Preliminary Results

RNS Number : 6622Z

Soco International PLC

11 March 2013

 



11 March 2013

SOCO International plc

(SOCO or the Company)

PRELIMINARY RESULTS

SOCO, an international oil and gas exploration and production company, today announces its

preliminary results for the year ended 31 December 2012.

Financial Highlights (from continuing operations)

·     Record revenue of $621.6 million (2011: $234.1 million), a rise of 166%

·     134% increase in after tax profits from continuing operations to $207.0 million (2011: $88.6 million)

·     271% increase  in operating cash flow to $334.8 million (2011: $90.2 million)

·     Cash, cash equivalents and liquid investments at 31 December 2012 were $258.5 million
(8 March 2013: $320 million)

·     Approximately $34 million of ordinary shares and outstanding convertible bonds purchased in 2012

Operational Highlights

·     Consolidated the Group's interests in South East Asia portfolio with the $95 million acquisition of the outstanding 20% interest in SOCO Vietnam Ltd

·     Record Group net entitlement production volumes of approx. 15,500 barrels of oil equivalent per day  (BOEPD) (2011: 6,730 BOEPD), a rise of 130%

·     Additional production brought on line at the Te Giac Trang (TGT) field, on budget and ahead of schedule (first time in Vietnam sector history); a full year ahead of Field Development Plan

·     Average gross total field production from TGT now above 50,000 BOEPD

Outlook

·     Continued strong cash generation from the Vietnam assets

·     Development drilling on TGT and Ca Ngu Vang

·     Appraisal well on the previously undrilled TGT H5 block Sustained capacity test on TGT FPSO pending

·     Exploration drilling on Lideka Marine East Well 1 (Republic of Congo) in H2 2013

·     Several new ventures are expected to be added to the portfolio over the next 12 months

·     2013 return of capital to shareholders

Ed Story, President and Chief Executive Officer of SOCO, commented:

"The financial and operating results for 2012 demonstrate the transformation of this Company.  With the TGT field's average gross production now over 50,000 BOEPD, the record revenues, cash flow and profitability speak for themselves.  Moreover, higher rates of production over continued sustained periods support our earlier views of the size of this major oilfield.  Further, as we look forward into 2013, SOCO is now poised to take advantage of more substantial future growth opportunities."

ENQUIRIES:

SOCO International plc

Roger Cagle, Deputy Chief Executive and Chief Financial Officer

Tel: [phone]

Pelham Bell Pottinger

James Henderson

Rollo Crichton-Stuart

Elizabeth Snow

Tel: [phone]

NOTES TO EDITORS:

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, the Republic of Congo (Brazzaville), the Democratic Republic of Congo (Kinshasa) and Angola, with production operations in Vietnam.

SOCO holds its interests in Vietnam, all in the Cuu Long Basin offshore, through its wholly-owned subsidiaries, SOCO Vietnam Ltd and OPECO Vietnam Limited. SOCO Vietnam Ltd 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. OPECO Vietnam Limited holds a 2% interest in Block 16-1.

SOCO holds its interests in the Republic of Congo (Brazzaville) through its 85% owned subsidiary, SOCO Exploration and Production Congo SA (SOCO EPC). SOCO EPC holds a 40.39% interest in the Marine XI Block located offshore in the shallow water Lower Congo Basin and is designated operator of the Block. SOCO EPC also holds a 100% interest in a one-year exploration licence over the Nanga II A Block, located onshore, adjacent to the coast.

SOCO holds its interests in the Democratic Republic of Congo (Kinshasa), all onshore, though its 85% owned subsidiary, SOCO Exploration and Production DRC Sprl (SOCO E&P DRC). SOCO E&P DRC holds a 65% working interest in the Nganzi Block, situated 50 kilometres from the west coast, and an 85% working interest in Block V, situated in the southern Albertine Graben in eastern DRC. SOCO E&P DRC is designated operator of both Blocks.

SOCO holds its interests in the Angolan enclave of Cabinda through its 80% owned subsidiary, SOCO Cabinda Limited, which holds a 17% participating interest in the Production Sharing Agreement for the Cabinda Onshore North Block.

CHAIRMAN AND CHIEF EXECUTIVE'S STATEMENT

Dear Shareholder,

Operationally and financially, 2012 was another strong year for the Company as it increased production and cash flow substantially by bringing on additional production ahead of schedule and on budget at the Te Giac Trang (TGT) field in Vietnam. SOCO sought and received independent confirmation of the potential of this field. At the same time we aggregated further interests in current projects that we believe have significant further potential and bought back a number of shares and bonds. Over the next year we plan to add a number of new ventures to our already strong portfolio.

The Group increased its interests in the existing South East Asia portfolio by acquiring the remaining 20% interest in SOCO Vietnam Ltd (SOCO Vietnam); the now wholly owned SOCO subsidiary that holds a 28.5% interest in the TGT field and a 25% interest in the Ca Ngu Vang (CNV) field, both offshore Vietnam. SOCO also acquired the majority stake in the Block V Albertine Rift project, giving it the sole contractor interest (85%) in an area where there has already been significant exploration success.

Throughout the year, the Company took advantage of its strong cash position to increase shareholder value by buying back 7.5 million ordinary shares into treasury, representing 2.20% of the Company's entire issued share capital. It also bought back more of its outstanding convertible bonds during opportune times, further strengthening the balance sheet.

In July 2012, the TGT field's second platform (the H4 Wellhead Platform or H4-WHP) was brought on stream, a month ahead of schedule, immediately raising total field production from the TGT field to average above 50,000 barrels of oil per day (BOPD) since start up. The acceleration was particularly noteworthy as the field's crude output commanded a $5 to $7 per barrel premium to Brent during a period of already high crude prices allowing us to realise an average crude oil sales price throughout the year of approximately $118 per barrel.

During the year, the Company retained RPS Energy Consultants Limited (RPS), a professional consultancy specialising in petroleum reservoir evaluation and economic analysis, to begin an independent assessment of its Vietnam assets. With limited production history from the H4-WHP and only the TGT development activities planned through 2013 considered, RPS estimates TGT's Stock Tank Oil Initially In Place to range from 466 to 958 million barrels of oil (MMBBLs) with recovery factors ranging from 28% to 35%. Additional Prospective Resources of 53 to 152 MMBBLS are attributed, in particular in the undrilled southern-most fault block, H5, which will be drilled as a step-out appraisal well in the first half of 2013.

Whilst this independent view confirms upside potential in the TGT field, SOCO believes that additional drilling and longer term production will continue to de-risk the field and impact positively on both the total number of reserves and recovery factors. We believe we can achieve recovery factors of 45-50%, as has already been demonstrated in several producing intervals and in line with similar producing horizons in other producing fields within the same basin.

A new exploration licence onshore the Republic of Congo (Brazzaville), the Nanga II A, was added to the portfolio during the year. The Company's expanded and reorganised exploration and business development team continues to appraise several licence blocks in the Groups' core areas of central Africa and South East Asia.

The strategy that fuels growth

Project success is a long term measure of management effectiveness at allocating capital.

Since the Company's inception in 1997, we have been both selective and disciplined with our project investments and have only committed the Company to major project investment in nine areas.  To date, seven of these projects have fuelled the Company's growth organically without the requirement for multiple capital raisings, the only exception being a share placing in 2010 to address the possible exercise of a put on a convertible bond. The Directors of the Company believe such growth will continue through our adherence to this strategy.

SOCO's Vietnam operations in the Cuu Long Basin and in particular the TGT field, remain the cornerstone of the Group's portfolio and are generating significant cash flow. Six successful projects have been recycled into cash; these include our interests offshore in the Gulf of Thailand and the Tunisian Gulf of Gabès and onshore in the East Shabwa Development Area of Yemen, the Tamtsag Basin in Mongolia, European Russia and the Weald Basin in the UK. These divestments have enabled reinvestment in new projects and funding of further phases of growth. The other two of our nine investment areas, the Congo Basin and the Albertine Rift, are still in the exploration phase, the latter being in very preliminary stages in a high potential region, albeit with significant security challenges.

The essence of our strategy is to identify under-exploited opportunities in hydrocarbon prone regions. That means that we will not typically enter new regions or open up new, unproven geological areas. Equally, it means a cautious approach to popularised but untested regions with significant commercial risk. Moreover, we avoid the commercial risk of projects that lock in capital for overly long periods of time. Whilst oil is SOCO's main focus, the Company would not avoid an opportunity where gas could be commercialised locally.

Finally, we seek opportunities that offer materiality to the Company. The benchmark for entry into a new country is a project that has multiple play types, but the primary target should have the potential of adding 50 million barrels net to the Company's interest.  

Financial and Operating Results

We set new records in 2012 with Group revenue jumping to $621.6 million compared to the previous record revenues of $234.1 million set in 2011. This follows the Company's first full year of production from the TGT field H1-WHP and approximately six months of production from the H4-WHP. After tax profits mirrored that dramatic revenue increase at $207.0 million up from $88.6 million in 2011. In 2012 Group net entitlement volumes were approximately 15,500 barrels of oil equivalent per day (BOEPD) compared with an average of approximately 6,730 BOEPD in 2011. Working interest production net to SOCO averaged 14,757 BOEPD during 2012 compared with 5,437 BOEPD in 2011. Additionally, the Company was able to benefit from high oil prices with the Group realising nearly $118 per barrel of crude oil sold compared with approximately $113 per barrel in 2011.

Cash flows from operating activities were up from $90.2 million in 2011 to $334.8 million in 2012, reflecting the increases in both oil production and realised oil prices. Capital expenditures reduced to $109.9 million in 2012 from $152.2 million in 2011. Development activities continued apace with the installation of the H4-WHP and the drilling of four wells in the TGT field; however, no exploration wells were drilled during 2012 whereas two wells were drilled offshore Congo (Brazzaville) in 2011.

In July 2012, the Company used its significant cash balances to acquire the remaining 20% interest in SOCO Vietnam, which holds the Group's interest in CNV and the majority of its interest in TGT, for $95.0 million. Further, the Company purchased 7.5 million of its own shares into treasury, representing 2.20% of the Company's entire issued share capital, at a cost of $32.9 million and repurchased convertible bonds at a cost of $0.9 million. The Group ended the year with cash, cash equivalents and liquid investments of $258.5 million, up from $160.1 million at the end of 2011.

The Directors are not recommending a payment of a dividend in respect of 2012 (2011 - nil). However, the Board expects to recommend a sustainable return of capital to shareholders during 2013, the level of which will be determined pending Hoang Long and Hoan Vu Joint Operating Companies' (HLHVJOC) approvals of a 2013 Work Programme and Budget for CNV and TGT and incorporating results of the upcoming capacity test of the floating production, storage and offloading vessel (FPSO).

2012 Operations Review

SOCO is proud of its operational record and achievements. The on-budget delivery of the second TGT platform one month ahead of schedule and almost one year ahead of the original development plan is a testament to the Company and its commitment to prudent and effective operations. The Company is particularly proud of the exemplary track record of health and safety in its Vietnam operations which have had no reported lost time incidents. .

South East Asia

Vietnam - Block 16-1

Production from TGT's southern platform, the H4-WHP, commenced on 6 July 2012, completing the field's conversion from an exploration and development play to a cash generative asset. This was achieved over one month earlier than scheduled and nearly a year ahead of the original approved development plan.

Production from TGT has averaged 42,126 BOPD gross and 12,618 BOPD net to the Group's working interest during 2012 with net entitlement production averaging 13,357 BOPD, including recovery of costs carried on behalf of PetroVietnam. The field continues to perform in line with expectations, with field production ranging from 52,000 to 55,000 BOPD with daily rate fluctuations reflecting well intervention activities. A 24-hour "high rate" flow test of the FPSO was carried out at 60,789 BOPD with no issues seen in either the reservoir performance or the FPSO operability. Sales of TGT crude currently realise a premium of $5 to $7 per barrel to Brent benchmark crude price.

Vietnam - Block 9-2

Production on Block 9-2 from the CNV field has been steady during the year with production net to the Company's working interest averaging 2,139 BOEPD during 2012.

Dedicated test separation and metering facilities have been installed on the Bach Ho central processing platform complex and the Company has performed its independent calibrations. Vietsovpetro, the operator of the Bach Ho facilities through which CNV production is processed, has undertaken to perform its own independent calibrations. We expect to be able to arrive at some agreed measurement techniques once the outcome of their calibrations is known.

Africa

Republic of Congo (Brazzaville)

From an analysis of the results of previously acquired data on the Block, incorporating the results of the Lideka Marine 1 well drilled by the previous Block concession holder, the Marine XI partners have agreed to drill the Lideka Marine East 1 well. An initial rig sharing agreement was delayed during the fourth quarter of 2012, but the well is expected to spud in the second half of 2013. This well will be a test of stacked plays and will test both the structural closure updip from an oil leg encountered in the Lideka Marine 1 well that was drilled two kilometres to the west and also the large untested structural closure in an overlying formation.

The Group has been awarded a one-year exploration licence over the Nanga II A Block located adjacent to the coast, onshore Congo (Brazzaville), near the M'Boundi producing field. The initial plan is to evaluate aeromagnetic data and reprocess several 2D seismic lines previously acquired over the block before determining whether or not to proceed with a limited 3D seismic survey on the area. The Group will determine whether to enter into a production sharing contract following an evaluation of the data.

Democratic Republic of Congo (Kinshasa) (DRC)

The Government of the DRC commissioned an aerial survey and baseline studies over Block V in September 2011 as part of its wider objective of performing a Strategic Environmental Evaluation. Accordingly, SOCO's work programme has been agreed in close collaboration with the Congo Environmental Studies Group (also known as Groupe d'Etudes Environnementales du Congo or GEEC) and the Congolese Wildlife Authority (also known as Institut Congolais pour la Conservation de la Nature or ICCN).

Preparations are ongoing for the aerial survey, which will be carried out from our logistics base in Uganda and will involve a helicopter flying over Lake Edward and the surrounding lowland savannah area. The security status is being assessed on a continual basis and we will only proceed when the assessment is that it is safe to do so. 

In July 2012, SOCO increased its interest in the Block V licence to 85% by acquiring the 46.75% interest held by Ophir Energy Plc. The remaining 15% interest is held by Cohydro, the national oil company of the DRC.

In the Nganzi Block depth migrated reprocessing of the data from the 2D seismic acquisition programme is ongoing. Following interpretation, decisions will be made by the partners on potential drilling locations prior to year end.

Angola

Interpretation of the data acquired from the 2D seismic acquisition programme was completed during the year. Preparation has now commenced for the drilling of the 20-6 and 20-7 exploration wells in Dinge area. Drilling is expected to start mid-2013. The Company has announced that it has entered into a conditional agreement to sell its interest in the Cabinda North Block (see below for details).

Corporate

Purchase of own shares

During 2012, the Company spent approximately $32.9 million repurchasing 7,514,416 of its own ordinary shares of £0.05 each (Shares) at an average cost of £2.784 per share. As at 31 December 2012, the Company held 9,122,268 (31 December 2011 - 1,607,852) Treasury Shares.

Acquisition of the outstanding non-controlling interest in SOCO Vietnam Ltd

In July 2012, SOCO completed an agreement with Lizeroux Oil & Gas Ltd (Lizeroux) to acquire the 20% outstanding non-controlling interest in SOCO Vietnam for a cash consideration of $95 million (the Acquisition), which was satisfied out of existing cash resources of the Company. The Acquisition was conditional upon the approval of SOCO shareholders, which was given at a general meeting of the Company in July 2012. As a result of the Acquisition, SOCO Vietnam became a wholly owned subsidiary of the Group and SOCO acquired the right to receive all of the future cash flows that the non-controlling interest was entitled to receive.

Transfer of the interest in Block V of the Albertine Graben, DRC

In July 2012, a wholly owned subsidiary of Ophir Energy Plc transferred its 46.75% interest in the Contractor`s right, title and interest in a production sharing contract relating to Block V to SOCO Exploration & Production DRC Sprl (SOCO E&P DRC). The transfer was completed on 20 July 2012 for the cash consideration of $6.5 million plus agreed reimbursement of $2.2 million for the cash calls paid in 2012. As a result of the transfer, SOCO E&P DRC has an 85% interest in Block V.

Conditional sale of the majority interest in SOCO Cabinda Limited

In September 2012, SOCO announced that it had entered into a conditional agreement (the Disposal) with Quill Trading Corporation (Quill) wherein the Group will sell its 80% majority interest in SOCO Cabinda Limited (SOCO Cabinda) to Quill, the holder of the remaining 20% interest. SOCO Cabinda has a 17% participating interest in the Cabinda North Block, onshore the Angolan enclave of Cabinda. The Group has no reserves attributable to its interests in SOCO Cabinda. The Directors believe that the Disposal is in the best interests of the Company's shareholders as the Group continues to re-focus the portfolio on higher impact projects in which it holds larger participating interests. Quill has paid a non-refundable deposit to the Company for the option to acquire SOCO's entire shareholding in SOCO Cabinda. The Option expiry has been extended and the final terms for closing are under negotiation.

The Board of Directors

During the year, the Board appointed Ms Cynthia Cagle as an Executive Director. Cynthia has been an officer of the Group since its inception in 1997 and is a Director of the Company's significant subsidiaries. In her role as Company Secretary, Cynthia has attended all of the Company's Board and Committee meetings since 1997 and has an in-depth knowledge of the Company's Board and Committee procedures and policies.  Cynthia's appointment increases the financial and corporate governance experience represented on the Board and reflects the importance the Board attaches to these areas of expertise.

Executive Staff Appointment

In December 2012, the Company was delighted to announce the promotion of Antony Maris to Chief Operating Officer. Antony has played a core role in SOCO's operations since joining in 2004 and we look forward to his ongoing positive input to the business.

Outlook

Operationally in 2013 we will continue appraising the TGT field, with the most significant undrilled fault block, the southern-most H5 fault block, to be drilled as soon as the winter monsoon season ends in Vietnam, likely at the beginning of the second quarter. With the outcome of that well and significantly more production data from the field, we should be able to further progress our assessment of the potential of the field.

Also in Vietnam, we expect to drill an additional production well on CNV, which will allow us to access the thus far undrilled south-western corner of the field. The outcome of this well, with some production history, should enable us to update the reserves position in the field.

Further exploration drilling is planned in the summer of 2013 with the drilling of the East Lideka well.

We seek to build shareholder value first and foremost through the portfolio. We expect to add multiple  new ventures to our portfolio in 2013, including at least one more high profile exploration project in an area where we already have a footprint.  Nonetheless, the Board expects to recommend a sustainable return of capital to shareholders during 2013, the level of which will be determined pending the HLHVJOC's approval of a 2013 Work Programme and Budget for CNV and TGT and incorporating results of the upcoming capacity test of the FPSO.

Rui de Sousa

Chairman

Ed Story

President and Chief Executive Officer

REVIEW OF OPERATIONS

Following First Oil from the Te Giac Trang (TGT) field which was achieved from the northern platform both on schedule and on budget on 22 August 2011, production from the southern TGT H4-Well Head Platform (WHP) commenced on 6 July 2012, over one month earlier than scheduled and nearly a year ahead of the original approved development plan.

Total production net to the Group's working interest during 2012 averaged 14,757 barrels of oil equivalent per day (BOEPD), over 170% higher than the 5,437 BOEPD achieved in 2011. Net entitlement production averaged 15,496 BOEPD including recovery of costs carried on behalf of PetroVietnam.

An early independent reservoir engineers' assessment of an ongoing evaluation of the TGT field (see below) has ascribed a Stock Tank Oil Initially In Place (STOIIP) range up to 958 million barrels (MMBBLs), which confirms the Company's original assessment.

Elsewhere, the Company has pursued new projects in regions where SOCO already has a presence and continues to evaluate other projects in new areas of interest. SOCO's primary focus has been on oil projects in hydrocarbon prone regions that can be commercialised within reasonable time frames to enhance its asset portfolio. Progress has been made with the first new venture, the Nanga II A area exploration licence in the Republic of Congo (Brazzaville), which was added to our portfolio this year.

South East Asia

Vietnam

SOCO's Block 16-1 and Block 9-2 projects in Vietnam are located offshore in the oil rich Cuu Long Basin, which is a shallow water, near shore area defined by several high profile producing oil fields, the largest of which, Bach Ho, is located between the two Blocks and has produced more than one billion barrels of oil to date. The projects are operated through non-profit Joint Operating Companies (JOCs) wherein each participating party owns shares equivalent to its respective interests in the Petroleum Contracts governing the projects.

SOCO's interests are held through its wholly-owned subsidiaries, SOCO Vietnam Ltd and OPECO Vietnam Limited. SOCO Vietnam Ltd holds a 25% working interest in Block 9-2, which is operated by the Hoan Vu JOC (HVJOC) and holds a 28.5% working interest in Block 16-1, which is operated by the Hoang Long JOC (HLJOC). OPECO Vietnam Limited holds a 2% interest in Block 16-1. SOCO's partners on both Blocks are PetroVietnam, the national oil company of Vietnam, and PTTEP, the national oil company of Thailand.

Production

Te Giac Trang, Block 16-1

The TGT field is situated in the north-eastern part of Block 16-1, offshore Vietnam and is operated by the HLJOC. The Block was awarded in December 1999 and the first commercial discovery, TGT, was made in 2005. TGT is considered to be a simple structure extending over 13 kilometres and at least five fault blocks. The producing reservoir comprises a complex series of over 50 Clastic reservoir intervals of Miocene and Oligocene age. Each reservoir interval requires individual reservoir management to ensure optimised field recovery. Production from the TGT field started in August 2011 thus is early in field life and without a directly comparable field analogue.

Activity continued apace during the first half of 2012 in preparation for the start of production from the southern H4-WHP TGT platform. Drilling of five development wells from H4-WHP was completed prior to releasing the rig in April 2012. All the development wells were suspended and were subsequently perforated to become producing wells. The accelerated construction activities on the H4 topsides allowed for an early load out from the fabrication yard. Production from H4-WHP commenced on 6 July 2012, over one month earlier than scheduled and nearly a year ahead of the original approved development plan.

At the northern H1-WHP platform, the PetroVietnam Drilling Rig, PVD-II, came on location in mid-year to complete the four-well, infield development drilling programme which included two infill development wells, an appraisal well and one step-out development well. The TGT-15P and TGT-16P infill wells on the H1.1 fault block and the TGT-8X appraisal well on the H2N fault block were batch drilled into the reservoir section. These wells are now producing. The TGT-17P development well was suspended following a "twist-off" in the bottom-hole assembly above the reservoir section. The rig was released ahead of the monsoon season and drilling will recommence on the TGT field in the second quarter of 2013 for the 2013 drilling programme, which will include completing the TGT-17P well.

Overall, the results from the eight wells completed in 2012 were in line with expectations, with some wells significantly better than expected. However, TGT-8X and TGT-15P did not have results in line with expectations. TGT-8X drilled a previously unrecognised narrow fault block which was structurally lower than expected, limiting the overall pay in the well.

The TGT-15P had good reservoir properties in the primary targeted upper portion of the Miocene reservoir sands, in line with expectation. However, it appears that the lower portion of the Miocene reservoir, and the Oligocene reservoir sands, were penetrated in a relatively down-dip position. The overall result was to reduce the pay count in this well. This localised effect has been incorporated into the modelling for the field and the future reservoir management planning.

Based on the evaluation of the results of the reservoir pressures from the 2012 drilling programme, depletion has been identified in the upper part of the Miocene reservoir sands. This indicates lateral communication in a north-south direction, complimenting the lateral communication identified from well testing, in the east-west direction. Although still early in the field life, this lateral communication is a positive indication that will allow the operator to more accurately predict sweep through the individual reservoir sands and design reservoir management plans that will target high recovery efficiencies.

With the introduction of production from the five wells at the southern platform, TGT has achieved stable flow rates ranging from 52,000 to 55,000 barrels of oil per day (BOPD), with daily rate fluctuations reflecting well intervention activities. A one-day "high rate" flow test of the floating, production, storage and offloading vessel (FPSO) was carried out at 60,789 BOPD with no issues seen in either the reservoir performance or the FPSO operability. The data gathered during this performance test is being analysed to enable us to identify and alleviate bottlenecks in the systems to assess the FPSO oil production handling potential.

The TGT field is currently producing from two 16-slot platforms (some of the slots are designed to handle two wells) with 16 producing wells. The field continues to perform in line with expectations, with field production ranging from 52,000 to 55,000 BOPD. Sales of TGT crude currently realise a premium of $5 to $7 per barrel to Brent benchmark crude price.

Further drilling and appraisal is planned as part of the continuing field development. The 2013 campaign of infill drilling and the H5 step-out appraisal well is expected to commence in the second quarter of this year.

Independent Assessment of Range of Reserves

In the second half of 2012, the Company retained RPS Energy Consultants Limited (RPS), a professional consultancy specialising in petroleum reservoir evaluation and economic analysis, to provide an independent assessment of the field's STOIIP and potential recovery factors. On 13 February 2013, the Company announced that, based on the information available to date, RPS had estimated a STOIIP range of from 466 to 958 MMBBLs. Additional undiscovered STOIIP of 53 to 152 MMBBLs is attributed, in particular in the undrilled southern-most fault block, H5, which will be drilled as a step-out appraisal well in mid-2013. This independent view confirms the Company's overall assessment of the TGT field.

From the information available to date and the limited extent of development in each fault block, in particular the number of producing wells and the provision of injection support, RPS have taken the view that recovery factors range from 28% to 35%.

In principle, RPS consider the relatively thin but continuous reservoir sands to be of good quality (both in terms of permeability and porosity), to have less risk of water under-ride and therefore good vertical sweep and displacement efficiency. However, RPS has broadly applied, across the full field, concerns over management of individual reservoirs if required to commingle from several zones, and also over small offsets from the free water levels that imply some producing zones may be in the transition zone with mobile water. These can only be dispelled with longer term production. Also, the evaluation was limited to the plans contained in the approved Full Development Plan (FDP), which was originally submitted in 2010 and assumes both a lower STOIIP than currently calculated and fewer wells than are planned to be drilled over the next three to five years. The JOC is in the process of updating the FDP for the results of the wells and performance to date.

The independent assessment will continue, factoring in new data from the additional wells in 2013 and from the gas sales agreement that is close to finalisation. Thus, adjustments to the Company's published reserves, if any, will be made during 2013. Management has prepared sensitivities based on the initial range of STOIIP and recovery factors estimated by RPS based on the information available to date, and have concluded that there would be no material impact on the results or position of the Group at 31 December 2012,  in particular, in relation to DD&A and impairment testing of oil and gas property plant and equipment.

SOCO believes that additional drilling and longer term production will continue to de-risk the field and impact positively on both the total number of reserves and recovery factors. Recovery factors are anticipated to be 45-50%, as has already been seen in similar producing horizons in other producing fields in the same basin.

Ca Ngu Vang (CNV), Block 9-2

The CNV field is located in the western part of Block 9-2, offshore Vietnam and is operated by the HVJOC. The field has been on stream since 2008 and has been producing at stable rates with CNV production net to the Company's working interest averaging approximately 2,139 BOEPD in 2012 (2011 - 2,283 BOEPD). In contrast to TGT, the CNV field is a fractured granitic Basement field which produces highly volatile oil from fractured Basement reservoir with a high gas to oil ratio and exploitation is dependent on the fracture interconnectivity to efficiently deplete the reservoir. Accordingly, traditional reservoir properties and STOIIP calculations are not straightforward and a further well will be required to allow assessment of the revised full reserve potential of this field.

Hydrocarbons produced from CNV are transported via subsea pipeline to the Bach Ho central processing platform (BHCPP) where the wet gas is separated from crude oil and transported via pipeline to an onshore gas facility for further distribution. The crude oil is stored on a floating storage and offloading vessel prior to sale. At the BHCPP, dedicated test separation and metering facilities have been installed and commissioned. A long term production test to validate the newly installed system has been completed and analysis is near complete, which together will allow more accurate measurement of liquid and gas production entering the BHCPP and ensure the more accurate allocation of produced hydrocarbons from the CNV Field within the Bach Ho system.

Although the draft 2013 Work Programme and Budget includes a CNV-7P well, at this point HVJOC's final 2013 Work Programme and Budget remains to be formally approved while updates to the CNV Full Field Development Plan proceed through the formal Government approval process. Thus, once clarity on this issue has been reached, the independent reserves review of CNV can be completed.

Africa

Republic of Congo (Brazzaville)

The Group's interests in Congo (Brazzaville) are held through its 85% owned subsidiary, SOCO Exploration & Production SA (SOCO EPC).

Marine XI

The Marine XI Block is located offshore in the shallow waters of the Lower Congo Basin, offshore Congo (Brazzaville). SOCO EPC holds a 40.39% interest in Marine XI and is the designated operator of the Block.

From an analysis of the results of previously acquired data on the Block, incorporating the results of the Lideka Marine 1 well drilled by the previous Block concession holder, the Marine XI partners have agreed to drill the Lideka Marine East 1 well. This well will be a test of stacked plays and will test both the structural closure updip from an oil leg encountered in the Sendji Formation in the Lideka Marine 1 well that was drilled two kilometres to the west and also the large untested structural closure in the overlying Tchala Formation.

Originally scheduled to be drilled in the latter part of 2012, the rig sharing slot ceased to be available.  Preparation is underway to proceed with a replacement rig sharing slot available in the second half of this year.

Marine XIV

The Block Marine XIV is located offshore in the shallow waters of the Lower Congo Basin. The Marine XIV partners determined that they would not enter into a second exploration phase and accordingly have relinquished the Block back to the Government of Congo (Brazzaville). SOCO EPC held a 29.4% interest in the Block up until the time of relinquishment.

Nanga II A

The Group has been awarded an exploration licence over the Nanga II A Block under a "Prospection Decree" which was issued on 11 October 2012. The Nanga II A Block covers 687 square kilometres and is located onshore Congo (Brazzaville), adjacent to the coast and near the M'Boundi producing field.

Since announcing its plans to conduct an aeromagnetic survey followed by a 3D seismic survey on the area, the Group has taken receipt of data acquired by prior operators. Evaluation of the aeromagnetic data is underway along with reprocessing of the seismic data, both of which will contribute towards the potential acquisition of a new seismic programme.

The exploration licence is valid for one year by which time the Company will determine whether to enter into a production sharing contract.

Democratic Republic of Congo (Kinshasa)(DRC)

SOCO holds its interests in the DRC through its 85% owned subsidiary SOCO Exploration and Production DRC Sprl (SOCO E&P DRC).

Block V

Block V is a 7,500 square kilometre area located onshore in the geological southern Albertine Graben of eastern DRC, in the North Kivu region adjacent to the border with Uganda. Block V encompasses an area of the Virunga National Park, a World Heritage Site, and includes part of Lake Edward.

During 2012, preparations were ongoing for an aerial survey to be conducted over Lake Edward and the adjacent lowland area. The aerial survey, which is the only exploration activity planned at this time, was approved by the DRC Government within the context of its Strategic Environment Evaluation of the Albertine Rift area. The aerial survey will involve a helicopter flying over Lake Edward and the adjacent lowland savannah to gather magnetic and gravity information. The helicopter will not touch down in the Virunga National Park, and the highland area that forms the Mountain Gorilla habitat is not within the helicopter flight path. There is no reason for any flora or fauna to be impacted as a direct result of this phase of the Company's activities.

In parallel with the aerial survey, SOCO will carry out several environmental baseline studies (for example: an inventory of hippopotami and fish and mollusc studies on Lake Edward). These studies have been determined through close collaboration with the Congolese Wildlife Authority (also known as Institut Congolais pour la Conservation de la Nature or ICCN) and the Congo Environmental Studies Group (also known as Groupe d'Etudes Environnementales du Congo or GEEC). During this preliminary phase of exploration, SOCO has been granted access on a limited and managed basis to the Virunga National Park under an agreement with ICCN signed in May 2011.

Throughout the year, we have actively engaged with stakeholders who have an interest in our operations in Virunga in order to better understand their concerns, correct inaccuracies and reassure local communities. During 2012, we continued a programme of engagement with local communities around Lake Edward and found the response to be very positive.

Due to the deterioration in the security situation in the North Kivu region, the aerial survey has not yet commenced. SOCO's logistics base and helicopter landing site were relocated from Ishasha in the DRC to Kihihi in Uganda in September 2012 and a temporary withdrawal of personnel occurred when Goma fell under rebel occupation.

The security situation is being assessed on a continual basis and whilst SOCO remains committed to carrying out its contractural commitment to carry out the aerial survey, we will only proceed when the assessment is that it is safe to do so.

In July 2012, SOCO E&P DRC increased its interest in the Block V licence to 85% by acquiring the 46.75% interest held by Ophir Energy Plc. The remaining 15% interest is held by Cohydro, the national oil company of the DRC.

Nganzi

The Nganzi Block is an 800 square kilometre area situated onshore in the geological North Congo Basin in the Bas Congo region of western DRC. SOCO E&P DRC holds a 65% participating interest in the Nganzi Block and is the designated operator.

Reprocessing of the data acquired from the 2D seismic acquisition programme is ongoing using Prestack Depth Migration technology. Preliminary results have been returned with completion expected during the first quarter of 2013. This technology produces higher quality data by using segmented velocity information to enhance seismic images of sub-surface features, which should result in a clearer subsurface image allowing a more accurate interpretation and well targeting. These data, along with results from the first drilling campaign will be the basis for making a drill or drop decision later this year.

Angola

SOCO holds its interests in the Angolan enclave of Cabinda through its 80% owned subsidiary, SOCO Cabinda Limited, which holds a 17% participating interest in the Production Sharing Agreement for the Cabinda Onshore North Block.

Cabinda North

Interpretation of the data acquired from the 2D seismic acquisition programme was completed during the year. Preparation has now commenced for the drilling of the 20-6 and 20-7 exploration wells in Dinge area. Drilling is expected to start mid-2013.

As announced in September 2012, the Group has entered into a conditional agreement to sell its ownership of SOCO Cabinda Limited. The Option expiry has been extended and the final terms for closing are under negotiation.

Consolidated Income Statement
for the year to 31 December 2012
				2012		2011
		Notes		$ million		$ million
Revenue	3			621.6		234.1
Cost of sales				(161.1)		(67.8)
Gross profit				460.5		166.3
Administrative expenses				(12.3)		(9.4)
Operating profit				448.2		156.9
Investment revenue				1.0		1.1
Other gains and losses				1.5		3.3
Finance costs				(5.1)		(2.7)
Profit before tax	3			445.6		158.6
Tax	3, 4			(238.6)		(70.0)
Profit for the year				207.0		88.6
Earnings per share (cents)	5
Basic				62.7		26.4
Diluted				62.6		26.3
Consolidated Statement of Comprehensive Income
for the year to 31 December 2012
				2012		2011
				$ million		$ million
Profit for the year				207.0		88.6
Unrealised currency translation differences				(0.2)		4.2
Total comprehensive income for the year				206.8		92.8

Balance Sheets
as at 31 December 2012
	Group			Company
	2012	2011		2012	2011
	$ million	$ million		$ million	$ million
Non-current assets
Intangible assets	199.7	193.1		-	-
Property, plant and equipment	816.6	793.6		1.0	-
Investments	-	-		811.4	627.2
Financial asset	42.1	40.6		-	-
	1,058.4	1,027.3		812.4	627.2
Current assets
Inventories	11.1	10.2		-	-
Trade and other receivables	72.2	79.8		0.6	0.5
Tax receivables	0.6	0.5		0.2	0.3
Assets classified as held for sale	36.3	-		-	-
Liquid investments	50.0	-		-	-
Cash and cash equivalents	208.5	160.1		0.2	2.6
	378.7	250.6		1.0	3.4
Total assets	1,437.1	1,277.9		813.4	630.6
Current liabilities
Trade and other payables	(34.3)	(49.5)		(5.2)	(3.6)
Tax payable	(21.4)	(13.5)		(0.1)	(0.1)
Convertible bonds	(47.2)	-		-	-
Liabilities associated with assets classified as held for sale	(1.6)	-		-	-
	(104.5)	(63.0)		(5.3)	(3.7)
Net current assets (liabilities)	274.2	187.6		(4.3)	(0.3)
Non-current liabilities
Convertible bonds	-	(46.6)		-	-
Deferred tax liabilities	(113.3)	(37.5)		-	-
Long term provisions	(42.7)	(32.7)		-	-
	(156.0)	(116.8)		-	-
Total liabilities	(260.5)	(179.8)		(5.3)	(3.7)
Net assets	1,176.6	1,098.1		808.1	626.9
Equity
Share capital	27.6	27.5		27.6	27.5
Share premium account	73.0	72.7		73.0	72.7
Other reserves	105.5	140.8		60.8	93.8
Retained earnings	970.5	857.1		646.7	432.9
Total equity	1,176.6	1,098.1		808.1	626.9

Statements of Changes in Equity
for the year to 31 December 2012
												Group
								Called up share capital	Share premium account	Other reserves	Retained earnings	Total
								$ million	$ million	$ million	$ million	$ million
As at 1 January 2011								27.5	72.6	149.2	763.9	1,013.2
New shares issued								-	0.1	-	-	0.1
Purchase of own shares into treasury								-	-	(6.8)	-	(6.8)
Share-based payments								-	-	1.0	-	1.0
Transfer relating to convertible bonds								-	-	(0.4)	0.4	-
Equity component of repurchased and cancelled bonds								-	-	(2.2)	-	(2.2)
Unrealised currency translation differences								-	-	-	4.2	4.2
Retained profit for the year								-	-	-	88.6	88.6
As at 1 January 2012								27.5	72.7	140.8	857.1	1,098.1
New shares issued								0.1	0.3	-	-	0.4
Purchase of own shares into treasury								-	-	(32.9)	-	(32.9)
Share-based payments								-	-	(0.8)	-	(0.8)
Acquisition of non-controlling interest in subsidiary undertaking								-	-	-	(95.0)	(95.0)
Transfer relating to share-based payments								-	-	(1.1)	1.1	-
Transfer relating to convertible bonds								-	-	(0.5)	0.5	-
Unrealised currency translation differences								-	-	-	(0.2)	(0.2)
Retained profit for the year								-	-	-	207.0	207.0
As at 31 December 2012								27.6	73.0	105.5	970.5	1,176.6
												Company
								Called up share capital	Share premium account	Other reserves	Retained earnings	Total
								$ million	$ million	$ million	$ million	$ million
As at 1 January 2011								27.5	72.6	100.6	445.4	646.1
New shares issued								-	0.1	-	-	0.1
Purchase of own shares into treasury								-	-	(6.8)	-	(6.8)
Unrealised currency translation differences								-	-	-	(4.6)	(4.6)
Retained loss for the year								-	-	-	(7.9)	(7.9)
As at 1 January 2012								27.5	72.7	93.8	432.9	626.9
New shares issued								0.1	0.3	-	-	0.4
Purchase of own shares into treasury								-	-	(32.9)	-	(32.9)
Share-based payments								-	-	(0.1)	-	(0.1)
Unrealised currency translation differences								-	-	-	31.2	31.2
Retained profit for the year								-	-	-	182.6	182.6
As at 31 December 2012								27.6	73.0	60.8	646.7	808.1

Cash Flow Statements
for the year to 31 December 2012
								Group			Company
								2012	2011		2012	2011
						Note		$ million	$ million		$ million	$ million
Net cash from (used in) operating activities						6		334.8	90.2		(7.0)	(5.7)
Investing activities
Purchase of intangible assets								(47.6)	(51.2)		-	-
Purchase of property, plant and equipment								(62.3)	(101.0)		(1.0)	-
Increase in liquid investments 1								(50.0)	-		-	-
Investment in subsidiary undertakings								(95.0)	-		(152.8)	(102.7)
Dividends received from subsidiary undertakings								-	-		193.0	-
Proceeds on disposal of subsidiary								4.0	-		-	-
Net cash (used in) from investing activities								(250.9)	(152.2)		39.2	(102.7)
Financing activities
Purchase of own shares into treasury								(32.9)	(6.8)		(32.9)	(6.8)
Share-based payments								(1.9)	-		(1.9)	-
Repurchase of convertible bonds								(0.9)	(35.6)		-	-
Proceeds on issue of ordinary share capital								0.4	0.1		0.4	0.1
Net cash (used in) financing activities								(35.3)	(42.3)		(34.4)	(6.7)
Net increase (decrease) in cash and cash equivalents								48.6	(104.3)		(2.2)	(115.1)
Cash and cash equivalents at beginning of year								160.1	260.4		2.6	114.3
Effect of foreign exchange rate changes								(0.2)	4.0		(0.2)	3.4
Cash and cash equivalents at end of year								208.5	160.1		0.2	2.6
1 Liquid investments comprise short term liquid investments of between three to six months maturity while cash and cash equivalents comprise cash at bank and other short term highly liquid investments of less than three months maturity. The combined cash and cash equivalents and liquid investments balance at 31 December 2012 was $258.5 million (2011 - $160.1 million).

Notes to the consolidated financial information

1 General information

The financial information set out above does not constitute the Company's statutory accounts for the years ended 31 December 2012 or 2011, but is derived from those accounts. A copy of the statutory accounts for 2011 has been delivered to the Registrar of Companies and those for 2012 will be delivered following the Company's annual general meeting. The auditors have reported on those accounts; their reports were unqualified, did not draw attention to any matters by way of emphasis without qualifying their report and did not contain statements under section 498(2) or (3) of the Companies Act 2006. 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 financial statements are presented in US dollars which is the functional currency of each of the Company's subsidiary undertakings. The Directors are not recommending a payment of a dividend in respect of 2012 (2011 - nil). However, the Board expects to recommend a sustainable return of capital to shareholders during 2013, the level of which will be determined pending Hoang Long and Hoan Vu Joint Operating Companies approvals of a 2013 Work Programme and Budget for Ca Ngu Vang and Te Giac Trang and incorporating results of the upcoming capacity test of the floating production, storage and offloading vessel.

2 Basis of preparation

The financial information has been prepared in accordance with the recognition and measurement criteria IFRS and with IFRSs adopted for use in the European Union. The financial statements have been prepared under the historical cost basis, except for the valuation of hydrocarbon inventory and the revaluation of certain financial instruments.

The Group has a strong financial position and based on future cash flow projections should be able to satisfy its debt obligations and continue in operational existence for the foreseeable future. Consequently, the Directors believe that the Group is well placed to manage its financial and operating risks successfully and have prepared the financial information on a going concern basis.

3 Segment information

The Group has one principal business activity being oil and gas exploration and production.  The Group's operations are located in South East Asia and Africa (the Group's operating segments) and form the basis on which the Group reports its segment information. There are no inter-segment sales.
												2012
							SE Asia	Africa 2		Unallocated		Group
							$ million	$ million		$ million		$ million
Oil and gas sales							621.6	-		-		621.6
Profit (loss) before tax 1							459.4	-		(13.8)		445.6
Tax charge							238.6	-		-		238.6
Depletion and depreciation							45.1	-		0.2		45.3
												2011
							SE Asia	Africa 2		Unallocated		Group
							$ million	$ million		$ million		$ million
Oil  and gas sales							234.1	-		-		234.1
Profit (loss) before tax 1							165.5	-		(6.9)		158.6
Tax charge							70.0	-		-		70.0
Depletion and depreciation							19.3	-		0.1		19.4
1 Unallocated amounts included in profit before tax comprise corporate costs not attributable to an operating segment, investment revenue, other gains and losses and finance costs.
2 Costs associated with the Africa segment are capitalised in accordance with the Group's accounting policy.
The accounting policies of the reportable segments are the same as the Group's accounting policies.
Included in revenues arising from South East Asia are revenues of $347.9 million, $86.1 million, $75.2 million and $64.2 million (2011 - South East Asia $84.5 million, $60.4 million and $29.6 million) which arose from the Group's largest individual customers.
Geographical information
Group revenue and non-current assets (excluding the financial asset) by geographical location are separately detailed below where they exceed 10% of total revenue or non-current assets, respectively, in any particular year:
Revenue
All of the Group's revenue is derived from foreign countries.  The Group's revenue by geographical location is determined by reference to the final destination of oil or gas sold.
										2012		2011
										$ million		$ million
Malaysia										231.8		44.2
Australia										144.1		-
South Korea										96.1		15.9
Vietnam										87.8		62.0
China										20.5		54.9
Japan										-		25.9
Other										41.3		31.2
										621.6		234.1
Non-current assets
										2012		2011
										$ million		$ million
United Kingdom										1.0		-
Vietnam										815.8		793.5
Democratic Republic of Congo										119.1		89.5
Other - Africa										80.4		103.7
										1,016.3		986.7

4 Tax

										2012		2011
										$ million		$ million
Current tax										162.8		56.6
Deferred tax										75.8		13.4
										238.6		70.0
The Group's corporation tax is calculated at 50% (2011 - 50%) of the estimated assessable profit for the year in Vietnam. During 2012 and 2011 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:
										2012		2011
										$ million		$ million
Profit before tax										445.6		158.6
Profit before tax at 50% (2011 - 50%)										222.8		79.3
Effects of:
Non-taxable income and non-deductible expenses										(0.2)		(13.2)
Tax losses not recognised										13.4		4.0
Adjustments to tax charge in respect of previous years										2.6		(0.1)
Tax charge for the year										238.6		70.0
The prevailing tax rate in the jurisdictions in which the Group produces oil and gas is 50%.  The tax charge in future periods may also be affected by the factors in the reconciliation.

5 Earnings per share

The calculation of the basic and diluted earnings per share is based on the following data:
										2012		2011
										$ million		$ million
Earnings for the purposes of basic and diluted earnings per share										207.0		88.6
										Number of shares (million)
										2012		2011
Weighted average number of ordinary shares for the purpose of basic earnings per share										330.2		336.1
Effect of dilutive potential ordinary shares - Share awards and options										0.7		1.3
Weighted average number of ordinary shares for the purpose of diluted earnings per share										330.9		337.4
At 31 December 2012, up to 4,828,693 (2011 - 4,859,552) potential ordinary shares in the Company that are underlying the Company's convertible bonds and that may dilute earnings per share in the future were not included in the calculation of diluted earnings per share because they were antidilutive for the years ended 31 December 2011 and 2012.

6 Reconciliation of operating profit to operating cash flows

							Group			Company
							2012	2011		2012		2011
							$ million	$ million		$ million		$ million
Operating profit (loss)							448.2	156.9		(10.4)		(8.3)
Share-based payments							1.1	1.0		1.1		1.0
Depletion and depreciation							45.3	19.4		0.1		0.1
Operating cash flows before movements in working capital							494.6	177.3		(9.2)		(7.2)
(Increase) decrease in inventories							(0.9)	6.2		-		-
Increase in receivables							(3.9)	(57.6)		-		(0.2)
Increase in payables							2.5	12.6		2.2		1.3
Cash generated by (used in) operations							492.3	138.5		(7.0)		(6.1)
Interest received							1.0	1.1		-		0.4
Interest paid							(2.4)	(3.9)		-		-
Income taxes paid							(156.1)	(45.5)		-		-
Net cash from (used in) operating activities							334.8	90.2		(7.0)		(5.7)
Cash is generated from continuing operating activities only.
Cash and cash equivalents (which are presented as a single class of asset on the balance sheet) comprise cash at bank and other short term highly liquid investments that are readily convertible to a known amount of cash and which are subject to an insignificant risk of change in value.

7 Preliminary results announced

Copies of the announcement will be available from the Company's head office, situated at 48 Dover Street, London, W1S 4FF and is also available to download from www.socointernational.com. The Annual Report and Accounts will be posted to shareholders in due course.

 

END

 

 

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