SOCO International plc ("SOCO" or "the Company")

SOCO is an international oil and gas exploration and production company, headquartered in London. The Company has interests in Vietnam, Mongolia, Yemen, Libya and Thailand, with production operations in Yemen and Mongolia. SOCO today announces preliminary results for the year ended 31 December 2004. As announced on 1 April 2005, SOCO has agreed to dispose of its Mongolia operations, subject to gaining approval from its shareholders.


  • Solid operating results with post tax profit of £15.5 million (2003: restated

  • post tax profit of £5.7 million) including profit on sale of Tunisia assets
  • Gain of £8.4 million relating to sale of Tunisia assets

  • Earnings per share of 22.2p (2003: restated earnings per share of 8.2p)

  • Year end cash balances and short term deposits of £37.0 million, no debt

  • Production up to 5,533 BOPD (2003: 5,409 BOPD)

  • Acquisition and reinterpretation of seismic in Vietnam to prepare for extensive
    exploratory and appraisal drilling programme in 2005, CNV-3X well spudded in
    January, preliminary testing operations have begun

  • Basement drilling in East Shabwa, Yemen, has exceeded expectations

  • Restructuring of ODEX completed with various opportunities being explored

  • Continued streamlining of portfolio focussing on projects offering more immediate

Ed Story, President and Chief Executive of SOCO, said:

"During 2004 we have laid the foundations for the future growth of the Group. We have continued to build on our strategic alliances with key partners and taken decisive steps to streamline our portfolio.

We are optimistic as we embark upon one of the most important and exciting drilling programmes in our history that the drill bit will provide excellent results for SOCO in the coming year."

29 April 2005


SOCO International plc
Tel: 020 7747 2000
Ed Story, President and Chief Executive
Roger Cagle, Deputy Chief Executive
and Chief Financial Officer

College Hill
Tel: 020 7457 2020
Ben Brewerton
Nick Elwes


SOCO ended 2004 in an extremely strong position. After 12 months of intensive foundation-laying, we are poised to deliver positive results in 2005. Much of our preparation has, by definition, taken place behind the scenes and not in the public spotlight. Nevertheless, we are confident that 2004 will be remembered as one of the most important – and pivotal – years in the development of the Company.

SOCO's interests in Vietnam and Yemen remain the Group’s core assets; both providing material upside and the latter providing strong operating cash flow. During the third quarter of 2004, the Company's first Basement targeted deviated well in Yemen was spudded, signifying the start of the second major multi-well drilling campaign in the Company's history.

Our multi-well drilling programme in Vietnam commenced in January 2005. Before the drilling programme could begin in Vietnam, we needed to improve the processing of our existing seismic in order to enhance the subsurface image to better target wells on our Ca Ngu Vang discovery. New seismic was acquired in untested areas where geological studies indicated additional prospectivity. Accordingly, our primary focus was on seismic – both acquiring new data, and reprocessing and reinterpreting existing data.

While continuing to evolve strategic alliances with key partners in all our areas of interest, we took decisive steps to streamline our asset portfolio in others. This continuing process is vital to ensuring that we stay focused on our long term strategy for building shareholder value.


Even while significantly rebalancing our portfolio in favour of those assets promising the most upside, the Company produced solid operating results in 2004 reporting increased after tax profits of £7.1 million, excluding the gain of £8.4 million on the sale of the Tunisia assets, versus restated after tax profits of £5.7 million in 2003. With our production in Tunisia included in the Group’s statistics through the completion of the sale in December, production net to the Company’s working interest increased slightly, rising to 5,533 barrels of oil per day ("BOPD") in 2004 from 5,409 BOPD the prior year. The Company finished the year in a stronger financial position than it began as cash and investments, which includes short term deposits, totalled £37.0 million compared to £32.9 million at year end 2003.


In March 2004, we completed the restructuring of our interest in the ODEX Exploration Limited ("ODEX") joint venture. First announced in our 2003 annual report, this transaction created a stronger consortium comprising SOCO North Africa (34%), and subsidiaries of Oilinvest (Netherlands) B.V. (46%) and of Joint Stock Bank of the Gas Industry Gazprombank (20%). One of the consortium’s early public technical challenges was to establish itself as a credible participant during Libya’s first open bid round for exploration areas, which took place at the beginning of 2005. Although its bid did not result in an award of acreage, ODEX’s demonstration of logistical and technical expertise during the bidding process created a strong platform for future success. In December, we completed the sale of our interests in the Zarat Permit in the Gulf of Gabès, offshore Tunisia, with an effective date of 1 July 2004. As a result, SOCO received a cash consideration of US$25 million subject to applicable working capital adjustments.

Developments in Vietnam were encouraging as we prepared for the evaluation of earlier discoveries and for testing additional exploration targets. The extensive programme included the advanced reinterpretation of existing seismic data, the acquisition and interpretation of new 3D seismic data and the logistical preparation for a complex multi-well drilling campaign. Thanks to the efforts of the Joint Operating Company staffs, we were able to improve upon the schedule of the critical path, allowing us to spud the first well ahead of the original timetable.

The first well in this programme will appraise the Ca Ngu Vang ("CNV") structure on Block 9-2 where the discovery well CNV-1X was drilled in 2002 and tested a maximum combined rate of approximately 4,500 barrels of crude oil equivalent per day. The high angle deviation well, CNV-3X, was spudded on 30 January 2005 and reached a measured depth of approximately 6,100 metres.

Our experience with Basement reservoirs in Vietnam played an important part in driving progress in Yemen’s East Shabwa Development Area ("East Shabwa"). In September 2004, we commenced a four well programme, three of which were deviated wells specifically targeting the Basement interval. These are the first deviated wells targeting Basement to be drilled at East Shabwa and obtaining partner consensus to proceed with the programme was one of the year’s successes.

Three of the four wells drilled to date in this programme, which was designed primarily to test the limits of the Kharir Basement structure, have met or exceeded expectations, with the third well tested achieving flow rates greater than 6,500 BOPD and the final well testing greater than 5,500 BOPD. The first well drilled in the programme encountered low density fractures and is suspended awaiting a technical decision.

Throughout 2005, we will be reporting results from the drill bit as we proceed with the Vietnam and Yemen drilling programmes. The CNV-3X well in Vietnam is commencing preliminary testing operations. In Yemen, we have proceeded with the rig already under contract on an extension of the drilling programme initiated in 2004, targeting both reserve additions and increased production from the Kharir field. The consortium anticipates contracting another rig later in the year to evaluate one or more new Basement structures. We also anticipate completing a comprehensive upgrade of the East Shabwa surface facilities.

The streamlining of our asset portfolio will continue, redirecting our efforts toward projects that offer more immediate upside to the Company. In April 2005, the Company signed a sale and purchase agreement with a Chinese company which has agreed to purchase the entities owning the whole of SOCO’s interests in the Tamtsag Basin in Mongolia. This transaction will add US$30 million immediately to SOCO’s cash balances if the deal is approved at an Extraordinary General Meeting of shareholders. Additional cash consideration of US$10 million will be held in escrow and paid 18 months after closing assuming no material undisclosed liabilities have arisen against the companies sold. Consideration tied to production in excess of 27.8 million barrels produced subsequent to 1 January 2005 could add a further sum of approximately US$53 million to the total amount received. Discussions are ongoing with possible farm-in/equity participants in Thailand.


At the May 2004 Annual General Meeting, Mr Roger Brittain retired as an independent Non-Executive Director. Roger played an instrumental role in forming SOCO and his departure – formally announced in 2003 – followed seven years of dedicated service to the company.

Mr Martin Roberts was appointed to the Board as an independent Non-Executive Director in September 2004. During his 35-year career with the international law firm Slaughter and May, Martin was closely involved with the energy sector. He was appointed a partner in 1975 and retired from the practice in 2002. His skills and experience have proved an immediate asset to the SOCO Board.


Our industry is undergoing a period of transformation as a growing number of national oil companies compete in the international arena, deploying formidable resources beyond their national borders. Results from recent bidding rounds, including those in Libya and Yemen, indicate that these companies are prepared to bid aggressively to establish a presence in new territories in order to protect supplies for their sovereign energy demands.

Competing head-on with such companies is not a viable option for SOCO. Instead, we believe that our future lies in reinforcing the strength and value of our strategic partnerships with these entities and creating new relationships in the early development of other national oil companies' activities abroad. These groups control access to some of the world’s most prolific and potentially productive hydrocarbon reserves.

Indeed, since our formation, we have worked hard to build relationships with national oil companies in those parts of the world where we plan to focus our portfolio. We have focused on capitalising on these links, which were greatly expanded by the alliance forged between the Company and its strategic shareholder group in 1999 and we expect the alliance to become an increasingly important building block in realising this strategy.

SOCO strives to bring a fresh perspective to industry challenges and to apply standard tools in different ways. This capacity for innovation, coupled with strong regional ties, is the key to opening up new horizons and delivering results.

During the next chapter in SOCO’s development, drill bits will write the headlines. This time next year, we are optimistic that they will tell a story of demonstrable results based on the solid foundations that have been laid. We will continue to build on these foundations by playing to our strengths while streamlining our portfolio and further focusing our resources.

As we negotiate the challenges ahead, our strategic partnerships will become increasingly important. These alliances have always been fundamental to SOCO’s growth. Looking ahead, they will be one of the key drivers in delivering our strategic goals – recognising opportunity, capturing potential and realising value.


During 2004, solid foundations were laid for the future growth of the Company in preparation for the most important exploration drilling programme in SOCO’s history. This programme began with positive results in Yemen which immediately impacted production during 2004.

Overall, crude oil production net to the Group's working interest for 2004 was up slightly to 5,533 barrels of oil per day ("BOPD") compared to 5,409 BOPD in 2003. This increase reflected a good rebound from the first half of 2004 as positive production results came in from the Basement drilling programme in Yemen and a second producing well was put on line in Tunisia. Despite drilling delays due to lack of rig availability in the first half of 2004, net daily production from the East Shabwa Development Area ("East Shabwa") in Yemen contributed 3,958 BOPD to the total, compared to 3,896 BOPD in 2003. In Mongolia, production was 338 BOPD, compared to 412 BOPD in 2003, as the remoteness of operations there made sourcing spare parts for production equipment failures difficult, thus causing interruptions. The discontinued operations in Tunisia, where production statistics were included through the completion date in December 2004, contributed the remainder of total production.


SOCO holds its interests in Vietnam through an 80% holding in its subsidiary SOCO Vietnam Ltd ("SOCO Vietnam"). SOCO Vietnam holds a 25% working interest in Block 9-2 and a 28.5% working interest in Block 16-1 in the Cuu Long Basin, offshore Vietnam. Principal partners in Vietnam are subsidiaries of PTT Exploration and Production Public Company Ltd of Thailand (PTTEP Thailand) and Petrovietnam, Vietnam’s state oil company. Together, the partners operate through Joint Operating Companies ("JOCs").

Both Blocks are contiguous to the Bach Ho field, where 2004 production reportedly averaged approximately 220,000 BOPD and 220 million cubic feet of gas per day ("MMCFD"), and the Rang Dong field, where production reportedly averaged approximately 45,000 BOPD, mainly from the Basement.

Review of 2004 activities
In Vietnam, the year started with the focus firmly on seismic – both acquiring new data and reprocessing and reinterpreting existing data. The results of this work formed the basis of an extensive exploratory and appraisal drilling programme, which is scheduled to continue throughout much of 2005.

In total, the JOCs acquired approximately 650 square kilometres of new 3D seismic over several leads and prospects in Block 9-2 and Block 16-1. Encouragingly, these leads and prospects appear similar to recent significant discoveries in nearby blocks within the Cuu Long Basin.

During the year, existing data over and around the Ca Ngu Vang ("CNV") structure was reprocessed using advanced pre-stack depth migration ("PSDM") technology. This technology produces higher quality data by using segmented velocity information to enhance seismic images of sub-surface features. To date, PSDM has been successfully used by other operators elsewhere in Vietnam. The reprocessing resulted in a clearer subsurface image allowing a more accurate interpretation and well targeting. Based on the data interpretation of the new and reprocessed data, detailed well planning and procurement were undertaken to ensure a cost-effective three-firm plus three-option well drilling programme.

Subsequent events and 2005 outlook
The appraisal well on the CNV structure that spudded in 30 January 2005 reached target depth on 16 April 2005. Reaching a measured depth ("MD") of 6,123 metres, the CNV-3X well has the distinction of being the longest MD well ever drilled in Vietnam. The well reached a total vertical depth of 4,426 metres penetrating approximately 2,000 metres of granitic Basement at an average angle of 82 degrees from vertical intersecting various fault and fracture domains in the central and western parts of the structure to the west of CNV-1X, the discovery well drilled in 2002.

CNV-1X tested to a maximum combined rate of approximately 4,500 barrels of crude oil equivalent daily. This comprised approximately 3,100 BOPD and approximately 7.9 MMCFD from the Basement interval.

At the date of this report, the well is commencing preliminary testing operations. A full evaluation of the CNV-3X well will be performed and, should the well confirm the potential of the structure, the results will be incorporated into an application to the Vietnamese authorities for approval of an accelerated development schedule.

Upon completion of the CNV-3X programme, the rig will be moved to Block 16-1 to spud an exploratory well to test the Te Giac Trang ("TGT") structure in the eastern part of the Block. The TGT structure is one of a series of Oligocene prospects delineated by the 3D seismic acquired over the Block in 2004. This is the same geological sequence in a similar setting in which a major discovery was recently reported in another part of the Cuu Long Basin.


SOCO continues to derive most of its production from its interests in Yemen. During 2004, production increased compared to the previous year due to the continued appraisal and development of the Basement interval in concert with a proactive workover campaign designed to reduce individual well water cuts from the producing Cretaceous reservoir. By the end of 2004, the field was producing at around 29,000 BOPD compared to 23,000 BOPD at the end of 2003.

Production from East Shabwa is transported by pipeline and commingled with production from the neighbouring Masila block before transportation by pipeline to the coastal Ash Shihr export terminal. SOCO’s crude entitlement is sold under a 12-month spot market contract.

The Group holds its interest in East Shabwa through its 58.75% majority shareholding in Comeco Petroleum Inc., ("Comeco"), which holds a 28.57% direct interest in Block 10. A subsidiary of Occidental Petroleum, which is also a co-venturer in East Shabwa with a 28.57% interest, holds the remaining minority interest in Comeco. Total E&P Yemen, with an interest equal to Comeco’s, operates the concession and a subsidiary of Kufpec, the Kuwaiti foreign oil company, holds the remaining 14.29%.

Review of 2004 activities
The Group’s technical experience working with granitic Basement in Vietnam, helped in the 2003 discovery of the Kharir Basement pool and the subsequent acceleration of the appraisal and development of this horizon in Yemen. Despite delays caused by the lack of rig availability, the consortium launched an extended drilling campaign in the second half of 2004. This campaign included the consortium’s first ever deviated wells specifically targeting the Basement interval.

To date, most production has come from the Cretaceous clastic Biyad reservoir in the Kharir field. This interval is characterised by the high water cuts that are typical of other regional wells producing from this reservoir. To mitigate the issues associated with dealing with the disposal of high volumes of produced water, the consortium launched a major workover campaign designed to reduce water cuts from individual wells and improve well performance. The success of this campaign was demonstrated by the fact that the consortium was able to maintain the average oil production rate from the Cretaceous during 2004 at 2003 levels.

During the year, work was completed on production facilities to reduce bottlenecks and increase oil handling capacity. In addition, facilities and techniques specifically designed to handle a large volume of associated gas from the Basement have been evaluated. Extra facilities will be installed and some additional techniques will be employed over the next two or three years in order to enable the consortium to increase its capability to produce from Basement. This, together with adding water injection capability to improve pressure maintenance in the Basement reservoir, should add considerable productive capability from the interval.

Block 10 is also one of the Group’s most exciting exploration areas. Reprocessing of all the existing 2D seismic data acquired over the Block was completed during 2004. Interpretation of this new data was used to identify several high potential exploration targets. The most prospective will be drilled as part of the 2005 drilling programme.

During the year, the partnership drilled two new production wells on the Cretaceous Atuf field. The first of these, ANW006B, was originally drilled as an injector well. It reached a depth of 1,829 metres, where it encountered unexpected reserves in the Upper Biyad formation. Consequently, ANW006B was completed as a producer rather than an injector well and produces approximately 1,500 BOPD.

The second well, ANW007, also encountered the target interval higher than expected. It was completed as a producer and tied into the field’s production system mid-year. In line with test expectations, ANW007 crude production is currently averaging approximately 1,800 BOPD.

As a result of these successes, work began on a re-evaluation of the Atuf field to identify additional producing locations. We are optimistic that this re-evaluation will deliver substantial benefits during 2005 and beyond.

In August, work began on drilling deviated wells specifically targeting the Basement interval of the Kharir structure. The first of these, KHA-401, reached a depth of 3,873 metres. The principal objective of the well was to test the development of potential productive fractures at depth, in this case over 600 metres below the top of the Basement and well below the Basement interval penetrated by previous wells.

Initial interpretations of test results on KHA-401 indicate that it encountered reservoir, but that the fracture development appears inadequate to support economic production at this depth and location. Currently the well is suspended while options for side tracking it to a shallower interval are explored.

KHA-402 was spudded in October and reached a total depth of 3,441 metres. The well was drilled to test the potential of the eastern end of the Kharir field on the flank of the structure. The well was initially tested in December, achieving a rate of 550 BOPD before being shut-in for a long-term build-up test. The well was re-opened on 26 January 2005 and produced at more than 700 BOPD.

KHA-403, the third well in the initial programme, spudded on 6 December and reached a total depth of 3,383 metres. The well was drilled to delineate the Basement to the west and to evaluate reservoir development in the undrilled western extension of the structure. Tested in February 2005, KHA-403 produced at more than 6,500 BOPD and is now connected to Kharir’s main production facilities.

Subsequent events and 2005 outlook
The fourth Basement well in the drilling programme initiated in 2004, KHA-404, was spudded on 1 February 2005 and reached a total depth of 3,539 metres. The well was drilled into the northern extension of the Basement with the objectives of appraising this area and providing information for a pilot water injection programme. The well tested at a rate greater than 5,500 BOPD in early April. KHA-405 spudded on 28 March 2005 as a continuation of the Kharir Basement evaluation programme.

This year there will be the continuation of a very active drilling programme on Block 10. Towards the end of this period, it is possible that two exploration wells will be drilled on recently identified Basement prospects. Initially, the exploitation programme will continue with plans to drill six wells. A second drilling phase of seven wells is contingent upon the success of phase one. In parallel, the need for gas handling, water re-injection equipment and facility debottlenecking will mean further upgrades to the surface production facilities.


Mongolia’s Tamtsag Basin is a rank frontier exploration area in which the Group, primarily through its wholly owned subsidiary SOCO Tamtsag Mongolia ("SOTAMO"), holds an approximate 95% working interest in production sharing contracts ("PSCs") over Contract Areas 19, 21 and 22.

Huabei Oilfield Services, the Chinese company providing drilling services to SOTAMO, did not meet the specific conditions required in order for it to take a pro rata working interest of 10% in the PSCs. A 5% working interest, carried by the Group through the exploration phase, is held by Petrovietnam, the Vietnamese national oil company.

To date the Group has drilled only 31 wells (including one on Contract Area 20, before its relinquishment) in an area of approximately 26,000 square kilometres. All Mongolian crude oil production is trucked to the Aershan Oilfield in China, from where it is transported by pipe and rail to a refining complex in Hohhot and sold at the prevailing market rate.

During 2004, the Group drilled four exploration wells. Three were designed to appraise the Tolson Uul North field discovered in 2003, whilst the fourth was a wildcat exploration well on a structure to the north of Tolson Uul North.

Review of 2004 activities
After securing exploration licence extensions from the government of Mongolia in January 2004, the Group completed a 102 square kilometre 3D seismic programme over the Tolsun Uul North area to better define the structure and select well locations. During the period from July to October, SOTAMO completed the four well drilling programme to appraise the Tolsun Uul North discovery and explore a similar structure to the north. All four wells encountered hydrocarbons and two were completed as part of the pilot production programme.

The first well, 19-20, was drilled to a total depth ("TD") of 2,410 metres, encountering good oil shows in the Tsagaantsav formation. Initial production steadied at approximately 70 BOPD. Well 19-21 encountered good oil shows in the Zuunbayan and the Tsagaantsav formations while drilling to a TD of 2,625 metres. This well was completed in the Zuunbayan formation with an initial production rate of approximately 120 BOPD. Well 19-22 was drilled to a TD of 2,600 metres. Although it encountered good oil shows in the Tsagaantsav formation, a sudden and total loss of circulation occurred in a fracture zone during drilling. The well was successfully cased and will be further evaluated during 2005. The final well of the 2004 programme, the 19-23, was drilled on a previously untested structure to a TD of 2,253 metres. It encountered good oil shows in the Zuunbayan formation, extending the basin’s productive area approximately nine kilometres to the north. The well has since been suspended for further evaluation.

Subsequent events and 2005 outlook
In April 2005, the Company entered into an agreement to sell the whole of its Mongolia interest to Daqing Oilfield Limited Company.


In March 2004, the Group restructured its interest in the ODEX Exploration Limited ("ODEX") joint venture. This move created a consortium in ODEX comprising SOCO North Africa Ltd. (34%), and subsidiaries of Oilinvest (Netherlands) B.V. (46%) and Joint Stock Bank of the Gas Industry Gazprombank (20%).

Review of 2004 activities
The ODEX consortium proved its usefulness as a vehicle through which to compete for significant opportunities during Libya’s first open bid round at the start of 2005. Although the consortium did not win any of its bids in this auction process, it is clear that it now has the scope to compete seriously with major companies on larger opportunities and the logistical and technical expertise to capitalise on any coming opportunities.

Subsequent events and 2005 outlook
ODEX will continue to be the vehicle through which we explore various opportunities that may arise in Libya and certain parts of Africa. The consortium is well placed to take advantage of its strong regional relationships that could provide competitive advantages to some emerging hydrocarbon potential.


Through its wholly owned Thailand subsidiary, SOCO holds a 100% interest in Block B8/38 located offshore in the Gulf of Thailand. This Block contains a small, undeveloped crude oil field, Pornsiri. Due to the marginal economics of the field under previously prevailing price scenarios, little activity has taken place on the concession subsequent to the last drilling programme conducted there.

By the end of 2004, market economics had shifted dramatically in favour of re-evaluating this asset. Accordingly, we began work on an application to the Thailand authorities to renew the concession on Block B8/38 beyond its scheduled 2005 relinquishment date. The nature and scope of activity on the Block is very much conditional upon the Group’s ability to attract additional participation on the concession. Currently, the Company is in advanced discussion with multiple parties regarding the evaluation of the Pornsiri field.


On 18 November, SOCO announced that it had entered into a sale and purchase agreement for the sale of its interests in the Zarat Permit in the Gulf of Gabès, offshore Tunisia. On 3 December, the sale was completed.

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