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, Tunisia, and Thailand with production operations in Yemen, Tunisia and Mongolia.

SOCO today announces interim results for the half year ended 30 June 2004.

- Operating profit of £4.1 million (2003: £4.2 million)
- Net profit of £2.0 million (2003: £2.5 million)
- Earnings per share of 2.9p (2003: 3.6p)
- Cash balance of £26.7 million at half year end
- Finalised the sale of an interest in ODEX creating a consortium of SOCO (34%), Oilinvest (46%) and Gazprombank (20%) in the special purpose entity to progress initiatives in Libya and other countries
- Continued reinterpretation of existing 3D seismic and acquisition of 650 sq km of new 3D seismic in Vietnam prior to commencement of drilling in Q1 2005
- 3D seismic programme completed in Mongolia with two wells drilled, both apparent discoveries, and a third well spudded
- First ever deviated Basement well drilling in East Shabwa in Yemen

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

"Following an extended period of quiet preparation, the release of interim results coincides with the commencement of a very active drilling programme for SOCO, one that I believe has company transforming potential"

2 September 2004


SOCO International plc
Tel: 020 7747 2000 (thereafter)
Tel: 020 7457 2020 (today)
Ed Story, President and Chief Executive
Roger Cagle, Deputy Chief Executive and Chief Financial Officer

College Hill
Tel: 020 7457 2020
Tony Friend
Nick Elwes


SOCO made meaningful progress on several initiatives in the first half of the year, all of which underpin important upcoming Company programmes and objectives. Thus despite a planned yet prolonged absence in drilling activity, except for the continuation of the ongoing Cretaceous reservoir infill programme in Yemen, the Company's activities were focused on preparation for a very active period through 2005.

A notable milestone was the finalisation of the sale of 20% of the ODEX Exploration Limited (ODEX) joint venture to a subsidiary of the Russian entity, Joint Stock Bank of the Gas Industry Gazprombank (Gazprombank). In this transaction, the Company’s subsidiary, SOCO North Africa Limited (SOCO NA) and Oilinvest (Netherlands) B.V. (Oilinvest) sold the entire issued share capital of OILSOC Investment Company Limited (OILSOC), whose only asset was a 20% shareholding in ODEX. As a result, Oilinvest (46%), SOCO NA (34%) and Gazprombank (20%) are the sole shareholders of the specific purpose upstream joint venture formed to identify, develop, produce and market hydrocarbon opportunities in Libya and other countries. SOCO NA received US$2.5 million for its 45% net interest in OILSOC.

On the operations front, there was a great deal of “behind the headlines” progress. We carried out the preparatory work necessary to putting the second producing well on-stream in Tunisia. A 3D seismic programme was completed as a prelude to further exploratory and appraisal drilling in Mongolia. In Vietnam, we continued the reprocessing and reinterpretation of existing seismic and acquired new 3D seismic data on both Blocks 16-1 and 9-2 in preparation for the 2005 multi-well drilling programme. In addition, working with partners, we successfully changed the drilling programme in Yemen to include the consortium’s first ever deviated wells targeting fractured Basement in the East Shabwa Development Area.


Historically high crude oil prices enabled the Group to achieve an average realised oil sales price of US$31.69 compared to US$27.49 for the same period last year. However, lower production resulting from both planned and unplanned operating downtime in Tunisia and lower liftings arising from rebalancing prior period overlifts in Yemen caused turnover in the first six months of 2004 to fall to £8.4 million versus £11.7 million for the first half of 2003.

These same factors impacted cost of sales, which dropped approximately 50% to £3.3 million from £6.3 million in the comparable period last year. This is primarily a consequence of the accounting methodology, employed in accordance with industry recommended practice, whereby lifting imbalances are reflected by an adjustment to cost of sales recorded at market sales value. Thus, the prior period overlifts result in equivalent reductions in both turnover and operating costs in the current period.

Operating expenses fell by £2.2 million reflecting the lower production and rebalancing of the lifting position. On a per barrel basis, operating expenses (excluding lifting imbalances) increased to approximately US$6.70 per barrel from approximately US$5.60 per barrel in the first half of 2003. This primarily arose in Yemen due to increased rental of water-handling facilities associated with production from the Cretaceous reservoir and rental of gas-handling equipment associated with production from the Basement wells recently placed in production.

Reserve additions from last year’s successful drilling programmes in Tunisia and Yemen combined with lower current production resulted in total depletion and abandonment costs falling from £2.6 million in the six months to June 2003 to £1.7 million in the six months to June 2004. Similarly on a per barrel basis, depletion and abandonment costs decreased to US$3.55 from US$4.40 during the equivalent period last year.

Operating profit remained relatively flat at £4.1 million compared to £4.2 million for the same period last year. The effects of reduced investment income resulting from lower cash balances and foreign exchange differences essentially offset to yield a profit before tax of £4.1 million versus £4.5 million for the equivalent period last year. In absolute terms, the tax charge stayed relatively flat increasing slightly from £2.0 million for the same period last year to £2.1 million this year resulting in a net profit for the period of £2.0 million versus £2.5 million for the first six months of 2003.

During the period, the Group commissioned multiple 3D and 2D seismic programmes and began building its equipment inventories in preparation for the extensive upcoming drilling programmes. Notwithstanding this, capital expenditure fell in line with reduced drilling commitments to £8.5 million, net of the proceeds from the sale of OILSOC, from £13.0 million in the first six months of 2003.

Lower operating cash flow, which resulted primarily from the timing and rebalancing of liftings, along with the continued decline of the US dollar, the functional currency in which balances are held, versus the GB pound, the reporting currency, more than offset the effect of lower capital expenditures. Group cash balances declined to £26.7 million from £32.9 million as at the end of 2003.




In Vietnam, the first half of 2004 was focused on seismic—both acquisition of new data and the reprocessing and reinterpretation of old data—as the Joint Operating Companies (JOCs) prepare to select locations for the upcoming appraisal and exploratory drilling programme. Approximately 650 square kilometres of new 3D seismic was acquired over several leads and prospects, which appear similar to recent significant discoveries in adjacent blocks in the Cuu Long Basin, in both Block 9-2 and Block 16-1. The newly acquired data is currently being processed and will be available for interpretation in the near future.

Advanced seismic reprocessing of the existing data over the Ca Ngu Vang Field (CNV) and adjacent prospects is also underway. Using the existing well data to calibrate the reprocessing will improve the data and allow the JOCs to carefully select future appraisal and development well locations on the CNV structure and exploration locations on the other prospects. An appraisal well in the CNV field will be the first drilled in the upcoming programme.

Detailed planning operations and procurement are underway based on a three firm and three option well drilling programme scheduled to start in the first quarter of 2005. Casing materials and wellheads have been purchased and seabed site survey investigations are being conducted over the most likely 2005 drilling locations.


Throughout the winter and early spring of 2004, SOCO Tamtsag Mongolia (SOTAMO), SOCO’s wholly owned subsidiary and operator with an 85% working interest in three Production Sharing Contracts in the Tamtsag Basin in Mongolia, conducted a 102 square kilometre 3D seismic programme in the southern region of Contract Area 19. The seismic programme covered leads adjacent to a new pool discovery made in 2003 that extended the productive area to the north and encountered oil in a previously untested zone. The 2004 drilling programme will further evaluate the new play adjacent to current production facilities. Successful wells can be quickly brought on production in order to capitalise on high oil prices by maximising output from the pilot production area.

The first well in this year’s drilling programme, the 19-20 well, spudded on 9 July. The well tested the Zuunbayan and Tsagaantsav formations on a structure adjacent to the 19-17 and 19-19 discoveries. The well reached target depth (TD) of 2,410 metres on 25 July having encountered more than 68 metres of oil shows in a gross interval of 225 metres in the Lower Cretaceous age Tsagaantsav sands. The well has been completed as a Tsagaantsav producer.

The second well, the 19-21 well, spudded on 1 August. This well, an appraisal of the 19-19 structure, tested the Upper Cretaceous age Zuunbayan and Tsagaantsav intervals. This apparent discovery is currently being analysed. The 19-22 well, the third in the four well programme spudded 26 August.

Concurrent with the drilling of new wells, the Company is conducting workovers on several of its previously drilled wells in order to maximise current production. All Mongolian crude oil production is trucked to the Aershan oilfield where it is piped to a refining complex in Hohhot and sold at prevailing market rates.


An extended drilling campaign in the East Shabwa Block 10 concession commenced in the first half of 2004. The programme includes drilling appraisal and development wells in the Cretaceous Atuf field, as well as the consortium’s first ever deviated wells specifically targeting the Basement underlying the Kharir field.

The Atuf ANW006B well, located to the west of the ANW003 well, was drilled as a water injection well to provide both pressure support and improve recovery through increased sweep efficiency. The well was drilled to a TD of 1,829 metres, encountering the Cretaceous reservoir formation some 30 metres higher than anticipated in the drilling prognosis. Unexpectedly, the reservoir was oil bearing. The well also indicated additional potential in deeper horizons, possibly including the Basement at this location, although safety concerns prevented the well from being deepened to fully evaluate this potential. The ANW006B well is currently being completed as an oil producer. Further evaluation of the results of the well will be carried out and the well may be deepened to the Basement at a future date. As a result of this well being added as a producing well, the ANW004, currently a water disposal well, is being converted to water injection to provide the additional pressure support originally anticipated from ANW006B.

Well ANW007 at Atuf, drilled to a TD of 1,890 metres, also came in higher than expected. The well has been completed as an oil producer and is currently being incorporated into the production system. Based on test results, the initial production rate expected from this well will be approximately 2,000 barrels of oil per day (BOPD). As a result of drilling these two additional producing wells, a re-evaluation of the Atuf area is to be performed to identify other additional potential producing locations.

Sited towards the south-east end of the Kharir structure, the first of three 2004 wells specifically targeting the Basement began drilling 17 August. Drilling had progressed beyond the first casing point in late August.


The Didon 4 well, a 2003 appraisal well in the Didon producing field in the Zarat permit that initially tested at 3,400 BOPD, is being tied in to the floating production storage and off-loading facility (FPSO). With this well coming on-stream it is expected to not only reduce operating downtime in what was a single well producing field, but also to increase average production rates when flow rates are stabilised. As of 31 August the Didon field was averaging approximately 7,000 BOPD.

The Company holds a 22.22% non-operated working interest in the Zarat permit located 75 kilometres offshore eastern Tunisia in the Gulf of Gabes. Crude oil from the Didon field is produced into the FPSO from which it is currently sold at spot market prices under a contract to an oil major.


Following the entry of the Gazprombank subsidiary into ODEX, the board of directors of the entity was significantly revamped to facilitate ODEX’s progression into an active operational phase. Additionally, technical and executive committees were established as working groups to progress various initiatives. Whilst no specific project has yet been introduced into ODEX, we believe the recent activity is a harbinger of meaningful progress.


Production, net to the Group’s working interest, fell in the first half of 2004 (5,193 BOPD) both in respect to the same period last year (5,511 BOPD) and 2003 average levels (5,409 BOPD). The most significant impact resulted from scheduled downtimes in Tunisia to recertify the FPSO. Production in Tunisia dropped from 1,246 BOPD in the first half of 2003 to 1,049 in the comparable period of this year.

The Yemen project continued to provide the majority of the Group’s production even though drilling delays there due to the lack of rig availability meant a period on period drop to 3,790 BOPD compared to 3,892 BOPD last year. The pilot production programme continues in Mongolia where production was down to an average of 354 BOPD in the first half of 2004 from 374 BOPD in the first six months of last year.


As was stated in the 2003 Annual Report and Accounts, SOCO lost two valued members of its management group earlier this year due to health issues with the resignations of Dan Mercier, Vice President of Operations, and Roger Brittain, an independent Non-Executive Director (NED). Both were strongly committed to the evolution of the Company and both will be missed.

The Company has undertaken an extensive search process conducted by an independent third party to add an independent NED to maintain the Company’s ongoing compliance with best practice. We expect the search to be finalised in September.

The Group’s technical office was previously built around Dan, thus having its main technical group in Calgary. As part of the ongoing evolution and upgrading of its technical capabilities, and coincident with Dan’s resignation and the expiration of the Company’s head office lease in London, the decision was taken by the Directors to reunite the production and operations staff with the head office staff in London. In May of 2004, Antony Maris joined SOCO as Group Operations and Production Manager. We are delighted to have Antony on board. He has extensive experience with both major and independent industry companies and possesses a strong technical and operational background as well as asset and business development management experience.


The Group has already begun the build-up to a significant multi-well drilling programme in Vietnam. In addition to adding vital technical strength to the management team directing the programmes in Vietnam, the consortium in both JOCs has taken the necessary time and spent the additional funds to maximise our chances of success on the forward programme. Notwithstanding the exploratory nature of the endeavour, we believe that the results to date both with the Group’s own experience and the experiences of others throughout the Cuu Long Basin support our optimism.

Additionally, the experience gained in Vietnam with Basement reservoirs has been instrumental in assessing further potential in Yemen. The second half of this year will go a long way toward developing the forward approach in what could well be a significant production asset for the Group.

The Company continues to seek additional opportunities that bolster its portfolio. However, we also believe that the upside currently available in our portfolio has company transforming potential.

Patrick Maugein

Ed Story
Chief Executive

2 September 2004

To download the full version of the Interim Report 2004


Pharos Energy plc is aware of attempts to impersonate the company under its previous name, SOCO International plc, on social media. Pharos does not have a Facebook page.