Half Year Results

RNS Number : 1676C

Soco International PLC

27 August 2008

 



SOCO International plc

('SOCO' or 'the Group')

Half Year Results For The Six Months Ended 30 June 2008

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.

The Group today announces its Half Year Results for the six months ended 30 June 2008.

Key Highlights

Significant Operational Progress

• First crude oil and wet gas production achieved at the CNV field, Vietnam

• Two appraisal wells completed in the TGT field, Vietnam

  • Field commerciality declared

  • TGT-6X flowed at a combined maximum rate of 14,490 BOPD

  • TGT-7X well flowed at a maximum combined rate of 8,100 BOPD and proved up a previously untested fault block

• Completion of initial exploration drilling on the 'E' prospect in the TGD field, Vietnam

  • Declared as a discovery with working hydrocarbon system identified 

• Exploration programme underway in West Africa portfolio

  • Marine XI, Republic of Congo (Brazzaville), advanced to pre-drill stage

  • Commenced seismic acquisition on Nganzi block in the Democratic Republic of Congo (Kinshasa)

Balance Sheet Strengthened

• Exceptional profit before tax for period of $392.5 million (H1 2007: $28.8 million), following sale of Yemen interest for approximately $465 million

• Cash and cash equivalents at period end of $410.2 million (H1 2007: $140.6 million), meaning increased financial flexibility

• Capital expenditure of $120.7 million (H1 2007: $78.9 million), reflecting continuing drilling activity in Vietnam and development activities at CNV and in Thailand

Outlook

• Commencement of production from the Bualuang field, Thailand announced today

• Production base set to grow through ramping up of CNV field in Vietnam and Bualuang in Thailand

• Appraisal drilling of 'E' discovery to commence in 2009, following well data analysis and seismic reprocessing

• Shared rig contract being finalised for multi-well drilling programme in Republic of Congo (Brazzaville), commencing in 1H09 

 Ed Story, Chief Executive Officer, commented:

'What differentiates SOCO from its peers is a focus on building value through the drill bit and then realising that value at the appropriate point in an asset's lifecycle.  The success of this strategy has been demonstrated in the first half of 2008. 

The Group's balance sheet has been transformed by the sale of our Yemen interests, the proceeds of which provide us with financial flexibility as we drive forward our operational programmes in both Vietnam and West Africa. The combination of near term production cashflow increases, medium term development projects and exciting reserves upside potential from the 'E' discovery and the Group's West Africa portfolio means SOCO is well positioned to create stakeholder value going forward.'

28 August 2008

ENQUIRIES:

SOCO International plc  Roger Cagle Executive VP, Deputy CEO and Chief Financial Officer	Tel : [phone]
Pelham PR  James Henderson Alisdair Haythornthwaite	Tel: [phone]

 CHAIRMAN'S AND chief EXECUTIVE'S REPORT

Thus far, 2008 has been a busy period both in terms of operational and corporate activity.  To date your Company has made significant progress in demonstrating its ability to realise its ambitions, achieving success with the drill bit and strengthening its balance sheet to ensure financial flexibility as SOCO embarks on the next stage of its operational programme in West Africa and Vietnam.  In April, SOCO disposed of its Yemen operations, thus realising the value of this mature asset to deploy the funds in capturing potential in projects elsewhere, in particular Vietnam, that offer increased leverage to value.  

In Vietnam, we completed the initial exploration drilling on the high potential 'E' prospect, which was declared a discovery, drilled two appraisal wells in the Te Giac Trang (TGT) field, declared commerciality on the TGT field, brought the Ca Ngu Vang (CNV) development onstream essentially on time and budget, and established the presence of a working hydrocarbon system in the Te Giac Den 1X side track well (TGD-1X-ST1).  In Africa, we advanced our first project offshore the Republic of Congo (Brazzaville) to the pre-drill stage, ahead of a drilling programme commencing in the first half of 2009, and began our first ever seismic acquisition in the Democratic Republic of Congo (Kinshasa), whilst adding other projects within the country.  

Financially, divestiture of the Yemen asset provided additional strength to the Company's balance sheet just ahead of the expected operating contribution from the start of production in its South East Asia portfolio.  The income statement for 1H08 is unusual in that given the disposal of the Group's only producing asset, there was no income from continuing operations.  The second half of 2008 will see a quite different picture emerging as the impact of the Group's production from its two new producing fields in Vietnam and Thailand will be reflected in the year end numbers, and the Company is set to exit the year with higher production rates than at the beginning of the year.  

Income from the disposal of the Yemen asset, including the operating income through to the date of completion of the sale in April, netted the company $380.5 million.  With cash of $410.2 million at the end of the current reporting period the Group is well placed to continue its development plans and appraisal programme in Vietnam and its exploration programme in West Africa.  

OPERATIONS 

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 adjacent to both Block 9-2 and Block 16-1.  Bach Ho has produced more than one billion barrels of oil to date, but is currently in decline creating capacity in the production infrastructure and increasing the demand in the region to bring new fields onstream.  

Block 16-1 

In the first quarter of 2008, the reserve assessment report for the TGT field, the precursor of an official request to approve the Declaration of Commerciality, was submitted to Petrovietnam.  The TGT field comprises five fault blocks extending over 15 kilometres on a North to South trend line along the eastern portion of Block 16-1.  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 barrels of oil per day (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 seventh exploration/appraisal well to be drilled in the TGT field, the TGT-7X, was drilled 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 ILBH5.2 in a net interval of 36.5 metres between 2,922.5 metres and 3,002.5 metres MD.  The test flowed at rates in excess of 7,100 BOPD and 5.9 million standard cubic feet per day of gas (MMSCFD) with no water.  The second test, in a net interval of 13 metres between 2,754.0 metres and 2,773.0 metres MD of the upper section of the Lower Miocene ILBH5.2, tested a tighter previously untested part of the reservoir and produced at approximately 1,000 BOPD and 0.5 MMSCFD.

An outline development plan was submitted early in the second quarter of 2008.  In August, the shareholders of HLJOC unanimously approved the Declaration of Commerciality of the TGT field. The target is to seek formal approval of the development plan for the commitment to the development of the TGT field by the end of the fourth quarter of 2008, with the ambitious target of bringing the field on production by the end of 2010, which we believe is achievable given the existing infrastructure in the area and the extensive appraisal programme that has been carried out on the field to date.  

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.  Subsequently, application for appraisal areas on Block 16-1 has been made.  

Drilling on the Te Giac Den 1X side track (TGD-1X-ST1) well on Prospect 'E' ceased after reaching 5,096 metres MD.  Primarily due to concerns over the integrity of the well bore, but also factoring in the difficulty and anticipated time and expense of deepening the hole, the decision was made to not drill an extended Basement section.  The well was plugged back to 4,820 metres MD prior to conducting two DSTs in the high pressure/high temperature Oligocene interval. 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 HLJOC gave notice in June of a discovery on the TGD-1X-ST1 well following completion of the first DST.  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.  As planned the well was plugged and abandoned.  

The main objective of the well was to identify the presence of a working hydrocarbon system, and this was achieved, confirming a high pressure environment necessary to recover hydrocarbons at these depths.  Therefore, appraisal drilling will commence following the well data analysis and seismic reprocessing.  The well design and drilling programme will also be revised to allow a better evaluation of each of the hydrocarbon bearing formations.  

Block 9-2 

After the end of the period, a key milestone was achieved at the CNV field with the announcement, by SOCO and its partners, Petrovietnam and PTTEP Hoan-Vu, that the first flow of crude oil and wet gas occurred on 25 July 2008.  The Block is operated on behalf of the partners by the HVJOC.  

Four development wells have already been drilled in the CNV field and HVJOC is currently evaluating and determining further drilling locations for additional development wells in the fractured Basement reservoir.  The field is expected to be in production for the next 20 years, with oil production expected to be between 10,000 to 20,000 BOPD and wet gas production to be between 25 to 50 MMSCFD.  

Hydrocarbons from the CNV field are transported via a 25 kilometre subsea pipeline system to Bach Ho's processing facilities.  Crude oil is processed, stored in a floating storage and offloading vessel and then sold.  Wet gas separated offshore is transported to an onshore gas facility for further distribution to meet domestic demand of natural gas, LPG and condensate.  The HVJOC has signed a gas contract, with final pricing to be determined by an independent expert within the next 12 months and applied retroactively back to the start of production.  

The development of the CNV field as a tie back to Bach Ho in Block 9-1 marked a key milestone in the growth of the Vietnam petroleum industry.  This 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.  

THAILAND 

SOCO's 99.93% owned Thailand subsidiary, SOCO Exploration (Thailand) Co. Ltd. (SOCO Thai), will hold a 40% interest in the Bualuang oilfield located offshore in the Gulf of Thailand after the full earn-in terms of a farm-out are fulfilled.  

Following the successful hook up and commissioning of the floating production storage and offloading vessel (FPSO), production from the field began from well BA-05 on 27 August 2008.  After a period of multi-rate testing of this well, the other producing wells will be brought on-stream sequentially over the coming days. In total, six development wells have been drilled on the field, five producers and one water injector.  Oil will be processed and stored in the FPSO prior to onward sale.

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 Farmee are subject to approval of the appropriate regulatory authorities of the Government of Thailand.  Under the terms of the farm-out, at the end of the Phase II period, the Farmee will engage an independent reservoir engineer to perform an analysis of the proven reserves contained in the Bualuang field.  The Farmee will pay SOCO Thai an amount equal to one dollar for each barrel of proven reserves over 10.4 million barrels.  

REPUBLIC OF CONGO (BRAZZAVILLE) 

SOCO Exploration and Production Congo SA (SOCO EPC), which is held through the Company's 85% owned subsidiary SOCO Congo Limited, holds an interest in, and is the designated operator of, the Marine XI Block offshore the Republic of Congo (Brazzaville).  

In March 2008, SOCO EPC entered into an agreement to farm-out 8.5% of its interest in the Marine XI Block to Petrovietnam.  SOCO EPC will remain as the operator with a 29% working interest in the Block.  The assignment of interests is subject to approval of the appropriate regulatory authorities of the Government of the Republic of Congo (Brazzaville), waivers of any third party preferential rights and certain obligations of Petrovietnam.  

SOCO EPC is currently finalising the terms of a shared rig contract for a multi-well drilling programme that is expected to commence in the first half of 2009.  

DEMOCRATIC REPUBLIC OF CONGO (KINSHASA) 

SOCO DRC Limited (SOCO DRC), the Company's 85% owned subsidiary holds 99% of SOCO Exploration and Production DRC Sprl (SOCO E&P DRC), the designated operator and 85% working interest owner of the 800 square kilometre Nganzi Block, onshore the Democratic Republic of Congo (Kinshasa).  Cohydro, the state owned oil company, holds the remaining 15% interest.  

Final approval of the SOCO E&P DRC Production Sharing Contract (PSC), through a Presidential Decree, was received in March 2008.  Acquisition of 340 kilometres of 2D seismic commenced in July and is expected to be complete by the fourth quarter.  

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 5 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.  

ANGOLA 

SOCO Cabinda Limited (SOCO Cabinda) holds a 17% participating interest in the Production Sharing Agreement (PSA) for the Cabinda Onshore North Block, and in turn SOCO holds 80% of the interest in SOCO Cabinda.  Sonangol P&P, the Angolan state owned oil company, 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%.  The project is currently in force majeure pending further review of the security situation before recommencing the seismic acquisition programme.  

YEMEN 

In February 2008, the Company entered into a conditional sale and purchase agreement with Sinochem Petroleum Limited (Sinochem), a Chinese oil and gas company, wherein Sinochem would acquire SOCO Yemen Pty Limited (SOCO Yemen), the wholly owned SOCO subsidiary which indirectly held its interests in Block 10 of the East Shabwa Development Area (ESDA) in Yemen.  In April the Company announced the completion of the disposal for a cash consideration of approximately $465 million.  Further details of this transaction can be found in Note 4 to the Financial Statement section of this report.  

FINANCIAL RESULTS

The profit on the sale of SOCO's Yemen interest dominates the income statement contributing $356.7 million to period earnings and providing $438.5 million cash inflow, underpinning the Group's strong balance sheet and financial position.  

INCOME STATEMENT

Continuing operations

Operating results

Administrative costs relating to continuing operations for the first six months decreased from $3.9 million in 2007 to $3.2 million in 2008.  This decrease is primarily associated with a higher proportion of administrative costs attributable to the disposal of the Group's discontinued operations and to ongoing capital projects.

Non-operating results

Investment income reduced from $3.7 million in the first half of 2007 to $2.7 million for the current period as, prior to completion of the sale of the Yemen asset, the Group's average cash balance was significantly lower than in the corresponding prior period.  

The increase in other gains and losses from $0.1 million in the first half of 2007 to $0.6 million in the first half of 2008 is primarily due to a higher gain in the period on the change in fair value of the financial asset (associated with the subsequent payment amount tied to future oil production from the Group's divested Mongolia interest).  The lower gain in the first half of 2007 was mainly due to revision of the risk free interest rate.  

Finance costs decreased from $4.5 million in the first half of 2007 to $0.7 million for the current reporting period as a higher proportion of finance costs were capitalised.  

Discontinued operations

Operating results 

Group oil and gas revenues in the first half of 2008 up to the date of completion of the sale of the Group's Yemen asset in April was $44.0 million compared to $50.4 million in the first half of 2007. Up to the date of completion of the disposal the Group realised a price of $97.32 per barrel of oil (for the period to 30 June 2007 the Group realised $62.38 per barrel).  The Group's pro rata working interest share of production was also higher at 6,501 BOPD (for the period to 30 June 2007 production was 6,341 BOPD).  

Operating profit on the Yemen asset for the period to completion was $36.4 million compared to an operating profit in the first half of 2007 of $33.4 million.  On a pro rata basis the reason for the increase in operating profit is mainly due to higher revenues resulting from higher realised oil price and higher production volumes as described above.  Once the asset was classified as held for sale in January, no further depreciation was charged.  

Profit on disposal

The gain of $356.7 million is the net proceeds of the sale including transaction costs of $5.3 million and financial adjustments of $0.5 million less the carrying amount of the associated net assets of $102.5 million.  Further details are set out in Note 4.  

Tax 

Tax arising on discontinued operations increased to $12.7 million in the current reporting period compared to $11.8 million in the six months ended 30 June 2007.  This increase reflects the increase in operating profit period on period.  No tax arose on disposal of the Yemen asset.

Cash

SOCO's cash and cash equivalents increased from the 30 June 2007 position of $140.6 million and the 2007 year end position of $68.3 million to $410.2 million at 30 June 2008, following cash inflow from the sale of the Group's Yemen interest 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.  

Capital expenditure

Capital expenditure of $120.7 million in the first half of 2008 compared to $78.9 million for the first half of 2007 reflects the Group's continuing drilling activity in Vietnam, the progress in construction of the CNV development in Vietnam and the Bualuang development in Thailand.  These increases were offset slightly by reduced expenditures in Yemen.  

Related party transactions

There have been no material related party transactions in the period and there have been no material changes to the related party transactions described in Note 32 to the Consolidated Financial Statements contained in the 2007 Annual Report and Accounts.  

Risks and Uncertainties

There are a number of potential risks and uncertainties which could have a material impact on the Group's performance over the remaining six months of 2008 and could cause actual results to differ materially from expected and historical results.  Risks and uncertainties that remain unchanged from those published in the 2007 Annual Report and Accounts are summarised below:

• Credit risk - in respect of the Group's financial asset at fair value through profit or loss arising on the Group's disposal of its Mongolia interest and short term financial assets.  

• Foreign currency risk - associated with cash balances held in non-US dollar denominations.

• Liquidity risk - associated with meeting the Group's cash requirements.

• Interest rate risk - applicable to the Group's cash balances, debt and financial asset. 

• Commodity price risk - associated with the Group's sales of oil and gas.

• Capital risk management - in relation to Group financing.

• Political risk - arising in countries where the Group has an interest.

Further information on the above principal risks and uncertainties of the Group is included in the Financial Review section of the 2007 Annual Report and Accounts and in Note 3 to the Consolidated Financial Statements in that report.  

Additionally, during the second half of 2008, new risks and uncertainties arise associated with the Group's start up of operations in relation to the production profiles and the operation of new facilities in its CNV field in Vietnam and its Bualuang field in Thailand.

Production

The Group's production was sourced entirely from its interest in the East Shabwa Development Area, Yemen prior to the completion of the sale in April.  Production, on a pro rata basis, net to the Group's working interest was 6,501 BOPD up from equivalent period last year (6,341 BOPD). During the second half of 2008, the Group will source production from the CNV field in Vietnam and the Bualuang field in Thailand. 

Sale of Yemen INTEREST

In April 2008, the Company completed the sale of its wholly owned subsidiary SOCO Yemen to Sinochem for $465.0 million, subject to certain financial adjustments (the Disposal).  The consideration for the Disposal was paid in cash on completion.  

The Disposal has strengthened the Company's balance sheet significantly and the resulting gain dominates SOCO's income statement during this reporting period.  As a result, the Company cancelled the unsecured revolving term loan facility of $50 million with BNP Paribas, which had superseded the unutilised International Finance Corporation $45 million credit facility.  

The majority of the Disposal proceeds will be used to fund the Company's exploration and development programmes.  In particular, capital will be deployed in order to further develop SOCO's assets in Vietnam.  The remaining proceeds will provide the financial flexibility necessary to participate in future opportunities as and when they arise.  

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.  Further details of the Disposal are in Note 4.  

OUTLOOK 

With the Group now once again generating operating cash inflows, combined with the significant cash inflow from the sale of the Yemen asset, SOCO is well positioned to begin the next phase in the development of its Vietnam core area by fast-tracking the TGT development.  The tendering process will begin in the second half of 2008 and the Group has demonstrated its ability to successfully bring a development project to first oil on time and on budget.  

In the Republic of Congo (Brazzaville), a Marine XI drilling programme has been approved by all parties and is expected to commence in the first half of 2009.  In addition the exploration programme is well underway in the DRC with seismic currently being acquired in Nganzi, where following processing and review a drilling plan will be prepared.  SOCO is committed to its West Africa core region and continues to review prospective interests as it seeks to build a significant portfolio in the region.  

In summary, SOCO has continued to execute its core business plan focusing on realising value for shareholders at the appropriate points in each asset's lifecycle.  In the opinion of the Directors, it is a strategy that defines the Company and distinguishes it from other industry participants.  We believe that we are uniquely positioned to once again assume a leading role in creating value for our stakeholders.  

Rui de Sousa            Ed Story

Chairman            President and Chief Executive

 Responsibility statement

We confirm to the best of our knowledge:

• The condensed set of financial statements has been prepared in accordance with IAS 34 Interim Financial Reporting;

• The Half Year Report includes a fair review of the information required by DTR 4.2.7R (indication of important events during the first six months and description of principal risks and uncertainties for the remaining six months of the year); and

• The Half Year Report includes a fair review of the information required by DTR 4.2.8R (disclosure of related party transactions and changes therein).  

By order of the Board

Roger Cagle

Chief Financial Officer

27 August 2008 

DISCLAIMER

This Half Year Report has been prepared solely to provide additional information to shareholders to assess the Group's strategies and the potential for those strategies to succeed. The Half Year Report should not be relied on by any other party or for any other purpose.

The Half Year Report contains certain forward-looking statements. These statements are made by the Directors in good faith based on the information available to them up to the time of their approval of this report and such statements should be treated with caution due to the inherent uncertainties, including both economic and business risk factors, underlying any such forward-looking information.

  INDEPENDENT REVIEW REPORT TO SOCO INTERNATIONAL PLC

We have been engaged by the Company to review the condensed set of financial statements in the half-year financial report for the six months ended 30 June 2008  which comprises the condensed consolidated income statement, balance sheet, statement of recognised income and expense, cash flow statement and related notes 1 to 10.  We have read the other information contained in the half-year financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of consolidated financial statements.  

This report is made solely to the Company in accordance with International Standard on Review Engagements 2410 issued by the Auditing Practices Board.  Our work has been undertaken so that we might state to the Company those matters we are required to state to them in an independent review report and for no other purpose.  To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company, for our review work, for this report, or for the conclusions we have formed.  

Directors' responsibilities

The half-year financial report is the responsibility of, and has been approved by, the Directors.  The Directors are responsible for preparing the half-year financial report in accordance with the Disclosure and Transparency Rules of the United Kingdom's Financial Services Authority.  

As disclosed in note 2, the annual financial statements of the Group are prepared in accordance with IFRSs as adopted by the European Union.  The condensed set of consolidated financial statements included in this half-year financial report has been prepared in accordance with International Accounting Standard 34, 'Interim Financial Reporting', as adopted by the European Union.  

Our responsibility

Our responsibility is to express to the Company a conclusion on the condensed set of consolidated financial statements in the half-year financial report based on our review.  

Scope of Review 

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, 'Review of Interim Financial Information Performed by the Independent Auditor of the Entity' issued by the Auditing Practices Board for use in the United Kingdom.  A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures.  A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit.  Accordingly, we do not express an audit opinion.  

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of consolidated financial statements in the half-year financial report for the six months ended 30 June 2008 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Disclosure and Transparency Rules of the United Kingdom's Financial Services Authority.  

Deloitte & Touche LLP

Chartered Accountants 

27 August 2008

London, UK

CONDENSED CONSOLIDATED INCOME STATEMENT
								(unaudited)		(unaudited)
								six months ended		six months ended		year ended
								30 Jun 08		30 Jun 07		31 Dec 07
						Notes		$000's		$000's		$000's
Continuing operations
Revenue								-		-		-
Cost of sales								-		-		-
Gross profit								-		-		-
Administrative expenses								(3,249)		(3,912)		(7,845)
Other operating expenses								(13)		(5)		(13)
Operating loss						3		(3,262)		(3,917)		(7,858)
Investment revenue								2,717		3,722		5,916
Other gains and losses								622		62		246
Finance costs								(682)		(4,535)		(7,164)
Loss before tax								(605)		(4,668)		(8,860)
Tax						5		(125)		(18)		(22)
Loss for the period from continuing operations								(730)		(4,686)		(8,882)
Discontinued operations						4
Operating profit from discontinued operations						3		36,419		33,372		65,645
Investment revenue from discontinued operations								107		223		410
Finance costs of discontinued operations								(1)		(69)		(122)
Profit on disposal						4		356,688		-		-
Profit before tax from discontinued operations								393,213		33,526		65,933
Tax						5		(12,726)		(11,806)		(24,737)
Profit for the period from discontinued operations								380,487		21,720		41,196
Profit for the period								379,757		17,034		32,314
(Loss) earnings per share (cents)						6
From continuing operations								(1.0)		(6.6)		(12.6)
From discontinued operations excluding profit on disposal								33.7		30.7		58.4
From profit on disposal								504.6		-		-
Basic								537.3		24.1		45.8
From continuing operations								(0.9)		(5.9)		(11.2)
From discontinued operations excluding profit on disposal								30.0		27.4		52.1
From profit on disposal								450.3		-		-
Diluted								479.4		21.5		40.9

CONDENSED CONSOLIDATED BALANCE SHEET

							(unaudited)		(unaudited)
							30 Jun 08		30 Jun 07		31 Dec 07
					Note		$000's		$000's		$000's
Non-current assets
Intangible assets							301,216		189,161		247,178
Property, plant and equipment							215,532		182,772		237,699
Financial asset							33,341		32,621		32,748
Deferred tax assets							119		1,459		119
							550,208		406,013		517,744
Current assets
Inventories							-		19		11
Trade and other receivables							6,920		18,045		12,370
Tax receivables							490		459		1,819
Cash and cash equivalents							410,164		140,611		68,337
							417,574		159,134		82,537
Total assets							967,782		565,147		600,281
Current liabilities
Trade and other payables							(26,598)		(20,903)		(38,151)
Tax payables							(251)		(2,774)		(114)
							(26,849)		(23,677)		(38,265)
Non-current liabilities
Convertible bonds							(226,131)		(222,128)		(224,102)
Deferred tax liabilities							-		-		(1,308)
Long-term provisions							(5,455)		(6,109)		(7,639)
							(231,586)		(228,237)		(233,049)
Total liabilities							(258,435)		(251,914)		(271,314)
Net assets							709,347		313,233		328,967
Equity
Share capital							23,580		23,532		23,549
Share premium account							68,410		68,326		68,355
Other reserves							48,319		54,785		49,437
Retained earnings							569,038		166,590		187,626
Total equity					7		709,347		313,233		328,967

  CONDENSED CONSOLIDATED CASH FLOW STATEMENT                    

								(unaudited)		(unaudited)
								six months ended		six months ended		year ended
								30 Jun 08		30 Jun 07		31 Dec 07
						Notes		$000's		$000's		$000's
Net cash from operating activities						8		23,885		21,749		49,009
Investing activities
Purchase of intangible assets								(68,105)		(53,280)		(107,294)
Purchase of property, plant and equipment								(52,605)		(25,668)		(71,296)
Proceeds of prior period disposal								-		10,000		10,000
Proceeds of disposal of subsidiary						4		438,505		-		-
Net cash from (used in) investing activities								317,795		(68,948)		(168,590)
Financing activities
New bank loans raised						9		20,000		-		-
Repayment of borrowings						9		(20,000)		-		-
Proceeds on issue of ordinary share capital								86		1		47
Net cash from financing activities								86		1		47
Net increase (decrease) in cash and cash equivalents								341,766		(47,198)		(119,534)
Cash and cash equivalents at beginning of period								68,337		187,791		187,791
Effect of foreign exchange rate changes								61		18		80
Cash and cash equivalents at end of period								410,164		140,611		68,337

CONDENSED CONSOLIDATED STATEMENT OF RECOGNISED INCOME AND EXPENSE

								(unaudited)		(unaudited)
								six months ended		six months ended		year ended
								30 Jun 08		30 Jun 07		31 Dec 07
								$000's		$000's		$000's
Profit for the period								379,757		17,034		32,314
Transfer from other reserves								1,640		-		5,687
Unrealised currency translation differences								15		27		96
Total recognised income for the period								381,412		17,061		38,097

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1	General information
	The information for the year ended 31 December 2007 does not constitute statutory accounts as defined in section 240 of the Companies Act 1985 (the Act).  A copy of the statutory accounts for that year has been delivered to the Registrar of Companies.  The auditors' report on those accounts was not qualified, did not include any reference to any matter to which the auditors drew attention by way of emphasis of matter and did not contain statements under section 237(2) or (3) of the Act.
	The half year financial report is presented in US dollars because that is the currency of the primary economic environment in which the Group operates.
	The Directors do not recommend the payment of a dividend.
	The half year financial report for the six months ended 30 June 2008 was approved by the Directors on 27 August 2008.
2	Significant accounting policies
	The half year financial report, which is unaudited, has been prepared in accordance with the recognition and measurement criteria of International Financial Reporting Standards and the disclosure requirements of the Listing Rules and using the same accounting policies and methods of computation as published by the Company in its 2007 Annual Report and Accounts for the year ended 31 December 2007.  The condensed set of financial statements included in this half-year financial report has been prepared in accordance with International Accounting Standard 34 Interim Financial Reporting, as adopted by the European Union, and the requirements of the UK Disclosure and Transparency Rules of the Financial Services Authority in the United Kingdom as applicable to interim financial reporting.
3	Segment information
	Geographical segments
	The Group's operations are located in South East Asia, West Africa and the Middle East 1 and form the basis on which the Group reports its primary segment information.  Segment results, which arise from locations with production operations, are presented below.
	Six months ended 30 June 2008 (unaudited)
									Middle East 1	Unallocated	Group
									$'000	$'000	$'000
	Oil sales								43,984	-	43,984
	Operating profit (loss)								36,419	(3,262)	33,157
	Six months ended 30 June 2007 (unaudited)
	Oil sales								50,442	-	50,442
	Operating profit (loss)								33,372	(3,917)	29,455
	Year ended 31 December 2007
	Oil sales								98,420	-	98,420
	Operating profit (loss)								65,645	(7,858)	57,787
	1 In April 2008, the Group completed the sale of its Middle East segment which comprised its Yemen interest (see Note 4) and is now classified as a discontinued operation for all periods 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	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 condensed consolidated income statement and in Note 3.  Net operating cash flows from discontinued operations are shown in Note 8.  Immediately prior to the sale the Group's share of net assets associated with the Yemen interest was $102.5 million (31 December 2007 - $86.6 million and 30 June 2007 - $70.3 million) comprising property, plant and equipment of $96.8 million (31 December 2007 $86.8 million and 30 June 2007 $66.7 million), current assets of $27.2 million (31 December 2007 $16.9 million and 30 June 2007 $15.9 million), current liabilities of $8.5 million (31 December 2007 $8.2 million and 30 June 2007 $7.4 million) and long term liabilities of $13.0 million (31 December 2007 $8.9 million and 30 June 2007 $6.2 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.
5	Tax
									(unaudited)	(unaudited)
									six months ended	six months ended	year ended
									30 Jun 08	30 Jun 07	31 Dec 07
									$000's	$000's	$000's
	Continuing operations
	Current tax								125	18	22
	Deferred tax								-	-	-
									125	18	22
	Discontinued operations
	Current tax								8,689	11,735	22,018
	Deferred tax								4,037	71	2,719
									12,726	11,806	24,737
	Group
	Current tax								8,814	11,753	22,040
	Deferred tax								4,037	71	2,719
									12,851	11,824	24,759
	UK corporation tax is calculated at 30% to 31 March 2008, thereafter at 28%, of the estimated assessable profit for each period. Taxation in other jurisdictions is calculated at the rates prevailing in the respective jurisdictions.  During each period both current and deferred taxation have arisen in overseas jurisdictions only.
6	Earnings per share
	The calculation of the basic and diluted earnings per share is based on the following data:
									(unaudited)	(unaudited)
									six months ended	six months ended	year ended
									30 Jun 08	30 Jun 07	31 Dec 07
									$000's	$000's	$000's
	Loss from continuing operations								(730)	(4,686)	(8,882)
	Earnings from discontinued operations								380,487	21,720	41,196
									379,757	17,034	32,314
									Number of shares
									(unaudited)	(unaudited)
									six months ended	six months ended	year ended
									30 Jun 08	30 Jun 07	31 Dec 07
	Weighted average number of ordinary shares for the purpose of basic earnings per share								70,686,542	70,598,815	70,491,970
	Effect of dilutive potential ordinary shares:
		Share options and warrants							6,330,379	6,367,527	6,405,279
		Ordinary shares of the Company held by the Group							2,193,280	2,300,800	2,193,280
	Weighted average number of ordinary shares for the purpose of diluted earnings per share								79,210,201	79,267,142	79,090,529
	At 30 June 2008 up to 6,238,000 (year ended 31 December 2007 - 6,238,000 and 30 June 2007 - 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 are antidilutive for the periods to 30 June 2008, 31 December 2007 and 30 June 2007.
7	Reconciliation of movements in Group total equity
									(unaudited)	(unaudited)
									six months ended	six months ended	year ended
									30 Jun 08	30 Jun 07	31 Dec 07
									$000's	$000's	$000's
	Opening Group total equity								328,967	295,792	295,792
	New shares issued								86	1	47
	Share-based payments								517	411	834
	Unrealised currency translation differences								20	(5)	(20)
	Retained profit for the period								379,757	17,034	32,314
	Closing Group total equity								709,347	313,233	328,967
8	Reconciliation of operating profit to operating cash flows
									(unaudited)	(unaudited)
									six months ended	six months ended	year ended
									30 Jun 08	30 Jun 07	31 Dec 07
									$000's	$000's	$000's
	Operating loss from continuing operations								(3,262)	(3,917)	(7,858)
	Operating profit from discontinued operations								36,419	33,372	65,645
									33,157	29,455	57,787
	Share-based payments								517	411	834
	Depreciation, depletion and amortisation								728	6,086	12,500
	Operating cash flows before movements in working capital								34,402	35,952	71,121
	Decrease in inventories								11	69	77
	Decrease (increase) in receivables								1,555	(4,392)	(3,638)
	(Decrease) increase in payables								(2,350)	1,000	4,310
	Cash generated by operations								33,618	32,629	71,870
	Interest received								2,073	2,862	10,203
	Interest paid								(6,110)	(5,713)	(11,465)
	Income taxes paid								(5,696)	(8,029)	(21,599)
	Net cash from operating activities								23,885	21,749	49,009
	Cash generated from operating activities comprises:
	Continuing operating activities								(7,072)	(8,189)	(9,207)
	Discontinued operating activities								30,957	29,938	58,216
									23,885	21,749	49,009
	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 Facility
	In March 2008, the Company entered into an unsecured revolving term loan facility of $50 million with BNP Paribas (the Facility).  The Facility was available for 12 months for use in the Group's Vietnam developments.  In March the Company made a drawdown of $20 million which was repaid in April following the completion of the sale of the Group's Yemen asset (see Note 4). The Facility was subsequently cancelled.
10	Events after the balance sheet date
	Commencement of production operations: Vietnam In July, SOCO announced that the first flow of crude oil and wet gas from the Ca Ngu Vang field (CNV) offshore Vietnam occurred on 25 July 2008. The block is operated on behalf of the Partners by the Hoan Vu Joint Operating Company (HVJOC), which was established in December 2000. Four development wells have already been drilled in the CNV field and HVJOC is currently evaluating and determining further drilling locations 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 to 50 MMSCFD.  SOCO has a 25% working interest in CNV.
	Commencement of production operations: Thailand Following the successful hook up and commissioning of the floating production storage and offloading vessel (FPSO), production from the Bualuang field, offshore Thailand, began from well BA-05 on 27 August 2008.  After a period of multi-rate testing of this well, the other producing wells will be brought on-stream sequentially over the coming days. In total, six development wells have been drilled on the field, five producers and one water injector. Oil will be processed and stored in the FPSO prior to onward sale.

 

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