Interim Results
Soco International PLC
27 September 2005
SOCO International plc
('SOCO' or 'the Company')
Interim Results for the six months ended 30 June 2005
SOCO (LSE:SIA), the international oil and gas exploration and production
company, headquartered in London, traded on the London Stock Exchange and a
constituent of the FTSE 250 Index, today announces its Interim Results for the
six months ended 30 June 2005.
HIGHLIGHTS
Operating Highlights
Exploration / Development
• Five exploration/appraisal wells drilled this year have tested at an
average production rate exceeding 8,350 BOEPD
• VIETNAM
• CNV-3X spudded on 30 January 2005 and tested water-free at a maximum
combined rate of approximately 13,040 BOEPD
• TGT-1X spudded on 2 June 2005 and tested water-free at a maximum
combined rate of 9,432 BOEPD
• CNV-4X spudded on 31 August 2005 and is currently drilling above the
targeted Basement
• Negotiations are underway to extend the drilling rig contract for
additional wells
• YEMEN
• The KHA 1-09 well spudded on 6 December 2004 and produced over 6,500
BOPD when tested in February 2005
• The KHA 2-16 well spudded on 1 February 2005 and produced over 5,500
BOPD when tested in April 2005
• The KHA 1-10 well spudded on 28 March 2005 and produced over 7,300 BOPD
New Core Area - West Africa
• REPUBLIC OF CONGO (BRAZZAVILLE)
• In August the Company's 85% owned subsidiary, SOCO Exploration and
Production Congo (SOCO EPC), signed a PSA acquiring a 75% interest in
the Marine XI Block
• Marine XI forms the cornerstone in what SOCO envisions to become a new
core area for the Company in West Africa
Financial Highlights - from continuing operations
• Revenue up to US$27.5 million (H1 2004 : US$8.9 million)
• Operating profit increased over 130% to US$14.3 million (H1 2004 : US$6.1
million)
• Basic earnings per share up over 150% to 12.6 cents (H1 2004 : 4.9 cents)
• Net cash from operating activities increased to US$12.2 million (H1 2004 :
US$0.4 million)
• Production, net to the Company's working interest, increased to 5,057 BOPD
(H1 2004 : 3,790 BOPD)
Corporate Highlights
• SOCO disposed of its interests in Mongolia for consideration of up to
approximately US$93 million
• In August 2005 SOCO agreed a US$45 million reserve-based, revolving credit
facility with the International Finance Corporation, the private sector arm
of the World Bank
Ed Story, Chief Executive Officer, commented:
'SOCO has had an excellent year to date with the drill bit, and demonstrated its
exploration expertise with a 100 percent success ratio in both Yemen and Vietnam
across five exploration/appraisal wells. Comprehensive drilling programmes will
continue in both countries over the remainder of 2005 and into 2006.
Our interest in the Marine XI Block in the Republic of Congo (Brazzaville) is
the cornerstone of a new area in West Africa and we continue to seek additional
opportunities in the region to bolster our portfolio.'
Enquiries:
SOCO International plc Tel : 020 7747 2000
Roger Cagle
Executive Vice President , Deputy CEO and Chief Financial Officer
Pelham PR Tel: 020 7743 6676
James Henderson
Alisdair Haythornthwaite
Chairman's and Chief Executive's Statement
During the first half of 2005, the Group has made significant progress on a
number of fronts. Nowhere has the progress been more telling than in the
drilling programme where we have experienced a 100 per cent success ratio both
in Vietnam and Yemen. Five exploration/appraisal wells drilled this year thus
far have tested from 5,500 barrels of oil equivalent per day (BOEPD) to over
13,000 BOEPD, with the average production test exceeding 8,350 BOEPD.
In addition to the excellent results from the very active drilling programme,
the Company advanced its portfolio through subtraction and addition. It sold
the entities holding its Mongolia interests to a subsidiary of PetroChina that
immediately added approximately US$30 million to the Group's cash position with
an additional US$10 million receivable placed in escrow. Subsequent
compensation that could yield up to US$53 million associated with future
production from the interests sold would bring the total compensation to US$93
million. SOCO also added some prime prospective acreage in August of this year
when a subsidiary acquired a 75% working interest and operatorship of the Marine
XI Block offshore the Republic of Congo (Brazzaville).
The Company also gained increased flexibility when it signed a reserve-based
financing facility with the International Finance Corporation (IFC). The
facility of up to US$45 million is a seven year revolver and gives the Company
extra financial flexibility as well as providing a respected ally in the
countries in which we conduct our business.
Operations
Exploration/Development
Vietnam
SOCO holds its interests in Vietnam, all in the Cuu Long Basin offshore, through
its 80% owned subsidiary SOCO Vietnam Ltd (SOCO Vietnam). SOCO Vietnam holds a
25% working interest in Block 9-2, which is operated by the Hoan Vu Joint
Operating Company and a 28.5% working interest in Block 16-1, which is operated
by the Hoang Long Joint Operating Company (JOCs).
The first well drilled in 2005 by the JOCs was an appraisal well to the 2002
discovery well that tested approximately 4,500 BOEPD on the Ca Ngu Vang (CNV)
structure. The CNV-3X spudded on 30 January 2005 and reached a measured depth
(MD) of 6,123 metres on 16 April 2005, giving it the distinction of being the
longest MD well ever drilled in Vietnam. The well reached a total vertical
depth of 4,426 metres penetrating 2,017 metres of granitic Basement at an
average angle of 82 degrees from vertical intersecting various fault and
fracture domains within the reservoir. Due to its highly fractured nature the
granitic Basement reservoir was drilled with total losses of drilling fluid/
seawater to the formation of more than 150,000 barrels resulting in an extensive
clean-up period before flow testing began. The well tested water-free during the
final unstimulated open hole test conducted over a 12 hour period at a maximum
combined rate of approximately 13,040 BOEPD comprising approximately 9,010 BOPD
and approximately 22.6 million cubic feet of gas per day (MMCFPD). The well was
suspended as a potential producer.
A wildcat exploration well on the Te Giac Trang (TGT) structure on the
previously undrilled H prospect on Block 16-1 offshore Vietnam, the TGT-1X,
spudded on 2 June 2005. It was designed to test several Miocene and Oligocene
intervals in a previously unexplored part of the Block. The well was drilled
significantly deeper than the original prognosis due to the presence of
encouraging hydrocarbon shows continuing below the original target depth
reaching final MD of 4,478 metres at the end of July. The TGT-1X tested
water-free at a combined maximum rate of 9,432 BOEPD comprising 8,566 BOPD of 37
degree API gravity crude and approximately 4.86 MMCFPD.
The drill stem test was conducted over the Lower Bach Ho formation in the
Miocene interval between 2,701 metres and 2,760 metres. The calculated net pay
was approximately 31 metres over the test interval. An additional 33 metres of
net pay interval were not perforated due to the limited equipment and materials
available within the applicable time constraints. Based on the data from the
well test, oil samples from wireline formation tests, and well logs, the
untested interval is considered oil bearing and productive.
A brief test was also conducted over a deeper Oligocene interval where
significant oil shows were encountered during drilling. However, the formation
was determined to be tight and thus unable to flow commercial quantities of
hydrocarbons.
Evaluation of the well results continues and an appraisal plan for the discovery
is being prepared. An additional appraisal well is planned for the TGT
structure later this year. Success at the TGT-1X well confirms a clastic play
fairway that has been mapped in the eastern and southeastern part of Block 16-1.
Following appraisal of the TGT discovery, exploration drilling will continue
on adjacent prospects. Additional leads will be further delineated by 3D
seismic early in 2006.
Following completion of testing operations on the TGT-1X well, the rig moved
immediately to drill a follow-up appraisal well to the CNV-3X discovery. The
CNV-4X spudded on 31 August 2005 and is currently drilling above the targeted
Basement interval as this report goes to press.
The CNV-4X is the third in an expected six well minimum drilling programme that
will continue into next year. Negotiations are underway to extend the drilling
rig contract for additional wells.
Detailed discussions evaluating various options for development are currently
underway with other operators in the region. Should these discussions prove
fruitful, expectations are that CNV and TGT could be brought into production
much sooner and more cost effectively than if the JOCs were required to
construct separate newly built production and development facilities.
The contracting parties are currently in negotiations with PetroVietnam to
extend both licences.
Yemen
During 2005, the East Shabwa Block 10 consortium, comprising Comeco Petroleum,
Inc. (28.57% interest), in which SOCO holds a 58.75% interest, TOTAL Yemen, S.A.
(28.57% interest and operator), Occidental Yemen Ltd. (28.57% interest) and
Kuwait Foreign Petroleum Exploration Co. (14.29% interest), continued its
drilling programme that was initiated in 2004 specifically targeting the
Basement underlying the Kharir field. The consortium's three part programme for
the year was designed to appraise the Kharir Basement structure, increase
reserves through exploration and increase production from the 29,000 BOPD level
at the end of 2004.
Step out wells were successfully drilled resulting in an expansion of the
parameters of the field.
The KHA 1-09 well (formerly referred to as the KHA-403 prior to the consortium
agreeing a new well designation scheme proposed by the government) spudded on 6
December 2004 and reached a total depth of 3,383 metres. The objectives for the
well were to delineate the Basement and evaluate reservoir development in the
previously undrilled western extension of the Kharir structure. The well
produced over 6,500 BOPD when tested in February 2005 prior to being connected
to Kharir's main production facilities.
Spudded on 1 February 2005, the KHA 2-16 well (formerly KHA-404) reached a total
depth of 3,539 metres. The objectives for the well were to delineate the
Basement and evaluate reservoir development in the northern extension of the
Kharir structure. It produced over 5,500 BOPD when tested in April 2005.
The KHA 1-10 well (formerly KHA-405) spudded on 28 March 2005 and reached a
total depth of 3,755 metres. The objectives for the well were to delineate the
Basement and evaluate reservoir development in the eastern extension of the
Kharir structure as then mapped. The well produced over 7,300 BOPD when tested.
Production was limited by capacity limitations of the Kharir's main production
facilities. This well marked the fourth consecutive drilling success in the
evaluation of the Basement reservoir in the Kharir Field.
A fourth Basement well in the 2005 drilling programme, but the first designed to
be a water injection well, the KHA 2-17 well (formerly KHA-406), spudded on 11
June 2005. It is currently being connected to the appropriate facilities prior
to commencing a water injectivity test.
A preliminary reserve assessment has been conducted based on the results of the
Basement drilling programme to date. A more complete review and assessment of
both Yemen and Vietnam reserves will be conducted in association with the 2005
Annual Report and Accounts.
Republic of Congo (Brazzaville)
In August the Company's 85% owned subsidiary, SOCO Exploration and Production
Congo (SOCO EPC), signed a production sharing agreement with Societe Nationale
des Petroles du Congo (SNPC) wherein it acquired an interest in the Marine XI
Block, offshore the Republic of Congo (Brazzaville).
SOCO EPC will be the operator with a 75% working interest in the Block that was
licenced to SNPC by presidential decree in July 2005. The exploration and
production branch of SNPC (15%) and Africa Oil & Gas Corporation (10%) hold the
remaining interests. The Block, located in the Lower Congo Basin, is in shallow
water adjacent to the coast with water depths ranging up to 110 metres and
covers approximately 1,400 square kilometres. There has been previous
exploration activity on the Block resulting in four small oil discoveries, the
largest of which has initial recoverable reserves estimated to be in the 20
million barrel range.
The previous discoveries are in the shallower horizons of the sedimentary
section in Marine XI. The deeper section, productive onshore and on trend to
the south in Cabinda, has not been adequately evaluated as it could not be
accurately mapped using older seismic data. By employing the modern seismic
techniques that the Company successfully applied in Vietnam to map the Basement
reservoir, SOCO EPC expects to exploit the potential of the deeper section. As
exploration in West Africa moves into ever deeper waters, the application of new
technology provides access to significant reserve potential in under explored
shallow water areas.
Although the Group is in discussions with various parties to farm-out a portion
of its interests in Marine XI, it would retain a significant portion of the
Block and operatorship.
Thailand
The Group submitted a development plan for the Pornsiri field to the appropriate
Thailand regulatory agency during the first half of 2005. The plan is expected
to be finalised shortly. Meanwhile, discussions with various companies continue
as the Group still favours farming out a portion of its 100% interest in Block
B8/38 to a third party, who would take the lead in developing the field, thus
allowing the Group to focus its resources elsewhere.
RESULTS
Financial
For the first time SOCO is reporting under International Financial Reporting
Standards (IFRS) as required by the European Union. In order to provide
comparative financial information SOCO has published on its website a
reconciliation of UK GAAP to IFRS for the periods ending 30 June 2004 and 31
December 2004 as well as its revised accounting policies under IFRS. The
Group's balance sheet at the date of transition to IFRS (1 January 2004) is also
included.
The Group has adopted US dollars as its presentation currency reflecting the
primary economic environment in which the Group operates. Financial
information for comparative periods has been restated in US dollars in the IFRS
reconciliations published on the Company's website.
Historically high crude oil prices realised by the Group during the first half
of 2005 increased the average oil sales price per barrel to US$45.79 from
US$31.69 for the same period last year. Production from Yemen, net to the
Group's working interests, during this period increased to 5,057 BOPD versus
3,790 BOPD in the same period last year. This, combined with the higher oil
prices, increased revenue by US$11.6 million in the six months to 30 June 2005
compared to the same period last year. Adjustment for lifting imbalances
arising in prior periods amounting to US$7.0 million brings the revenue for the
six months to 30 June 2005 to US$27.5 million compared to US$8.9 million in the
same period last year.
Cost of sales of US$10.2 million were reported for the current period compared
to US$2.3 million for the same period last year primarily due to the adjustment
for lifting rebalancing, which increased operating expenses from continuing
operations by US$7.0 million.
Operating expenses on a per barrel basis (excluding lifting imbalances and
inventory) from continuing operations dropped from approximately US$5.30 in the
first half of 2004 to approximately US$4.00 per barrel in the first half of
2005. This is primarily due to the dilution of per barrel fixed operating costs
caused by the increased production in Yemen.
Depreciation, depletion and abandonment (DD&A) costs on continuing operations
increased by US$1.1 million compared to the same period last year reflecting the
increased production along with the addition of future development costs
associated with the Basement reserves. On a per barrel basis, DD&A on
continuing operations increased to approximately US$3.90 per barrel compared to
US$3.58 during the equivalent period last year.
Administrative expenses increased from US$1.6 million in the six months to 30
June 2004 to US$2.5 million in the current period. This is mainly due to lower
costs in 2004 associated with reversing the amortisation of share awards with
performance periods ending in 2004 that were no longer anticipated to vest and a
reduction in anticipated taxation obligations under the share option scheme.
Exploration expenses associated with pre-licence costs were US$0.5 million in
the six months ended 30 June 2005 compared to US$1.0 million in the equivalent
period last year reflecting the Company's emphasis on acquiring licences in its
new core area. In the first half of 2004 SOCO sold its interest in OILSOC
Investment Company Limited netting a gain of US$2.2 million under IFRS.
As a result of the above, the Group's operating profit from continuing
operations increased by over 130% to US$14.3 million from US$6.1 million for the
equivalent period last year.
Higher cash balances as a result of the sale of the Group's Tunisia interest as
well as higher oil revenues caused investment income to rise from US$0.2 million
in the period to 30 June 2004 to US$0.9 million in the current reporting period.
The tax charge on continuing operations increased from US$2.9 million in the
equivalent period last year to US$6.1 million in the current period consistent
with the increase in operating profit.
Discontinued operations comprises the results for the period from the Group's
Tunisia interest which was sold in December 2004 as well as the profit on
disposal.
Drilling activity in both Vietnam and Yemen caused capital expenditure to
increase slightly to US$17.3 million from US$16.5 million for the equivalent
period last year despite the absence this year of Tunisia from the capital
programme and reduced activity in Mongolia pending the completion of the sale.
SOCO's cash and cash equivalents were reduced from the year end 2004 amount of
US$71.1 million to US$66.1 million at 30 June 2005 reflecting the investment in
capital projects, particularly in Vietnam and Yemen.
Production
Even with the divestiture of its Tunisia interests in the second half of last
year, production, net to the Group's working interest, in the first half of 2005
increased to 5,310 BOPD from 5,193 BOPD during the same period last year. More
than 95% of the Group's production arises from its interests in Yemen and the
increase reflects the success of the consortium's Basement focused drilling
programme there as production from this interval more than offsets the decline
in production from the Biyad reservoir.
Corporate Developments
Sale of Mongolia Assets
Consistent with the Company's stated strategy of rationalising its portfolio by
monetising non-core assets, it disposed of its interests in Mongolia by selling
the companies SOCO Mongolia Ltd (SOCO Mongolia) and SOCO Tamtsag Mongolia, LLC
(SOTAMO) through which it held these interests. Daqing Oilfield Limited
Company (Daqing), a subsidiary of PetroChina, acquired the entire shareholding
of these disposed entities for a consideration of up to approximately US$93
million comprising a cash consideration of US$40 million, plus a subsequent cash
payment amount based on total crude oil produced from the interests acquired
subsequent to 1 January 2005 in excess of 27.8 million barrels. The cash
consideration is payable in two tranches. The first tranche of approximately
US$30 million, following applicable settlement adjustments, was paid upon
completion in August. The second tranche of US$10 million was paid into an
escrow account for release to the Company 18 months from completion assuming
satisfaction of the condition that no material undisclosed additional
liabilities are discovered in the interim.
A subsequent payment of up to US$53 million will be tied to future production in
excess of 27.8 million barrels in respect of all crude oil produced from the
divested interests. Once the 27.8 million barrels threshold is exceeded, the
buyer is obliged to pay to SOCO an amount equal to the total aggregate
production for that month multiplied by the average monthly posted marker price
for Daqing crude oil multiplied by 20%. The timescale for the production of
crude oil in excess of 27.8 million barrels and the price of Daqing marker crude
oil are factors that cannot be accurately predicted. However, based upon the
Directors' current estimates of proven and probable reserves from the Mongolia
interests and the development scenarios as discussed with the buyer, the
Directors believe that the full subsequent payment amount estimated to be US$53
million will be payable.
Financing Facility
In August 2005, SOCO agreed a credit facility with IFC, the private sector arm
of the World Bank. The US$45 million reserve-based, revolving credit facility
has a seven year term that will be made available to SOCO in two tranches. The
first tranche of US$25 million will be immediately accessible and the second
tranche of US$20 million is a standby loan.
We are pleased to have the involvement of IFC as they bring not only expertise
in the oil and gas sector, but are also leaders on the environmental and social
sustainability front. The long-term availability of the financing will provide
us with needed flexibility to finance current operations and pursue future
opportunities. IFC is a strong ally in the countries in which we have current
operations as well as those frontier countries in which we hope to initiate
projects in the future.
Outlook
The Group is in the midst of very active drilling campaigns in Yemen and
Vietnam. Each of these drilling programmes will continue throughout much of
2006. Additionally the Group will begin operations in 2006 on its newly
acquired interests in the Republic of Congo (Brazzaville) where a 3D acquisition
programme of 700 square kilometres is expected to commence in the second
quarter.
The Company believes that the Marine XI interests are the cornerstone of a new
core area in West Africa and it continues to seek additional opportunities in
the region to bolster its portfolio. The upside potential already available to
the Group through its Vietnam and Yemen interests has been substantially
enhanced by the addition of the Marine XI interests.
News flow for the drilling programme will continue throughout the immediate
term. Whilst the divestiture of the Mongolia assets significantly reduced the
number of reserves attributable to the Company's entitlement interests, we fully
expect these reserves to be more than replaced by the continuing successes in
Vietnam and Yemen. Although further reserves additions will be booked in the
second half of this year, the real impact of the drilling success will be
reflected next year.
Although success for a company with a large exploration portfolio continues to
have a substantial element of risk, we are confident that the risk has been
mitigated a great deal with the success to date in both Yemen and Vietnam. We
trust that the next several months will only further the substantial progress we
have made to date.
Patrick Maugein Ed Story
Chairman President and Chief Executive
26 September 2005
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 2005 which comprises the consolidated income
statement, the consolidated statement of recognised income and expenses, the
consolidated balance sheet, 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.
International Financial Reporting Standards
As disclosed in Note 2, the next annual financial statements of the group will
be prepared in accordance with International Financial Reporting Standards as
adopted for use in the EU. Accordingly, the interim report has been prepared in
accordance with the recognition and measurement criteria of IFRS and the
disclosure requirements of the Listing Rules. The accounting policies are
consistent with those that the Directors intend to use in the annual financial
statements. There is, however, a possibility that the Directors may determine
that some changes to these policies are necessary when preparing the full annual
financial statements for the first time in accordance with IFRSs as adopted for
use in the EU. This is because, as disclosed in Note 2, the Directors have
anticipated that it is possible that further changes to the accounting policies
and the comparatives will be required before these are published in the next
annual financial statements.
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 2005.
Deloitte & Touche LLP
Chartered Accountants
London
26 September 2005
Notes: A review does not provide assurance on the maintenance and integrity of
the website, including controls used to achieve this, and in particular on
whether any changes may have occurred to the financial information since first
published. These matters are the responsibility of the Directors but no control
procedures can provide absolute assurance in this area.
Legislation in the United Kingdom governing the preparation and dissemination of
financial information differs from legislation in other jurisdictions.
Consolidated income statement
(unaudited) (unaudited)
six months ended six months ended Year ended
30 Jun 05 30 Jun 04 31 Dec 04
Notes $000's $000's $000's
Continuing operations
Revenue 3 27,518 8,898 29,386
Cost of sales (10,207) (2,260) (11,347)
Gross profit 17,311 6,638 18,039
Administrative expenses (2,527) (1,617) (4,039)
Exploration expenses (495) (1,043) (1,946)
Gain on disposal of exploration venture - 2,156 2,156
Operating profit from continuing operations 3 14,289 6,134 14,210
Investment income 869 240 772
Finance costs (237) (58) (95)
Profit before tax from continuing operations 14,921 6,316 14,887
Tax 4 (6,132) (2,880) (6,686)
Profit for the period from continuing operations 8,789 3,436 8,201
Discontinued operations
Operating profit from discontinued operations 5 - 2,734 9,261
Other expenses from discontinued operations - (242) (249)
Profit on disposal 5 - - 15,856
Tax 4 - (896) (3,498)
Profit for the period from discontinued operations - 1,596 21,370
Profit for the period 8,789 5,032 29,571
Earnings per share 6
From continuing operations
Basic 12.6c 4.9c 11.8c
Diluted 11.1c 4.4c 10.4c
From continuing and discontinued operations
Basic 12.6c 7.2c 42.4c
Diluted 11.1c 6.4c 37.5c
Consolidated statement of recognised income and expense
(unaudited) (unaudited)
six months ended six months ended year ended
30 Jun 05 30 Jun 04 31 Dec 04
$000's $000's $000's
Profit for the period 8,789 5,032 29,571
Unrealised currency translation differences (185) 92 341
Total recognised income for the period 8,604 5,124 29,912
Consolidated balance sheet
(unaudited) (unaudited)
30 Jun 05 30 Jun 04 31 Dec 04
Notes $000's $000's $000's
Non-current assets
Intangible assets 101,007 143,563 152,990
Property, plant and equipment 26,260 34,059 25,273
Deferred tax assets 2,423 2,675 2,118
129,690 180,297 180,381
Current assets
Inventories 177 205
-
Trade and other receivables 5,122 7,987 8,327
Tax receivables 512 170 999
Cash and cash equivalents 66,077 48,342 71,122
71,711 56,676 80,653
Assets classified as held for sale 5, 9 73,076
- -
Total assets 274,477 236,973 261,034
Current liabilities
Trade and other payables (11,125) (7,084) (10,588)
Tax payables (66) (945) (62)
Liabilities associated with assets 5, 9 (6,047)
classified as held for sale - -
(17,238) (8,029) (10,650)
Non-current liabilities
Deferred tax liabilities (3,566)
- -
Long-term provisions (2,626) (2,927) (3,197)
(2,626) (6,493) (3,197)
Total liabilities (19,864) (14,522) (13,847)
Net assets 254,613 222,451 247,187
Equity
Share capital 7 23,479 23,347 23,348
Share premium account 68,221 67,874 67,877
Other reserves 54,166 53,558 53,502
Retained earnings 108,747 77,672 102,460
Total equity 254,613 222,451 247,187
Consolidated cash flow statement
(unaudited) (unaudited)
six months ended six months year
ended ended
30 Jun 05 30 Jun 04 31 Dec 04
Notes $000's $000's $000's
Net cash from operating activities 8 12,219 3,113 19,157
Investing activities
Purchase of intangible assets (13,444) (12,772) (19,572)
Purchase of property, plant and equipment (3,813) (3,765) (8,011)
Proceeds on disposal of subsidiary undertaking 5 - - 17,743
Proceeds on disposal of exploration venture - 2,156 2,156
Net cash used in investing activities (17,257) (14,381) (7,684)
Financing activities
Proceeds on issue of ordinary share capital 14 656 660
Net cash from financing activities 14 656 660
Net (decrease) increase in cash and cash equivalents (5,024) (10,612) 12,133
Cash and cash equivalents at beginning of period 71,122 58,893 58,893
Effect of foreign exchange rate changes (21) 61 96
Cash and cash equivalents at end of period 66,077 48,342 71,122
Notes to the consolidated financial statements
1. General information
The information for the year ended 31 December 2004 does not constitute
statutory accounts as defined in section 240 of the Companies Act 1985. A copy
of the statutory accounts for that year has been delivered to the Registrar of
Companies. The auditors' report on those accounts was unqualified.
These financial statements are 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.
2. Significant accounting policies
The interim financial report has been prepared using accounting policies in
accordance with International Financial Reporting Standards (IFRS) for the first
time.
The same accounting policies and methods of computation are followed in the
interim financial report as published by the Company on 23 September 2005 in its
IFRS transition document which is available on the Company's website at
www.socointernational.co.uk. That document sets out SOCO's preliminary
comparative 2004 financial information for the year ended 31 December 2004 and
the six months ended 30 June 2004, restated under IFRS in US dollars, including
reconciliations of the consolidated income statements, consolidated balance
sheets and consolidated cash flow statements between UK GAAP and IFRS. The
document additionally sets out the Group's balance sheet under IFRS at the
transition date of 1 January 2004, including a reconciliation to the UK GAAP
balance sheet at that date.
The preliminary restated financial information was prepared in accordance with
IFRS currently in issue and adopted by the European Commission (EC). These are
subject to ongoing amendment by the International Accounting Standards Board and
subsequent endorsement by the EC. Interpretation of the standards and best
practice is currently evolving, both generally and with regard to certain
sector-specific issues. It is therefore possible that further changes to the
accounting policies and the comparative financial information will be required
before these are published in the 2005 Annual Report and Accounts.
3. Segment information
Geographical segments
The Group's operations are located in Central Asia, South East Asia, North
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 2005 (unaudited)
Central Asia2 N Africa 1 Middle East Unallocated Group
$000's $000's $000's $000's $000's
Revenue 1,498 - 27,518 - 29,016
Segment result - - 17,200 (2,911) 14,289
Six months ended 30 June 2004 (unaudited)
Central Asia2 N Africa 1 Middle East Unallocated Group
$000's $000's $000's $000's $000's
Revenue 1,372 5,079 8,898 - 15,349
Segment result - 2,734 6,532 (398) 8,868
Year ended 31 December 2004
Central Asia2 N Africa 1 Middle East Unallocated Group
$000's $000's $000's $000's $000's
Revenue 3,188 13,413 29,386 - 45,987
Segment result - 9,261 17,815 (3,605) 23,471
1 In December 2004 the Group disposed of its North Africa segment which
comprised its Tunisia interest. The results of this segment are therefore
included in discontinued operations (see Note 5).
2 In April 2005 the Group reclassified its Central Asia segment, which comprises
its Mongolia interest, as an asset classified as held for sale. The results of
this segment are therefore included in discontinued operations (see Notes 5 and
9).
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
Analysis of charge
(unaudited) (unaudited)
six months ended six months ended year ended
30 Jun 05 30 Jun 04 31 Dec 04
$000's $000's $000's
Current tax
UK corporation tax at 30% (2004 - 30%) - -
-
Foreign tax 6,588 3,379 9,458
6,588 3,379 9,458
Adjustments in respect of previous years:
UK corporation tax at 30% (2004 - 30%) - -
-
Foreign tax (151) (445) (434)
6,437 2,934 9,024
Deferred taxation
Origination and reversal of temporary differences (305) 842 1,160
6,132 3,776 10,184
5. Discontinued operations
In December 2004, the Group completed a transaction with an economic effective
date of 1 July 2004 whereby it sold its 100% subsidiary, SOCO Overseas Limited
(SOCO Overseas), the parent of the wholly owned subsidiary SOCO Tunisia Pty
Limited (SOCO Tunisia). SOCO Tunisia directly held the Group's Tunisia interest
in the Zarat Permit offshore Tunisia in the Gulf of Gabes. PA Resources AB
acquired SOCO Overseas for cash consideration of approximately US$20.7 million
after working capital adjustments and post economic cash flow adjustments. The
sale resulted in a net cash inflow in 2004 in the amount of US$17.7 million
reflecting the US$20.7 million cash consideration net of transaction costs of
US$0.5 million and the Group's share of cash held by SOCO Tunisia of US$2.5
million, and a profit of US$15.9 million. During the financial period up to the
completion date of the sale, the Tunisia interest contributed US$9.3 million to
the Group operating profit (period ended 30 June 2004 - US$2.7 million).
Immediately prior to the sale the Group's share of net assets held by the
Tunisia interest was US$12.0 million (30 June 2004 - US$6.1 million), including
US$8.1 million related to post economic date cash flow adjustments.
As disclosed in Note 3, the Group reclassified its Central Asia segment, which
comprises the Mongolia asset, as an asset classified as held for sale. As this
is now classed as a discontinued operation the revenue and cost of sales have
been removed from continuing operations. There is no impact on operating profit
as turnover arose from test production during an appraisal programme and an
amount was charged from appraisal costs to cost of sales so as to reflect a zero
net margin. Turnover attributable to the Mongolia interest for the period ended
30 June 2005 was US$1.5 million (year ended 31 December 2004 - US$3.2 million
and period ended 30 June 2004 - US$1.4 million). The Group's share of net
assets associated with the Mongolia interest as at 30 June 2005 was US$67.0
million (31 December 2004 - US$65.4 million and 30 June 2004 - US$65.3 million).
Further details of the transaction are disclosed in Note 9.
6. Earnings per share
The calculation of the basic earnings per share is based on the profit for the
financial period from continuing operations and from continuing and discontinued
operations and on 69,845,629 (year ended 31 December 2004 - 69,740,521 and six
months ended 30 June 2004 - 69,679,931) ordinary shares, being the weighted
average number of ordinary shares in issue and ranking for dividend during the
year, excluding 2,475,000 (year ended 31 December 2004 - 2,475,000 and six
months ended 30 June 2004 - 2,475,000) ordinary shares of the Company held by
the Group.
The calculation of the diluted earnings per share is based on the profit for the
financial period from continuing operations and from continuing and discontinued
operations and on 79,037,177 (year ended 31 December 2004 - 78,812,689 and six
months ended 30 June 2004 - 78,837,729) ordinary shares, being the weighted
average number of ordinary shares in issue and ranking for dividend during the
year including 2,475,000 (year ended 31 December 2004 - 2,475,000 and six months
ended 30 June 2004 - 2,475,000) ordinary shares of the Company held by the Group
and 6,716,548 outstanding share options and warrants (year ended 31 December
2004 - 6,597,168 and six months ended 30 June 2004 - 6,682,798) that have a
diluting effect on earnings per share.
7. Share Capital
The Company issued 356,007 new ordinary shares of £0.20 each during the six
months ended 30 June 2005 (year ended 31 December 2004 - 297,086 and six months
ended 30 June 2004 - 294,086), including 347,007 shares issued upon the exercise
of certain share options to purchase shares at £0.725 and 9,000 shares issued
upon the exercise of certain share options to purchase shares at £0.77.
8. Reconciliation of operating profit to operating cash flows
(unaudited) (unaudited)
six months ended six months ended year ended
30 Jun 05 30 Jun 04 31 Dec 04
$000's $000's $000's
Operating profit 14,289 8,868 23,471
Depreciation, depletion and amortisation 4,251 3,389 6,516
Gain on disposal of exploration venture - (2,156) (2,156)
Operating cash flows before movements in working 10,101 27,831
capital 18,540
Decrease (increase) in inventories 141 (105) (599)
Increase in receivables (2,933) (3,391) (649)
Increase (decrease) in payables 1,659 (2,363) (1,886)
Cash generated by operations 17,407 4,242 24,697
Interest received 837 290 653
Interest paid (121) (13) (52)
Income taxes paid (5,904) (1,406) (6,141)
Net cash from operating activities 12,219 3,113 19,157
Cash generated from operating activities comprises:
Continuing operating activities 12,219 413 9,663
Discontinued operating activities - 2,700 9,494
12,219 3,113 19,157
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 with a maturity of three months or less.
9. Events after the balance sheet date
Disposal of Mongolia interest
In April 2005 the Group entered into a Sale and Purchase Agreement (Agreement)
with an economic effective date of 1 January 2005, to sell its 100% owned
subsidiaries SOCO Tamtsag Mongolia, LLC (SOTAMO) and SOCO Mongolia Ltd (SOCO
Mongolia) to Daqing Oilfield Limited Company (Daqing), a subsidiary of
PetroChina. Together SOTAMO and SOCO Mongolia held the Group's Mongolia
interest. In August 2005 the Group completed the transaction. Under the terms
of the Agreement the Group will receive consideration of up to approximately
US$93.0 million comprising cash consideration of US$40.0 million plus a
subsequent payment based on total crude oil produced from the Mongolia interest
after the effective date in excess of 27.8 million barrels of oil.
The US$40.0 million cash consideration is payable in two tranches. The first
US$30.0 million was paid, less applicable settlement adjustments of US$0.4
million, in August 2005 upon completion. The second tranche of US$10.0 million
was paid into an escrow account by Daqing upon completion to be released to the
Group 18 months later upon the satisfaction of the condition that no material
undisclosed additional liabilities are discovered. The remaining consideration
is payable, once cumulative production reaches 27.8 million barrels of oil as
described above, at the rate of 20% of the average monthly posted marker price
for Daqing crude multiplied by the aggregate production for that month, up to a
total of approximately US$53.0 million based on the estimated recoverable costs
incurred to 31 December 2004, as approved by the Mineral Resources and Petroleum
Authority of Mongolia.
Licence Acquisition
In August 2005 the Company's 85% owned subsidiary, SOCO Exploration and
Production Congo (SOCO EPC), signed a production sharing agreement with Societe
Nationale des Petroles du Congo (SNPC) wherein it acquired a 75% interest in the
Marine XI Block, offshore the Republic of Congo (Brazzaville). The Group is in
discussions with various parties to farm-out a portion of its interests.
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