Interim Results

Soco International PLC 04 September 2003 SOCO International plc ('SOCO' or 'the Company') Interim results for the six months ended 30 June 2003 SOCO is an international oil and gas exploration and production company, headquartered in London. The Company has interests in Vietnam, Mongolia, Yemen, Libya, Tunisia and Thailand, with production operations in Yemen, Tunisia and Mongolia. SOCO today announces interim results for the six months ended 30 June 2003. HIGHLIGHTS • CNV-2X appraisal well in Vietnam confirms deeper and more extensive oil column in CNV structure • Basement discovery in Yemen (2,000 gross BOPD) indicates significant reserve upside • New pool discovery in Mongolia in previously untested formation • Successful appraisal well in Tunisia (3,200 gross BOPD) • Gazprombank acquired equity stake in SOCO and has signed a Heads of Agreement to acquire 20% stake in SOCO's Libya joint venture • Turnover of £11.7 million (2002: £12.4 million) • Net profit of £2.5 million (2002: £3.0 million) • Earnings per share of 3.7 pence (2002: 4.4 pence) Ed Story, President and Chief Executive of SOCO, said: 'The first half of the year was extremely active. From an operational standpoint, we now believe the reserve potential of our position in Vietnam will substantially exceed our original expectations. However, we recognise that sufficient time will be required to fully demonstrate the magnitude of this resource. This coupled with the significant successes in Yemen, Tunisia and Mongolia provides a very bright outlook. The addition of Gazprombank to our joint venture in Libya significantly expands the scope and scale of the opportunities available to the ODEX joint venture.' 4 September 2003 ENQUIRIES: SOCO International plc Tel: 020 7457 2020 (today) Ed Story, President and Chief Executive Tel: 020 7399 3300 (thereafter) Roger Cagle, Deputy Chief Executive and Chief Financial Officer College Hill Tel: 020 7457 2020 James Henderson Phil Wilson-Brown Chairman's and Chief Executive's Statement During the first six months of 2003, the Company continued its very active drilling programme that began last year. Even more so than in the same interval last year, the focus has been in Vietnam and we enter the second half of the year with momentum from an important success on the appraisal well to our earlier discovery on the Ca Ngu Vang structure in Block 9-2. This success was countered with an off target well on the Ca Ong Doi structure in the Cuu Long Basin and mixed signals from a relatively low cost continuance of the exploration drilling on Block 16-1, which ensured the extension of the exploration licence through 2005. The activities in Vietnam to date indicate that sufficient time will be required to demonstrate the magnitude of this resource. This important project along with successes during the period in exploration drilling in Yemen and Mongolia and from an appraisal well in Tunisia provide upside potential throughout the SOCO portfolio. Despite the Company's active drilling programme, which now includes shouldering its full share of the cost of the exploration programme in Vietnam after expiry of the carry provided for in the initial four well drilling programme by farming out 50% of its interests in Vietnam, the Company maintained a healthy cash flow from operations and maintained a strong balance sheet. Results The Group was able to take advantage of higher realisable oil prices per barrel in the first half of 2003, which increased to US$27.49 from US$22.32 for the same period last year, to offset a decrease in production over the six month period resulting primarily from interruptions in production in Tunisia. Turnover for the first half of 2003 was £11.7 million compared to £12.4 million during the equivalent period last year. Reflecting the lower turnover as well as reduced investment income caused by lower cash balances and lower interest rates, profit before tax decreased to £4.6 million from £5.5 million. The tax charge fell to £2.0 million from £2.5 million for the equivalent period last year. Net profit for the period was £2.5 million versus £3.0 million for the equivalent period last year. Total operating costs (excluding depletion and abandonment) decreased from £4.1 million in the six months to June 2002 to £3.8 million in the current period due primarily to reduced production costs in Yemen. Direct operating costs increased to approximately US$5.60 per barrel in the current period from US$4.60 per barrel in the first half of 2002 due to the influence of the Mongolia pilot production project and higher per barrel operating costs on decreased production in Tunisia. Total depletion and abandonment costs increased from £2.4 million in the six months to June 2002 to £2.6 million in the six months to June 2003 mostly as a result of higher development costs in Yemen. Per barrel depletion and abandonment costs increased to approximately US$4.40 from US$3.40 during the equivalent period last year due to additional development costs associated with Yemen and the Didon 4 development in Tunisia. Capital expenditure increased to £13.0 million in the first six months of 2003 from £7.5 million in the first six months of 2002 primarily as a result of the drilling programme in Vietnam for which SOCO now carries its costs of exploration. Group cash balances as at 30 June 2003, which are mainly held in US dollars, reduced to £43.7 million from £51.5 million as at the end of 2002. This primarily reflects the investment being made by SOCO in capital projects, in particular in Vietnam, exacerbated by unrealised foreign exchange translation losses arising from the strengthening of the GB pound against the US dollar. Operations Exploration/Development Vietnam In February, the final well of the initial exploration programme in which the costs of SOCO Vietnam Ltd (SOCO Vietnam) were carried pursuant to a farm-out agreement, was terminated in granite wash at a total depth of 4,618 metres. The Ca Ong Doi-1X (COD-1X) well was spudded on the 'C' prospect on Block 9-2 in late November 2002. The well encountered more than 1,050 metres of oil shows from inter-bedded Oligocene sands and shale source rocks. A drill stem test was conducted over an open hole section from 3,565 metres to 4,618 metres. However, the interval was not heavily fractured and reservoir quality was therefore inadequate to yield commercial quantities of hydrocarbons. From seismic re-interpretation, the COD-1X well appeared to be approximately five kilometres from the top of the Basement structure in a location chosen to test both Oligocene and Basement potential. Subsequently in the same month, drilling commenced on an appraisal of the Voi Trang (VT) discovery on Block 16-1. The VT-2X vertical exploration well, which was designed primarily as a Basement test after the initial discovery well had inconclusive results in that zone, was drilled to a total depth of 2,530 metres terminating after drilling a 268 metre section in Basement. The well was drilled down dip to the VT-1X discovery well that tested a maximum sustained rate of approximately 3,500 barrels of crude oil per day (BOPD) from a section that included both Oligocene and Basement intervals. The oil recovered from the discovery well appeared to be sourced primarily from the Oligocene section due to a collapsed bore hole at the top of the Basement interval. Although there were good oil shows in the upper Oligocene section penetrated in this follow-up well, which was not primarily designed to appraise the Oligocene interval, the interval was not considered sufficient to test and was plugged and abandoned. SOCO Vietnam and partners completed their drilling commitments on Block 16-1 in the Cuu Long Basin offshore Vietnam in May with their second exploration well in the 2003 programme. The Voi Vang exploration well (VV-1X), drilled on Prospect 'B', was drilled to a total depth of 3,755 metres but was plugged and abandoned after a Basement test indicated that the structure would not flow. Promising oil shows were encountered during drilling in two different Oligocene intervals, from 2,886 to 3,363 metres and from 3,404 metres to 3,442 metres, but these intervals were not tested. In July, SOCO Vietnam concluded the testing of the Ca Ngu Vang-2X (CNV-2X) vertical appraisal well, a follow up to the Block 9-2 CNV-1X discovery well announced in September 2002. This well was a vertical well drilled approximately two kilometres from the original discovery well and was designed to test the extent of the oil column in the CNV Basement structure. The well encountered Basement at 3,940 metres total vertical depth (TVD) and penetrated an oil column of approximately 1,000 metres, double the oil column intersected in the original discovery well. The well appeared to be still in the oil column, with less evidence of Basement fracturing, when the well reached total measured depth at 5,068 metres (5,009 TVD). There was no evidence of formation water in the CNV-2X well. The CNV-2X well, although not tested as a flowing well, confirmed the original discovery and confirmed that the structure is richly sourced with hydrocarbons. Additionally, the results of this well appeared to demonstrate a higher reserve potential for this structure given the thickness of the oil column in this well and the fact that it encountered oil approximately 500 metres below that in the discovery well. The well was plugged back to 2,450 metres where a horizontal follow up section began drilling in July. The length of this horizontal well, extending northeast toward the Rang Dong producing field, thus in the opposite direction from the original discovery well, is dependent upon the size and number of fractures intersected. SOCO Vietnam, the Company's 80% owned subsidiary, holds a 25% working interest in Block 9-2 and a 28.5% interest in Block 16-1 in the Cuu Long Basin offshore Vietnam. Mongolia Throughout the winter and early spring of 2003, SOCO Tamtsag Mongolia (SOTAMO), SOCO's wholly owned subsidiary and operator under three production sharing contracts (PSCs) in the Tamtsag Basin in Mongolia, conducted a seismic programme accumulating an additional 1,768 kilometres of 2D seismic throughout the Contract Areas. The seismic programme was designed to supplement the data previously acquired in areas that seemed to demonstrate potential in last year's drilling programme as well as gathering initial data on areas contiguous to reported drilling success in the portion of the Basin that extends into China. The first well in this year's drilling programme, the 19-18 well, spudded on 20 July to test a new fault block offsetting the 19-16 well drilled last year. The well reached target depth of 2,069 metres on 3 August having encountered more than 30 metres of oil shows and log indicated pay in the Tsagaantsav and Zuunbayan formations. The well was perforated in the upper Tsagaantsav by a workover rig and testing is underway. Based on the results from this interval, the Zuunbayan may also be completed. The Zuunbayan shows in the 19-18 well were at a similar level to shows encountered in 19-17, which was drilled and cased late last year. In August, the 19-17 was perforated and fracture stimulated in the Zuunbayan and produced at an initial rate of 200 BOPD. The oil is characterised as gassy. The results are significant as this is the first oil recovery from the Zuunbayan formation on the SOTAMO Contract Areas. The reservoir quality in this formation is better than the Tsagaantsav and the gassy nature of the oil will also improve productivity. Additional exploration work to define the Zuunbayan play fairway is ongoing. The second well, the 21-5, a rank exploration well, began drilling on 12 August in Contract Area 21 to test the extension of an area where a significant discovery has been reported by a Chinese company. The well has been drilled and logged to a total depth of 1,900 metres. The 21-5 well will be cased and completed in a prospective Zuunbayan interval. A subsequent drilling location on Contract Area 22 was selected and the 22-2 well spudded on 1 September. Petrovietnam, the Vietnamese national oil company, has a 5% interest, carried through the exploration phase, in each of SOCO's Mongolia PSCs. Huabei Oilfield Services, a Chinese company providing the drilling services to the Company in Mongolia, has earned the right to a pro rata working interest participation of 10%. Yemen Recent drilling and testing results in the Basement in the Kharir area indicate significant reserve upside for Block 10. The KHA210 well, drilled in December 2002, was completed in the fractured Basement and flowed at 2,000 BOPD on test. The well was then shut-in to allow procurement of completion equipment for this first flowing well on the Block. The well has recently been placed on extended production test at 1,500 BOPD. In the second quarter of 2003, the KHA105 was drilled as a multi-zone prospect to the Basement. Results were encouraging and the well is now awaiting completion as a potential flowing Basement well. Other Phase 3 drilling in the first half of 2003 has included the drilling and casing of three water injection wells at Kharir. Production levels declined due to increasing water production and delays in upgrading water handling capacity. Additional pumping capacity and new injection wells which came online at Kharir in early July significantly improve voidage replacement in the reservoir. The East Shabwa partners, including Comeco Petroleum, Inc. through which the Group holds a 16.785% indirect interest in Block 10, elected to reprocess the 2D seismic data for the Block to improve imaging of the exploration prospects, and this work is currently in progress. The reprocessing is expected to be completed in the fourth quarter of 2003, with exploration drilling based on the reprocessed data expected to commence in 2004. Tunisia A successful appraisal well in the Didon producing field in the Zarat permit reached a total vertical depth of 2,763 metres and a total measured depth of 3,040 metres in January. It tested at 3,200 BOPD from a horizontal section in the El Gueria reservoir, the same reservoir from which the Didon 3 well is currently producing in this single producing well field. The well remains shut-in pending completion of future field development plans. The Company holds a 22.22% non-operated working interest in the Zarat permit located 75 kilometres offshore eastern Tunisia in the Gulf of Gabes. Crude oil from the Didon field is produced into a floating production storage and off-loading facility from which it is currently sold at spot market prices under a 12 month contract to an oil major. Thailand In July, the Company's wholly owned Thailand subsidiary received official notification from the Thailand Ministry of Energy of its renewal of the Block B8 /38 Petroleum Concession located offshore in the Gulf of Thailand. Following confirmation by Thailand authorities, the Group now officially holds a 100% interest in this concession, subsequent to relinquishment by a co-venturer. Block B8/38 contains a small field discovery, which is a candidate for development, and has remaining exploration potential. Production Production net to the Group's working interest was down in the first half of the year to 5,511 BOPD compared to an average of 6,153 BOPD for the same period last year primarily as interruptions in production in Tunisia resulted in production there dropping from 1,856 BOPD to 1,246 BOPD. The Yemen project continued to provide the majority of the Group's production, essentially level period on period at 3,892 BOPD compared to 3,905 BOPD last year. The pilot production programme continues in Mongolia where production was down from an average of 392 BOPD in the first half of 2002 to 374 BOPD in the first six months of this year. Corporate Transactions In the first half of 2003, SOCO's 100% owned subsidiary, SOCO North Africa Limited (SOCO NA) and Oilinvest (Netherlands) B.V. (Oilinvest) signed a Heads of Agreement (HOA), subject to contract, with Joint Stock Bank of the Gas Industry Gazprombank (Gazprombank) for Gazprombank to acquire the entire issued share capital of OILSOC Investment Company Limited (OILSOC), a company owned by Oilinvest (55%) and SOCO NA (45%). OILSOC assets consist entirely of its 20% shareholding in ODEX Exploration Limited (ODEX), a specific purpose upstream joint venture formed by Oilinvest and SOCO NA to identify, develop, produce and market hydrocarbon opportunities in Libya and other countries. Under the terms of the HOA, SOCO NA will receive approximately US$2.5 million for its net interest in OILSOC. Following completion of the transaction, the ODEX shareholders will be Oilinvest (46%), SOCO NA (34%) and Gazprombank via its OILSOC purchase (20%). The transaction is subject to certain conditions including formal documentation and approval by the necessary regulatory authorities. Prospects Additional seismic processing and interpretation is required before the Ca Ong Doi-2X well (COD-2X) can be drilled as the planned follow up well to the COD initial exploration well. Accordingly, the rig which has been used to drill all of SOCO Vietnam's wells in the Cuu Long Basin thus far will be released after the CNV horizontal section has been drilled and tested. Current expectations are that the COD structure will be drilled in the second quarter of 2004. Existing plans are to put a horizontal section in the CNV structure, if successful, on a long term test. It is possible that an additional horizontal section will be proposed by the partners in the latter half of this year. Outlook The exploration programme in Vietnam is progressing towards a goal of declaring commerciality as soon as practicable. We anticipate that Gazprombank's entry into our Libya joint venture will be an important prerequisite to harnessing opportunities that could significantly impact our asset portfolio. Although the Group remains focused on two regions, Southeast Asia/Far East and the Middle East/North Africa, we remain attentive to other opportunities that may become available. We believe that we have the competence and capability to add significantly to the Company's asset base in the near future. Patrick Maugein Ed Story Chairman President and Chief Executive 4 September 2003 Consolidated profit and loss account for the six months to 30 June 2003 (unaudited) (unaudited) six months ended six months ended year ended 30 June 03 30 June 02 31 Dec 02 Notes £000's £000's £000's Turnover 2 11,744 12,362 26,043 Cost of sales (6,345) (6,571) (13,374) Gross profit 5,399 5,791 12,669 Administrative expenses (1,102) (871) (2,305) Exceptional write off of exploration expenditure - - (595) Operating profit 2 4,297 4,920 9,769 Investment income 302 737 1,188 Interest payable and similar charges (19) (187) (180) Profit on ordinary activities before taxation 2 4,580 5,470 10,777 Tax on profit on ordinary activities 3 (2,033) (2,453) (5,266) Profit for the financial period 2,547 3,017 5,511 Earnings per share Basic 1 3.7p 4.4p 8.0p Diluted 1 3.2p 3.9p 7.1p Consolidated statement of total recognised gains and losses (unaudited) (unaudited) six months ended six months ended year ended 30 Jun 03 30 Jun 02 31 Dec 02 £000's £000's £000's Profit for the financial period 2,547 3,017 5,511 Unrealised currency translation differences (3,373) (6,550) (14,238) Total recognised gains and losses for the period (826) (3,533) (8,727) Consolidated balance sheet as at 30 June 2003 (unaudited) (unaudited) 30 Jun 03 30 Jun 02 31 Dec 02 Notes £000's £000's £000's Fixed assets Intangible assets 77,776 68,793 68,314 Tangible assets 17,889 17,062 19,324 Investments 1,429 1,222 1,475 97,094 87,077 89,113 Current assets Stocks 1,336 1,507 1,460 Debtors 4,418 4,744 5,445 Investments - 2,740 - Cash at bank and in hand 43,691 53,534 51,495 49,445 62,525 58,400 Creditors: Amounts falling due within one year (7,262) (6,719) (7,454) Net current assets 42,183 55,806 50,946 Total assets less current liabilities 139,277 142,883 140,059 Provisions for liabilities and charges (3,098) (1,017) (3,374) Net assets 2 136,179 141,866 136,685 Capital and reserves Called-up equity share capital 14,299 14,268 14,269 Share premium account 40,880 40,578 40,590 Other reserves 34,961 34,961 34,961 Profit and loss account 46,039 52,059 46,865 Equity shareholders' funds 4 136,179 141,866 136,685 Consolidated cash flow statement for the six months to 30 June 2003 (unaudited) (unaudited) six months ended six months ended year ended 30 Jun 03 30 Jun 02 31 Dec 02 Notes £000's £000's £000's Net cash inflow from operating activities 5 7,319 9,043 18,913 Returns on investments and servicing of finance Interest received 364 428 836 Interest paid (8) (7) (14) 356 421 822 Taxation paid (1,511) (2,045) (5,332) Capital expenditure Purchase of intangible fixed assets (9,783) (4,739) (8,399) Purchase of tangible fixed assets (3,193) (2,760) (7,499) Purchase of own shares by employee benefit trust (240) - (611) (13,216) (7,499) (16,509) Cash outflow before management of liquid resources and financing (7,052) (80) (2,106) Management of liquid resources (Increase) decrease in funds placed on short - (50) 2,690 term deposit Financing Issue of ordinary share capital 320 157 170 (Decrease) increase in cash in the period 6 (6,732) 27 754 Notes 1. Earnings per share The calculation of basic earnings per share is based on the profit for the financial period and on 69,217,114 (year ended 31 December 2002 - 69,200,100 and six months ended 30 June 2002 - 69,154,043) ordinary shares, being the weighted average number of ordinary shares in issue and ranking for dividend during the period, excluding 2,171,022 (year ended 31 December 2002 - 1,947,808 and six months ended 30 June 2002 - 1,800,000) ordinary shares of the Company held by the Group. The calculation of diluted earnings per share is based on the profit for the financial period and on 78,877,247 (year ended 31 December 2002 - 77,705,708 and six months ended 30 June 2002 - 77,310,484) ordinary shares, being the weighted average number of ordinary shares in issue and ranking for dividend during the period, including ordinary shares of the Company held by the Group and 7,489,111 (year ended 31 December 2002 - 6,557,799 and six months ended 30 June 2002 - 6,356,441) outstanding share options and warrants that have a diluting effect on earnings per share. 2. Segment information North Africa and Asia Middle East Unallocated Group 30 June 2003 (unaudited) £000's £000's £000's £000's Turnover by origin 813 10,931 - 11,744 Operating profit (loss) - 5,218 (921) 4,297 Profit (loss) on ordinary activities before taxation - 5,219 (639) 4,580 Net assets 72,486 20,745 42,948 136,179 30 June 2002 (unaudited) Turnover by origin 833 11,529 - 12,362 Operating profit (loss) - 5,624 (704) 4,920 Profit (loss) on ordinary activities before taxation - 5,644 (174) 5,470 Net assets 65,333 21,352 55,181 141,866 31 December 2002 Turnover by origin 1,528 24,515 - 26,043 Operating profit (loss) (595) 12,357 (1,993) 9,769 Profit (loss) on ordinary activities before taxation (595) 12,291 (919) 10,777 Net assets 64,563 22,228 49,894 136,685 Turnover is derived from one class of business, being oil and gas production. Turnover by destination does not materially differ from turnover by origin. 3. Tax on profit on ordinary activities Analysis of charge (unaudited) (unaudited) six months ended six months ended year ended 30 Jun 03 30 Jun 02 31 Dec 02 Current tax £000's £000's £000's UK corporation tax at 30% (2002 - 30%) - - - Overseas taxation 2,145 2,821 4,315 2,145 2,821 4,315 Adjustments in respect of previous years: UK corporation tax at 30% (2002 - 30%) - - - Overseas taxation 81 260 260 2,226 3,081 4,575 Deferred taxation Origination and reversal of timing differences (193) (628) 691 2,033 2,453 5,266 4. Reconciliation of movements in Group equity shareholders' funds (unaudited) (unaudited) six months ended six months ended year ended 30 Jun 03 30 Jun 02 31 Dec 02 £000's £000's £000's Opening equity shareholders' funds 136,685 143,489 143,489 Profit for the financial period 2,547 3,017 5,511 Unrealised currency translation differences (3,373) (6,550) (14,238) New shares issued 320 1,910 1,923 Closing equity shareholders' funds 136,179 141,866 136,685 5. Reconciliation of operating profit to operating cash flows (unaudited) (unaudited) six months ended six months ended year ended 30 Jun 03 30 Jun 02 31 Dec 02 £000's £000's £000's Operating profit 4,297 4,920 9,769 Depreciation, depletion and amortisation 2,967 2,795 6,662 Exceptional write off of exploration expenditure - - 595 (Increase) decrease in stocks (20) 28 57 (Increase) decrease in debtors (356) 1,400 1,203 Increase (decrease) in creditors 431 (100) 693 Decrease in provisions - - (66) Net cash inflow from operating activities 7,319 9,043 18,913 6. Analysis and reconciliation of net funds (unaudited) as at exchange as at 31 Dec 02 cash flow movement 30 Jun 03 £000's £000's £000's £000's Cash at bank and in hand 51,495 (6,732) (1,072) 43,691 7. 7. Basis of preparation The financial information presented above does not constitute statutory accounts within the meaning of section 240 of the Companies Act 1985. The financial information for the year ended 31 December 2002 has been derived from the statutory accounts for that year. Those statutory accounts, upon which the auditors issued an unqualified opinion and which did not contain a statement under S237(2) or (3), were delivered to the Registrar of Companies. The interim accounts, which are unaudited, have been prepared on the basis of the accounting policies set out in the Group's statutory accounts for the year ended 31 December 2002. 8. 8. Dividend The Directors do not recommend the payment of a dividend. 9. Date of approval The interim financial statements for the six months ended 30 June 2003 were approved by the Directors on 3 September 2003. This information is provided by RNS The company news service from the London Stock Exchange

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