Dissemination Announcement

RNS Number : 3153Q

Soco International PLC

07 April 2009

 



SOCO International plc

('SOCO' or 'the Company')

Dissemination Announcement

7 April 2009

In accordance with the Disclosure Rules and Transparency Rules (DTR) issued by the Financial Services Authority, SOCO International plc announces that its full 2008 Annual Report and Accounts are available on its website at www.socointernational.co.uk . This dissemination announcement is based upon the Company's announcement of Preliminary Results for the Year Ended 31 December 2008 made on 10 March 2009 with the addition of information required by DTR 6.3, which has been underlined.    

SOCO is an 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. The Company has interests in Vietnam, Thailand, the Republic of Congo (Brazzaville), the Democratic Republic of Congo (Kinshasa) and Angola.

ENQUIRIES

SOCO International plc 

Roger Cagle, Executive VP, Deputy CEO and Chief Financial Officer

Tel: [phone]

Pelham PR

James Henderson

Mark Antelme

Tel: [phone]

CHAIRMAN'S AND CHIEF EXECUTIVE'S STATEMENT

SOCO closes out one of the most tumultuous years ever in this industry with the strongest balance sheet in the Company's history and began ramping up to the highest production rate in years.  During the year we demonstrated our ability to bring a major project on stream, essentially on time and on budget, during a period of high material costs and scarcity of qualified contractors.  With further work to be done, we have what could become one of our most significant exploration discoveries.  In line with our business strategy, value was realised from our mature asset in Yemen in order to provide funds for reinvestment in areas with material upside that promise the potential to further add significant shareholder value.  

Our business model is about progressive sustainability as we aim to refresh our asset portfolio by replacing disposals with potentially high impact new projects.  Although Vietnam assets are already in the portfolio, the high pressure/high temperature (HPHT) area in Block 16-1 where we had the discovery with the Te Giac Den 1X side track (TGD-1XST1) well represents an exciting new area for appraisal.  We added to our growing presence in West and Central Africa by farming into a prospective block adjacent to our Marine XI Block offshore the Republic of Congo (Congo Brazzaville) and by signing a production sharing agreement on a block in the Democratic Republic of Congo (DRC) in the highly prospective Albertine Graben where other industry participants have announced several significant discoveries in the basin on the Uganda side of the border.  We also have a memorandum of understanding on a very large interior block in the DRC.

Adding or replacing components of the asset portfolio are only meaningful if this leads to value creation.  Bringing two projects into production in South East Asia and clearing the initial hurdle in embarking into the development of what has been the Company's largest field discovery in its history indicates that we can progress the impressive asset portfolio that we have built.

FINANCIAL AND OPERATING RESULTS

Three items dominate the Company's results for 2008. The completion of the sale of SOCO's Yemen interest in April contributed $356.7 million to 2008 earnings along with $36.4 million of operating profit through to April and provided $438.5 million cash inflow from the transaction.  In July, the Company announced the commencement of production operations at the Ca Ngu Vang (CNV) field on Block 9-2 in Vietnam.  This was followed by the commencement of production from the Bualuang development in Thailand in August.  All three events underpin the Group's strong balance sheet and financial position to ensure that it can meet its future development and exploration goals.  After tax profit from continuing operations was $30.6 million from just four and five months of producing operations from the Group's Thailand and Vietnam assets, respectively, representing a significant addition to earnings.  Production from continuing operations, averaged over the period since start up, was 6,415 barrels of oil per day (BOPD). 

2008 was an extremely active year for the Group.  Continuous drilling in Vietnam; construction of development facilities on the CNV field in Vietnam and the Bualuang field in Thailand; and pre-drill exploration activity in the DRC and Congo Brazzaville meant that the Group's capital expenditures reached a record $217.6 million (2007 - $178.6 million). The Company not only funded its commitments through the funds raised on the disposal of its Yemen asset, operating cash flows of $45.1 million (2007 - $49.0 million) and with the remainder of proceeds from the convertible bonds issued in 2006, but ended the year with its highest ever cash balance of $303.4 million (2007 - $68.3 million).  This ensures that the Company is well placed to progress its existing exploration and development opportunities and to consider other opportunities that may arise. 

The Directors do not recommend the payment of a dividend as the reinvestment of cash will be utilised to fund our ongoing exploration and development activities.

2008 OPERATIONS REVIEW

VIETNAM

Block 16-1

To date, seven exploration/appraisal wells have been drilled in the Te Giac Trang (TGT) field, with an average oil and gas flow of approximately 11,300 BOPD from each well. The TGT field reserve assessment report (RAR) received approval from the Vietnam Government in April 2008 and the field subsequently received a Declaration of Commerciality under the Petroleum Contract. The Outline Development Plan was approved by the national oil company, Petrovietnam, in September.  The TGT Field Development Plan is anticipated to be submitted for approval by the Vietnam Government in the first quarter of 2009.

During the year, two appraisal wells were drilled.  In June, the TGT-6X appraisal well was drilled on the H4 fault block as a down dip test to the TGT-3X exploration well. Two drill stem tests (DSTs) flowed at a combined maximum rate of 14,490 BOPD of 39 degree API gravity crude oil.  The TGT-7X appraisal well on a previously untested fault block, designated H3N, within the TGT field, was spud in July. The well flowed at a combined maximum rate of approximately 8,100 BOPD from two DSTs.

The addition of a productive interval discovered by the TGT-6X, combined with the success on the previously untested fault block penetrated by TGT-7X, adds confidence to our recoverable crude oil range estimates for this field. Moreover, six wells over a 15 kilometre structure testing a total of 60,000 BOPD provides comfort relative to an expected full field production outlook in excess of 100,000 BOPD with first phase production targeted for mid-2011.

The Outline Development Plan for the TGT field was submitted early in the second quarter of 2008. In August, the shareholders of the Hoang Long Joint Operating Company (HLJOC) unanimously approved the Declaration of Commerciality for the TGT field. The final approval by the Government of Vietnam is now anticipated in the first half of 2009.

Concurrent with moving toward the development of TGT, exploration drilling continued on the Block when in January 2008, the Company received formal notification that the Prime Minister of The Socialist Republic of Vietnam had granted the extension of the deadline of the HLJOC's obligation of surrendering the remainder of the Block 16-1 Contract Area until 6 June 2008. This extension was granted to allow the completion of the previously agreed active work programme. 

The HLJOC gave notice in June of a discovery at the TGD-1XST1 following completion of the first DST from the prospect 'E' well. Although significant downhole damage sustained during drilling and preparations for completion precluded recording meaningful sustained flow rates, the test flowed gas and condensate to surface.  The second DST recovered black oil, condensate and gas, indicating the presence of oil with similar qualities to that of the CNV field. The test was hampered by apparent limitations of the perforations, which had to penetrate two casing strings and associated cementing. Additionally, operational issues during both the drilling and testing of the well impacted on its ability to flow and accordingly there are no meaningful sustainable flow rates from either test. 

The main objective of TGD-1XST1 was to identify the presence of a working hydrocarbon system.  This was achieved confirming a high pressure environment necessary to recover hydrocarbons at these extended depths. 

Based on the TGD-1XST1 discovery and a previous discovery at the Voi Trang (VT) prospect, Petrovietnam approved the application for two appraisal areas within Block 16-1 in January 2009. The TGD appraisal area encompasses an area of 150 square kilometres including prospect 'E' and the analogous 'E' South Prospect. This area borders the southern boundary of the TGT field.  The VT appraisal area, the award of which is conditional upon a successful RAR of the commerciality of the previous discoveries in the awarded area, encompasses the VT discovery and several adjacent leads, and covers an area of approximately 100 square kilometres.

HLJOC has submitted the requisite documentation to the Government of Vietnam for formal approval. Upon receiving final governmental approval of the appraisal areas, which is expected in the first quarter of 2009, work will commence immediately to reprocess the 3D seismic over the TGD appraisal area in anticipation of drilling a well in 2010. The RAR on the VT appraisal area is anticipated to be complete by the end of the second quarter of 2009.

Block 9-2

The first flow of crude oil and wet gas from the CNV field occurred on 25 July 2008. It was developed as an unmanned platform tied back to the Bach Ho facilities and was the first project in Vietnam to utilise the existing facilities of Bach Ho in order to maximise the life of existing infrastructure and minimise the investment costs.  Five development wells have been drilled in the field and a sixth is drilling as at the time of this report.  The Hoan Vu Joint Operating Company (HVJOC) is evaluating the necessity for additional development wells in the fractured Basement reservoir. The field is expected to be in production for the next 20 years. Oil production is expected to be between 10,000 to 20,000 BOPD and wet gas production to be between 25 and 50 million cubic feet per day. The HVJOC has signed a provisional gas contract, with final pricing to be determined by an independent expert during 2009 and applied retroactively to the start of production.

THAILAND

First production of crude oil from the Bualuang oil field in Block B8/38, in the Gulf of Thailand, occurred on 27 August 2008.  Following the successful hook up and commissioning of the floating production storage and offloading vessel, production from the field began from well BA-05. After a period of multi-rate testing of this well, the other producers were brought on-stream sequentially over the subsequent days. In total, six development wells have been drilled on the field, five producers and one water injector. 

REPUBLIC OF CONGO (BRAZZAVILLE)

In March 2008, SOCO Exploration and Production Congo SA (SOCO EPC) entered into an agreement to farm-out 8.5% of its interest in the offshore Marine XI Block to Petrovietnam, subject to approval of the appropriate regulatory authorities of the Government of Congo Brazzaville. SOCO EPC will remain as the operator with a 29% working interest in the Block.  SOCO EPC is finalising the terms of a rig contract for a two well drilling programme in the Marine XI Block that is expected to commence in the third quarter of 2009. 

In September, SOCO EPC entered into a farm-in agreement to acquire a 29.4% working interest in the Marine XIV Block, which received regulatory approval from the Government of Congo Brazzaville in March 2009.  The Marine XIV Block, which will also be operated by SOCO EPC, is located in the Lower Congo Basin in shallow water, adjacent to the Company's Marine XI Block, and will complement SOCO's activity both operationally and technically. The Block comprises three discontinuous sections located in water depths ranging up to 115 metres and covers approximately 265 square kilometres. Previous exploration activity on the Block has resulted in oil discoveries.  A multi azimuth 3D seismic acquisition programme is currently underway.

DEMOCRATIC REPUBLIC OF CONGO (KINSHASA) (DRC)

In March 2008, SOCO Exploration and Production DRC Sprl (SOCO E&P DRC) entered into a new production sharing contract (PSC) with the Government of the DRC, Dominion Petroleum Limited (Dominion) and Cohydro, to acquire exclusive rights for hydrocarbon exploration on Block 5, located in the southern Albertine Graben in eastern DRC adjacent to the border with Uganda where there have been recent discoveries in the same basin. The Block has an area of 7,105 square kilometres, including part of Lake Edward. SOCO E&P DRC holds a 38.25% participating interest in the PSC.  

In April our PSC over the Nganzi Block, onshore DRC, received a Presidential Decree thus passing the final regulatory hurdle before becoming effective. Confirmation of our first PSC in the DRC is a very important first step to commencing a full scale exploration programme in the country. Acquisition of a 360 kilometre 2D seismic programme was completed during the year, and processing is underway.  

ANGOLA

Activity on the Cabinda Onshore North Block, in which SOCO Cabinda Limited holds a 17% participating interest, had been suspended pending review of the security situation.  The seismic acquisition programme is now expected to commence in the second quarter of 2009 with approximately 1,300 kilometres of 2D and 100 square kilometres of 3D seismic planned.

CORPORATE

Disposal of Yemen interests

The Company completed the sale in April 2008 of its interest in the East Shabwa Development Area to Sinochem Petroleum Limited for approximately $465 million. The proceeds from the disposal have strengthened the Company's balance sheet and provide funding for its existing exploration and development projects and other opportunities that may arise.  Details of the disposal can be found in Note 5 of the financial information below.

The Board

John Snyder has officially notified the Board that he will retire at the upcoming Annual General Meeting from his role as a Non-Executive Director.  John was instrumental in the formation and listing of SOCO and has been a valuable contributor to the Board and its Committees as an independent Non-Executive Director since his appointment in 1997.

  OUTLOOK

2009 is set to be another significant year on a number of fronts.  First and foremost, the development programme at TGT will gather momentum as it progresses toward first oil targeted for mid-2011.  Concurrently in Vietnam, work will commence immediately on TGD to reprocess the 3D seismic over the appraisal area in anticipation of drilling a well in 2010.

In Africa, we will start a multi-well exploration and appraisal programme on Marine XI offshore Congo Brazzaville and possibly be ready to drill the first well on the onshore DRC Nganzi Block.  We also expect to conduct the largest 2D seismic survey in the Company's history in the Cabinda North Block.  Preliminary exploratory activities will commence on the new licences in Marine XIV in the first quarter of 2009 and the Albertine Graben following the award of the Presidential Decree.

SOCO's track record of delivering projects from inception through the exploration and development phases to first oil has clearly been established. Our strong partnerships within Vietnam have enabled our ambitions for the CNV field to be realised and we now look forward to continue to establish similar relationships in the Africa Region and to targeting further exploration and development success, in both Vietnam and Africa.

We have never been stronger financially and never had a more prospective portfolio.  We have delivered on our promises in the past and fully expect to do so again in 2009.  We trust your patience will be well rewarded as the industry rebounds and the resilience of our Company is demonstrated.  

Rui de Sousa         Ed Story

Chairman         President and Chief Executive

REVIEW OF OPERATIONS

Several significant milestones were reached during 2008 that advanced SOCO's projects. Oilfields in both Thailand and Vietnam commenced first production.  A Declaration of Commerciality was approved at the Company's largest field discovery to date.  Two appraisal areas were approved by the national oil company in Vietnam, one of which has the potential to equal our success to date in this country.  Pre-drilling work has us poised to begin drilling in Africa this year.  Additionally, new projects were added to the portfolio that will allow us to potentially realise even more value in the future. 

During January 2009 production net to the Company's working interest averaged 3,724 barrels of oil equivalent per day (BOEPD) and 2,874 barrels of oil per day (BOPD) from the Ca Ngu Vang field offshore Vietnam and the Bualuang field offshore Thailand, respectively.  During the cost recoupment phase of the Ca Ngu Vang field, entitlements production is considerably higher than our 25% working interest. 

VIETNAM 

SOCO holds its interests in the Cuu Long Basin through its 80% owned subsidiary SOCO Vietnam Ltd (SOCO Vietnam) and through its 100% ownership of OPECO, Inc.  SOCO Vietnam holds a 25% working interest in Block 9-2, which is operated by the Hoan Vu Joint Operating Company (HVJOC) and holds a 28.5% working interest in Block 16-1, which is operated by the Hoang Long Joint Operating Company (HLJOC). OPECO, Inc. holds a 2% working interest in Block 16-1. 

The Cuu Long Basin is a shallow water, near shore, oil rich basin defined by several high profile producing oil fields, the largest of which has been the Bach Ho field, which lies between Block 9-2 and Block 16-1. Bach Ho has produced more than one billion barrels of oil to date. 

BLOCK 9-2 

Ca Ngu Vang (CNV)

As all remaining acreage has been relinquished, activity during 2008 on Block 9-2 focussed on the development of the CNV field, which came on stream in July.  Since that time, additional development drilling has been taking place concurrent with production.  Development drilling began in the prior year with the first production well, the CNV-1PST reaching total depth on the last day of 2007. In the subsequent abbreviated test, carried out in the first quarter of 2008, the well tested at approximately 10,000 barrels of liquid per day with a 30% water cut.

Between February and May, a further development well was drilled but suspended pending installation of the unmanned platform. A high sea state at the end of May caused an intermittent shut down of operations on the pipe laying barge, slowing the installation of the production and water injection pipelines between the CNV well head platform and the Bach Ho central processing platform. Nevertheless, despite the unanticipated delay, oil production remained on target to begin by the end of July 2008. During June, the installation of the topsides and modules on the platform were completed and the PVD-1 drilling rig returned to CNV from the Te Giac Trang (TGT) field, where it had been redeployed to drill TGT-6X during the platform installation.  The three existing development wells were then tied-back and completed.

The first flow of crude oil and wet gas occurred from CNV on 25 July 2008. The hydrocarbons are transported from CNV via a 25 kilometre subsea pipeline system to the processing facilities at Bach Ho. Crude oil is processed and then stored in a floating storage and offloading vessel before being sold. The wet gas produced from CNV is separated offshore and transported to an onshore gas facility for further distribution to meet domestic demand of natural gas, LPG and condensate. The HVJOC has signed a provisional gas contract with Vietnam Oil and Gas Group, with final pricing to be determined by an independent expert during 2009 and applied retroactively back to the start of production.

The CNV field utilises an unmanned platform that is tied back to the Bach Ho central processing platform.  This marks a key milestone in the growth of the Vietnam petroleum industry, being the first project in Vietnam to utilise the existing facilities of Bach Ho in order to maximise the life of existing infrastructure and minimise the investment costs.  

Development continued after first oil and the sixth well, the CNV-6P, is currently being drilled.  The HVJOC is evaluating the necessity for further drilling locations for additional development wells in the fractured Basement reservoir.  The CNV field is expected to be in production for the next 20 years, with oil production expected to be between 10,000 and 20,000 BOPD and wet gas production to be between 25 and 50 million standard cubic feet per day (MMSCFD).

BLOCK 16-1

Te Giac Trang (TGT)

The TGT field comprises five fault blocks extending over 15 kilometres on a north to south trend along the eastern portion of Block 16-1.  Exploration drilling began on this structure in 2005 with the wildcat discovery well, TGT-1X.  To date, seven exploration/appraisal wells have been drilled in the TGT field, with an average oil and gas flow of approximately 11,300 BOPD from each well. 

Two appraisal wells were completed in the TGT field during the period.  In June, the TGT-6X appraisal well, drilled on the H4 fault block as a down dip test to the TGT-3X exploration well, reached 3,437 metres measured depth (MD), as planned.  Two drill stem tests (DSTs) flowed at a combined maximum rate of 14,490 BOPD of 39 degree API gravity crude oil.  Although the well flowed gas with a relatively low gas to oil ratio, measurement problems precluded recording a reliable gas rate.  The first DST tested an interval between 3,064 metres and 3,094 metres in the Miocene Intra Lower Bach Ho 5.2 (ILBH) 'lower' interval and flowed approximately 6,650 BOPD through an 80/64 inch choke size.  The second DST tested a 28 metre section in the ILBH 5.2 'upper' interval with a maximum flow rate of approximately 7,840 BOPD through a 64/64 inch choke size.  

The second appraisal well to be drilled during the period, and the seventh exploration/appraisal well to be drilled in the TGT field, was the TGT-7X.  The well was drilled by the Adriatic XI rig to test a separate, previously untested fault block, designated H3N, and was drilled to improve knowledge of the reservoir distribution.  The well flowed at a combined maximum rate of approximately 8,100 BOPD.  The first of the two DSTs tested the lower section of the Lower Miocene ILBH 5.2 in a net interval of 37 metres between 2,923 metres and 3,003 metres MD.  The test flowed at rates in excess of 7,100 BOPD and 5.9 MMSCFD of gas with no water.  The second test, in a net interval of 13 metres between 2,754 metres and 2,773 metres MD of the upper section of the Lower Miocene ILBH 5.2, tested a tighter previously untested part of the reservoir and produced at approximately 1,000 BOPD and 0.5 MMSCFD of gas.

Efforts to achieve declaration of commerciality on the TGT field progressed during the year.  In January 2008, the reserve assessment report (RAR), which is a precursor of an official request to approve the Declaration of Commerciality, was submitted to Petrovietnam.  The RAR received approval from the Vietnam Government in April 2008.  In August, the HLJOC partners unanimously approved the Declaration of Commerciality on TGT. The Outline Development Plan was submitted early in the second quarter and was approved by Petrovietnam in September.  

The target is to obtain formal governmental approval of the Field Development Plan, being the final hurdle, in the first half of 2009, with the ambitious target of bringing the field on production by mid-2011.  We believe this ambition is achievable given the existing infrastructure in the area and the extensive appraisal programme that has been carried out on the TGT field to date.  Approval of the development area will trigger full working interest payment contribution from Petrovietnam.

Te Giac Den (TGD)

Whilst the TGT field was undergoing appraisal, exploration drilling continued elsewhere on Block 16-1 after the Company received formal notification in January 2008 that the Prime Minister of Vietnam had granted an extension to the deadline for surrendering the remainder of the Block until 6 June 2008.  This extension was granted to allow the completion of the previously agreed active work programme on the high potential 'E' prospect.

The Adriatic XI rig was moved on site in the final quarter of 2007 to re-enter the TGD-1X borehole, which had been temporarily suspended at 4,625 metres, and drill a sidetrack well, the TGD-1XST1. The rig was fitted with high pressure well control equipment, including a 15,000 psi blow out preventer. The well kicked off at approximately 650 metres and was cased three times prior to reaching the top of the high pressure and high temperature (HPHT) section, which was the preliminary target just above Basement. 

TGD-1XST1 ceased drilling in May after reaching 5,096 metres MD.  Difficulties were encountered during the course of drilling, including equipment problems on the rig and the associated complexities of drilling high pressure sections.  The decision was made to not drill an extended Basement section, primarily due to concerns over the integrity of the well bore and also the difficulty and anticipated time and expense of deepening the hole.  The well was therefore plugged back to 4,820 metres MD prior to conducting two DSTs in the HPHT Oligocene interval.  

The first DST was completed in June and a discovery was declared on TGD-1XST1 after the test flowed gas and condensate to surface, establishing the presence of a working hydrocarbon system. The second DST, completed in July, recovered black oil, condensate and gas, indicating the presence of oil with similar qualities to that of the CNV field.  The well encountered approximately 120 metres of good oil and gas shows in a combined gross interval of 570 metres. Permeability and porosity were preserved and compared favourably with pre-drill estimates. The test was hampered by apparent limitations of the perforations, which had to penetrate two casing strings and associated cementing. Additionally, significant downhole damage sustained during drilling and preparations for completion precluded recording meaningful sustainable flow rates from either test. As planned, the well was plugged and abandoned and the Adriatic XI rig was moved to the TGT field to drill the TGT-7X appraisal well on the H3 north fault block.  

In January 2009, the Company was notified that the application for the TGD appraisal area had been approved by Petrovietnam.  The TGD appraisal area encompasses a 150 square kilometre area, including the HPHT discovery well TGD-1XST1 on prospect 'E' and the analogous 'E' South Prospect, and borders the southern boundary of the TGT field.  The documentation required for the formal approval by the Government of Vietnam has been submitted.  

Upon receiving final governmental approval of the appraisal areas, which is expected by the end of the first quarter of 2009, work will commence to reprocess the 3D seismic over the HPHT area in order to identify the optimal location for drilling an appraisal well in 2010. The well design and drilling programme will also be revised to allow a better evaluation of each of the hydrocarbon bearing formations.  

Voi Trang (VT)

In January 2009, the Company was notified that Petrovietnam had approved the application for the VT appraisal area based upon an earlier discovery.  The award is conditional upon a successful RAR of the commerciality of the previous discoveries in the awarded area.  The VT appraisal area encompasses the discovery well and several adjacent leads and covers an area of approximately 100 square kilometres.  The RAR on the VT appraisal area is anticipated to be completed by the end of the second quarter of 2009.

THAILAND 

The Bualuang oil field is located in Block B8/38, offshore in the Gulf of Thailand.  SOCO's 99.93% owned Thailand subsidiary, SOCO Exploration (Thailand) Co. Ltd. (SOCO Thai), holds a 40% interest in the Bualuang field after farming out 60% of its 100% interest.  

Oil production commenced on 27 August 2008 from well BA-05. After a period of multi-rate testing of the well, other producing wells were sequentially brought on-stream over the subsequent days. In total, six development wells, five producers and one water injector, have been drilled. Crude oil is processed and stored in a floating production storage and offloading facility (FPSO) prior to onward sale. Work is currently underway to increase the water handling capability of the FPSO to allow the field to reach targeted production levels.

Under the terms of the farm-out, the Farmee was designated the technical operator of the project and will engage an independent reservoir engineer to perform an analysis of the proven reserves contained in the Bualuang field. SOCO Thai will receive an amount equal to one dollar for each barrel of proven reserves over 10.4 million barrels. At a later date, the joint venture partners plan to test the remaining potential within Block B8/38, including the undrilled east flank of the field as well as analogous structures elsewhere in the production licence area. Transfer of interests earned and operatorship to the farm-in partner are subject to approval of the appropriate regulatory authorities of the Government of Thailand. 

REPUBLIC OF CONGO (BRAZZAVILLE)

SOCO's interests in Congo Brazzaville are held through SOCO Exploration and Production Congo SA (SOCO EPC), which is held through the Company's 85% owned subsidiary SOCO Congo Limited.

Marine XI

The Marine XI Block is located adjacent to the coast in the Lower Congo Basin, offshore Congo Brazzaville, in shallow waters with depths ranging up to 110 metres and covering approximately 1,400 square kilometres.

In March 2008, SOCO EPC entered into an agreement to farm-out an 8.5% interest from its 37.5% interest in the Marine XI Block to Petrovietnam Exploration Production Corporation Ltd. SOCO EPC remains as operator with a 29% working interest in the Block. The assignment of interests is subject to the approval of the appropriate regulatory authorities of the Government of Congo Brazzaville, waivers of any third party preferential rights and certain obligations of Petrovietnam.  The remaining interests are held by the national oil company, Société Nationale des Pétroles du Congo (SNPC) (15%), Africa Oil and Gas Corporation (10%), Raffia Oil SARL (18.75%) and a subsidiary of Lundin Petroleum (18.75%).

During the year, pre stack depth migration processing was carried out on the data acquired in the 2006 3D seismic programme to better image the pre-salt structure. SOCO EPC is currently finalising the terms of a rig contract for a multi-well drilling programme that is expected to commence in the third quarter of 2009.

Marine XIV

In September, the Company announced that SOCO EPC had entered into a farm-in agreement to acquire a 29.4% working interest in the Marine XIV Block, offshore Congo Brazzaville, from PA Resources Congo SA (PA Congo). Regulatory approval from the Government of Congo Brazzaville was received in March 2009. SOCO EPC became the operator of the Block, with PA Congo retaining a 12.5% interest and SNPC holding a 15% carried interest. The remaining interests are held by fellow farm-in participants and SOCO's Marine XI joint venture partners, Raffia Oil SARL (21.55%) and a subsidiary of Lundin Petroleum (21.55%).

The Marine XIV Block is located in the Lower Congo Basin in shallow water, adjacent to the Company's Marine XI Block and will complement SOCO's activity, both operationally and technically. The Block comprises three discontinuous sections located in water depths ranging up to 115 metres and covers approximately 265 square kilometres. Previous exploration activity on the Block has resulted in some oil discoveries.  A 3D seismic acquisition programme is currently underway.

DEMOCRATIC REPUBLIC OF CONGO (KINSHASA) (DRC)

SOCO DRC Limited, the Company's 85% owned subsidiary, holds 99% of SOCO Exploration and Production DRC Sprl (SOCO E&P DRC) which holds the Group's interests in the DRC.

Nganzi Block

The Nganzi Block covers 800 square kilometres, onshore western DRC.  SOCO E&P DRC is the designated operator with an 85% working interest.  Cohydro, the state owned oil company, holds the remaining 15% interest.  The production sharing contract (PSC) over the Nganzi Block became effective on 12 April 2008 after receiving final approval through a Presidential Decree. 

Preparations for the acquisition of 360 kilometres of 2D seismic were carried out at Kipholo and Lukula.  The seismic campaign commenced in July and was completed in October.  Processing of the data is currently underway.

Other blocks

In March 2008, SOCO E&P DRC entered into a new PSC with the Government of the DRC, Dominion Petroleum Limited (Dominion) and Cohydro, to acquire exclusive rights for hydrocarbon exploration on Block 5, located in the southern Albertine Graben in eastern DRC adjacent to the border with Uganda where there have been recent discoveries in the same basin. 

The Block has an area of 7,105 square kilometres, including part of Lake Edward.  SOCO E&P DRC holds a 38.25% participating interest in the PSC with Dominion, as operator, holding a 46.75% interest and Cohydro holding the remaining 15% interest. The first phase of the PSC has a five year span, during which SOCO and Dominion will carry out geological and geophysical work, acquire at least 300 kilometres of 2D seismic data and drill two exploration wells. 

An aeromagnetic and aerogravity survey was conducted over Block 5 in July and the results are currently being reviewed.  Final approval of the acreage award is pending a Presidential decree.

The Company has a memorandum of understanding as a precursor to negotiating a PSC on a large interior block in the DRC.  Interests in this block are not final until the PSC has been signed and a Presidential decree issued.  

ANGOLA

SOCO's 80% held subsidiary, SOCO Cabinda Limited (SOCO Cabinda), holds a 17% participating interest in the production sharing agreement (PSA) for the Cabinda Onshore North Block. The Angolan state owned oil company, Sonangol P&P, holds a 20% interest in the PSA and is operator, with Interoil holding 21%, Teikoku Oil Co. Limited 17%, Angola Consulting Resources 15% and ENI Angola holding the remaining interest 10%. 

Activity has been suspended pending a review of the security situation.  It is now expected that a seismic acquisition programme will begin in the second quarter of 2009. The programme comprises approximately 1,300 kilometres of 2D and 100 square kilometres of 3D seismic.

YEMEN 

On 12 January 2008, production from the East Shabwa concession reached the 100 million barrels milestone. In the first two months of 2008, both water injection and gas reinjection into Basement was at capacity with water injection rates of approximately 50,000 barrels of water per day, with an increase in capacity expected thereon. Pressure surveys confirmed pressure maintenance in both the north and western sides of the Kharir field and no significant water breakthroughs. Several Basement wells were temporarily shut-in to allow for repressuring of the reservoir in order to shrink the gas cap in the western part of the field. In addition, activity to increase the production handling capacity of the processing equipment was ongoing and existing equipment underwent debottlenecking to maximise throughput, alongside the addition of new process equipment. 

In April 2008, the Company completed the sale of its wholly owned subsidiary, SOCO Yemen Pty Limited (SOCO Yemen), for a cash consideration of approximately $465 million, to Sinochem Petroleum Limited, a Chinese oil and gas company.  SOCO Yemen held a 58.75% equity interest in Comeco Petroleum, Inc. which held a 28.57% direct interest in Block 10 of the East Shabwa Development Area in Yemen. The East Shabwa joint venture is operated by TOTAL E&P Yemen under a production sharing agreement with the Government of Yemen.

DIRECTORS' RESPONSIBILITY STATEMENT PURSUANT TO DTR 4 prepared in connection with the full annual accounts and Directors' Report

The Directors confirm that, to the best of each person's knowledge:

(a)    the financial statements (see pages 53 to 72 of the 2008 Annual Report and Accounts at www.socointernational.co.uk), which have been prepared in accordance with applicable United Kingdom law and International Financial Reporting Standards as adopted by the European Union, give a true and fair view of the assets, liabilities, financial position and profit of the Company and of the Group taken as a whole; and

(b)    the management report, which is incorporated into the Directors' Report (see pages 34 to 37 of the 2008 Annual Report and Accounts at www.socointernational.co.uk), includes a fair review of the development and performance of the business and the position of the Company and the Group taken as a whole, together with a description of the principal risks and uncertainties that they face.

By order of the Board

9 March 2009

Cynthia Cagle

Company Secretary

Consolidated income statement
for the year to 31 December 2008
										2008		2007
								Notes		$000's		$000's
Continuing operations
Revenue								3		55,340		-
Cost of sales										(18,948)		-
Gross profit										36,392		-
Administrative expenses										(6,201)		(7,845)
Other operating expenses										(19)		(13)
Operating profit (loss)								3		30,172		(7,858)
Investment revenue										7,175		5,916
Other gains and losses										1,488		246
Finance costs										(1,447)		(7,164)
Profit (loss) before tax										37,388		(8,860)
Tax								4		(6,815)		(22)
Profit (loss) for the year from continuing operations										30,573		(8,882)
Discontinued operations								5
Operating profit from discontinued operations										36,419		65,645
Investment revenue from discontinued operations										107		410
Finance costs of discontinued operations										(1)		(122)
Profit on disposal										356,688		-
Profit before tax from discontinued operations										393,213		65,933
Tax								4		(12,726)		(24,737)
Profit for the year from discontinued operations										380,487		41,196
Profit for the year										411,060		32,314
Earnings (loss) per share (cents)								6
From continuing operations										42.8		(12.6)
From discontinued operations excluding profit on disposal										33.3		58.4
From profit on disposal										499.2		-
Basic										575.3		45.8
From continuing operations										37.9		(11.2)
From discontinued operations excluding profit on disposal										28.7		52.1
From profit on disposal										430.5		-
Diluted										497.1		40.9

Balance sheets
as at 31 December 2008
							Group			Company
							2008	2007		2008	2007
						Notes	$000's	$000's		$000's	$000's
Non-current assets
Intangible assets							363,958	247,178		-	-
Property, plant and equipment							235,497	237,699		242	509
Investments							-	-		448,010	207,006
Financial asset							34,383	32,748		-	-
Deferred tax assets							1,251	119		-	-
							635,089	517,744		448,252	207,515
Current assets
Inventories							3,911	11		-	-
Trade and other receivables							31,813	12,370		298	335
Tax receivables							172	1,819		85	164
Cash and cash equivalents							303,433	68,337		1,143	424
							339,329	82,537		1,526	923
Total assets						3	974,418	600,281		449,778	208,438
Current liabilities
Trade and other payables							(22,512)	(38,151)		(2,651)	(16,548)
Tax payables							(1,773)	(114)		(60)	(75)
							(24,285)	(38,265)		(2,711)	(16,623)
Net current assets (liabilities)							315,044	44,272		(1,185)	(15,700)
Non-current liabilities
Convertible bonds							(228,245)	(224,102)		-	-
Deferred tax liabilities							(3,219)	(1,308)		-	-
Long term provisions							(8,283)	(7,639)		-	-
							(239,747)	(233,049)		-	-
Total liabilities						3	(264,032)	(271,314)		(2,711)	(16,623)
Net assets							710,386	328,967		447,067	191,815
Equity
Share capital							24,322	23,549		24,322	23,549
Share premium account							70,369	68,355		70,369	68,355
Other reserves							14,697	49,437		(58,520)	(25,774)
Retained earnings							600,998	187,626		410,896	125,685
Total equity						7	710,386	328,967		447,067	191,815

Cash flow statements
for the year to 31 December 2008
								Group			Company
								2008	2007		2008	2007
						Notes		$000's	$000's		$000's	$000's
Net cash from (used in) operating activities						8		45,056	49,009		(18,764)	(12,506)
Investing activities
Purchase of intangible assets								(128,361)	(107,294)		-	-
Purchase of property, plant and equipment								(89,252)	(71,296)		(6)	(14)
Investment in subsidiary undertakings								-	-		(418,291)	-
Dividends received from subsidiary undertakings								-	-		9,146	12,877
Proceeds of prior period disposal								-	10,000		-	-
Proceeds on disposal of subsidiary						5		438,505	-		459,242	-
Net cash from (used in) investing activities								220,892	(168,590)		50,091	12,863
Financing activities
Share-based payments								(30,040)	-		(30,040)	-
New bank loans raised						9		20,000	-		-	-
Repayment of borrowings						9		(20,000)	-		-	-
Proceeds on issue of ordinary share capital								86	47		86	47
Net cash (used in) from financing activities								(29,954)	47		(29,954)	47
Net increase (decrease) in cash and cash equivalents								235,994	(119,534)		1,373	404
Cash and cash equivalents at beginning of year								68,337	187,791		424	63
Effect of foreign exchange rate changes								(898)	80		(654)	(43)
Cash and cash equivalents at end of year								303,433	68,337		1,143	424
Statements of recognised income and expense
for the year to 31 December 2008
								Group			Company
								2008	2007		2008	2007
								$000's	$000's		$000's	$000's
Profit for the year								411,060	32,314		459,358	5,087
Transfer from other reserves								3,196	5,687		-	-
Unrealised currency translation differences								(884)	96		(174,147)	3,073
Total recognised income for the year								413,372	38,097		285,211	8,160

  Notes to the consolidated financial statements

1.   General information

The financial information for the years ended 31 December 2008 and 2007 does not constitute statutory accounts as defined in Section 240 of the Companies Act 1985 (Act), but is derived from those accounts. A copy of the statutory accounts for 2007 has been delivered to the Registrar of Companies and those for 2008 will be delivered following the Company's annual general meeting. The auditors have reported on those accounts; their report was unqualified, did not draw attention to any matters by way of emphasis without qualifying their report  and did not contain statements under Section 237(2) or (3) of the Act. Whilst the financial information included in this preliminary announcement has been computed in accordance with International Financial Reporting Standards (IFRS), this announcement does not itself contain sufficient information to comply with IFRS. 

The financial statements are presented in US dollars which is the functional currency of each of the Company's subsidiary undertakings. The Directors do not recommend the payment of a dividend.

2.   Basis of preparation

The financial information has been prepared in accordance with the recognition and measurement criteria of International Financial Reporting Standards (IFRS) and with IFRSs adopted for use in the European Union. The financial statements have been prepared under the historical cost basis, except for the valuation of hydrocarbon inventory and the revaluation of certain financial instruments. During 2008, the Group changed the way in which it values physical inventory of hydrocarbons to follow established industry practice whereby such inventory is valued at net realisable value (NRV) rather than at the lower of cost or NRV. No prior year adjustment has been made on the grounds of immateriality.

The Group has a strong financial position and should be able to satisfy its debt obligations and continue in operational existence for the foreseeable future. Consequently, the Directors believe that the Group is well placed to manage its financial and operating risks successfully despite the current economic environment and have prepared the financial information on a going concern basis.

 3.   Segment information

Geographical segments

Geographical segments form the basis on which the Group reports its primary segment information.

														2008
								Continuing operations			Discontinued operations
						SE Asia	Africa	Unallocated	Total		Middle East 1			Group
						$000's	$000's	$000's	$000's		$000's			$000's
Oil sales						55,340	-	-	55,340		43,984			99,324
Operating profit						36,392	-	(6,220)	30,172		36,419			66,591
Assets						561,687	73,907	338,824	974,418		-			974,418
Liabilities						18,290	5,845	239,897	264,032		-			264,032
Capital additions						175,231	34,330	20	209,581		10,599			220,180
Depletion and depreciation						7,913	-	211	8,124		609			8,733
														2007
							Continuing operations				Discontinued operations
						SE Asia	Africa	Unallocated	Total		Middle East 1			Group
						$000's	$000's	$000's	$000's		$000's			$000's
Oil sales						-	-	-	-		98,420			98,420
Operating profit						-	-	(7,858)	(7,858)		65,645			57,787
Assets						362,447	38,183	97,244	497,874		102,407			600,281
Liabilities						20,253	928	234,258	255,439		15,875			271,314
Capital additions						137,389	10,036	75	147,500		43,438			190,938
Depletion and depreciation						-	-	234	234		12,266			12,500

1 In April 2008, the Group completed the sale of its Middle East segment which comprised its Yemen interest (see Note 5) and is now classified as a discontinued operation for all years presented.

Business segment

The Group has one principal business activity being oil and gas exploration and production. Revenue by destination does not materially differ from revenue by origin. There are no inter-segment sales.

4.   Tax

					Continuing operations		Discontinued operations					Group
					2008	2007	2008	2007		2008		2007
					$000's	$000's	$000's	$000's		$000's		$000's
Current tax					4,728	22	8,689	22,018		13,417		22,040
Deferred tax					2,087	-	4,037	2,719		6,124		2,719
					6,815	22	12,726	24,737		19,541		24,759

UK corporation tax is calculated at 28.5% (2007 - 30%) of the estimated assessable profit for the year. Taxation in other jurisdictions is calculated at the rates prevailing in the respective jurisdictions. During 2008 and 2007 both current and deferred taxation have arisen in overseas jurisdictions only.

The charge for the year can be reconciled to the profit per the income statement as follows:

										2008		2007
										$000's		$000's
Profit before tax on continuing operations										37,388		(8,860)
Profit before tax on discontinued operations										393,213		65,933
Profit before tax										430,601		57,073
Profit before tax multiplied by standard rate of corporation tax in the UK of 28.5% (2007 - 30%)										122,721		17,122
Effects of:
Non-taxable income and non-deductible expenses										(8,037)		2,779
Non taxable profit on disposal										(101,656)		-
Higher tax rates on overseas earnings										6,515		3,580
Adjustments to tax charge in respect of previous years										(2)		1,278
Tax charge for the year										19,541		24,759

The tax charge in future periods may also be affected by these factors. The Group's overseas tax rates are higher than those in the UK, primarily because the profits earned in Vietnam and Thailand are taxed at a rate of 50% and in Yemen are taxed at a rate of 35%.

5.   Discontinued operations

In February 2008, the Group entered into a conditional sale agreement to dispose of its wholly owned subsidiary SOCO Yemen Pty Limited (SOCO Yemen), the entity that held the Company's interest in the East Shabwa Development Area (ESDA) in Yemen, to Sinochem Petroleum Limited (Sinochem). The disposal was completed in April 2008 for $465.0 million, subject to certain financial adjustments (the Disposal). The consideration for the Disposal was paid in cash on completion.

SOCO Yemen held an indirect interest of 16.785% in the ESDA of Yemen through its 58.75% equity interest in Comeco Petroleum, Inc. (Comeco). Comeco, in turn, had a 28.57% interest in the ESDA. The ESDA joint venture is operated by Total E&P Yemen under a production sharing agreement with the Government of Yemen. The Group's interest in the ESDA in Yemen was the only component of the Middle East segment disclosed in Note 3.

The results of the Group's discontinued Yemen interest is shown on the consolidated income statement and in Note 3. Net operating cash flows from discontinued operations are shown in Note 8. During the period to the date of disposal the cash used in investing activities was $9.6 million (2007 - $41.1 million) and cash used in financing activities was $7.8 million (2007 - $11.2 million). Immediately prior to the sale the Group's share of net assets associated with the Yemen interest was $102.5 million (2007 - $86.6 million) comprising property, plant and equipment of $96.8 million (2007 - $86.8 million), current assets of $27.2 million (2007 - $16.9 million), current liabilities of $8.5 million (2007 - $8.2 million) and long term liabilities of $13.0 million (2007 - $8.9 million).

Upon completion the Group recognised cash inflow of $438.5 million reflecting the $465.0 million cash consideration net of the Group's share of cash held by the Yemen interest of $20.7 million, transaction costs of $5.3 million and financial adjustments of $0.5 million, and a gain of $356.7 million.

6.   Earnings per share

The calculation of the basic and diluted earnings per share is based on the following data:

										2008		2007
										$000's		$000's
Earnings (loss) from continuing operations										30,573		(8,882)
Effect of dilutive potential ordinary shares: Interest on convertible bonds										794		-
Earnings (loss) for the purposes of diluted earnings per share on continuing operations										31,367		(8,882)
Earnings from discontinued operations										380,487		41,196
Earnings for the purposes of diluted earnings per share on continuing and discontinued operations										411,854		32,314
										Number of shares
										2008		2007
Weighted average number of ordinary shares for the purpose of basic earnings per share										71,446,122		70,491,970
Effect of dilutive potential ordinary shares:
	Share options and warrants									3,065,499		6,405,279
	Ordinary shares of the Company held by the Group									2,113,936		2,193,280
	Convertible bonds									6,238,000		-
Weighted average number of ordinary shares for the purpose of diluted earnings per share										82,863,557		79,090,529

At 31 December 2007 up to 6,238,000 potential ordinary shares in the Company that are underlying the Company's convertible bonds and that may dilute earnings per share in the future were not included in the calculation of diluted earnings per share because they were antidilutive for that year.

7.   Reconciliation of movements in Group total equity

										2008		2007
										$000's		$000's
As at 1 January										328,967		295,792
New shares issued										2,787		47
Share-based payments										(31,769)		834
Unrealised currency translation differences										(659)		(20)
Retained profit for the year										411,060		32,314
As at 31 December										710,386		328,967

 8.   Reconciliation of operating profit to operating cash flows

						Group			Company
						2008	2007		2008		2007
						$000's	$000's		$000's		$000's
Operating profit (loss) from continuing operations						30,172	(7,858)		(6,034)		(7,780)
Operating profit from discontinued operations						36,419	65,645		-		-
						66,591	57,787		(6,034)		(7,780)
Share-based payments						971	834		971		834
Depletion and depreciation						8,733	12,500		170		198
Operating cash flows before movements in working capital						76,295	71,121		(4,893)		(6,748)
(Increase) decrease in inventories						(3,900)	77		-		-
(Increase) decrease in receivables						(18,940)	(3,638)		(65)		262
Increase (decrease) in payables						5,453	4,310		(13,448)		(6,011)
Cash generated by (used in) operations						58,908	71,870		(18,406)		(12,497)
Interest received						6,692	10,203		50		10
Interest paid						(11,808)	(11,465)		(408)		(19)
Income taxes paid						(8,736)	(21,599)		-		-
Net cash from (used in) operating activities						45,056	49,009		(18,764)		(12,506)
Cash generated from operating activities comprises:
Continuing operating activities						14,099	(9,207)		(18,764)		(12,506)
Discontinued operating activities						30,957	58,216		-		-
						45,056	49,009		(18,764)		(12,506)

Cash and cash equivalents (which are presented as a single class of asset on the balance sheet) comprise cash at bank and other short term highly liquid investments that are readily convertible to a known amount of cash and which are subject to an insignificant risk of change in value.

9.   Financing facilities

In 2005, SOCO agreed a credit facility with the International Finance Corporation (IFC), the private sector arm of the World Bank. The $45 million reserve-based, revolving credit facility (the IFC Facility) had a seven year term. Following the issue of the convertible bonds the whole IFC Facility became a standby loan. Standby fees paid are included under finance costs. No drawdowns were made against the IFC Facility.

In March 2008, the Company entered into an unsecured revolving term loan facility of $50 million with BNP Paribas (the BNP Facility). The BNP Facility was available for 12 months for use in the Group's Vietnam developments. Accordingly, SOCO agreed to terminate the IFC Facility. In March, the Company made a drawdown of $20.0 million against the BNP Facility which was repaid in April following the completion of the sale of the Group's Yemen asset (see Note 5). The BNP Facility was subsequently cancelled.

10.  Related Party Transactions

See Note 33 to the financial statements on page 72 of the 2008 Annual Report and Accounts at www.socointernational.co.uk .

11.  Risks and uncertainties

See the Financial Review on pages 22 to 25 and Notes 3 and 4 to the Financial Statements on pages 59 to 61 of the 2008 Annual Report and Accounts at www.socointernational.co.uk .

Reserve statistics
unaudited, net working interest (mmboe)
	Net proven oil and gas reserves
					Total		Vietnam 1		Thailand		Congo 1		Yemen
	Reserves as at 31 December 2007				78.0		48.6		5.0		4.8		19.6
	Changes in the year
	Additions				11.6		11.6		-		-		-
	Revision to previous estimates				12.0		12.0		-		-		-
	Purchase of reserves				-		-		-		-		-
	Change of interest				(3.0)		-		(3.0)		-		-
	Sale of reserves				(18.9)		-		-		-		(18.9)
	Production				(1.6)		(0.5)		(0.4)		-		(0.7)
	Reserves as at 31 December 2008				78.1		71.7		1.6		4.8		-
	Net proven and probable oil and gas reserves
					Total		Vietnam 1		Thailand		Congo 1		Yemen
	Reserves as at 31 December 2007				160.9		100.7		18.4		11.9		29.9
	Changes in the year
	Additions				7.0		7.0		-		-		-
	Revision to previous estimates				18.0		18.0		-		-		-
	Purchase of reserves				-		-		-		-		-
	Change of interest				(11.0)		-		(11.0)		-		-
	Sale of reserves				(29.2)		-		-		-		(29.2)
	Production				(1.6)		(0.5)		(0.4)		-		(0.7)
	Reserves as at 31 December 2008				144.1		125.2		7.0		11.9		-
	Net proven and probable oil and gas reserves yearly comparison
					2008		2007		2006		2005		2004
	Reserves as at 1 January				160.9		160.6		133.2		90.7		92.5
	Changes in the year
	Additions				7.0		-		-		68.3		-
	Revision to previous estimates				18.0		2.6		38.8		8.5		6.0
	Purchase of reserves				-		-		3.0		23.8		-
	Change of interest				(11.0)		-		(11.9)		-		-
	Sale of reserves				(29.2)		-		-		(56.0)		(5.8)
	Production				(1.6)		(2.3)		(2.5)		(2.1)		(2.0)
	Reserves as at 31 December				144.1		160.9		160.6		133.2		90.7
	Note: mmboe denotes millions of barrels oil equivalent
1	Reserves are shown before deductions for minority interests which are funded by the Group. The Group is entitled to receive 100% of the cash flows until it has recovered its funding of the minority interest including a rate of return from the minority interest's pro rata portion of those cash flows.

 

END

 

 

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