODEX), was formed to identify and secure delineated oil and gas projects which by reason of size, complexity, economic, or other reasons are available for development. ODEX will also pursue exploration opportunities in Libya and neighbouring countries in North Africa.

No projects have been introduced yet into the joint venture however the process of identifying and injecting the right projects is underway. The model for success in the joint venture is to introduce quality, high-potential projects early and then use these to provide cash flow for exploration in the surrounding regions where Libya has influence.

Vietnam
SOCO Vietnam Ltd (SOCO Vietnam) acquired its 30% interest in Block 16-1 in 1999 and completed the acquisition of the 50% interest in Block 9-2 in 2001. The Group now enjoys an outstanding acreage position in Vietnam. Both Blocks are located in the highly prospective Cuu Long Basin that has been an area of significant discoveries during the past several months. The Blocks are contiguous to the Rang Dong field that is currently producing 40,000 BOPD and the Bach Ho field that is currently producing approximately 280,000 BOPD.

Subject to regulatory approval in Vietnam, SOCO Vietnam will farm-out 50% of its interest in each block to PTTEP, the partially privatised state oil company of Thailand. Post farm-out SOCO Vietnam retains a 25% interest in Block 9-2 and a 15% interest in Block 16-1.

The two Joint Operating Companies (JOCs), established to manage the joint venture Petroleum Contracts, signed a cooperation agreement during 2001 enabling them to share services to provide operating and cost efficiencies. During the year both JOCs were involved in various stages of preparation for the drilling programme that is scheduled to commence in May 2002.

In January 2002 SOCO announced that it had increased its ownership of SOCO Vietnam, the company that holds interests in Vietnam, from 70% to 80%.

Mongolia
For the second year in a row, the Company continued its drilling successes in Mongolia with a success rate of 75% as three of four wells drilled were successful. The production and processing facilities in Mongolia that were damaged in October 2000 were reconstructed and completed in August.

The Contract Area 19 wells were put on production in July and August and sales to China were reinstated in August. Sales from this pilot production programme, which were restricted due to a lack of trucking capacity, averaged approximately 150 BOPD for the year. Trucking capacity has been expanded with the initiation of a transportation agreement signed with a Chinese company that is expected to begin late in the first quarter of 2002.

A budget has been approved for the 2002 drilling programme that includes the drilling of four wells in the Tamstag Basin.


Russia
On 17 August 2001 SOCO entered into a Purchase and Sale agreement with a subsidiary of OAO Lukoil to dispose of its 50% interest in the Russian joint venture Permtex for cash consideration of US$50 million subject to shareholder approval. The shareholders approved the disposal at an Extraordinary General Meeting held on 6 September. Subsequently the transaction received the approval of the Russian Anti-monopoly Committee, as required by law, and the transaction closed at the end of October.

The Russian operations are reflected in 10 months of the full period operating results and contributed 2,853 BOPD to SOCO’s total production net to its working interest. The Russian asset disposal added £8.5 million of exceptional income to operating income. The Company disposed of debt obligations on its balance sheet with the sale of the Russian assets.

The Company’s exit from Russia came not as a result of lack of success, but rather as the result of a successful conclusion of its aspirations for a particular project. It stands as a paradigm for realising value at an appropriate time in the life cycle of one of the portfolio holdings.


Yemen

Work continued on geological and geophysical studies associated with the 3D seismic acquisition of 2000. The Phase III drilling programme that was scheduled to commence in the fourth quarter of 2001 was delayed into 2002 due to the unavailability of a drilling rig. Phase III drilling began in January 2002 with the budget calling for up to eight wells to be drilled.

The drilling campaign commenced with the Kharir 2.6 development well, after which the rig is scheduled to move to an exploration location. The exploration programme is targeting anomalies highlighted in the seismic programme acquired in 2000.

Gross production for 2001 averaged approximately 27,450 BOPD (SOCO’s working interest approximately 4,600 BOPD) from the Kharir, Atuf NW and Wadi Taribah fields. This was slightly lower than projections due to rapidly increasing water cuts and delays in Phase III drilling. SOCO’s share of the crude produced is sold to the spot market.

Tunisia
As a result of operational problems during the first part of the year and modification of facilities during the second half that necessitated taking the production off-line, production declined from 1,293 BOPD net to the Group’s working interest to 1,206 BOPD in 2001.

The Didon production has averaged approximately 8,750 BOPD, approximately 1,950 BOPD net to the Group’s working interest without any signs of pressure decline. Estimates of recoverable reserves in the Didon field have been increased approximately 300% since inception due to production performance to date. An additional well is likely to be drilled on the structure in 2002 to maximise the economic recovery of oil.

Thailand
Discussions with potential farm-out candidates began in February and continued throughout the year. In December, an exclusive, non-binding Heads of Agreement was signed with a company to farm-in to one half of the Group’s interest in Thailand. Potential development of the Pornsiri field and additional exploration could follow.

A small 2D seismic programme was acquired over Block B8/38 in the first quarter of 2002 as the Company fulfilled its only remaining commitment associated with the Thailand Concession Agreement.

The Board
At the Annual General Meeting in May, shareholders approved the expansion of the SOCO Board of Directors. The Company appointed Mr. Robert Cathery and Mr. Ettore Contini, bringing the total number of Directors to 11. Mr. Cathery’s background is as a broker with SG Securities (London) Ltd and Mr. Contini is a banker employed by Banca Del Gottardo. Each Director brings skills and strengths to the Board that will help us further grow the business.

Summary

The past year was a defining year for the Company as we delivered on our strategy to build shareholder value: recognise opportunity, capture potential and realise value. The Company entered into a new joint venture in Libya, conducted an active drilling programme in Mongolia and realised value by selling its interests in the Russian joint venture, Permtex.

The Company’s priorities for 2002 are to continue to rationalise its portfolio, progress the drilling programme in Vietnam and add opportunities through the joint venture in Libya.

There is potential in the year ahead for active portfolio rationalisation if the mid-range, stable oil price environment continues. The Company actively manages its portfolio with a focus on building value over time, not on simply securing a one-off project. It will be a significant year as we build the base for future growth in our core areas of North Africa and Vietnam.

With a strong balance sheet and no debt burden, the Company is well positioned to exploit potential in new areas in 2002.

Patrick Maugein (Chairman) Ed Story (Chief Executive)

20th March 2002

To download in PDF format please click here: prelims2001.pdf
 
 
 
 
 
 
 
 

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