Preliminary Results
Soco International PLC
26 March 2008
SOCO International plc
('SOCO' or 'the Company')
Preliminary Results For The Year Ended 31 December 2007
SOCO is an international oil and gas exploration and production company,
headquartered in London, traded on the London Stock Exchange and a constituent
of the FTSE 250 Index. The Company has interests in Vietnam, Yemen, Thailand,
the Republic of Congo (Brazzaville), the Democratic Republic of Congo (Kinshasa)
and Angola with production operations in Yemen. Its production operations in
Yemen are currently the subject of a conditional sale and purchase agreement
announced earlier this year.
The Company today announces its Preliminary Results for the year ended 31
December 2007.
2007 HIGHLIGHTS
Operational
Development
• Progress towards first oil in Vietnam and Thailand
Exploration
Vietnam
• Extension of exploration licence on Block 16-1 in Vietnam
• Unconfirmed significant new discovery on Block 16-1
o Drilling on TGD-1X side track well commenced in November 2007, but
series of minor, unconnected operating problems have delayed final
results
West Africa
• Continued expansion of the West African portfolio by adding a Block in Angola
Financial
• Post Tax profits rose to a record high of $32.3 million (2006 : $29.1 million)
• Post year end disposal of Yemen assets will realise $465 million for
reinvestment into existing and new exploration and development opportunities
2008 OUTLOOK
Vietnam
• The CNV field on Block 9-2 will come on-stream mid-year
• The Company is confident that the TGT field on Block 16-1 will be declared
commercial before the end of the first half of 2008
Thailand
• First production from Bualuang field expected during the second quarter of
2008
West Africa
• First of multiple wells to spud in West Africa on Marine XI during the
second half of 2008
Ed Story, President and Chief Executive of SOCO, commented:
'With near term production from the CNV field in Vietnam and the Bualuang field
in Thailand, medium term development and exploration upside in Vietnam and long
term exploration potential in West Africa, we are very optimistic about SOCO's
future growth prospects.
'With the proceeds following the disposal of our Yemen interests, we have the
financial strength to fund this growth, whilst we look forward with anticipation
to the results of the TGD well drilling on the E prospect on Block 16-1 in
Vietnam.'
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
Our philosophy since inception has been that we believe the bulk of value
creation in the independent oil and gas sector comes through the drill bit. We
believe that the past year, while inconclusive regarding our high profile
exploration programme in Vietnam, very much lends credence to this philosophy.
Our persistence in pursuing the potential in what was once a rather
unconventional play type in Yemen continued to reap dividends as we once again
had a reserves upgrade on Block 10. The culmination of our efforts in Yemen
most likely will be our realisation of value from the project as, in February
2008, the Company announced it had entered into a conditional sale and purchase
agreement for the sale of its interest in the East Shabwa Development Area for
$465 million, subject to certain financial adjustments. The disposal is part of
SOCO's strategy of realising value at the appropriate stage of an asset's
life-cycle and reinvesting the capital in other areas of the portfolio to build
shareholder value.
While the final outcome of the 2007 drilling programme in Vietnam has yet to be
concluded, as we continue to drill the high profile Te Giac Den side track well
(TGD-1XST1), it is fair to say that our early recognition of the opportunities
available in Vietnam has already resulted in this becoming the prized asset in
SOCO's portfolio. Our first field discovery on Block 9-2 offshore Vietnam, the
Ca Ngu Vang (CNV) field, is scheduled to come on stream late in the second
quarter or early in the third quarter of this year. Despite delays attributable
to the unitisation implications of our second field discovery, the Te Giac Trang
(TGT) field on Block 16-1 offshore Vietnam, we fully expect an official
declaration of commerciality before the end of the first half of 2008.
With the first well set to spud during the second half of 2008, the Company's
Africa portfolio moves closer to the value building phase. Our core area in the
high potential Congo Basin grew during 2007 with the addition of an interest in
the Cabinda North Block, onshore Angola. In early 2008, the portfolio was
expanded eastward to include Block 5 in the Albertine Graben of the Democratic
Republic of Congo (Kinshasa).
Numbers wise, 2007 may at first glance appear to be unexciting as much of the
year's achievements were benchmarks towards the significant activities set to
continue into 2008. However, when reviewed in hindsight 2007 could prove to
have been one of the more transformational years since the Company's inception.
In the matter of a few months time, we expect to report results of the high
profile TGD well, finalise the sale of SOCO Yemen, achieve first oil in both
Vietnam and Thailand and initiate drilling in West Africa.
FINANCIAL AND OPERATING RESULTS
After tax profit reached a record high for the second consecutive year rising
from $29.1 million in 2006 to $32.3 million in 2007. The Company's entire
production is attributable to its interest in Block 10 in Yemen. Profit
increased despite planned production curtailment during the year to accommodate
an expansion of the East Shabwa Development Area's production and injection
capacity, leading to production net to the Company's working interest decreasing
from 6,766 barrels of oil per day (BOPD) in 2006 to 6,316 BOPD in 2007.
With almost continuous drilling in Vietnam and Yemen, and with the facilities
expansion in Yemen, the Group's capital expenditures again rose year on year
equalling $178.6 million in 2007 versus $114.3 million the previous year. The
Company continued to fund its commitments via operating cash flow of $71.9
million and with the remainder of proceeds from the convertible bonds issued in
2006 leaving a cash balance of $68.3 million at year end 2007, as compared with
$187.8 million at year end 2006.
The proceeds from the disposal of the Group's Yemen assets, if the transaction
is finalised, will strengthen the Company's balance sheet and provide funding
for existing exploration and development opportunities and other opportunities
that may arise. In addition, the Group has raised short term debt finance to
provide the necessary financial flexibility in the short to intermediate term.
The Directors recommend no dividend as the reinvestment of cash will be utilised
to fund our ongoing exploration and development activities.
2007 OPERATIONS REVIEW
Vietnam
Exploration
The most significant concrete news originating in 2007 from Vietnam on the
exploration front was the grant by the government of Vietnam of the extension of
the exploration licence on Block 16-1. In January 2008, the Company received
formal notification that the Prime Minister of The Socialist Republic of Vietnam
had granted the extension of the deadline of the Hoang Long Joint Operating
Company's obligation of surrendering the remainder of the Block 16--1 Contract
Area until 6 June 2008.
The exploration phase of work on Block 9-2 offshore Vietnam was concluded in
2007 when the Ca Ong Doi 2X (COD-2X) well was drilled during the first quarter
on the COD structure to evaluate the possibility that the clastics play on Block
16-1 extended into this Block. This well was plugged and abandoned when the
Lower Miocene sands were determined to not be charged with hydrocarbons. With
the exploration licence expiring on Block 9-2 in December of 2007, the Company
relinquished the remainder of the Block excluding the CNV field development
area.
On Block 16-1, exploration wells drilled during 2007 targeting the Miocene, the
interval which resulted in the significant TGT discovery in 2005, proved
disappointing with a series of wells being plugged and abandoned including the
Te Giac Cam 1X well on Prospect 'S', the Te Giac Hong 1X exploration well to
evaluate the 'L' North prospect and the Te Giac Lam 1X well, which tested a
Miocene four-way closure on one of the Basement ridges of the 'O' prospect. The
first of these exploration wells was spudded in March utilising the Trident 9
rig, which was subsequently released having completed its contract. The
Adriatic XI drilling rig began its two year contract in July when it was
mobilised to drill the second and third Miocene targeted wells before moving on
to drill an Oligocene well, prior to re-entering the TGD well to drill the
TGD-1XST1.
Whilst we had some encouragement in each of these wells, from the possibility of
finding hydrocarbons in deeper pay zones to indications of a new play type, the
primary targets generally proved non-commercial due to lack of reservoir
quality. Likewise, a well drilled on the 'AA' prospect, the Voi Nau 1X well,
drilled to evaluate a four way closure in the Oligocene interval, which had
proved productive in the Voi Trang discovery in 2002, was plugged and abandoned
after encountering poorly developed sands with insufficient porosity to warrant
testing.
The newly commissioned PVD-1 rig began its two year contract by spudding the
TGD-1X well on Prospect 'E' in April 2007 to test the deep potential in the
basin. The well encountered hydrocarbons in two Oligocene clastic sequences,
which were separated by a volcanic layer. Well logs over the upper sequence
indicated approximately 30 metres of net pay. After drilling through the
volcanics, the well encountered a lower clastic sequence with oil and gas shows.
However, the mud weight required to control the pressure and gas indicated
downhole pressures at the upper limit of the safe operating capability of the
drilling rig. Consequently, drilling had to be halted after only 22 metres of
the sequence had been penetrated. High pressure and temperature (HPHT) also
meant that the section could not be logged. In addition to having to deal with
the operational challenges caused by intersecting two over pressured zones in
this HPHT prospect, the rig experienced a series of control system failures,
which potentially could have compromised safe continuation of drilling
operations. Thus after drilling for approximately 100 days, with inconclusive
results, the TGD-1X well was temporarily suspended at 4,625 metres.
The Adriatic XI rig was moved on location to drill the TGD-1XST1 well in
November 2007 and the drilling remains in progress at the time of this writing.
It was impossible to envisage that when we spudded the TGD well on the 'E'
prospect on Block 16-1 offshore Vietnam in April of last year, that we would
still be anticipating the outcome almost a year later. But, a combination of
operating problems with the two rigs involved and challenging downhole
environments have put us precisely in this situation. We eagerly anticipate the
outcome.
Development
Development drilling commenced in the CNV field on Block 9-2 when the
Petrovietnam Drilling and Well Services drilling rig, the PVD-1 which had been
commissioned during the year, continued its two year contract by spudding the
CNV-1P well in September. The well flowed at approximately 10,000 barrels of
liquid per day (30% water cut) on an abbreviated test as is planned for all of
the development wells to ensure that timely progress is made toward the target
first oil date at or near the end of the second quarter of 2008. The second
development well in the planned three producer, one injector development
drilling programme spudded early in February 2008. Meanwhile, major facilities
and equipment orders proceed apace to meet the planned onstream date.
Progress toward development on the TGT field on Block 16-1 was less seamless
than that with CNV. Our expectations that a declaration of commerciality by the
government of Vietnam could be achieved last year fell short primarily due to a
small discovery on an adjoining block, which suggested an extension of the TGT
field and brought unitisation implications. Although it has subsequently been
borne out that there is a small extension of the TGT field on a neighbouring
block, many of the equity implications have been agreed with the other
consortium and an initial reserve allocation report, the first step for agreeing
commerciality, has been filed with Petrovietnam. Barring any further
complications, we fully expect the declaration of commerciality for the TGT
field to be granted before the end of the first half of 2008.
Yemen
Drilling activity with three rigs continued throughout 2007 as the East Shabwa
Block 10 Consortium continued the programme of appraisal and development of the
Kharir Basement. In January 2008, production from the East Shabwa concession
reached the 100 million barrel milestone. Daily production was back to peak
levels in early 2008, only limited by the capacity of the processing equipment.
Water injection rates reached approximately 50,000 barrels of water per day
(BWPD) into the Basement, with individual injectors accepting in excess of the
original 2,500 BWPD design limit. We expect that this will be a positive
development for the field to meet increased production targets once the facility
upgrades are available.
In February 2008, the Company announced it had entered into a conditional sale
and purchase agreement for the sale of its interest in the East Shabwa
Development Area in Yemen. Details of the transaction can be found in Note 8 to
the Financials section of this report.
Republic of Congo (Brazzaville)
Initial processing and Pre Stack Depth Migration of the seismic data have been
completed. Interpretation continues albeit slightly behind schedule. SOCO
Exploration and Production Congo SA (SOCO EPC) expects to tender for a
multi-well drilling programme likely to commence in the second half of 2008.
In March 2008, SOCO EPC assigned a portion of its interests to Petrovietnam
Exploration Production Corporation Ltd. (PVEP). The assignment of interests is
subject to approval of the appropriate regulatory authorities of the Government
of the Republic of Congo (Brazzaville), waivers of any third party preferential
rights and certain obligations of PVEP.
Democratic Republic of Congo (Kinshasa)
In August 2007, the Group received Cabinet approval of its Production Sharing
Contract (PSC) on the 800 square kilometre Nganzi Block, onshore the Democratic
Republic of Congo (Kinshasa) (DRC). Final approval was received in March 2008.
A geochemical survey was conducted in August to evaluate the potential of
several leads previously identified by an aeromagnetic and gravity survey
conducted by the Company. The results will be used to help lay out a 2D seismic
grid. Seismic acquisition is scheduled to begin later this year.
In March 2008, the Group entered into a new PSC with the Government of the DRC,
Dominion Petroleum Limited and Cohydro, to acquire exclusive rights for
hydrocarbon exploration on Block 5, located in the southern Albertine Graben in
eastern DRC adjacent to the DRC/Uganda border. The Group holds a 38.25%
participating interest in the PSC, which is subject to and becomes effective
upon ratification by the President of the DRC.
Angola
The Company was notified in August 2007 that the Executive Decree outlining SOCO
Cabinda Limited's 17% participating interest in the Production Sharing Agreement
for the Cabinda Onshore North Block became effective in July. An airborne
gravity and magnetic survey was conducted over the Block in the second quarter
and processing completed in the third quarter. Interpretation of the survey is
underway. A contract for the acquisition of a 1,200 kilometre 2D seismic
survey, based on the results of the gravity and magnetic survey, was awarded to
Grant Geophysical, but was suspended and subsequently cancelled following a
security incident in a remote area of the Block.
Thailand
The farm-in partner on the Bualuang field continues to move forward with the
development. They have installed the production jacket and a platform drilling
rig has completed the drilling of two wells during February 2008. A floating
production, storage and offloading facility is also scheduled to arrive in the
field and be ready for production operations in the first half of 2008. The
drilling plans provide for simultaneous drilling and production operations. The
first wells will be batch drilled and then completed. First production is
expected to be in the first half of 2008.
CORPORATE
Disposal of Yemen interests
In line with the Company's track record of realising value at the appropriate
stage of an asset's life-cycle and reinvesting the capital to build significant
shareholder value, the Company entered into a conditional sale and purchase
agreement in February 2008 for the sale of its interest in the East Shabwa
Development Area to Sinochem Petroleum Limited for $465 million, subject to
certain financial adjustments.
The proceeds from the disposal will strengthen the Company's balance sheet and
provide funding for its existing exploration and development projects and other
opportunities that may arise. The Board believes that the disposal is in the
best long term interests of the Company and represents an excellent opportunity
to realise value from a mature producing non-core asset.
Details of the disposal can be found in Note 8 to the Financials section of this
report.
Outlook
The year ahead is shaping up to be important to the Company in multiple ways.
First, the government of Vietnam's extension of the Block 16-1 exploration
licence will allow us to put a final stamp on the way our assets in Vietnam
progress, either with additional opportunity to add to the existing discoveries
or progressing the already significant field discoveries towards first oil.
Declaration of commerciality on TGT is a priority for us and now looks to have
advanced beyond the impediments imposed by having the additional complications
of a unitisation. In any case, we expect the Vietnam portfolio to be finalised
this year.
If the sale of the Yemen assets proceeds to completion, it will mark the end of
our association in that country, an association that has been very value
accretive to the Company. Perhaps this project, as much as any, provides the
consummate example of how the Company's business model can be executed to
recognise and capture potential to create significant shareholder value.
Finally, we begin the first phase of creating value through the drill bit in
West Africa, as we expect to spud the first of multiple wells on Marine XI
during the second half of 2008. As has been demonstrated in Cabinda, there can
be substantial risk associated with some of the areas in which we have expanded
our exploration operations. To the extent possible, we think we have taken
these risks into consideration and have concluded that it is in the best
interests of our shareholders to continue to expand our exploration footprint
where we see considerable opportunity.
Despite the recent uncertainty in world economic markets and its spill over into
our sector, we believe that the dynamics for the industry remain very positive
in the near to intermediate term. We look forward to leading the Company into
its next important stage of value creation.
Rui de Sousa Ed Story
Chairman President and Chief Executive
REVIEW OF OPERATIONS
Whereas previous years were benchmarked by measurable achievements in our
exploration drilling programme; in steady progress in production growth and in
expansion of our exploration portfolio, the primary achievements in 2007 have
benchmarked progress toward goals that will hopefully be realised in the future.
Qualitatively, the verdict is still out on our drilling programmes as the high
profile Te Giac Den well is still drilling in Vietnam; the big boost in
production in Yemen is set to begin after a year of planned curtailment and the
exploration drilling phase in our West Africa portfolio is expected to commence
later in 2008.
VIETNAM
SOCO holds its interests in the Cuu Long Basin through its 80% owned subsidiary
SOCO Vietnam Ltd (SOCO Vietnam) and through its 100% ownership of OPECO, Inc.
SOCO Vietnam holds a 25% working interest in Block 9-2, which is operated by the
Hoan Vu Joint Operating Company and holds a 28.5% working interest in Block
16-1, which is operated by the Hoang Long Joint Operating Company (HLJOC).
OPECO, Inc. holds a 2% working interest in Block 16-1.
The Cuu Long Basin is a shallow water, near shore, oil rich basin defined by
several high profile producing oil fields, the largest of which has been the
Bach Ho field, which lies adjacent to both Block 9-2 and Block 16-1. Bach Ho
has produced more than one billion barrels of oil to date.
Block 16-1
Exploration drilling on Block 16-1 got off to a slow start in 2007 as the
Trident 9 drilling rig experienced lengthy weather delays in moving off the site
of the last exploration well drilled under the Block 9-2 exploration licence.
Also, the Petrovietnam Drilling and Well Services (PDWS) newly commissioned
drilling rig, the PVD-1, did not begin its two year contract until early April
when it spudded the Te Giac Den 1X (TGD-1X) well, primarily targeting the
expected high pressure, high temperature Oligocene interval on Prospect 'E'.
Almost immediately, the PVD-1 rig began experiencing a number of operating
issues, which adversely impacted drilling.
In March, the Trident 9 rig moved on location to drill the shallower Te Giac Cam
1X (TGC-1X) well on Prospect 'S'. The reservoir in the primary target, the
Lower Bach Ho 5.2 (LBH 5.2) interval, was not developed, but the well was
deepened to further evaluate oil shows witnessed in the Oligocene section.
While drilling in the Oligocene, the well encountered unexpected high pressure,
with associated oil and gas shows, and had to be cased using a seven inch liner
prior to drilling to total depth. Examination of the well and logging data
indicated that, despite the hydrocarbon influx, it was not sufficiently
encouraging for the well to be tested. The high pressures did, however, support
the concept of porosity preservation at depth due to early migration of
hydrocarbons; the basis for the deep play on the Block. Ultimately the TGC-1X
well was plugged and abandoned after reaching a total depth of 4,196 metres.
With this well the Trident 9 rig completed its contract and was released.
Meanwhile, the PVD-1 rig drilling the TGD-1X well encountered the first high
pressure zone, higher than prognosed, and had to plug back to sidetrack and case
the hole. After setting casing, the rig was taken off line due to a series of
control system failures, which potentially could have compromised safe
continuation of drilling operations. After being off-line for approximately
three weeks, the control systems were corrected and the rig resumed drilling
until penetrating a second high pressure interval, which was beyond the safe
operating capacity of the drilling rig.
The TGD-1X well had encountered hydrocarbons in two Oligocene clastic sequences,
which were separated by a volcanic layer. Well logs over the upper sequence
indicated approximately 30 metres of net pay. After drilling through a layer of
volcanics, the well encountered a lower clastic sequence with oil and gas shows.
However, the mud weight required to control the pressure and gas indicated
downhole pressures at the upper limit of the safe operating capability of the
drilling rig. Consequently, drilling had to be halted after only 22 metres of
the sequence had been penetrated. High pressure and temperature also meant that
the section could not be logged. In July, the well was temporarily suspended at
4,625 metres and the PVD-1 rig was released to commence development drilling
operations, as originally planned, on the Ca Ngu Vang (CNV) field on Block 9-2.
While the PVD-1 rig was battling the highly complex TGD-1X well, the Adriatic XI
drilling rig began its two year contract in July when it was mobilised to drill
the Te Giac Hong 1X (TGH-1X) exploration well to evaluate the 'L' North
prospect. The well was drilled to evaluate the Miocene and Upper Oligocene
sections that are productive in the Te Giac Trang (TGT) discoveries. The well
was plugged and abandoned after reaching a total depth of 3,685 metres. The
well evaluated the LBH 5.2 and the Oligocene 'C' formations. The LBH 5.2 sands
were poorly developed and had no oil shows. There were sands with oil shows in
the Oligocene 'C', however, log evaluation indicated that the sands had poor
permeability and they were not tested.
In August, the Adriatic XI rig was moved to drill the Te Giac Lam 1X (TGL-1X)
well on the 'O' prospect to test a Miocene four-way closure on one of the
Basement ridges that appeared on seismic to be analogous to the geological
setting of the TGT field discovery to the east. The well was subsequently
deepened to intersect the Oligocene sands. Even though the well was drilled
overbalanced, mud log data indicated 70 metres of sand with good oil shows in
the Oligocene section. A test was conducted over this interval, however, the
sands at this location were found to be tight and further testing was
discontinued. In September, the well was plugged and abandoned after reaching a
total depth of 3,697 metres.
The rig next moved to drill the Voi Nau 1X (VN-1X) exploration well on the 'AA'
prospect located on trend with the oilfield discovered in 2002 by the Voi Trang
1X well. The VN-1X was drilled on a four way closure to evaluate the Oligocene
section that was productive in Voi Trang. While the well encountered oil shows,
the sands were poorly developed and had insufficient porosity to warrant
testing. In October, the well was plugged and abandoned after reaching a total
depth of 3,130 metres.
The Adriatic XI rig was then fitted with high pressure well control equipment,
including a 15,000 psi blow out preventer, before moving back to Prospect 'E' to
re-enter the TGD-1X borehole and drill a sidetrack, the TGD-1XST1. The well
kicked off at approximately 650 metres and was cased three times prior to
reaching the top of the high pressure and high temperature section, which is the
preliminary target just above Basement. This well has taken longer to drill
than expected, partially due to equipment problems on the rig, but also due to
the complexities of drilling the high pressure sections and the need to put
behind casing the different sands to prevent downhole pressure problems.
During the year, exploration drilling on Block 15-2/01, the adjacent block to
the north of Block 16-1, resulted in a discovery which proved to be an extension
of the northern fault block of the TGT field. As a result, additional time was
required to understand the various implications of this extension before
progressing the application for a declaration of commerciality on the TGT field.
A technical review of the wells drilled in the northern fault block of the TGT
field in Block 16-1 and those of the extension drilled on Block 15-2/01
concluded that in excess of 95% of the accumulation in the northern fault block
was located in SOCO's Block 16-1. This review resulted in a delay in providing
Petrovietnam with the necessary information that would allow it to approve a
declaration of commerciality.
In the first quarter of 2008, the reserve assessment report, the precursor of an
official request to approve the declaration of commerciality, was submitted to
Petrovietnam. The outline development plan is expected to be submitted early in
the second quarter of 2008. Upon approval of the outline development plan, work
will commence on the detailed development plan. The target is to seek formal
approval for the commitment to the development of the TGT field in the fourth
quarter of 2008. Although more work is required, approval of the declaration of
commerciality is expected around mid-year.
In January 2008, the Company received formal notification that the Prime
Minister of The Socialist Republic of Vietnam had granted the extension of the
deadline of the HLJOC's obligation of surrendering the remainder of the Block
16-1 Contract Area until 6 June 2008. This extension was granted to allow the
completion of the previously agreed active work programme. Application for
appraisal areas on Block 16-1 will be made before the expiry of the extended
exploration licence.
Block 9-2
The exploration phase of work on Block 9-2 was concluded in 2007 when the Ca Ong
Doi 2X (COD-2X) well was drilled during the first quarter on the COD structure
to evaluate the possibility that the clastics play on Block 16-1 extended into
this Block. This well encountered Lower Miocene sands, however they were not
charged with hydrocarbons possibly indicating that the structure was developed
after migration.
Sands were also encountered in both the Oligocene 'C' and 'E' sequences.
Although the Oligocene 'C' had good shows, the sands were thinner than expected
and, following evaluation of the electric logs, it was decided not to flow test
this horizon. In the Oligocene 'E', the shows encountered were of residual oil
indicating that the reservoir had been breached. This well was the final
exploration well to be drilled on Block 9-2 and the exploration licence expired
at the end of 2007.
The first half of 2007 was primarily focused on the letting of all major
contracts associated with the Pilot Development Plan on the CNV field, which was
officially approved in December 2006 by Petrovietnam. Subsequent to this
approval, Petrovietnam became a full paying participant in its 50% interest in
Block 9-2.
During the year, work began on the fabrication of both the unmanned offshore
platform and the pipeline that will transport gas and liquids to Bach Ho for
processing and transportation to market. The PVD-1 drilling rig moved on
location to begin the development drilling programme on the CNV field on 21
August, after experiencing some weather delays. The first development well on
CNV, the CNV-1P, was a complicated long reach well drilled to 5,447 metres
measured depth. During the drilling, it encountered an anomalous high pressure
zone, which resulted in a plugback and redrill, finally reaching total depth on
31 December. In the subsequent abbreviated test, the well tested at
approximately 10,000 barrels of liquid per day with a 30% water cut. The well
would be expected to clean up and flow clean oil, but the plan is to perform
preliminary testing only of the development wells in order to keep the timetable
for first oil near the end of the second quarter or early third quarter of 2008.
The second development well on CNV, the CNV-2P, commenced on 7 February 2008 and
was drilling as this report went to press. In total, three development wells
and a single injector well are expected to be drilled in the field development.
CNV is being developed as a satellite platform to the Bach Ho field. Agreement
has been reached by the parties as to the utilisation charges for the Bach Ho
facilities. Certain aspects of the development programme, particularly the gas
sales agreement for the associated gas produced from the CNV field, have not yet
been finalised. However, conclusion of these remaining agreements is not seen
to have an impact on the scheduled first oil date.
YEMEN
Drilling activity with three rigs continued throughout 2007 as the East Shabwa
Block 10 Consortium continued the programme of appraisal and development of the
Kharir Basement. The consortium comprises 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).
Appraisal work was focused on testing the areal extents of the Basement interval
in the Kharir field. Several Basement producers, aimed at appraising and
developing the southern to south western flank area of the field, have been
drilled. The results to date of these wells have been very encouraging,
indicating greater fracturing and hence greater performance and more oil
in-place in this area of the field.
Further development has centred on drilling wells into the overlying Biyad
horizon to provide water for the Basement injection schemes and drilling
Basement water injectors. Production from the field was purposely limited below
the average level experienced in 2006. This limitation was a direct result of
delays in installing water injection equipment associated with the reservoir
pressure maintenance project and issues with water filtration equipment.
In the first two months of 2008, both water injection and gas reinjection into
Basement was at capacity with water injection rates of approximately 50,000
barrels of water per day. Capacity is expected to increase during the year.
Recent pressure surveys have confirmed pressure maintenance in both the north
and western sides of the Kharir field. No significant water breakthroughs have
been noted to date. Several Basement wells have been temporarily shut-in to
allow for re-pressuring of the reservoir in order to shrink the gas cap in the
western part of the field.
In addition, there is significant activity ongoing to increase the production
handling capacity of the processing equipment. Alongside the addition of new
process equipment, the existing equipment is undergoing debottlenecking to
maximise throughput.
In February 2008, the Company entered into a conditional sale and purchase
agreement with Sinochem, a Chinese oil and gas company, wherein Sinochem would
acquire SOCO Yemen Pty Limited, the wholly owned SOCO subsidiary which
indirectly holds its interests in Block 10 in Yemen. Details of this
transaction can be found in Note 8 to the Financials section of this report.
REPUBLIC OF CONGO (BRAZZAVILLE)
SOCO Exploration and Production Congo SA (SOCO EPC), which is held through the
Company's 85% owned subsidiary SOCO Congo Limited, holds an interest in, and is
the designated operator of, the Marine XI Block offshore the Republic of Congo
(Brazzaville).
A 1,200 square kilometre 3D seismic acquisition programme was completed over the
shallow water Block located in the Lower Congo Basin, in the fourth quarter of
2006. Initial processing of the data has been completed and Pre Stack Depth
Migration (PSDM) of the data is now underway in order to better image the
pre-salt structure.
Due to additional iterations of the PSDM, processing is slightly behind
schedule, however SOCO EPC expects to tender around mid-year for a multi-well
drilling programme which is likely to commence in the second half of 2008.
In March 2008, SOCO EPC entered into a farm-out agreement wherein it agreed to
farm-out 8.5% of its interest in the Marine XI Block to Petrovietnam Exploration
Production Corporation Ltd. SOCO EPC will remain as the operator with a 29%
working interest in the Block. The assignment of interests is subject to
approval of the appropriate regulatory authorities of the Government of the
Republic of Congo (Brazzaville), waivers of any third party preferential rights
and certain obligations of Petrovietnam.
DEMOCRATIC REPUBLIC OF CONGO (KINSHASA)
SOCO DRC Limited (SOCO DRC), the Company's 85% owned subsidiary holds 99% of
SOCO Exploration and Production DRC Sprl (SOCO E&P DRC), the designated operator
with an 85% working interest in the 800 square kilometre Nganzi Block, onshore
the Democratic Republic of Congo (Kinshasa). Cohydro, the state owned oil
company, holds the remaining 15% interest.
SOCO E&P DRC received Cabinet approval of its Production Sharing Contract (PSC)
in August 2007, and final approval through a Presidential Decree was received in
March 2008. A geochemical survey was conducted in August to evaluate the
potential of several leads previously identified by an aeromagnetic and gravity
survey conducted by the Company. The results will be used to help lay out a 2D
seismic grid. Seismic acquisition is scheduled to begin later in the first half
of 2008.
In March 2008, SOCO E&P DRC entered into a new PSC with the Government of the
DRC, Dominion Petroleum Limited (Dominion) and Cohydro, to acquire exclusive
rights for hydrocarbon exploration on Block 5, located in the southern Albertine
Graben in eastern DRC adjacent to the DRC/Uganda border. The Block has an area
of 7,105 square kilometres, including part of Lake Edward. SOCO E&P DRC holds a
38.25% participating interest in the PSC with Dominion, as operator, holding a
46.75% interest and Cohydro holding the remaining 15% interest. The first phase
of the PSC has a 5 year span, during which SOCO and Dominion will carry out
geological and geophysical work, acquire at least 300km of seismic data and
drill two exploration wells.
ANGOLA
The Company was notified in August 2007 that the Executive Decree outlining SOCO
Cabinda Limited's (SOCO Cabinda) 17% participating interest in the Production
Sharing Agreement (PSA) for the Cabinda Onshore North Block became effective in
July. SOCO holds 80% of the interest in SOCO Cabinda. Sonangol P&P, the
Angolan state owned oil company, holds a 51% interest in the PSA and is
operator, with Teikoku Oil Co. Limited and Angola Consulting Resources holding
the remaining interests of 17% and 15%, respectively.
An airborne gravity and magnetic survey was conducted over the Block in June and
processing and interpretation were conducted during the third quarter. The
survey provided the basis for laying out a 1,200 km 2D seismic survey. A
contract for seismic acquisition was awarded to Grant Geophysical and
acquisition began in the fourth quarter of 2007. However, in late December,
there was a fatality as the contractor's seismic crew was attacked in a remote
area of the Block. Consequently the contractor declared force majeure. The
seismic contract was later cancelled by the operator, Sonangol.
THAILAND
SOCO's 99.93% owned Thailand subsidiary, SOCO Exploration (Thailand) Co. Ltd.
(SOCO Thai), will hold a 40% interest in the Bualuang oilfield located offshore
in the Gulf of Thailand after the full earn-in terms of a farm-out are
fulfilled.
The Farmee concluded a high resolution 100 kilometre 2D seismic programme during
the second quarter of 2007. Construction of a 12 slot wellhead platform
commenced in 2007 and was completed early in 2008. A platform drilling rig
drilled two wells during February 2008. The initial development well, the
Bualuang 05, was drilled and logged to a true vertical depth of 1,221 metres
sub-sea. Preliminary evaluation of the well logs confirmed the well encountered
oil pay over a 25 metre gross interval (approximately 21 metres of net pay). The
well encountered porosity averaging 29% and preliminary core analysis indicated
permeability averaged 809 millidarcies over the pay interval.
The second well, the Bualuang 01, was drilled to a true vertical depth of 1,270
metres and logged. Preliminary evaluation of the well logs indicated that the
well encountered oil pay over a 23 metre gross interval (approximately 20 metres
of net pay). This well was not cored, but the logs over the pay zone indicated
an average porosity of 27%. A floating production, storage and offloading vessel
has been commissioned to arrive on site during the first half for a simultaneous
drilling and production programme.
The Farmee has already commenced construction and other commitments designated
as Phase II activities thus indicating its intent to earn its full 60% working
interest by installing a platform, drilling up to eight additional wells and
taking the project to first oil. The Farmee funds 100% of costs during Phase I,
but SOCO Thai would fund 8% of the Phase II costs. After the end of the Phase
II period, the Farmee would be designated the operator of the project.
Interests earned and operatorship are subject to approval of the appropriate
regulatory authorities of the Government of Thailand.
Under the terms of the farm-out, at the end of the Phase II period, the Farmee
will engage an independent reservoir engineer to perform an analysis of the
proven reserves contained in the Bualuang field. The Farmee will pay SOCO Thai
an amount equal to one dollar for each barrel of proven reserves over 10.4
million barrels.
Consolidated income statement
for the year to 31 December 2007
2007 2006
Notes $000's $000's
Revenue 3 98,420 76,476
Cost of sales (32,543) (21,162)
Gross profit 65,877 55,314
Administrative expenses (8,077) (8,772)
Other operating expenses (13) (231)
Operating profit 3 57,787 46,311
Investment revenue 6,326 9,292
Other gains and losses 246 690
Finance costs (7,286) (8,136)
Profit before tax 57,073 48,157
Tax 4 (24,759) (19,094)
Profit for the year 32,314 29,063
Earnings per share (cents) 5
Basic 45.8 41.3
Diluted 40.9 36.9
Balance sheets
as at 31 December 2007
Group Company
2007 2006 2007 2006
Notes $000's $000's $000's $000's
Non-current assets
Intangible assets 247,178 146,954 - -
Property, plant and equipment 237,699 159,472 509 680
Investments - - 207,006 204,286
Financial asset 32,748 32,571 - -
Deferred tax assets 119 1,530 - -
517,744 340,527 207,515 204,966
Current assets
Inventories 11 88 - -
Trade and other receivables 12,370 26,670 335 566
Tax receivables 1,819 2,299 164 177
Cash and cash equivalents 68,337 187,791 424 63
82,537 216,848 923 806
Total assets 3 600,281 557,375 208,438 205,772
Current liabilities
Trade and other payables (38,151) (35,029) (16,548) (22,161)
Tax payables (114) (134) (75) (68)
(38,265) (35,163) (16,623) (22,229)
Net current assets (liabilities) 44,272 181,685 (15,700) (21,423)
Non-current liabilities
Convertible bonds (224,102) (220,233) - -
Deferred tax liabilities (1,308) - - -
Long term provisions (7,639) (6,187) - -
(233,049) (226,420) - -
Total liabilities 3 (271,314) (261,583) (16,623) (22,229)
Net assets 328,967 295,792 191,815 183,543
Equity
Share capital 23,549 23,532 23,549 23,532
Share premium account 68,355 68,325 68,355 68,325
Other reserves 49,437 54,406 (25,774) (25,839)
Retained earnings 187,626 149,529 125,685 117,525
Total equity 6 328,967 295,792 191,815 183,543
Cash flow statements
for the year to 31 December 2007
Group Company
2007 2006 2007 2006
Note $000's $000's $000's $000's
Net cash from (used in) operating activities 7 49,009 33,230 (12,506) 11,899
Investing activities
Purchase of intangible assets (107,294) (82,148) - -
Purchase of property, plant and (71,296) (32,191) (14) (30)
equipment
Purchase of own shares into treasury - (13,634) - (13,634)
Dividends received from subsidiary undertakings - - 12,877 12,935
Proceeds of prior period 10,000 - - -
disposal
Net cash (used in) from investing activities (168,590) (127,973) 12,863 (729)
Financing
activities
Share-based payments - (11,372) - (11,372)
Proceeds on issue of convertible bonds - 242,966 - -
Proceeds on issue of ordinary share
capital 47 - 47 -
Net cash from (used in) financing activities 47 231,594 47 (11,372)
Net (decrease) increase in cash and cash equivalents (119,534) 136,851 404 (202)
Cash and cash equivalents at beginning of year 187,791 50,967 63 360
Effect of foreign exchange rate changes 80 (27) (43) (95)
Cash and cash equivalents at end of year 68,337 187,791 424 63
Statements of recognised income and expense
for the year to 31 December 2007
Group Company
2007 2006 2007 2006
$000's $000's $000's $000's
Profit for the year 32,314 29,063 5,087 4,350
Transfer from other reserves 5,687 - - -
Unrealised currency translation differences 96 186 3,073 24,502
Total recognised income for the year 38,097 29,249 8,160 28,852
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. GENERAL INFORMATION
The financial information for the years ended 31 December 2007 and 2006 does not
constitute statutory accounts as defined in Section 240 of the Companies Act
1985 (Act), but is derived from those accounts. A copy of the statutory
accounts for 2006 has been delivered to the Registrar of Companies and those for
2007 will be delivered following the Company's annual general meeting. The
auditors' report on those accounts was unqualified and did not contain
statements under Section 237(2) or (3) of the Act. Whilst the financial
information included in this preliminary announcement has been computed in
accordance with International Financial Reporting Standards (IFRS), this
announcement does not itself contain sufficient information to comply with IFRS.
The Company expects to publish full financial statements that comply with IFRS
in its Annual Report and Accounts 2007.
The financial statements are presented in US dollars which is the functional
currency of each of the Company's subsidiary undertakings. The Directors do not
recommend the payment of a dividend.
This preliminary announcement was approved by the Board on 25 March 2008.
2. BASIS OF PREPARATION
The financial information has been prepared in accordance with the recognition
and measurement criteria of International Financial Reporting Standards (IFRS)
and with IFRSs adopted for use in the European Union. The financial information
has been prepared under the historical cost basis, except for the revaluation of
financial instruments.
3. SEGMENT INFORMATION
Geographical segments
Geographical segments form the basis on which the Group reports its primary
segment information.
2007
Middle East 1 SE Asia West Africa Unallocated Group
$000's $000's $000's $000's $000's
Oil sales 98,420 - - - 98,420
Operating profit 65,645 - - (7,858) 57,787
Assets 102,407 362,447 38,183 97,244 600,281
Liabilities 15,875 20,253 928 234,258 271,314
Capital additions 43,438 137,389 10,036 75 190,938
Depletion and depreciation 12,266 - - 234 12,500
2006
Middle East1 SE Asia West Africa Unallocated Group
$000's $000's $000's $000's $000's
Oil sales 76,476 - - - 76,476
Operating profit 55,113 - - (8,802) 46,311
Assets 64,872 226,184 30,768 235,551 557,375
Liabilities 8,384 10,605 12,398 230,196 261,583
Capital additions 35,888 100,790 (2,050) 28 134,656
Depletion and depreciation 9,318 - - 208 9,526
1 In February 2008, the Group announced the conditional disposal of its Middle East segment which comprises its
Yemen interest (see Note 8).
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
2007 2006
$000's $000's
Current tax 22,040 18,033
Deferred tax 2,719 1,061
24,759 19,094
UK corporation tax is calculated at 30% (2006 - 30%) of the estimated assessable profit for the year. Taxation in
other jurisdictions is calculated at the rates prevailing in the respective jurisdictions. During 2006 and 2007
both current and deferred taxation have arisen in overseas jurisdictions only.
The charge for the year can be reconciled to the profit per the income statement as follows:
2007 2006
$000's $000's
Profit before tax 57,073 48,157
Profit before tax multiplied by standard rate of corporation tax in the UK of 30% 17,122 14,447
(2006 - 30%)
Effects of:
Expenses not expected to be utilised as a tax loss 2,779 2,151
Higher tax rates on overseas earnings 3,580 2,456
Adjustments to tax charge in respect of previous years 1,278 40
Tax charge for the year 24,759 19,094
The tax charge in future periods may also be affected by these factors. The Group's overseas tax rates are higher
than those in the UK, primarily because the profits earned in Yemen are taxed at a rate of 35%.
5. Earnings per share
The calculation of the basic and diluted earnings per share is based on the following data:
2007 2006
$000's $000's
Earnings 32,314 29,063
Number of shares
2007 2006
Weighted average number of ordinary shares for the purpose of basic earnings 70,491,970 70,338,272
per share
Effect of dilutive potential ordinary shares:
Share options and warrants 6,405,279 6,021,356
Ordinary shares of the Company held by the Group 2,193,280 2,300,800
Weighted average number of ordinary shares for the purpose of diluted earnings 79,090,529 78,660,428
per share
At 31 December 2007 up to 6,238,000 (2006 - 6,238,000) potential ordinary shares in the Company that are
underlying the Company's convertible bonds and that may dilute earnings per share in the future have not been
included in the calculation of diluted earnings per share because they are antidilutive for the years to 31
December 2006 and 2007.
6. Reconciliation of movements in Group total equity
2007 2006
$000's $000's
As at 1 January 295,792 266,239
New shares issued 47 157
Treasury shares purchased - (13,634)
Share-based payments 834 (10,969)
Equity component of bonds issue - 25,037
Unrealised currency translation differences (20) (101)
Retained profit for the year 32,314 29,063
As at 31 December 328,967 295,792
7. Reconciliation of operating profit to operating cash flows
Group Company
2007 2006 2007 2006
$000's $000's $000's $000's
Operating profit (loss) 57,787 46,311 (7,780) (8,598)
Share-based payments 834 560 834 560
Depletion and depreciation 12,500 9,526 198 182
Operating cash flows before movements in 71,121 56,397 (6,748) (7,856)
working capital
Decrease in inventories 77 221 - -
(Increase) decrease in receivables (3,638) (1,395) 262 (321)
Increase (decrease) in payables 4,310 (2,269) (6,011) 20,055
Cash generated by (used in) operations 71,870 52,954 (12,497) 11,878
Interest received 10,203 4,944 10 38
Interest paid (11,465) (5,925) (19) (17)
Income taxes paid (21,599) (18,743) - -
Net cash from (used in) operating 49,009 33,230 (12,506) 11,899
activities
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.
8. Disposal of Yemen interest
In February 2008, the Company entered into a conditional sale and purchase
agreement (Agreement) for the sale of its wholly owned subsidiary SOCO Yemen Pty
Limited (SOCO Yemen), the entity that holds the Company's interest in the East
Shabwa Development Area (ESDA) in Yemen, to Sinochem Petroleum Limited
(Sinochem) for an enterprise value of $465.0 million, subject to certain
financial adjustments (the Disposal). The consideration for the Disposal is
payable in cash on completion.
SOCO Yemen holds an indirect interest of 16.785 per cent in the ESDA of Yemen
through its 58.75 per cent equity interest in Comeco Petroleum, Inc. (Comeco).
Comeco, in turn, has a 28.57 per cent interest in the ESDA. The ESDA joint
venture is operated by Total E&P Yemen under a production sharing agreement with
the government of Yemen. The Group's interest in the ESDA in Yemen is the only
component of the Middle East segment disclosed in Note 3.
Completion of the Disposal is subject to, amongst other things, various
regulatory approvals (Regulatory Approvals) including the approval of the
National Development and Reform Commission of the People's Republic of China.
Additionally, due to the size of the transaction, the Disposal is conditional
upon the approval of SOCO shareholders at an extraordinary general meeting (EGM)
of the Company. Sinochem also has the right to terminate the Agreement on or
prior to 28 March 2008 in the event that Sinochem has not by such date received
such consents and approvals (other than the Regulatory Approvals) as it requires
in relation to the Disposal. In the event that Sinochem terminates the Agreement
in accordance with that right, Sinochem has agreed that it will pay to SOCO a
fee of $3.0 million. The Disposal is expected to complete early in the second
quarter of 2008.
9. PRELIMINARY RESULTS ANNOUNCED
Copies of the announcement will be available from the Company's head office, St
James's House, 23 King Street, London, SW1Y 6QY. The Annual Report and Accounts
2007 will be posted to shareholders in due course.
This information is provided by RNS
The company news service from the London Stock Exchange
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