Interim Results
Soco International PLC
07 September 2006
SOCO International plc
('SOCO' or 'the Company')
Interim Results For The Six Months Ended 30 June 2006
SOCO (LSE:SIA), the international oil and gas exploration and production
company, headquartered in London, traded on the London Stock Exchange and a
constituent of the FTSE 250 Index, today announces its Interim Results for the
six months ended 30 June 2006.
Operating Highlights
• Ongoing success in Vietnam:
• 40% increase in 2P reserves in Vietnam, adding 25 million barrels as a
result of continued success on TGT in Vietnam
• TGT-2X tested at a total combined flow rate of approximately
17,500 BOEPD
• TGT-3X tested at a total combined flow rate of 9,908 BOEPD
• Additional 2% acquired in Block 16-1 in Vietnam
• Declaration of commerciality and approval of official development plan
for CNV attained
• Group year-on-year working interest production increased by more than 20%,
from 5,310 BOPD in H1 2005 to 6,407 BOPD in H1 2006
• Successful appraisal drilling in Yemen and production exceeding 45,000
BOPD, up over 12,000 BOPD from the 2005 average
• Expansion of West African portfolio with the signing of a production
sharing contract on the Nganzi concession in the Democratic Republic of
Congo
Financial Highlights
• Operating cash flow up over 75% year-on-year to US$21.4 million
(H1 2005 : US$12.2 million)
• Profit after tax increased 72% to US$15.1 million
(H1 2005 : US$8.8 million)
• Highly successful convertible bond offering raised US$250 million and
secured funding for the extensive exploration and development programmes in
place
Outlook
• Exploration and development activities continue at pace in Vietnam with
first production from the CNV field in 2007
• The sidetrack to the previously suspended CNV-4X well nearing total
depth
• New drilling campaign commenced on Block 16-1 play fairway targeting
series of drillable prospects each estimated at 100 mmbbls in size
• Exploration and appraisal drilling, along with the expansion of production
facilities, continuing in Yemen
• Ramping up production to over 50,000 BOPD by the end of 2006
• Currently testing well that could add significant recoverable reserves
to Kharir Field
Ed Story, Chief Executive Officer, commented:
'SOCO has had a strong start to 2006 with world class exploration discoveries in
Vietnam, ongoing operational success in Yemen, the award of highly prospective
acreage in West Africa coupled with a successful US$250 million convertible bond
offering.
With core businesses in all stages of the E&P value chain across three of the
world's most exciting oil regions and with an intensive work programme underway
SOCO is ideally positioned for significant additional reserve and production
growth with the financial capacity to make it happen.'
7 September 2006
Enquiries:
SOCO International plc Tel : 020 7747 2000
Roger Cagle
Executive VP, Deputy CEO and Chief Financial Officer
Pelham PR Tel: 020 7743 6676
James Henderson
Alisdair Haythornthwaite
Chairman's and Chief Executive's Statement
SOCO has had an exceptional first half of 2006 with excellent drilling results
on Block 16-1 in Vietnam, a significant increase in production in Yemen, the
addition of prime exploration acreage in West Africa and a successful $250
million fund raising. The drilling success in Vietnam has resulted in the
addition of approximately 25 million barrels of proven plus probable reserves in
the first half of 2006, an increase of approximately 40%.
Two Te Giac Trang (TGT) wells drilled this year in Vietnam, the TGT-2X and
TGT-3X, tested at a total combined flow rate of approximately 17,500 barrels of
oil equivalent per day (BOEPD) and 9,908 BOEPD, respectively. Success at the
three TGT exploration wells drilled to date confirms the prospectivity of the
structure, comprising five fault blocks extending over 15 kilometres on a North
to South trend within an 80 kilometre long play fairway that extends along the
eastern and southern portion of Block 16-1.
In addition to the outstanding drilling results on TGT, the Group achieved early
clearance for the rapid development of the Ca Ngu Vang (CNV) field on Block 9-2
obtaining a declaration of commerciality and gaining approval of an outline
development plan. This sets us on a fast track to bring the CNV field on
production in late 2007.
By the end of the first half of 2006, production in East Shabwa Block 10 in
Yemen had reached peak production exceeding 45,000 barrels of oil per day
(BOPD), up more than 12,000 BOPD from the 2005 year average. The Group also
achieved appraisal drilling success in Yemen with several in-field wells in the
Kharir field expanding the productive potential there.
The exploration portfolio grew as well as we added exciting potential in West
Africa. We expanded our Congo Basin footprint when we signed a production
sharing contract on the Nganzi concession in the Democratic Republic of Congo
(Kinshasa).
Further, we ensured that we would have the financial capacity to take advantage
of our growing opportunities when we raised $250 million, $50 million more than
initially planned due to strong investor demand, through the issuance of
convertible bonds in May of 2006.
Operations
Exploration/Development
Vietnam
Block 16-1
In March 2006, the TGT-2X appraisal well on the Te Giac Trang structure on Block
16-1, an up-dip follow-up well to last year's TGT-1X discovery well, tested with
a total combined flow rate of approximately 17,500 BOEPD from the Miocene Lower
Bach Ho 5.2 (LBH 5.2) and Oligocene 'C' intervals.
Two main pay zones were perforated and tested within the LBH 5.2 interval, one
between 2,763 and 2,817 metres and the other between 2,666 and 2,726 metres. A
total of 89 metres of pay was confirmed by log analysis in this reservoir
horizon.
The combined stabilised flow rate from the two Miocene zones was 14,053 BOEPD
comprising 12,615 BOPD of 38 degree API gravity crude and approximately 8.63
million cubic feet of gas per day (MMCFD) through a one inch choke size. Flow
rates were limited due to a mechanical failure in the surface separation
equipment.
The first drill stem test, over the Oligocene 'C' interval, tested water-free at
a stabilised rate of 3,300 BOPD of 37.5 degree API gravity crude and
approximately 0.88 MMCFD through a 52/64 inch choke size.
As was expected from the log analysis, water was produced from the lower set of
perforations in the Miocene. The approximate 8% water cut provided evidence of
the presence of an aquifer, which will be factored into plans for the field's
depletion management.
A third reservoir horizon, the Lower Bach Ho 5.1 which is considered to be
oil-bearing and productive, was also identified, but not tested as this would
limit the ability to retain the well as a future producer, as originally
designed. This horizon had 18 metres of net pay, and from the analysis of logs
and oil samples from wireline formation tests, is considered to be oil-bearing
and productive.
Success at the TGT-2X well confirms the presence of a highly prospective section
of clastic reservoirs in Block 16-1. Regional mapping has defined a clastic play
fairway that extends for some 80 km to the south and west of TGT along the
eastern and southern parts of the Block. Data from the TGT wells provides a firm
foundation for continued exploration drilling on this trend.
Following the temporary suspension of the TGT-2X well, the rig moved immediately
to drill a follow-up appraisal well, the TGT-3X, approximately 10 kilometres to
the south on a separate fault block on the structure. A drill stem test was
conducted in the LBH 5.2, the formation that was also tested in the discovery
well and the primary interval in the follow-up TGT-2X well. The tested
interval, perforated between 2,827 and 2,887 metres, flowed at a combined
maximum rate of 9,908 BOEPD comprising 9,008 BOPD of 40.5 degree API gravity
crude and approximately 5.4 MMCFD per day through a 88/64 inch choke size.
Log analysis of the well indicated approximately 68 metres of net pay were
present in the LBH 5.2. Additionally, approximately six metres of net pay in the
Lower Oligocene 'C' interval were also identified but not tested.
The LBH 5.2 reservoir sands encountered in the TGT-3X well are the same as those
tested in the TGT-1X and TGT-2X wells. This proves the presence of a laterally
extensive marine sand in the Block, further reducing the risk of the other
prospects and leads along the play fairway.
The third and final well drilled on Block 16-1 in the first six months of this
year was the first exploration well on the 'L' prospect approximately 30
kilometres south of the TGT-3X discovery. The Te Giac Vang 1X (TGV-1X) spudded
on 2 May and reached a total measured depth of 3,926 metres in the Upper
Oligocene. The well was deepened from its original prognosis due to the
presence of encouraging hydrocarbon shows continuing below the original target
depth. It was primarily positioned to test a closure at the LBH 5.2 level, the
main productive horizon at the TGT discoveries.
The well intersected a clastic sequence at the LBH 5.2 horizon, however the
reservoir sands were poorly developed at the location and no pay was
encountered. The sediments encountered suggested that the well was located
outside the LBH 5.2 play fairway and that this fairway is to the north and west
of the TGV-1X location.
The well was also drilled into the Oligocene, however the location was down-dip
on the flank of the structure. Despite being in a flank position, good oil shows
were encountered in several sands. After analysis of the logs, although the
sands were confirmed to be hydrocarbon bearing, it appeared that these lacked
sufficient permeability to produce at commercial rates and were therefore not
tested.
These overall encouraging well results will be evaluated and the seismic
re-interpreted prior to drilling a follow-up well to fully test the Oligocene in
a more prospective up-dip position. The well also penetrated the source rock
section at the top of the Oligocene validating the geological interpretation and
confirming the potential of the deep Oligocene and Basement prospect underlying
the shallower closures.
A new drilling campaign has commenced on the Block 16-1 play fairway. The
Transocean Trident 9 jack-up rig spudded the TGT-4X well on the 'H' fault block
in the TGT structure on 31 August. The well was at approximately 1,225 metres
and 133/8' casing was being set as this report goes to press. Target depth is
3,537 metres.
Block 9-2
Following the TGV well, the rig was moved to drill the sidetrack to the CNV-4X
well on Block 9-2 that was temporarily suspended late last year after
encountering unexpected high pressures in the Oligocene sequence above the
Basement. The sidetrack of the appraisal well, CNV-4XST, is currently at
approximately 6,000 metres measured depth, approaching target depth.
The rig which has been conducting the Group's Vietnam drilling programme since
the beginning of 2005 moves out of Vietnamese waters after completion of the
CNV-4XST. A letter of intent has been signed to bring another rig into the
Group's Vietnam drilling programme in the first quarter of 2007. Negotiations
for a third rig are underway.
Preparations for development of the CNV field picked up momentum in April of
2006 following the unanimous approval of the Declaration of Commerciality on the
field by the shareholders of the Hoan Vu (HV) Joint Operating Company (JOC).
The official development plan was approved in August and the project budget is
up for management committee approval later in September.
Meanwhile negotiations continue on a gas sales agreement for the associated gas
produced from the CNV field. Long lead items have been ordered in anticipation
of having first oil by the end of next year.
SOCO holds its interests in Vietnam, all in the Cuu Long Basin offshore, through
its 80% owned subsidiary SOCO Vietnam Limited (SOCO Vietnam) and through its
100% ownership of OPECO, Inc. (see below for details of the OPECO acquisition).
SOCO Vietnam holds a 25% working interest in Block 9-2, which is operated by the
HVJOC and holds a 28.5% working interest in Block 16-1, which is operated by the
Hoang Long JOC. OPECO, Inc. holds a 2% interest in Block 16-1.
Yemen
In the first half of 2006, the East Shabwa Block 10 consortium continued its
programme to further appraise the Kharir field and increase production capacity
from Block 10.
Drilling results and the addition of a self-contained production facility have
enabled the fields to exceed all previous production records. At the end of the
first half of 2006, production exceeded 45,000 BOPD, up more than 12,000 BOPD
from the 2005 year average. In addition the consortium began a very active
exploration programme in the northern part of the Block.
A number of successful development wells were drilled in the Kharir during the
first half of 2006. These include the KHA-1-12 well in the western part of the
structure, the KHA-1-14 well in the southern flank of the structure and the
KHA-1-07.G1 sidetrack, which was drilled as a water injection well but completed
as a producer based on drilling results. These wells are all connected to the
production facilities and were tested at rates between 5,500 and 8,000 BOPD.
The drilling of wells designed to ensure field pressure maintenance is being
accelerated in parallel. The KHA-1-11 gas injection well is nearing completion.
It is being drilled using underbalanced drilling technology that allows the
assessment of connectivity between a nearby producer and an actively drilling
injection well. Gas injection is scheduled to commence late summer. The
KHA-1-13 water injection well, designed to provide pressure support to the
eastern end of the structure, has been connected to the water injection system.
As of the date of publishing this report, the KHA-1-16 production well, designed
to continue the delineation of the reservoir in the eastern part of the
structure as currently mapped, is being tested. The KHA-1-17 water injection
well, aimed at providing pressure support to the wells draining the northwest
end of the structure, has reached total depth and is being logged.
The thrust of the exploration programme this year has been in the northern part
of Block 10 in the Jathma/Wadi Taribah area. The first Jathma exploration well,
the JAT-01 that tested over 1,900 BOPD when tested early in the year, is
expected to be placed on long term production in the third quarter of this year.
The oil produced will be trucked to the existing Kharir facilities for
processing and export, enabling rapid and economic development.
The sidetrack of the second exploration well in the Jathma area, the JAT-02
well, has been completed. The objective of the sidetrack was to evaluate
fracture development away from the original wellbore. Testing programmes on the
JAT-02-ST and the exploration well on the eastern side of the Jathma area,
JAT-04, have been completed. Both wells encountered significant oil columns, but
did not flow commercial volumes of hydrocarbons when tested.
An evaluation of the results of all the Jathma area wells drilled to date will
now be conducted. A 3D seismic programme is currently being considered to
acquire better definition of the fracture zones in the Jathma area.
The East Shabwa Block 10 consortium comprises Comeco Petroleum, Inc. (28.57%
interest), in which SOCO holds a 58.75% interest, TOTAL E&P Yemen (28.57%
interest and operator), Occidental Yemen Ltd. (28.57% interest) and Kuwait
Foreign Petroleum Exploration Co. (14.29% interest).
Republic of Congo (Brazzaville)
SOCO Exploration and Production Congo S.A. (SOCO EPC), the Company's 85% owned
subsidiary, was awarded a 75% interest in the Marine XI Block offshore the
Republic of Congo (Brazzaville). The terms of the Production Sharing Agreement
signed by the Societe Nationale des Petroles du Congo (SNPC) and SOCO EPC was
approved during the Congolese Parliament and the Senate extraordinary session in
the first quarter of 2006. The law became effective on 30 March when signed by
the President of the Republic.
It was just recently announced that SOCO EPC farmed-out one half of its interest
in the Marine XI Block, 18.75% to each of a subsidiary of Lundin Petroleum AB
and Raffia Oil SARL. SOCO EPC will remain as the operator with a 37.5% working
interest in the Block. The exploration and production branch of SNPC (15%) and
Africa Oil & Gas Corporation (10%) hold the remaining interests. The assignment
of interests in the Agreement is subject to approval of the appropriate
regulatory authorities of the Government of the Republic of Congo (Brazzaville).
The Block, located in the Lower Congo Basin, is in shallow water adjacent to the
coast with water depths ranging up to 110 metres and covers approximately 1,400
square kilometres. There has been previous exploration activity on the Block
resulting in four small oil discoveries, the largest of which has initial
recoverable reserves estimated to be in the 30 to 60 million barrel range.
A contract has been awarded for the acquisition of a 1,200 square kilometre 3D
seismic programme. Acquisition is expected to begin early in the fourth quarter
of 2006.
Democratic Republic of Congo (Kinshasa)
In July, the Company's 85% owned subsidiary, SOCO DRC Limited (SOCO DRC),
signed, subject to presidential decree, a Production Sharing Contract with the
government of the Democratic Republic of Congo and La Congolaise des
Hydrocarbures (Cohydro), the state owned oil company, wherein it acquired an
interest in the Nganzi block, onshore the Democratic Republic of Congo
(Kinshasa).
SOCO DRC is the designated operator with an 85% working interest in the Block.
Cohydro holds the remaining interest. In 2005 under a memorandum of
understanding signed with the government, SOCO carried out a reconnaissance
aeromagnetic and gravity survey over the onshore extension of the coastal basin
in order to delineate prospective areas for hydrocarbon generation and
migration. The survey indicated the presence of a deep pre-salt source graben in
the northern part of the basin in the Nganzi Block. Regional mapping shows the
graben to be on trend with the source basin for the M'Boundi field in the
southern part of the Republic of Congo (Brazzaville). Several leads, interpreted
as large horst blocks, have been identified on the Block. These will be further
evaluated by 2D seismic in 2007.
The Nganzi Block comprises an area of approximately 800 square kilometres. There
has been little previous activity. Two wells were drilled on poor quality
seismic in the 1970s, no other seismic has been acquired. Using modern seismic
techniques and applying new pre-salt play concepts, SOCO DRC expects to exploit
the potential of the Block.
Thailand
Upon securing approval from the Thailand Department of Mineral Fuels to convert
the Bualuang field from an exploration to production licence in the first
quarter of 2006, SOCO Exploration (Thailand) Co. Ltd. (SOCO Thai) signed an
agreement to allow a two group consortium to earn up to a 60% working interest
in the licence in the Gulf of Thailand. If the earn-in terms of the agreement
are fulfilled, SOCO Thai would retain a 40% working interest in the field.
Under the terms of the agreement, a 20% interest can be earned by the Farmee
consortium upon the conclusion of a Phase I work programme wherein the Farmee
must conclude a high resolution 100 kilometre 2D seismic programme and drill one
well in the Bualuang Field. At the election of Farmee, a further 40% working
interest can be earned in the Phase II work programme. The Phase II work
programme, during which SOCO Thai would fund only 8% of the cost, requires the
Farmee to drill up to eight wells, install a platform and take the project to
first oil.
After the end of the Phase II period, the Farmee shall be designated the
operator of the project and shall engage an independent reservoir engineer to
perform an analysis of the proven reserves contained in the Bualuang Field. The
Farmee shall pay SOCO Thai an amount equal to one dollar ($1.00) for each barrel
produced over 10.4 million barrels.
The assignment of interests in the agreement is subject to approval of the
appropriate regulatory authorities of the Government of Thailand.
RESULTS
Financial
Historically high crude oil prices realised by the Group during the first half
of 2006 increased the average oil sales price per barrel to $63.15 from $45.79
for the same period last year. Production from Yemen, net to the Group's
working interests, during this period increased to 6,407 BOPD versus 5,057 BOPD
in the six months to 30 June 2005. This, combined with the higher oil prices,
increased revenue on an entitlement basis by $14.8 million in the six months to
30 June 2006 compared to the same period last year. Adjustment for lifting
imbalances arising in prior periods amounting to $3.5 million brings the revenue
from continuing operations for the six months to 30 June 2006 to $38.8 million
compared to $27.5 million in the same period last year.
Cost of sales of $11.0 million were reported for the current period compared to
$10.2 million for the same period last year, primarily attributable to higher
production and higher field operating expenses partially offset by the
adjustment for lifting rebalancing, which decreased operating expenses from
continuing operations by $3.5 million.
Operating expenses on a per barrel basis (excluding lifting imbalances and
inventory) from continuing operations increased from approximately $4.00 in the
first half of 2005 to approximately $6.50 per barrel in the first half of 2006.
This reflects additional resources required to increase capacity and accelerate
production along with increased diesel costs, higher manpower rates and higher
transportation costs associated with the Group's non-operated activities in
Yemen.
Depreciation, depletion and abandonment (DD&A) costs on continuing operations
increased by $0.6 million compared to the same period last year reflecting the
increased production offset by higher reserves. On a per barrel basis, DD&A on
continuing operations decreased to approximately $3.60 per barrel compared to
approximately $3.90 during the equivalent period last year reflecting the year
end 2005 reserve additions.
Administrative expenses increased from $2.5 million in the six months to 30 June
2005 to $3.5 million in the current period. This is mainly due to higher
national insurance obligations arising on share options as the Company's share
price increased from £5.975 at 30 June 2005 to £13.680 at 30 June 2006 and
administrative costs associated with the Company's corporate funding activities.
Exploration expenses associated with pre-licence costs were $0.2 million in
the six months ended 30 June 2006 compared to $0.5 million in the equivalent
period last year reflecting the Company's continuing success in acquiring
licences in its new core area.
As a result of the above, the Group's operating profit from continuing
operations increased by over 68% to $24.0 million from $14.3 million for the
equivalent period last year.
Following the issue of convertible bonds, discussed below, the Group had a
significantly higher cash and cash equivalents balance which caused investment
income to rise from $0.9 million in the period to 30 June 2005 to $2.8 million
in the current reporting period. The increase in other gains and losses from nil
in the first half of 2005 to $0.3 million in the period ended June 2006 is
mostly represented by the unwinding of the discount relating to the financial
asset associated with the subsequent payment amount tied to future oil
production from the Group's divested Mongolia interest. Finance costs have
increased from $0.2 million in the six months ended 30 June 2005 to $2.0 million
for the current period mostly due to the interest expense on the liability
component of the convertible bonds. The tax charge on continuing operations
increased from $6.1 million in the equivalent period last year to $10.0 million
in the current period consistent with the increase in operating profit.
Capital expenditure of $50.4 million in the current review period compared to
$17.3 million for the equivalent period last year reflects the Group's increased
drilling activity in both Vietnam and Yemen as well as a facilities upgrade in
Yemen. Further, in June 2006 the Group acquired an additional 2% working
interest in Block 16-1 offshore Vietnam for consideration paid of $22.0 million.
Exploration expenditure in the Group's new core area of West Africa also
contributed to the increase in capital expenditure.
During the period to June 2006 the Company purchased 608,000 treasury shares at
a cost of $13.6 million. Of these 580,500 plus brought forward treasury shares
of 150,000 were used to satisfy the obligation to issue shares in settlement of
certain share options. As at 30 June 2006 the Company held 27,500 treasury
shares.
SOCO's cash and cash equivalents were increased from the year end 2005 amount of
$51.0 million to $251.5 million at 30 June 2006 mainly due to the proceeds of
the convertible bond issue offset by the continuing investment in capital
projects, particularly in Vietnam and Yemen.
Production
Production net to the Company's working interest increased approximately 21%
period on period averaging 6,407 BOPD during the first half of 2006 as compared
to 5,310 BOPD in the first half of 2005. All of the Group's production is
sourced from the East Shabwa Development Area in Yemen.
Corporate Developments
Convertible Bonds
In May 2006, SOCO Finance (Jersey) Limited issued $250 million in guaranteed
convertible bonds (Bonds). The Bonds are convertible into the preference shares
of the issuer, which are exchangeable for fully paid ordinary shares of SOCO.
The Company is guarantor of the offering. The size of the offering was increased
from $200 million due to strong institutional demand, but was still six times
oversubscribed upon issue.
The Bonds were priced at par and will pay a coupon of 4.50% per annum. The Bonds
will initially be convertible into an aggregate of approximately 6.238 million
ordinary shares. The conversion premium was set at 42.00%. The initial
conversion price is £21.847 per ordinary share. The conversion price will be
subject to adjustment from time to time upon the occurrence of certain events.
Payment for, and settlement of, the Bonds occurred on 16 May 2006. Unless
previously converted or redeemed, the Bonds will be repaid at 100 per cent of
their principal amount on 16 May 2013.
The Bonds have been admitted to the Official List of the UK Listing Authority
and have been admitted to trading on the London Stock Exchange's Professional
Securities Market.
Acquisition of Minority Interest in Vietnam
In June, the Company's wholly owned subsidiary SOCO International (Cayman)
Limited acquired the entirety of the shareholding of OPECO, Inc. for a total
consideration of $22 million. OPECO, Inc. in turn holds the entirety of the
shareholding of OPECO Vietnam, Ltd., which holds a direct 2% interest in Block
16-1 in the Cuu Long Basin offshore Vietnam.
Outlook
The Company is rapidly moving from a primarily exploration led company to a
sizeable producer with first production from its high profile Vietnam portfolio
due in 2007. Recent exploration success has significantly de-risked the Group's
portfolio. In Vietnam we have established multiple play types in a large play
fairway with tremendous potential.
For the medium term we will continue our very active drilling programme, which
has the potential to have a significant impact on the rating of the Company. As
was intimated in last year's interim results, the results in the past have been
manifested by a significant addition of reserves, qualitatively as well as
quantitatively. This is a process that we see as only beginning.
We believe the West African additions to our portfolio will allow us to
replicate our success in Vietnam and Yemen. Over the near term the news flow
will be dominated by the growth in reserves and production. With a balanced
portfolio across Yemen, Vietnam and West Africa, near term development and a
large exploration programme underway the outlook for SOCO has never been
stronger.
Patrick Maugein Ed Story
Chairman President and Chief Executive
6 September 2006
INDEPENDENT REVIEW REPORT TO SOCO INTERNATIONAL PLC
Introduction
We have been instructed by the Company to review the financial information for
the six months ended 30 June 2006 which comprise the consolidated income
statement, the consolidated balance sheet, the consolidated statement of
recognised income and expense, the consolidated cash flow statement and related
notes 1 to 9. We have read the other information contained in the interim
report and considered whether it contains any apparent misstatements or material
inconsistencies with the financial information.
This report is made solely to the Company in accordance with Bulletin 1999/4
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 interim report, including the financial information contained therein, is
the responsibility of, and has been approved by, the Directors. The Directors
are responsible for preparing the interim report in accordance with the Listing
Rules of the Financial Services Authority which require that the accounting
policies and presentation applied to the interim figures are consistent with
those applied in preparing the preceding annual accounts except where any
changes, and the reasons for them, are disclosed.
Review work performed
We conducted our review in accordance with the guidance contained in Bulletin
1999/4 issued by the Auditing Practices Board for use in the United Kingdom. A
review consists principally of making enquiries of Group management and applying
analytical procedures to the financial information and underlying financial data
and, based thereon, assessing whether the accounting policies and presentation
have been consistently applied unless otherwise disclosed. A review excludes
audit procedures such as tests of controls and verification of assets,
liabilities and transactions. It is substantially less in scope than an audit
performed in accordance with International Standards on Auditing (UK and
Ireland) and therefore provides a lower level of assurance than an audit.
Accordingly, we do not express an audit opinion on the financial information.
Review conclusion
On the basis of our review we are not aware of any material modifications that
should be made to the financial information as presented for the six months
ended 30 June 2006.
Deloitte & Touche LLP
Chartered Accountants
London
6 September 2006
Consolidated income statement
(unaudited) (unaudited)
six months six months
ended ended year ended
30 Jun 06 30 Jun 05 31 Dec 05
Notes $000's $000's $000's
Continuing operations
Revenue 3 38,755 27,518 57,160
Cost of sales (10,977) (10,207) (19,588)
Gross profit 27,778 17,311 37,572
Administrative expenses (3,545) (2,527) (5,295)
Exploration expenses (204) (495) (1,013)
Operating profit from continuing operations 3 24,029 14,289 31,264
Investment revenue 2,759 869 2,042
Other gains and losses 342 - 853
Finance costs (1,993) (237) (497)
Profit before tax from continuing operations 25,137 14,921 33,662
Tax 4 (10,039) (6,132) (13,366)
Profit for the period from continuing operations 15,098 8,789 20,296
Profit for the period from discontinued operations - - 181
Profit for the period 15,098 8,789 20,477
Earnings per share (cents) 5
Basic
From continuing operations 21.5 12.6 29.0
From discontinued operations - - 0.3
From continuing and discontinued operations 21.5 12.6 29.3
Diluted
From continuing operations 19.2 11.1 25.6
From discontinued operations - - 0.2
From continuing and discontinued operations 19.2 11.1 25.8
Consolidated balance sheet
(unaudited) (unaudited)
30 Jun 06 30 Jun 05 31 Dec 05
Notes $000's $000's $000's
Non-current assets
Intangible assets 187,494 101,007 151,213
Property, plant and equipment 41,748 26,260 29,988
Financial asset 32,169 - 31,882
Other receivable - - 10,134
Deferred tax assets 3,452 2,423 2,591
264,863 129,690 225,808
Current assets
Inventories 71 - 310
Trade and other receivables 17,027 5,122 6,285
Tax receivables 211 512 1,138
Cash and cash equivalents 251,496 66,077 50,967
268,805 71,711 58,700
Assets classified as held for sale - 73,076 -
Total assets 533,668 274,477 284,508
Current liabilities
Trade and other payables (28,479) (11,125) (15,233)
Tax payables (2,297) (66) (446)
Liabilities associated with assets classified (6,047) -
as held for sale -
(30,776) (17,238) (15,679)
Non-current liabilities
Convertible bonds 6 (218,558) - -
Long-term provisions (2,732) (2,626) (2,590)
(221,290) (2,626) (2,590)
Total liabilities (252,066) (19,864) (18,269)
Net assets 281,602 254,613 266,239
Equity
Share capital 23,532 23,479 23,479
Share premium account 68,325 68,221 68,221
Other reserves 7 54,235 54,166 54,259
Retained earnings 135,510 108,747 120,280
Total equity 281,602 254,613 266,239
Consolidated cash flow statement
(unaudited) (unaudited)
six months six months
ended ended year ended
30 Jun 06 30 Jun 05 31 Dec 05
Notes $000's $000's $000's
Net cash from operating activities 8 21,370 12,219
30,536
Investing activities
Purchase of intangible assets (38,286) (13,444) (65,268)
Purchase of property, plant and equipment (12,079) (3,813) (10,907)
Purchase of own shares into treasury 7 (13,634) - -
Proceeds of disposal of subsidiary undertaking - - 27,510
Net cash used in investing activities (63,999) (17,257) (48,665)
Financing activities
Share-based payments - - (1,837)
Proceeds on issue of convertible bonds 6 243,150 - -
Proceeds on issue of ordinary share capital - 14 14
Net cash from (used in) financing activities 243,150 14 (1,823)
Net increase (decrease) in cash and cash equivalents 200,521 (5,024) (19,952)
Cash and cash equivalents at beginning of period 50,967 71,122 71,122
Effect of foreign exchange rate changes 8 (21) (203)
Cash and cash equivalents at end of period 251,496 66,077 50,967
Consolidated statement of recognised income and expense
(unaudited) (unaudited)
six months six months year ended
ended ended
30 Jun 06 30 Jun 05 31 Dec 05
$000's $000's $000's
Profit for the period 15,098 8,789 20,477
Unrealised currency translation differences 132 (185) (363)
Total recognised income for the period 15,230 8,604 20,114
Notes to the consolidated financial statements
1 General information
The information for the year ended 31 December 2005 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 and did not contain statements under section 237(2) or (3) of the Act.
The interim 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 interim financial report for the six months ended 30 June 2006 was approved
by the Directors on 6 September 2006.
2 Significant accounting policies
The interim 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 2005 Annual Report and Accounts for the year
ended 31 December 2005. The accounting policy adopted in respect of the
convertible bonds issued during the period is shown in Note 6.
3 Segment information
Geographical segments
The Group's operations are located in Southeast Asia, West Africa and the Middle
East 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 2006 (unaudited)
Central Asia1 Middle East Unallocated Group
$000's $000's $000's $000's
Oil sales - 38,755 - 38,755
Operating profit - 27,656 (3,627) 24,029
Six months ended 30 June 2005 (unaudited)
Oil sales 1,498 27,518 - 29,016
Operating profit - 17,200 (2,911) 14,289
Year ended 31 December 2005
Oil sales 1,498 57,160 - 58,658
Operating profit - 37,263 (5,999) 31,264
1 In April 2005 the Group reclassified its Central Asia segment, which comprises
its Mongolia interest, as an asset classified as held for sale. In August 2005
the sale of the Group's Mongolia interest was completed. The results of this
segment are therefore included in discontinued operations.
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
(unaudited) (unaudited)
six months six months
ended ended year ended
30 Jun 06 30 Jun 05 31 Dec 05
$000's $000's $000's
Current tax 10,900 6,437 13,839
Deferred tax (861) (305) (473)
10,039 6,132 13,366
UK corporation tax is calculated at 30% 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.
5 Earnings per share
The calculation of the basic and diluted earnings per share is based on the
following data:
(unaudited) (unaudited)
six months six months
ended ended year ended
30 Jun 06 30 Jun 05 31 Dec 05
$000's $000's $000's
Earnings from continuing operations 15,098 8,789 20,296
Earnings from discontinued operations - - 181
15,098 8,789 20,477
Number of shares
(unaudited) (unaudited)
six months six months
ended ended year ended
30 Jun 06 30 Jun 05 31 Dec 05
Weighted average number of ordinary shares for the purpose of 70,146,241 69,845,629 70,003,067
basic earnings per share
Effect of dilutive potential ordinary shares:
Share options and warrants 5,961,649 6,716,548 7,010,483
Ordinary shares of the Company held by the Group 2,446,946 2,475,000 2,423,300
Weighted average number of ordinary shares for the purpose of 78,554,836 79,037,177 79,436,850
diluted earnings per share
The denominators used for the purposes of calculating earnings per share on both
continuing and discontinued operations are the same. At 30 June 2006 up to
6,238,000 potential ordinary shares in the Company that are underlying the
Company's convertible bonds (see Note 6) and that may dilute earnings per share
in the future have not been included in the calculation of diluted earnings per
share because they are antidilutive for the period to 30 June 2006.
6 Convertible bonds
In May 2006 the Group issued bonds at a par value of $250 million which are
convertible into ordinary shares of the Company at any time from June 2006 until
six days before their maturity date of 16 May 2013. At the initial conversion
price of £21.847 per share there are 6,238,000 ordinary shares of the Company
underlying the bonds. If the bonds have not been previously purchased and
cancelled, redeemed or converted, they will be redeemed at par value on 16 May
2013. Interest of 4.5% will be paid semi-annually up to that date.
The net proceeds received from the issue of the convertible bonds were split
between a liability element and an equity component at the date of issue. The
fair value of the liability component was estimated using the prevailing market
interest rate for similar non-convertible debt. The difference between the
proceeds of issue of the convertible bonds and the fair value assigned to the
liability component, representing the embedded option to convert the liability
into equity of the Group, was included in other reserves within equity.
Issue costs were apportioned between the liability and equity components of the
convertible bonds based on their relative carrying amounts at the date of issue.
The portion relating to the equity component was charged directly against
equity.
The interest expense on the liability component was calculated by applying the
prevailing market interest rate for similar non-convertible debt to the
liability component of the instrument. The difference between this amount and
the interest paid has been added to the liability component of the convertible
bonds. The above principles have been reflected as follows:
$000's
Nominal value of convertible bonds issued net of issue costs 243,150
Equity component (25,056)
Liability component at date of issue 218,094
Interest charged 1,901
Total liability component at 30 June 2006 219,995
Reported in:
Interest payable in current liabilities 1,437
Non-current liabilities 218,558
Total liability component at 30 June 2006 219,995
7 Other reserves
Other reserves increased in the amount of $25.1 million in respect of the equity
component of the convertible bonds issued (see Note 6). During the period the
Company purchased 608,000 ordinary shares of £0.20 each in the capital of the
Company (Shares) into treasury at a cost of $13.6 million. Options over
1,445,587 Shares were exercised and settled by the transfer of 730,500 Shares
held in treasury, the issue of 144,176 new Shares and settlement of the
participant's associated tax liabilities of $11.4 million which was recorded as
a reduction to other reserves.
8 Reconciliation of operating profit to operating cash flows
(unaudited) (unaudited)
six months six months
ended ended year ended
30 Jun 06 30 Jun 05 31 Dec 05
$000's $000's $000's
Operating profit 24,029 14,289 31,264
Share-based payments 277 511 521
Depreciation, depletion and amortisation 4,329 3,740 7,325
Operating cash flows before movements in working capital 28,635 18,540 39,110
Decrease (increase) in inventories 239 141 (172)
Decrease (increase) in receivables 753 (2,933) (710)
(Decrease) increase in payables (720) 1,659 4,754
Cash generated by operations 28,907 17,407 42,982
Interest received 1,356 837 1,943
Interest paid (149) (121) (460)
Income taxes paid (8,744) (5,904) (13,929)
Net cash from operating activities 21,370 12,219 30,536
Cash generated is derived from continuing operating activities only.
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 Events after the balance sheet date
In July 2006 the Group announced that its subsidiary, SOCO DRC Limited (SOCO
DRC), signed, subject to presidential decree, a Production Sharing Contract with
the government of the Democratic Republic of Congo and La Congolaise des
Hydrocarbures (Cohydro), the state owned oil company, wherein it acquired an
interest in the Nganzi Block, onshore the Democratic Republic of Congo
(Kinshasa). SOCO DRC will be the operator with an 85% working interest in the
Block. Cohydro holds the remaining interest.
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