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

SOCO is an international oil and gas exploration and production company, headquartered in London. The Company has interests in Vietnam, Mongolia, Yemen, Libya, Tunisia, and Thailand with production operations in Yemen, Tunisia and Mongolia.

SOCO [LSE:SIA], the international oil and gas exploration and production company, headquartered in London, traded on the London Stock Exchange and a constituent of the FTSE 250 Index, today announces its Interim Results for the six months ended 30 June 2005.

 

HIGHLIGHTS

Operating Highlights

Exploration / Development

  • Five exploration/appraisal wells drilled this year have tested at an average production rate exceeding 8,350 BOEPD
  • VIETNAM

    • CNV-3X spudded on 30 January 2005 and tested water-free at a maximum combined rate of approximately 13,040 BOEPD
    • TGT-1X spudded on 2 June 2005 and tested water-free at a maximum combined rate of 9,432 BOEPD
    • CNV-4X spudded on 31 August 2005 and is currently drilling above the targeted Basement
    • Negotiations are underway to extend the drilling rig contract for additional wells

  • YEMEN

    • The KHA 1-09 well spudded on 6 December 2004 and produced over 6,500 BOPD when tested in February 2005
    • The KHA 2-16 well spudded on 1 February 2005 and produced over 5,500 BOPD when tested in April 2005
    • The KHA 1-10 well spudded on 28 March 2005 and produced over 7,300 BOPD

New Core Area - West Africa


  • REPUBLIC OF CONGO (BRAZZAVILLE)

    • In August the Company's 85% owned subsidiary, SOCO Exploration and Production Congo (SOCO EPC), signed a PSA acquiring a 75% interest in the Marine XI Block
    • Marine XI forms the cornerstone in what SOCO envisions to become a new core area for the Company in West Africa

Financial Highlights - from continuing operations

  • Revenue up to US$27.5 million (H1 2004 : US$8.9 million)
  • Operating profit increased over 130% to US$14.3 million (H1 2004 : US$6.1 million)
  • Basic earnings per share up over 150% to 12.6 cents (H1 2004 : 4.9 cents)
  • Net cash from operating activities increased to US$12.2 million (H1 2004 : US$0.4 million)
  • Production, net to the Company's working interest, increased to 5,057 BOPD (H1 2004 : 3,790 BOPD)


Corporate Highlights

  • SOCO disposed of its interests in Mongolia for consideration of up to approximately US$93 million
  • In August 2005 SOCO agreed a US$45 million reserve-based, revolving credit facility with the International Finance Corporation, the private sector arm of the World Bank


Ed Story, Chief Executive Officer, commented:

"SOCO has had an excellent year to date with the drill bit, and demonstrated its exploration expertise with a 100 percent success ratio in both Yemen and Vietnam across five exploration/appraisal wells. Comprehensive drilling programmes will continue in both countries over the remainder of 2005 and into 2006.

Our interest in the Marine XI Block in the Republic of Congo (Brazzaville) is the cornerstone of a new area in West Africa and we continue to seek additional opportunities in the region to bolster our portfolio."

 

 

ENQUIRIES:
SOCO International plc Tel : 020 7747 2000
Roger Cagle
Executive Vice President , Deputy CEO and Chief Financial Officer

Pelham PR Tel: 020 7743 6676
James Henderson
Alisdair Haythornthwaite

 


To download the full version of the Press Release in PDF format please click here.

 

 

 

CHAIRMAN'S AND CHIEF EXECUTIVE'S STATEMENT

During the first half of 2005, the Group has made significant progress on a number of fronts. Nowhere has the progress been more telling than in the drilling programme where we have experienced a 100 per cent success ratio both in Vietnam and Yemen. Five exploration/appraisal wells drilled this year thus far have tested from 5,500 barrels of oil equivalent per day (BOEPD) to over 13,000 BOEPD, with the average production test exceeding 8,350 BOEPD.


In addition to the excellent results from the very active drilling programme, the Company advanced its portfolio through subtraction and addition. It sold the entities holding its Mongolia interests to a subsidiary of PetroChina that immediately added approximately US$30 million to the Group's cash position with an additional US$10 million receivable placed in escrow. Subsequent compensation that could yield up to US$53 million associated with future production from the interests sold would bring the total compensation to US$93 million. SOCO also added some prime prospective acreage in August of this year when a subsidiary acquired a 75% working interest and operatorship of the Marine XI Block offshore the Republic of Congo (Brazzaville).

The Company also gained increased flexibility when it signed a reserve-based financing facility with the International Finance Corporation (IFC). The facility of up to US$45 million is a seven year revolver and gives the Company extra financial flexibility as well as providing a respected ally in the countries in which we conduct our business.

Operations Exploration/Development
- Vietnam
SOCO holds its interests in Vietnam, all in the Cuu Long Basin offshore, through its 80% owned subsidiary SOCO Vietnam Ltd (SOCO Vietnam). SOCO Vietnam holds a 25% working interest in Block 9-2, which is operated by the Hoan Vu Joint Operating Company and a 28.5% working interest in Block 16-1, which is operated by the Hoang Long Joint Operating Company (JOCs).

The first well drilled in 2005 by the JOCs was an appraisal well to the 2002 discovery well that tested approximately 4,500 BOEPD on the Ca Ngu Vang (CNV) structure. The CNV-3X spudded on 30 January 2005 and reached a measured depth (MD) of 6,123 metres on 16 April 2005, giving it the distinction of being the longest MD well ever drilled in Vietnam. The well reached a total vertical depth of 4,426 metres penetrating 2,017 metres of granitic Basement at an average angle of 82 degrees from vertical intersecting various fault and fracture domains within the reservoir. Due to its highly fractured nature the granitic Basement reservoir was drilled with total losses of drilling fluid/seawater to the formation of more than 150,000 barrels resulting in an extensive clean-up period before flow testing began. The well tested water-free during the final unstimulated open hole test conducted over a 12 hour period at a maximum combined rate of approximately 13,040 BOEPD comprising approximately 9,010 BOPD and approximately 22.6 million cubic feet of gas per day (MMCFPD). The well was suspended as a potential producer.

A wildcat exploration well on the Te Giac Trang (TGT) structure on the previously undrilled H prospect on Block 16-1 offshore Vietnam, the TGT-1X, spudded on 2 June 2005. It was designed to test several Miocene and Oligocene intervals in a previously unexplored part of the Block. The well was drilled significantly deeper than the original prognosis due to the presence of encouraging hydrocarbon shows continuing below the original target depth reaching final MD of 4,478 metres at the end of July. The TGT-1X tested water-free at a combined maximum rate of 9,432 BOEPD comprising 8,566 BOPD of 37 degree API gravity crude and approximately 4.86 MMCFPD.

The drill stem test was conducted over the Lower Bach Ho formation in the Miocene interval between 2,701 metres and 2,760 metres. The calculated net pay was approximately 31 metres over the test interval. An additional 33 metres of net pay interval were not perforated due to the limited equipment and materials available within the applicable time constraints. Based on the data from the well test, oil samples from wireline formation tests, and well logs, the untested interval is considered oil bearing and productive.

A brief test was also conducted over a deeper Oligocene interval where significant oil shows were encountered during drilling. However, the formation was determined to be tight and thus unable to flow commercial quantities of hydrocarbons.

Evaluation of the well results continues and an appraisal plan for the discovery is being prepared. An additional appraisal well is planned for the TGT structure later this year. Success at the TGT-1X well confirms a clastic play fairway that has been mapped in the eastern and southeastern part of Block 16-1. Following appraisal of the TGT discovery, exploration drilling will continue on adjacent prospects. Additional leads will be further delineated by 3D seismic early in 2006.

Following completion of testing operations on the TGT-1X well, the rig moved immediately to drill a follow-up appraisal well to the CNV-3X discovery. The CNV-4X spudded on 31 August 2005 and is currently drilling above the targeted Basement interval as this report goes to press.

The CNV-4X is the third in an expected six well minimum drilling programme that will continue into next year. Negotiations are underway to extend the drilling rig contract for additional wells.

Detailed discussions evaluating various options for development are currently underway with other operators in the region. Should these discussions prove fruitful, expectations are that CNV and TGT could be brought into production much sooner and more cost effectively than if the JOCs were required to construct separate newly built production and development facilities.

The contracting parties are currently in negotiations with PetroVietnam to extend both licences.

- Yemen
During 2005, the East Shabwa Block 10 consortium, comprising Comeco Petroleum, Inc. (28.57% interest), in which SOCO holds a 58.75% interest, TOTAL Yemen, S.A. (28.57% interest and operator), Occidental Yemen Ltd. (28.57% interest) and Kuwait Foreign Petroleum Exploration Co. (14.29% interest), continued its drilling programme that was initiated in 2004 specifically targeting the Basement underlying the Kharir field. The consortium's three part programme for the year was designed to appraise the Kharir Basement structure, increase reserves through exploration and increase production from the 29,000 BOPD level at the end of 2004.

Step out wells were successfully drilled resulting in an expansion of the parameters of the field.

The KHA 1-09 well (formerly referred to as the KHA-403 prior to the consortium agreeing a new well designation scheme proposed by the government) spudded on 6 December 2004 and reached a total depth of 3,383 metres. The objectives for the well were to delineate the Basement and evaluate reservoir development in the previously undrilled western extension of the Kharir structure. The well produced over 6,500 BOPD when tested in February 2005 prior to being connected to Kharir's main production facilities.

Spudded on 1 February 2005, the KHA 2-16 well (formerly KHA-404) reached a total depth of 3,539 metres. The objectives for the well were to delineate the Basement and evaluate reservoir development in the northern extension of the Kharir structure. It produced over 5,500 BOPD when tested in April 2005.

The KHA 1-10 well (formerly KHA-405) spudded on 28 March 2005 and reached a total depth of 3,755 metres. The objectives for the well were to delineate the Basement and evaluate reservoir development in the eastern extension of the Kharir structure as then mapped. The well produced over 7,300 BOPD when tested. Production was limited by capacity limitations of the Kharir's main production facilities. This well marked the fourth consecutive drilling success in the evaluation of the Basement reservoir in the Kharir Field.

A fourth Basement well in the 2005 drilling programme, but the first designed to be a water injection well, the KHA 2-17 well (formerly KHA-406), spudded on 11 June 2005. It is currently being connected to the appropriate facilities prior to commencing a water injectivity test.

A preliminary reserve assessment has been conducted based on the results of the Basement drilling programme to date. A more complete review and assessment of both Yemen and Vietnam reserves will be conducted in association with the 2005 Annual Report and Accounts.

- Republic of Congo (Brazzaville)
In August the Company's 85% owned subsidiary, SOCO Exploration and Production Congo (SOCO EPC), signed a production sharing agreement with Société Nationale des Pétroles du Congo (SNPC) wherein it acquired an interest in the Marine XI Block, offshore the Republic of Congo (Brazzaville).

SOCO EPC will be the operator with a 75% working interest in the Block that was licenced to SNPC by presidential decree in July 2005. The exploration and production branch of SNPC (15%) and Africa Oil & Gas Corporation (10%) hold the remaining interests. The Block, located in the Lower Congo Basin, is in shallow water adjacent to the coast with water depths ranging up to 110 metres and covers approximately 1,400 square kilometres. There has been previous exploration activity on the Block resulting in four small oil discoveries, the largest of which has initial recoverable reserves estimated to be in the 20 million barrel range.

The previous discoveries are in the shallower horizons of the sedimentary section in Marine XI. The deeper section, productive onshore and on trend to the south in Cabinda, has not been adequately evaluated as it could not be accurately mapped using older seismic data. By employing the modern seismic techniques that the Company successfully applied in Vietnam to map the Basement reservoir, SOCO EPC expects to exploit the potential of the deeper section. As exploration in West Africa moves into ever deeper waters, the application of new technology provides access to significant reserve potential in under explored shallow water areas.

Although the Group is in discussions with various parties to farm-out a portion of its interests in Marine XI, it would retain a significant portion of the Block and operatorship.

- Thailand
The Group submitted a development plan for the Pornsiri field to the appropriate Thailand regulatory agency during the first half of 2005. The plan is expected to be finalised shortly. Meanwhile, discussions with various companies continue as the Group still favours farming out a portion of its 100% interest in Block B8/38 to a third party, who would take the lead in developing the field, thus allowing the Group to focus its resources elsewhere.

RESULTS
- Financial
For the first time SOCO is reporting under International Financial Reporting Standards (IFRS) as required by the European Union. In order to provide comparative financial information SOCO has published on its website a reconciliation of UK GAAP to IFRS for the periods ending 30 June 2004 and 31 December 2004 as well as its revised accounting policies under IFRS. The Group's balance sheet at the date of transition to IFRS (1 January 2004) is also included.

The Group has adopted US dollars as its presentation currency reflecting the primary economic environment in which the Group operates. Financial information for comparative periods has been restated in US dollars in the IFRS reconciliations published on the Company's website.

Historically high crude oil prices realised by the Group during the first half of 2005 increased the average oil sales price per barrel to US$45.79 from US$31.69 for the same period last year. Production from Yemen, net to the Group's working interests, during this period increased to 5,057 BOPD versus 3,790 BOPD in the same period last year. This, combined with the higher oil prices, increased revenue by US$11.6 million in the six months to 30 June 2005 compared to the same period last year. Adjustment for lifting imbalances arising in prior periods amounting to US$7.0 million brings the revenue for the six months to 30 June 2005 to US$27.5 million compared to US$8.9 million in the same period last year.

Cost of sales of US$10.2 million were reported for the current period compared to US$2.3 million for the same period last year primarily due to the adjustment for lifting rebalancing, which increased operating expenses from continuing operations by US$7.0 million.

Operating expenses on a per barrel basis (excluding lifting imbalances and inventory) from continuing operations dropped from approximately US$5.30 in the first half of 2004 to approximately US$4.00 per barrel in the first half of 2005. This is primarily due to the dilution of per barrel fixed operating costs caused by the increased production in Yemen.

Depreciation, depletion and abandonment (DD&A) costs on continuing operations increased by US$1.1 million compared to the same period last year reflecting the increased production along with the addition of future development costs associated with the Basement reserves. On a per barrel basis, DD&A on continuing operations increased to approximately US$3.90 per barrel compared to US$3.58 during the equivalent period last year.

Administrative expenses increased from US$1.6 million in the six months to 30 June 2004 to US$2.5 million in the current period. This is mainly due to lower costs in 2004 associated with reversing the amortisation of share awards with performance periods ending in 2004 that were no longer anticipated to vest and a reduction in anticipated taxation obligations under the share option scheme. Exploration expenses associated with pre-licence costs were US$0.5 million in the six months ended 30 June 2005 compared to US$1.0 million in the equivalent period last year reflecting the Company's emphasis on acquiring licences in its new core area. In the first half of 2004 SOCO sold its interest in OILSOC Investment Company Limited netting a gain of US$2.2 million under IFRS.

As a result of the above, the Group's operating profit from continuing operations increased by over 130% to US$14.3 million from US$6.1 million for the equivalent period last year.

Higher cash balances as a result of the sale of the Group's Tunisia interest as well as higher oil revenues caused investment income to rise from US$0.2 million in the period to 30 June 2004 to US$0.9 million in the current reporting period. The tax charge on continuing operations increased from US$2.9 million in the equivalent period last year to US$6.1 million in the current period consistent with the increase in operating profit.

Discontinued operations comprises the results for the period from the Group's Tunisia interest which was sold in December 2004 as well as the profit on disposal.

Drilling activity in both Vietnam and Yemen caused capital expenditure to increase slightly to US$17.3 million from US$16.5 million for the equivalent period last year despite the absence this year of Tunisia from the capital programme and reduced activity in Mongolia pending the completion of the sale.

SOCO's cash and cash equivalents were reduced from the year end 2004 amount of US$71.1 million to US$66.1 million at 30 June 2005 reflecting the investment in capital projects, particularly in Vietnam and Yemen.

- Production
Even with the divestiture of its Tunisia interests in the second half of last year, production, net to the Group's working interest, in the first half of 2005 increased to 5,310 BOPD from 5,193 BOPD during the same period last year. More than 95% of the Group's production arises from its interests in Yemen and the increase reflects the success of the consortium's Basement focused drilling programme there as production from this interval more than offsets the decline in production from the Biyad reservoir.

Corporate Developments
- Sale of Mongolia Assets
Consistent with the Company's stated strategy of rationalising its portfolio by monetising non-core assets, it disposed of its interests in Mongolia by selling the companies SOCO Mongolia Ltd (SOCO Mongolia) and SOCO Tamtsag Mongolia, LLC (SOTAMO) through which it held these interests. Daqing Oilfield Limited Company (Daqing), a subsidiary of PetroChina, acquired the entire shareholding of these disposed entities for a consideration of up to approximately US$93 million comprising a cash consideration of US$40 million, plus a subsequent cash payment amount based on total crude oil produced from the interests acquired subsequent to 1 January 2005 in excess of 27.8 million barrels. The cash consideration is payable in two tranches. The first tranche of approximately US$30 million, following applicable settlement adjustments, was paid upon completion in August. The second tranche of US$10 million was paid into an escrow account for release to the Company 18 months from completion assuming satisfaction of the condition that no material undisclosed additional liabilities are discovered in the interim.

A subsequent payment of up to US$53 million will be tied to future production in excess of 27.8 million barrels in respect of all crude oil produced from the divested interests. Once the 27.8 million barrels threshold is exceeded, the buyer is obliged to pay to SOCO an amount equal to the total aggregate production for that month multiplied by the average monthly posted marker price for Daqing crude oil multiplied by 20%. The timescale for the production of crude oil in excess of 27.8 million barrels and the price of Daqing marker crude oil are factors that cannot be accurately predicted. However, based upon the Directors' current estimates of proven and probable reserves from the Mongolia interests and the development scenarios as discussed with the buyer, the Directors believe that the full subsequent payment amount estimated to be US$53 million will be payable.

- Financing Facility
In August 2005, SOCO agreed a credit facility with IFC, the private sector arm of the World Bank. The US$45 million reserve-based, revolving credit facility has a seven year term that will be made available to SOCO in two tranches. The first tranche of US$25 million will be immediately accessible and the second tranche of US$20 million is a standby loan.

We are pleased to have the involvement of IFC as they bring not only expertise in the oil and gas sector, but are also leaders on the environmental and social sustainability front. The long-term availability of the financing will provide us with needed flexibility to finance current operations and pursue future opportunities. IFC is a strong ally in the countries in which we have current operations as well as those frontier countries in which we hope to initiate projects in the future.

Outlook
The Group is in the midst of very active drilling campaigns in Yemen and Vietnam. Each of these drilling programmes will continue throughout much of 2006. Additionally the Group will begin operations in 2006 on its newly acquired interests in the Republic of Congo (Brazzaville) where a 3D acquisition programme of 700 square kilometres is expected to commence in the second quarter.

The Company believes that the Marine XI interests are the cornerstone of a new core area in West Africa and it continues to seek additional opportunities in the region to bolster its portfolio. The upside potential already available to the Group through its Vietnam and Yemen interests has been substantially enhanced by the addition of the Marine XI interests.

News flow for the drilling programme will continue throughout the immediate term. Whilst the divestiture of the Mongolia assets significantly reduced the number of reserves attributable to the Company's entitlement interests, we fully expect these reserves to be more than replaced by the continuing successes in Vietnam and Yemen. Although further reserves additions will be booked in the second half of this year, the real impact of the drilling success will be reflected next year.

Although success for a company with a large exploration portfolio continues to have a substantial element of risk, we are confident that the risk has been mitigated a great deal with the success to date in both Yemen and Vietnam. We trust that the next several months will only further the substantial progress we have made to date.

Patrick Maugein
Chairman

Ed Story
President and Chief Executive


26 September 2005


To download the full version of the Press Release in PDF format please click here.

 
 
 
 
 
 
 
 

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