SOCO is an international oil and gas exploration and production company, headquartered in London, with operations in Mongolia, Yemen, Thailand, Tunisia, Vietnam and North Korea and a sale pending on its Russia operations. SOCO today announces interim results for the 6 months ended 30 June 2001.

6 months accounts to June 2001 in PDF format

HIGHLIGHTS

* Record production as daily averages increased almost 10% to 9,362 BOPD (2000: 8,525 BOPD).

* Turnover 5% ahead at £21.4 million (2000: £20.4 million).

* Net profit of £7.0 million (2000: £8.7 million).

* Net cash of £24.6 million at half year.

* Disposal of Russia assets for $50 million, further strengthening balance sheet.

* Positive results from first two wells of Mongolia drilling programme.

* Active drilling programme planned for next 12 months in Vietnam, Mongolia, Yemen and Tunisia.

Ed Story, Chief Executive of SOCO, said:

"The first half of the year, despite an apparent lack of excitement, has been very important for us as we continue to position the Company both operationally and financially for its next growth phase. We expect significantly more drilling activity and, following the Russia disposal, we will be looking to invest in projects offering significant opportunities for the Company."

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

College Hill
James Henderson
Archie Berens
Tel: 020 7457 2020

CHAIRMAN’S AND CHIEF EXECUTIVE'S STATEMENT


INTRODUCTION

First half results for the Company were very good although operational news flow was sparse as the Company progressed toward major drilling campaigns planned over the succeeding 12 months. Shortly after the first half, SOCO made good on its promise to capture value for its shareholders as it disposed of its Russia interests for US$50 million and built its cash reserves for re-investment in promising areas.

The Company continued to build production during the first half of the year as daily average production net to the Company's working interest increased approximately 10% from the same period last year and approximately 6% over the year 2000 average.


RESULTS

The Company reached record period production levels in the first half of 2001 as daily production net to its working interest averaged 9,362 barrels of oil per day (BOPD). As a result, the second highest period turnover in the Company's history was achieved as turnover increased to £21.4 million compared to £20.4 million for the same period last year and £45.9 million for the full year 2000.

Profits before tax declined from £10.8 million reported for the first half of 2000 to £9.0 million for the first six months of 2001. Net profits were also down from the prior period at £7.0 million versus £8.7 million.

Reflecting the increase in production, the strengthening of the Russian currency and increased application of western technology in Russia, operating costs excluding depletion and abandonment increased substantially over the same period last year rising from £5.5 million to £8.2 million. Over 92%, £2.5 million, of the increase in operating costs was attributable to Russia operations. Consequently, direct production costs, primarily as a result of Russia operations, were approximately US$7.00 per barrel reflecting a rise over both full year (approximately US$5.80 per barrel) and first half 2000 (approximately US$5.50 per barrel). Costs of depletion and abandonment were relatively stable period on period at £4.0 million for the first half of this year as compared to £4.2 million for the same period last year.

Payment of the Vietnam Block 9-2 signature bonus and subsequent seismic acquisition programme contributed to a drop in the Company's cash balances to £31.0 million from £38.0 million reported at year-end. Cash balances net of debt associated with the Russia asset were £24.6 million compared to £33.0 million at year-end.


OPERATIONS

Exploration/Development

Whereas the Company had a very active drilling campaign in the first half of 2000, the first half of this year, with the exception of the development drilling programme in the Ozernoye field in Russia, has been spent in preparation for active drilling campaigns in Vietnam, Mongolia, Yemen and Tunisia over the next twelve months. The Mongolia/China border was closed for most of the period due to foot and mouth disease precautions resulting in the delay of the commencement of the Mongolia four well drilling campaign until July. Approximately 46% of SOCO’s acreage in the Tamtsag Basin in Mongolia was relinquished, subject to governmental review. The remaining acreage includes the most prospective regions of the Contract Areas. Contract Area 11 in the Gobi Basin was also relinquished, ending the Company’s exploration activities there after a seismic acquisition programme yielded few leads.

Although there was no drilling in the first six months in Mongolia, two wells were drilled in record time in July and August. The 19-13 well, drilled on a new structure of approximately 1,500 acres, spudded on 6 July. This well, the seventeenth well drilled by the Company in Mongolia, reached target depth of 2,311 metres on 22 July with drilling log analysis indicating a net productive reservoir of approximately 55 metres in a gross interval from 1,968 metres to 2,284 metres. On 29 July, the drilling rig spudded the second well in the expected four well campaign, the 19-14. Located approximately 1.5 kilometres northeast in a contiguous fault block to the 19-13 well, the 19-14 well was drilled to a depth of 2,376 metres in mid-August having encountered oil shows in a 286 metre interval from 2,051 metres to 2,337 meters in the Upper Tsagantsav Sands. Early indications are that these two wells are among the best wells drilled to date in Mongolia. A workover rig and fracture stimulation crews will complete and fracture stimulate both wells prior to production testing, which is expected in mid-September. The third well is currently being drilled on Contract Area 21 to test a new prospect in an area in which previous drilling has encountered thick, high quality continuous sand reservoirs. The location of the remaining well to be drilled this year will be determined at a later date.

Reconstruction of storage and production facilities that were damaged in last year's fire began in June with the lifting of border restrictions and was completed in August. The 19-10 and 19-12 wells, which were drilled and completed last year but not tested due to the lack of facilities, were put on production in July and August and sales to China were re-initiated in August. These wells, along with the 19-3 well that has been on periodic pilot production since 1998, were producing at a combined rate of approximately 630 BOPD as of mid-August. The 19-9 well, which was also drilled in 2000, is expected to be put on production by the end of the third quarter following installation of downhole equipment.

Petrovietnam, the Vietnamese national oil company, has a 5% interest, carried through the exploration phase, in each of SOCO's Mongolia production sharing contracts. At the end of this year's drilling programme, Huabei Oilfield Services, a Chinese company providing the drilling services to the Company in Mongolia, will earn the right to a pro rata working interest participation of 10% in Contract Areas 19, 21 and 22.

Processing and interpretation of both 2D and 3D seismic, which was acquired in Yemen at the end of 2000 and earlier this year, is ongoing in preparation for a drilling programme which is expected to commence later this year. Planning and tendering for the drilling campaign has commenced. Upgraded Atuf field facilities, which provide additional water handling capabilities and thus increase production capability, commenced operations in August. Expansion of export facilities on the adjacent Masila block will ultimately lead to higher export capabilities for the East Shabwa Development Area, where the Company's project is located.

As reported in the Subsequent Events section of this report, the Company entered into an agreement with a subsidiary of OAO Lukoil, one of Russia's largest energy companies, whereby SOCO sold the entirety of its Russia interest (see Note 5 to the interim accounts). However, prior to the effective date of this agreement, activity associated with development of the northern portion of the Contract Area in the Volga-Urals region of Russia was the focus for the year to date. Construction on a 35 kilometre pipeline was completed in the first half of this year but separation, metering and facilities are still under construction. Commissioning of the line and related facilities is expected late in the third quarter of 2001. In the interim, production from seven newly drilled wells and re-entered discovery wells in the Ozernoye field, is being trucked to an area pipeline collecting system. Two rigs are working in Ozernoye, which holds approximately 60% of Contract Area reserves, as the first phase of a multi-well development drilling programme that commenced earlier this year continues.

As was reported in the 2000 Annual Report and Accounts, the Company paid the signature bonus on Block 9-2, an exploration Block offshore Vietnam, in February 2001. The Block was awarded to the Company in December 2000. With this transaction, SOCO has interests in two Blocks, the other being Block 16-1, in the highly prospective Cuu Long Basin that has been an area of significant discoveries during the past several months. Both Blocks are contiguous to several producing fields, including the Bach Ho field that is currently producing approximately 240,000 BOPD.

The Hoan Vu Joint Operating Company, with project oversight of Block 9-2, initiated and completed a 650 square kilometre 3D seismic acquisition programme in May. The data, which is currently being processed, is of high quality for imaging basement and tertiary structures which had previously been identified from 2D seismic data. In the Block 16-1 Hoang Long Joint Operating Company, Pre Stack Depth Migration seismic processing will be conducted during the next three months to improve the imaging of the basement structures in Block 16-1.

Planning is ongoing for two wells to be drilled on each Block under a joint drilling operation during 2002. The Company should be able to realise significant cost savings by combining the drilling programmes.

Production

Production net to the Group's working interest averaged 9,362 BOPD for the first six months of the year compared to an average of 8,525 BOPD for the same period last year and 8,810 BOPD for the full year of 2000. The Russia asset, which is subject to disposal under a Purchase and Sale Agreement, contributed 3,212 BOPD, approximately 34% to this total.

Production net to the Company's working interest from the East Shabwa Development Area in Yemen increased approximately 10% to 5,110 BOPD from 4,653 BOPD for the same period during the previous year (4,805 BOPD for the full year of 2000). As a result of operational problems which have continued from the latter part of last year into the first half of this year, production declined period on period in Tunisia, dropping from 1,553 BOPD to 1,040 BOPD (approximately 1,300 BOPD for the full year of 2000). Russia production grew approximately 40% from 2,314 BOPD reported for the first half of 2000 (2,665 BOPD for the full year 2000).

With the sale of the Russia asset, production is expected to fall during the last six months of 2001 although the decline should be partially mitigated by better performance in Tunisia due to a facilities upgrade and re-initiation of crude sales from Mongolia.


SUBSEQUENT EVENTS

On 17 August 2001, the Company entered into a Purchase and Sale Agreement with a subsidiary of OAO Lukoil wherein it disposed of all its interests in Russia for US$50 million. The disposal is conditional upon approval of the Company's shareholders and approval by the Russian Anti-Monopoly Committee. An Extraordinary General Meeting is scheduled to be held on 6 September 2001.


PROSPECTS

The Company expects to continue with a robust drilling programme throughout the next 12 months. Drilling in Mongolia continues and an appraisal well is expected to be drilled in Tunisia on the producing Didon structure in the Gulf of Gabes on the Zarat Permit in which SOCO has a 22.22% working interest. Phase 3 drilling at the producing Kharir field in Yemen comprising at least six wells is expected to commence in the fourth quarter and continue through the first half of 2002. The Vietnam drilling programme with four wells drilled back-to-back is expected to begin mid-year 2002.


OUTLOOK

The Company has sought to combine stable producing assets with exploitation projects and frontier exploration. Throughout its history the Company has stated its intent to maintain a portfolio of projects with continual focus on recognising opportunity, capturing potential and realising value and thus continuously upgrading its portfolio.

In view of the current oil price environment and the increased likelihood of other projects' availability, the Company believes that this is an opportune time to raise funds for application in other areas of focus, which provide low cost, long term opportunities at reasonable levels of risk.

The Group's forward strategy is unchanged. Our strong balance sheet enables us to progress our portfolio without unduly leveraging other assets and the current period of relatively stable prices allows SOCO to accelerate and thus lock in some of the value unrecognised in its portfolio. We appreciate your interest and continued support of the Company.


Patrick Maugein
Chairman

Ed Story
Chief Executive
 
 
 
 
 
 
 
 

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