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 preliminary results for the year ended 31 December 2003.


- Turnover of £25.5m (2002: £26.0m)
- Net profit of £5.8m (2002: £5.5m)
- Earnings per share of 8.4p (2002: 8.0p)
- Year end cash balances of £32.9 million, no debt
- Vietnam appraisal programme confirmed hydrocarbon potential of Block 9-2 discovery
- Three consecutive high rate Basement discoveries in Yemen
- Successful appraisal well in Tunisia confirmed extension of the Didon producing field
- Gazprombank acquired a stake in ODEX, the Company's Libyan joint venture

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

"2003 has shaped SOCO for the future. We have continued to evolve our relationships to access new opportunities and strengthened our own internal capabilities, confirming the potential within our portfolio.

With these foundations and efforts, we are confident that SOCO is well positioned to build on 2003 maximising on the opportunities that will arise from our portfolio during 2004 and beyond."

11th March 2004


SOCO International plc
Tel: 020 7457 2020 (today)
Tel: 020 7399 3300 (thereafter)
Ed Story, President and Chief Executive
Roger Cagle, Deputy Chief Executive and Chief Financial Officer

College Hill
Tel: 020 7457 2020
James Henderson
Nick Elwes


The year 2003 began on a very encouraging note with the continuation of an active drilling programme in the Cuu Long Basin offshore Vietnam and ended on a realistic yet optimistic note with the results of this drilling programme. Whilst the Vietnam project has not reached the point of commercialisation, there were excellent indications both from SOCO’s own drilling programme and from the drilling programmes of other companies in the Cuu Long Basin that the much anticipated potential of prospects on Blocks 9-2 and 16-1 will likely meet or exceed Company expectations.

Although much of the focus for SOCO during 2003 was naturally directed towards its high profile Vietnam exploration drilling programme, some positive developments occurred in the Company’s other primary areas of operations. Basement exploratory drilling in Yemen, where production to date has been primarily sourced from a Cretaceous interval, resulted in three comparatively high rate discoveries, with initial production rates ranging from 1,700 barrels of oil per day ("BOPD") to 6,000 BOPD, leading to a reserves upgrade for the East Shabwa Development Area ("East Shabwa"). Likewise, a successful appraisal well in Tunisia confirmed the extension of the Didon producing field in the offshore Zarat Permit, thereby increasing reserves. In Mongolia we significantly enhanced the opportunities for rationalisation of the project by obtaining a five year extension to the exploration phase of the three Blocks we hold there.


The Company’s overall 2003 financial and operating performance was in line with expectations and not markedly different from the prior year with turnover for both years sourced primarily from producing operations in Yemen and Tunisia. Production net to the Company’s working interest was down, dropping from 6,203 BOPD in 2002 to 5,409 BOPD. Oil prices rose to lofty levels with the Dated Brent benchmark crude oil price averaging almost US$4 per barrel more than in 2002.

Exchange rate movements magnify differences in yearly comparisons of financial results, as the US dollar, the currency of the industry and the one in which SOCO maintains 98% of its cash balances, lost substantial strength against the GB pound, the Company’s reporting currency. Reported profits after taxes increased from £5.5 million in 2002 to £5.8 million in 2003. Ignoring exchange rates, a comparison of after tax profits in US dollars gives perhaps a clearer picture rising from US$8.2 million to US$9.6 million.

SOCO’s financial strength allowed it to comfortably meet its funding requirements for the largest capital programme in its short history. Cash balances declined year on year dropping from £51.5 million to £32.9 million. However, cash balances as shown in the operating currency of US dollars show a lower percentage decline, dropping from US$82.9 million to US$58.9 million.

Although 2004 is projected to be less capital intensive, another extremely active drilling programme is scheduled for 2005. The Directors wish to retain flexibility in financing. Thus the Directors have elected not to pay a dividend.


In the first half of 2003, SOCO North Africa Limited, a 45% interest holder and a 100% owned SOCO subsidiary, and its partner Oilinvest (Netherlands) B.V. ("Oilinvest"), a 55% interest holder, signed a Heads of Agreement whereby they would sell the entire issued share capital of OILSOC Investment Company Limited ("OILSOC") to the Joint Stock Bank of the Gas Industry Gazprombank. Under the terms of this agreement, SOCO North Africa would receive approximately US$2.5 million for its net interest in OILSOC. The assets held by OILSOC consist entirely of a 20% shareholding in ODEX Exploration Limited ("ODEX"), a specific purpose upstream joint venture formed by SOCO North Africa and Oilinvest to identify, develop, produce and market hydrocarbon opportunities in Libya and other countries. Following the transaction SOCO North Africa would retain a 34% shareholding in ODEX.

At the time of announcing the agreement, it was noted that the transaction was subject to formal documentation and approval by the necessary regulatory authorities amongst other things. Although requiring much more time than was anticipated at the time of announcement, the transaction was completed on 4 March 2004. We are now in a position to further progress joint venture activities.


The past year was filled with accomplishment when measured against past years or against realistic expectations, including in Vietnam where the appraisal programme confirmed the hydrocarbon potential of the original discovery on Block 9-2. Additionally, we believe the final piece required as a precursor to success in Vietnam was completed with the staff reorganisation of both Joint Operating Companies resulting in a significant upgrade in technical experience and capability.

Largely because of the Company’s experience in Vietnam, we were instrumental in initiation of the further exploration of the Basement interval in Yemen that led to a reserves upgrade. We believe that the successes there could likely herald a significant exploration opportunity in East Shabwa. We also added reserves in Didon as the result of a successful appraisal well. This marks the third year running that reserves have been upgraded in this producing field.


The year 2004 is expected to build on the successes of 2003. In Vietnam, we will integrate the results of the wells drilled by the consortium last year into new, more predictive models derived from reprocessed seismic incorporating the results of the drilling programme to date. We will acquire new 3D seismic over both Blocks in Vietnam with the aim of upgrading former leads into prospects as the result of other companies’ successes in similar settings in the Cuu Long Basin last year. Possibly by year end, but more likely in the first quarter of 2005, we will embark on our second major multi-well drilling campaign.

With three consecutive drilling successes in the Basement interval in Yemen, we hope to influence the East Shabwa joint venture to emphasise this exploration interval taking this project in a completely new direction. Significantly, the 100% success ratio achieved in Basement in Yemen was achieved without this interval being specifically targeted and without drilling horizontal or deviated wells.

Extending the production sharing contracts ("PSCs") in Mongolia was vital to the rationalisation of this project. With two of the three Contract Area PSCs set to expire within a year, there would not have been sufficient time to follow-up on the Zuunbayan success we had last year in our first year of adequately exploring this interval. After acquiring an additional 3D seismic programme in a new region of Contract Area 19, we expect to conduct a multi-well exploration drilling programme in 2004.

The successful appraisal well in Tunisia drilled in January 2003 was connected to subsea production facilities late in 2003 while the floating production, storage and off-loading vessel was out of service for periodic re-certification. With Didon becoming a multi-well producing field with upgraded reserves, this project becomes more valuable to the portfolio as either a contributor to operating cashflow or a candidate for disposal.

Completion of the reorganisation of the ODEX joint venture was a prerequisite to introducing projects into the entity. With this behind us, we expect to see the joint venture go from a passive framework for entering new ventures in Libya and other countries into an active operating joint venture company.

There are several other arenas where the Company believes that large potential and new opportunities may arise during 2004. We expect that some of the past preparation for these opportunities to become available will pay off in the not too distant future.


Although the Company may not have progressed any projects to the stage of realising value during the year, we can confidently state that the prospects of the Company have never looked better as we continue to crystalise potential from the existing portfolio. The efforts of the past year did confirm the potential and the value of locking in the opportunities we have in hand. Perhaps as important, we have continued to evolve our relationships to access new opportunities and continued to build our own internal organisation to be able to better capitalise on these opportunities once captured in our portfolio.



The Group participated in the largest exploration drilling programme in its history in 2003. The majority of the wells drilled, those in Vietnam and Yemen, had primary or secondary targets in Basement intervals and the results were extremely encouraging; especially so considering the difficulties of exploring in this technically challenging horizon. The frontier drilling programme in Mongolia continued with the exploration programme stepping out from previously drilled areas and targeting for the first time the productive intervals reported in nearby regions of China.


After the successes of the initial exploratory programme in 2002, the consortium was eagerly anticipating the follow-up exploration efforts in 2003. Although this year’s drilling results gave confirmation of the extent of an existing discovery, and another consortium’s drilling results bode well for some remaining untested leads on both Blocks 16-1 and 9-2 in Vietnam, much technical follow-up to the original discovery wells remains to be undertaken.

SOCO Vietnam Ltd ("SOCO Vietnam"), the 80% owned subsidiary through which the Group holds its interests in Vietnam, and its primary partners, subsidiaries of PTT Exploration and Production Public Company Limited of Thailand and Petrovietnam, the state oil company of Vietnam, manage their operations in Vietnam through Joint Operating Companies ("JOCs"). In recognition of the technical challenges ahead, the consortium restructured the management groups of both JOCs adding personnel with extensive experience in the region in general and specifically in Basement reservoirs.

SOCO Vietnam holds a 25% working interest in Block 9-2 and a 28.5% interest in Block 16-1 in the Cuu Long Basin offshore Vietnam. Both Blocks are contiguous to the Bach Ho field, which is producing approximately 250,000 barrels of oil per day ("BOPD") and 150 million cubic feet of gas per day ("MMCFD"), and the Rang Dong field, which is producing approximately 45,000 BOPD and 55 MMCFD, predominantly from the Basement.

Review of 2003 results

In February, the final well in the initial exploration programme, the Ca Ong Doi-1X well on Block 9-2, was plugged and abandoned after drilling downflank from the structural crest. The conclusion of this well marked the end of the period in which the exploration costs of SOCO Vietnam were carried. The Group funded its 50% share of the costs of the three vertical wells and the one deviated sidetrack well subsequently drilled during the year.

The 2003 exploration drilling programme began with two wells being drilled on Block 16-1. The first well was a follow-up to the 2002 Voi Trang-1X discovery well, which tested at a maximum sustained rate of approximately 3,500 BOPD from a section that included both Oligocene and Basement intervals. The follow-up well was primarily designed to test the Basement interval in which a collapsed borehole appeared to lead to inconclusive test results in the original discovery. The well was plugged and abandoned after neither the Basement interval nor the Oligocene interval yielded commercial hydrocarbons.

The consortium’s next Basement well was drilled on Prospect "B", a relatively small structure, with the primary objective of completing a low cost Basement test that would fulfil the work commitments on the Block. Like most other Block 16-1 wells, the well encountered good oil shows in the Basement and the overlying Oligocene section; however, the well did not encounter productive fractures in Basement and was plugged and abandoned without being tested.

The rig was then moved to Block 9-2 to drill the Ca Ngu Vang-2X ("CNV-2X") well, an appraisal of the CNV-1X vertical discovery well drilled in 2002 that tested at 3,100 BOPD and 7.9 MMCFD, a combined rate of 4,500 barrels of crude equivalent per day. Although the CNV-2X well did not flow during testing, it was a success by two important measures - confirming the extent of the structure and extending the known depth of the oil column. The well penetrated an oil column of approximately 1,000 metres and it reached a measured depth of 5,068 metres without encountering water.

In a quest for the possibility of an early declaration of commerciality but without a positive profile of producing fractures in the CNV structure, the CNV-2X was plugged back to 2,500 metres where a deviated sidetrack section designated as the CNV-2XST began drilling. Oil shows were encountered throughout the Basement section over a total measured depth interval in excess of 1,400 metres extending the known area of oil in the CNV structure to approximately four kilometres from the original discovery well. But like the CNV-2X well, the CNV-2XST, the final well in the 2003 Vietnam drilling programme, did not encounter a significant producing fracture system and consequently did not flow.

Subsequent events and 2004 outlook

This year efforts will be focused on gearing up for the next major multi-well drilling campaign involving both Blocks, which may get under way in late 2004 but is more likely to begin in 2005. Lead time notwithstanding, provisional site surveys, rig availability surveys and identification of equipment requirements are already completed or well under way.

Ongoing studies regarding the reservoir characterisations of existing discoveries will be utilised in conjunction with reprocessing of existing seismic to better image the Basement fractures. Pre Stack Depth Migration, a technology that uses velocity information to improve the seismic image and one that has been applied very successfully in Vietnam, will be employed. The velocity information required was not available for the first phase of drilling. Post-drilling, seismic processing using the velocity data from the wells will allow better imaging of the Basement and mapping of the fracture systems, better well targeting and improved predictability. Additional 3D seismic will be acquired on both Blocks 16-1 and 9-2, as drilling successes on deeper targets within the Cuu Long Basin have significantly enhanced the prospectivity of several additional leads.


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 85% working interest in production sharing contracts ("PSCs") over Contract Areas 19, 21 and 22. To date the Group has drilled only 27 wells (including one on Contract Area 20, prior to its relinquishment) in an area of approximately 26,000 square kilometres.

During the year, the Group drilled four exploration wells and completed a discovery drilled in 2002. The 2002 completion and 2003 discoveries were in the Zuunbayan interval, a new productive horizon in the SOTAMO Contract Areas. The Zuunbayan is also productive in the adjacent Chinese basins, notably the Hailar Basin, the continuation of the Tamtsag Basin into China where a major discovery was reported in 2003. In contrast with the Tsagaantsav interval in which SOTAMO’s previous discoveries were made, the Zuunbayan reservoir is more predictable, has better quality and should have improved productivity due to a higher gas content and lower wax content.

Because of the region’s isolation and harsh climate, maintaining the Group’s drilling programme throughout the Basin and pilot production programme in the southeastern quadrant of Contract Area 19 is a test of personnel and material. However, the Basin has a proven petroleum system and is adjacent to what is arguably soon to be the world’s largest market for crude oil. The key moving forward is proving up more reserves and achieving a level of oil production that can support a more aggressive drilling campaign.

Huabei Oilfield Services ("Huabei"), the Chinese company providing the drilling services, has earned the right through providing reduced contract drilling rates to take a pro rata working interest participation of 10% in the PSCs. A 5% working interest is being carried by the Group through the exploration phase for Petrovietnam, the Vietnamese national oil company.

Crude oil produced from the pilot production programme in Contract Area 19 is sold at world prices under a contract with China National United Oil Corporation. The crude sold is trucked under a turnkey contract to a pipeline terminal in Aershan Oilfield in China for further transportation to a refining centre.

Review of 2003 results

Drilling began in July when the 19-18 well was drilled to test a new fault block offsetting the 19-16 well drilled last year. The well encountered more than 30 metres of good oil shows, penetrating both Tsagaantsav and Zuunbayan formations with log results indicating pay in both. The well was drilled to a total depth of 2,069 metres, perforated and fracture stimulated in the Lower Tsagaantsav in an interval from 1,600 to 1,670 metres. After the unexplained recovery of water from the Tsagaantsav interval, the well was suspended for the winter and will be recompleted in 2004.

Back to back rank exploration wells were then drilled to test Tsagaantsav prospects on Contract Areas 21 and 22. Neither encountered pay and both were plugged and abandoned.

The 2003 exploration programme concluded in October with the 19-19 well being drilled to a depth of 2,560 metres. This well is the first to encounter stacked Zuunbayan pay zones in the SOTAMO Contract Areas. Three Zuunbayan zones were tested without stimulation and the Tsagaantsav pay zone could not be tested. The two upper Zuunbayan intervals were swab tested and yielded a combined rate of 210 BOPD. Testing operations were curtailed due to the onset of severe winter weather. This well was put on production as part of the pilot production programme. Workovers in Contact Area 19 continued throughout most of the year and will continue in order to maximise year round production capability from the pilot production programme.

Subsequent events and 2004 outlook

In December 2003, the Mongolian Government passed legislation that allowed the extension of PSCs in the country to operators who met certain conditions - SOTAMO was one of these operators. As a result, SOTAMO applied to the Petroleum Authority of Mongolia ("PAM") for the full five year extension of its three PSCs in the Tamtsag Basin. In January of 2004, PAM granted SOTAMO’s extension request.

The Group plans to focus its future activity on the Zuunbayan reservoir. A 3D seismic programme is under way to acquire additional data on the productive trend established by the discoveries. A multi-well drilling programme is planned to follow once the interpretation of the acquired seismic is complete.

The Group continues to be in discussion with interested parties concerning participation in the Mongolia project. Although recent drilling successes both in China and in the Tamtsag Basin have increased interest in the Group’s holdings, it is impossible to ascertain the eventual outcome of any of these discussions.


Through its wholly owned Thailand subsidiary, the Company operates and holds a 100% interest in Block B8/38 located offshore in the Gulf of Thailand. This Block contains an undeveloped small field crude oil discovery and has remaining exploration potential.

Subsequent events and 2004 outlook

The Group is considering various options to progress work on this Block. These options include discussions with various interested parties to farm-in. Personnel in the Thailand office continue to act as facilitators with our Thailand partners in Vietnam in addition to overseeing operator obligations on Block B8/38.


Production in both major producing areas was lower as crude oil production net to the Group’s working interests fell in 2003 to 5,409 BOPD from 6,203 BOPD the previous year. The Group derived 72% (3,896 BOPD) of its 2003 production from the East Shabwa Development Area (East Shabwa) in Yemen. Production from the Didon field in the offshore Tunisian Zarat Permit contributed 1,101 BOPD (20%) to production totals for the year. The pilot production programme in the Tamtsag Basin of Mongolia increased output slightly with crude production rising to 412 BOPD from 380 BOPD last year.


The production statistics given above notwithstanding, with 100% exploration drilling success in the Basement interval, from wells that had initial production rates ranging from 1,700 BOPD to more than 6,000 BOPD, Block 10 is also one of the more significant exploration areas for the Group. Success to date from Basement exploration has resulted in an 87% year end upgrade to proven and probable reserves on the Block.

East Shabwa crude oil production is transported by pipeline and commingled with the approximate 270,000 BOPD produced on the neighbouring Masila Block before being transported by pipeline onward to the Ash Shihr export terminal on the Yemen coast. The Group’s share of the crude produced is sold under a 12 month contract into the spot market.

SOCO holds its interests 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 that of Comeco, is the concession operator and a subsidiary of Kufpec, the Kuwaiti foreign oil company, holds the remaining 14.29% interest.

Review of 2003 results

Production to date has been primarily from the Cretaceous clastic Biyad reservoir. Increasing water cuts are typical of producing wells from this interval in this area of Yemen. Currently East Shabwa is producing approximately three barrels of water for every barrel of crude oil produced. Thus, adding disposal wells and water-handling capability is crucial to maintaining production levels. Eight wells were drilled during the year - three Basement producers in the Kharir field, including the deepening of Kharir 101 which has not been tested, one Biyad producer at the Atuf field, three water injectors and one shallow water source well.

Although Phase III of the development programme continued throughout the year, adding additional water-handling capabilities and both producing and disposal wells, the excitement in East Shabwa arose as a result of multiple Basement discoveries in the Kharir field. All of these wells were vertical wells.

The KHA 210 Basement well was drilled in December 2002 and commenced production in July, producing at approximately 1,700 BOPD. The KHA 105 Basement well, located approximately five kilometres from the KHA 210 well, was brought on line in September at 6,000 BOPD. The subsequent KHA 106 Basement well, located over two kilometres from each of the previous discoveries, tested at approximately 2,500 BOPD. Another Basement well, the KHA 101 which was deepened from an existing Biyad discovery, is shut-in awaiting testing in 2004.

The Basement discoveries have a reasonably high gas-to-oil ratio and produce little or no water. Since this phenomenon is atypical of production in this region, facilities have not been designed to handle a large volume of associated gas. Accordingly, the Basement wells have been produced at lower rates to reduce the associated gas production.

Subsequent events and 2004 outlook

The rig was released to drill on an adjacent Block towards the end of 2003. As a consequence, drilling is not expected to begin again until the second quarter of 2004 but will continue throughout the remainder of the year. Additional appraisal wells are planned to evaluate the Basement oil in place so that an extensive reconfiguration of production facilities can be implemented within the next two years. Partners are in discussion regarding plans to accelerate the Basement appraisal and development programme.


The Group’s Tunisia holding consists entirely of a 22.22% non-operated working interest in the Zarat Permit located 75 kilometres offshore eastern Tunisia in the Gulf of Gabès. The Zarat Permit has one commercial declaration, the Didon field, from which crude oil is produced into a floating production, storage and off-loading vessel ("FPSO"). Production from the field is sold into the spot market.

Review of 2003 results

As the result of a successful appraisal well drilled in the Didon producing field in January 2003, year end reserves have again been increased. The Didon 4H well tested at 3,200 BOPD from a horizontal section in the El Gueria reservoir and was suspended pending completion of future field development plans and co-ordination with scheduled production downtime. In the fourth quarter, the FPSO was taken out of service for mandatory marine maintenance and re-certification. During this period, the appraisal well was completed and a subsea tree installed.

Subsequent events and 2004 outlook

Re-certification of the FPSO was completed in February 2004. Production from the Didon field recommenced in late February. Work is in progress to tie-in the Didon 4H well to the existing production riser with production from this well expected to commence in March.

Future development plans call for the installation of a small production platform to accommodate production from the Didon field, which would be augmented by an additional producing well to be drilled on the crest of the structure. A permit wide 3D seismic acquisition programme is planned for the summer of 2004 to firm up potential locations for a commitment exploratory well required to hold the Permit.

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