Final Results - Year Ended 31 December 1999

Soco International PLC 23 March 2000 SOCO International plc ('SOCO' or 'the Company') Preliminary Results for the year ended 31 December 1999 SOCO is an international oil and gas exploration and production company, headquartered in London with operations in Mongolia, Yemen, European Russia, Thailand, Tunisia, Vietnam and North Korea. Through the acquisition of Torobex, SOCO has also formed an association with an investor group with access to a range of production and development opportunities in the Middle East and north and west Africa. SOCO today announces record preliminary results for the year ended 31 December1999. HIGHLIGHTS * Turnover increased 54 54 per cent. to £23.8 million (1998: £15.5 million). * Net income of £7.4 million, compared to a restated net loss of £0.8 million in 1998. * Oil production continued to rise, primarily due to the continuing development programme in Yemen: average production of 7,205 BOPD (1998: 7,128 BOPD). * Further reduction in per barrel operating costs to £3.76 (1998: £3.90). * Significantly strengthened balance sheet: £28.8 million of cash and cash equivalents at the year end. * Award of Block 16-1 offshore Vietnam finalised. * Resumption of full scale exploration activities in Mongolia and Vietnam Ed Story, Chief Executive of SOCO, said: 'We are very pleased with the financial and operating results for 1999. Many of the things we accomplished throughout the year were timing critical and would be difficult if not impossible to achieve at the present time. The improvement in the oil price provides obvious and immediate benefits to the bottom line, but overall may make future rationalisations more problematic. 'We are dedicated to achieving a balanced portfolio which we will continue to exploit in a unique fashion that is not overly-dependent on the oil price. The resources already available to us, combined with the undoubted expertise and industry knowledge that we can call on, give us great confidence in our ability to achieve this.' 23 March 2000 Enquiries: SOCO International plc Tel: 020 7457 2020 (today) Ed Story, Chief Executive Tel: 020 7399 3300 (thereafter) Roger Cagle, Chief Financial Officer College Hill Tel: 020 7457 2020 James Henderson Archie Berens SOCO International plc Preliminary Results for the year ended 31 December 1999 CHAIRMAN'S AND CHIEF EXECUTIVE'S STATEMENT Results It is a pleasure to be reporting record results for the Group. Reflecting primarily the dramatic turnaround in crude oil prices from those reported in 1998 and a gain on the sale of its UK producing assets, the Group registered a record profit before tax of £8.3 million on turnover of £23.8 million, compared to a restated loss of £0.6 million on turnover of £15.5 million in 1998. Net profit was £7.4 million in 1999 (1998: restated net loss of £0.8 million). Earnings per share were 12.5p (1998: restated loss per share of 1.7p). Cash Position At the end of 1999, cash and cash equivalents equaled £28.8 million, only marginally less than the balances held at the year end following the initial public offering in May 1997. Funds net of long term debt equal £27.2 million. The Company is thus financially strong and the Board believes that the prudent reinvestment of profits is key, in the near term, to maintaining this strength. Operations - Production and Development SOCO's production net to its working interests rose in 1999, to 7,205 barrels of oil per day ('BOPD') from 7,128 BOPD last year, although the UK production was sold during the year, the Yemen development programme was delayed several months and Russian development was deferred pending finalisation of the EBRD funding. In the first two months of 2000, net production averaged 8,830 BOPD primarily due to the early impact of Phase II of the Yemen development drilling programme, which is still ongoing. Per barrel average realisations net to the Group rose to US$16.70, up dramatically from US$11.45 reported in 1998. Operating costs, excluding depreciation, depletion and amortisation ('DD&A'), fell slightly to £9.9 million from £10.1 million in 1998 despite the increase in production. On a per barrel basis, 1999 operating costs decreased to £3.76 from £3.90 in 1998, reflecting both the greater contribution from lower cost production in Yemen and a slight impact from the October sale of the high production cost onshore UK assets. Yemen During 1999, the Group increased its shareholding in Comeco from 50% to 58.75%, reflecting an indirect working interest of 16.785%, up from 14.285%. This came as the result of the settlement of the outstanding litigation associated with ownership interests in Comeco Petroleum, Inc. ('Comeco'), the entity through which the Group participates in the TOTAL Yemen operated joint venture that holds the production sharing agreement in the East Shabwa Development Area in Yemen ('East Shabwa'). Initiation of the planned Phase II development slipped from April until July 1999 as a result of delays in mobilising and rigging up drilling equipment. Consequently, only three of the seven wells planned (five producers, two injectors) were completed during the year, all three producers. Even with the deferred drilling programme, gross production by year end had reached 30,000 BOPD. The original Phase II development will continue into 2000. Two wells have been added to the programme and two contingent wells are planned pending the results of further geological and geophysical studies and results of the earlier drilled wells. Russia The loan documents for the financing facility of up to US$45 million which was provided by the European Bank for Reconstruction and Development ('EBRD') to Permtex were executed by all parties in May of 1999. Following clearance of the banking and accounts structure by the Central Bank of Russia in the autumn, all documentation was finalised in November. The first drawdown against the facility occurred in December. Activity throughout the year remained focused on the southern sector of the Contract Area. Drilling resumed in the Logovskoye field early in the third quarter of 1999. Two development wells were drilled bringing to 32 the total number of wells capable of producing in the field. Production was relatively flat in 1999, falling slightly to 1.8 million barrels from a gross volume of 1.9 million barrels of oil in 1998. Logovskoye continues to provide the bulk of production, 1.5 million barrels in both 1999 and 1998. All sales continued to be exported outside the Russian domestic market throughout the year and were paid for in US dollars. Development of the northern part of the Contract Area is scheduled throughout 2000, with much of the early focus being directed toward construction of the northern pipeline through the marshy areas, which must be completed by the spring thaw or delayed another year. Completion of the pipeline, including the pumping stations and separation facilities, is not likely to occur before the third quarter of 2000. As substantial increases in production are dependent on response to the waterflood and the pipeline completion, significant production increases are not expected until 2001. Tunisia In 1999, the Didon 3 horizontal well produced an average of 948 BOPD net to SOCO's 22.22 per cent. interest, as compared to a 464 BOPD annualised average for a partial year's production, coming online midyear in 1998. Currently, the well is producing steadily at more than 7,000 gross BOPD. There has been no pressure decline in the well since production began. A commitment well is scheduled to be drilled in the third quarter of 2000. With success, the well would likely be put on production after the Didon well declined to its economic limit. At such time, the FPSO would be moved to the discovery and the well would be produced into the FPSO. UK In the fourth quarter of 1999, the Group divested itself of its entire production interests in the UK, where it operated licences on six producing oil fields and one gas field in the Weald Basin onshore in the south of England. The entity, which operated the licences, was sold with effect from 30 September 1999. On an annualised basis, oil production net to the Group's working interest from its UK operations averaged 1,029 BOPD from 23 wells in seven fields. Average production net to the Group's working interest during the first nine months was 1,377 BOPD, down from a full year average of 1,590 the previous year. Operations - Exploration Mongolia The Company took advantage of the moratorium on expenditures granted by the Petroleum Authority of Mongolia for 1999 and the low service cost environment prevailing at the beginning of that year to renegotiate a drilling contract. Wells which have averaged approximately US$2.5 million to drill and complete prior to the new contract will average approximately US$500,000 under the new eight well contract negotiated with Huabei Oilfield Services, the same company which has drilled all twelve previous wells in the Tamtsag Basin. We are entering a watershed period for Mongolia as we begin the next eight well drilling programme in April 2000. We will test the validity of the models developed from the 3-D seismic data acquired over the area in the preceding two years. Further, we have designed a well programme to optimise the drilling techniques and well completion skills employed by the Chinese contractor. Thus, with improved data and simplified design, we will be able to enhance our ability to successfully test the potential of Contract Area 19. Vietnam The Petroleum Contract for Block 16-1 offshore Vietnam was signed with the government of Vietnam on 15 November 1999. The Vietnamese Ministry of Planning and Investment approved the award the following month and the signature bonus, including assignment of a 5% interest in our Production Sharing Contracts in Mongolia, was paid in January 2000. From continued analysis of the Block, the contracting parties have identified at least three prospective structures in addition to the one identified by the successful test of the mid-1980's Ba Vi well. The parties expect to reprocess and interpret existing seismic data using modern processing techniques and plan to conduct an initial 3-D seismic programme over the Block in 2000. Thailand As was stated in the 1999 Interim Report, reinterpretation of previously acquired seismic on Block B8/38 in Thailand allowed us to map some interesting prospects which offered high potential for significant reserve additions. As a result, we applied to the Thailand Department of Mineral Resources to test two of these structures while service costs continue to be low (thus far lagging the recovery experienced in most of the oil and gas sector). Both wells were plugged and abandoned in February without encountering commercial quantities of hydrocarbons At least two other interesting prospects have been identified on Block B8/38 but further evaluation is required to determine suitability for drilling. At the end of this exploration period, October 2000, the Group would expect to relinquish approximately 50% of the Block in accordance with the terms of the PSC. Based on the work performed to date, relinquishments will not affect the remaining prospectivity of the Block. North Korea Well number 401 began drilling in 1998 and drilled throughout the first seven months of 1999 finally reaching a total depth of 4,301 metres, approximately 500 metres below its original target depth. The well, drilled entirely by a North Korean drilling contractor, offsets a previous well which produced oil for a number of years from a Cretaceous aged sand at a depth of approximately 2,000 metres. Logged in July by a logging crew contracted to SOCO Koryo from Huabei Oilfield, the results were inconclusive and the well has been suspended pending further testing. This project continues to provide SOCO with an inexpensive opportunity to explore the area which is adjacent to the prospective areas in the Bohai Bay basin of north-eastern China. However, continuation of SOCO's involvement rests on being able to validate the data gathered thus far and implementation of a more efficient information conduit for future operations, without further dilution of management's attention from more attractive projects. SOCO is therefore likely to seek to farm-out a large portion of its interest and retain a small exposure in the area. Torobex Steps were taken to strengthen the balance sheet and enhance the Company's longer term position, through the acquisition of Torobex Limited ('Torobex'). Torobex is a special purpose entity established by several investors, focused around the Toro group, to hold operating rights for various exploitation and development projects in the Middle East and north and west Africa. The investor group brings together interests in refining, distribution, private power generation, crude and products trading and finance in some of the major producing areas stated above. It joined the Company as both investor and co-venturer, with the objective of building a large reserve base with low average costs of production. This tactic also better insulates the Company against crude oil price risk, as profitability can be maintained and an ongoing exploration programme can be funded. The acquisition not only added approximately £9 million to the Company's cash position, but more importantly enhanced the Company's capability to access opportunities typically beyond the scope of a company of SOCO's size. By using the Toro group's past experience in its areas of interest to establish credibility and its relationship base to make strategic introductions at the appropriate levels of decision making, the time required to enter a new market should be significantly reduced. An aggressive approach has been undertaken toward introducing SOCO into a circle of major industry players, national industry participants and national policy makers. Several initiatives are in advanced stages of discussion, although no project has come to fruition to date. Outlook Throughout the year we have focused on portfolio rationalisation, seizing on the downturn in the first half to secure lower service costs critical to the economic evaluation of our high quality exploration portfolio. At the same time, we disposed of assets which were unlikely to enhance shareholder value, either because of the length of time required to produce such a return, or because of the intrinsic imbalance of costs to returns. One of management's key strategies is to optimise the balance in the portfolio as conditions change. Accordingly, we have re-examined projects to ensure that opportunities effectively match the size and capability of the Company both from a financial and managerial perspective. As a result, SOCO is in a position to tailor its discretionary capital expenditures to preserve its operating cash flow and to continue the exploratory programme with manageable commitments. From this exercise several exploratory drilling initiatives will begin in 2000, but in an environment of cost control and revenue inflow which does not place undue strain on the balance sheet. Continuing to weight the portfolio appropriately is the key challenge for management. We believe that the portfolio currently has a good balance between exploration and production and, through the highly promising association with the Toro group, we aim to improve that position by adding attractive, low cost reserve positions and greater diversity of production. The Company has the managerial and financial capacity to capture the opportunities as they become available. It is this fact, above all else, that makes us confident that the Company will continue to make progress for the benefit of all shareholders. Patrick Maugein Ed Story Chairman Chief Executive 23 March 2000 23 March 2000 SOCO INTERNATIONAL PLC Preliminary Results for the year ended 31 December 1999 Consolidated Profit and Loss Account (restated) 1999 1998 £000's £000's Turnover Continuing operations 19,800 10,648 Discontinued operations 4,002 4,871 23,802 15,519 Cost of sales (16,310) (15,896) Gross profit (loss) 7,492 (377) Administrative expenses (1,876) (1,413) Operating profit (loss) Continuing operations 5,680 (765) Discontinued operations (64) (1,025) 5,616 (1,790) Profit on sale of discontinued 1,820 - operations Profit (loss) on ordinary 7,436 (1,790) activities before finance charges Investment income 998 1,570 Interest payable and similar (151) (381) charges Profit (loss) on ordinary 8,283 (601) activities before taxation Tax on profit (loss) on ordinary (869) (235) activities Profit (loss) for the financial 7,414 (836) year Earnings (loss) per share Basic 12.5p (1.7)p Diluted 12.4p (1.7)p Consolidated Statement of Total Recognised Gains and Losses (restated) 1999 1998 £000's £000's Profit (loss) for the 7,414 (836) financial year Unrealised currency 1,951 (295) translation differences Total recognised gains 9,365 (1,131) (losses) relating to the year Prior year adjustment (see (323) - note 1) Total gains (losses) recognised since last annual 9,042 (1,131) report and accounts SOCO INTERNATIONAL PLC Preliminary Results for the year ended 31 December 1999 Balance Sheet Group Company (restated) 1999 1998 1999 1998 £000's £000's £000's £000's Fixed assets Tangible assets 70,051 69,944 158 190 Investments 368 368 49,355 42,683 70,419 70,312 49,513 42,873 Current assets Stocks 1,150 489 - - Debtors 4,834 6,370 927 550 Investments 20,639 7,769 9,508 6,738 Cash at bank and 8,152 1,563 1,116 287 in hand 34,775 16,191 11,551 7,575 Creditors: Amounts (5,677) (4,295) (512) (1,287) falling due within one year Net current assets 29,098 11,896 11,039 6,288 Total assets less current 99,517 82,208 60,552 49,161 liabilities Creditors: Amount (1,551) - - - falling due after more than one year Provisions for (651) (2,776) - - liabilities and charges Minority interests (175) (157) - - Net assets 97,140 79,275 60,552 49,161 Capital and reserves Called-up equity 13,828 10,365 13,828 10,365 share capital Share premium 38,367 38,358 38,367 38,358 account Other reserves 34,961 29,933 - - Profit and loss 9,984 619 8,357 438 account Shareholders' 97,140 79,275 60,552 49,161 funds SOCO INTERNATIONAL PLC Preliminary Results for the year ended 31 December 1999 Consolidated Cashflow Statement (restated) 1999 1998 £000's £000's Net cash inflow from operating 9,175 4,088 activities Returns on investments and servicing of finance Interest received 778 1,243 Interest paid (25) (38) 753 1,205 Taxation paid (571) (686) Capital expenditure and financial investment Purchase of tangible fixed (7,589) (20,480) assets Sale of tangible fixed assets 8 20 Investment in associate - (2,928) (7,581) (23,388) Acquisitions and disposals Purchase of subsidiary (427) (114) undertaking Cash acquired with subsidiary 8,911 54 undertaking Sale of business 7,681 - 16,165 (60) Cash inflow (outflow) before management of liquid resources and financing 17,941 (18,841) Management of liquid resources Advance to Comeco Petroleum, - (2,681) Inc. (Increase) decrease in cash (13,028) 17,035 placed on short term deposit (13,028) 14,354 Financing Issue of ordinary share capital 7 2 Issue of preference shares to 12 184 minority interests Bank loan due after more than 1,550 - one year 1,569 186 Increase (decrease) in cash in 6,482 (4,301) the year SOCO INTERNATIONAL PLC Preliminary Results for the year ended 31 December 1999 Notes to the accounts 1. Change in accounting policy Effective 1 January 1999, the Group adopted FRS 12 'Provisions, Contingent Liabilities and Contingent Assets' which constituted a change in accounting policy for the way the Group accounts for decommissioning costs. The comparative figures in the primary statements and notes have been restated to reflect the new policy. With the exception of this change, the preliminary accounts have been prepared on the same basis as the statutory accounts for the year ended 31 December 1998. 2. Basis of preparation The financial information presented above does not constitute statutory accounts within the meaning of section 240 of the Companies Act 1985. An audit report has not yet been issued on the accounts for the year ended 31 December 1999, nor have they been delivered to the Registrar of Companies. The comparative financial information for the year ended 31 December 1998 has been derived from the statutory accounts from that year, as restated for FRS 12. Those statutory accounts, upon which the auditors issued an unqualified opinion, have been delivered to the Registrar of Companies. 3. Dividend The Directors are not recommending the payment of a dividend. 4. Reconciliation of operating profit to operating cash flows (Restated) 1999 1998 £000's £000's Operating profit (loss) 5,616 (1,790) Depreciation and depletion charges 6,479 5,845 Profit on sale of fixed assets - (6) Movement in stocks (436) 233 Movement in debtors (2,542) 613 Movement in creditors 58 (807) Net cash inflow from operating 9,175 4,088 activities 5. Analysis and reconciliation of net funds As at 31 Exchange As at 31 Dec 1998 Cash flow Movement Dec 1999 £000's £000's £000's £000's Cash at bank and in hand 1,563 6,482 107 8,152 Current asset investments 7,769 13,028 (158) 20,639 Bank loan due after more - (1,550) (1) (1,551) than one year Net funds 9,332 17,960 (52) 27,240 Current asset investments are term deposits. 6.Disposal of interest in SOCO UK Onshore Ltd In October 1999 the Company sold the entire share capital of its wholly owned subsidiary SOCO UK Onshore Ltd. ('UK Onshore'), through which it held its interests in various exploration and production licences in the Weald Basin in Southern England, for consideration of approximately £10.6 million, comprising £7.9 million in cash, assumption of approximately £2.2 million of intergroup receivables and additional consideration of approximately £0.5 million which is expected to be received in the first half of 2000 as a result of the disposal of certain property held by UK Onshore. The sale resulted in a net cash inflow in 1999 in the amount of £7.7 million, reflecting £7.9 million cash consideration net of both transaction costs and cash held by the subsidiary at disposition, and a profit of £1.8 million. 7. Increase of interest in Comeco Petroleum, Inc. Effective 1 July 1999, the Group increased its ownership interest in Comeco Petroleum, Inc. ('Comeco'), the company through which the Group holds its interest in the East Shabwa Development Area in Yemen, from 50% to 58.75%. The increase follows the resolution of a dispute between Comeco and its stockholders arising subsequent to a February 1998 transaction through which the Group increased its interest in Comeco from 41.25% to 50%. The Group's results consolidate the assets, liabilities and cash flows related to its interest in Yemen in accordance with FRS 9. 8. Acquisition of Torobex Limited On 12 July 1999 the Group acquired the entire share capital of Torobex Limited ('Torobex') for consideration of 17,277,058 new ordinary shares of the Company with a nominal value of £0.20 ('Shares') and warrants to subscribe for 3,109,870 Shares, all exercisable after 12 months in three tranches comprising 1,399,441 warrants at a subscription price of £0.55 per Share, 1,088,455 warrants at a subscription price of £0.60 per Share and 621,974 warrants at a subscription price of £0.65 per Share. The acquisition of Torobex, which has not traded since incorporation and whose net assets solely comprised US$13.9 million (£8.9 million) cash on the date of acquisition, provides the Group with new associations through an investor group with the potential to introduce new assets or projects into the Group. 9. Preliminary results announced Copies of the announcement will be available from the Company's head office, Swan House, 32/33 Old Bond Street, London, W1X 3AD. The annual report and accounts will be posted to shareholders in due course.

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