SOCO International plc (“SOCO” or “the Company”)

SOCO [LSE:SIA], the international oil and gas exploration and production company, headquartered in London, traded on the London Stock Exchange and a constituent of the FTSE 250 Index, today announces its Interim Results for the six months ended 30 June 2006.

Operating Highlights

  • Ongoing success in Vietnam :

    • 40% increase in 2P reserves in Vietnam , adding 25 million barrels as a result of continued success on TGT in Vietnam

      • TGT-2X tested at a total combined flow rate of approximately 17,500 BOEPD

      • TGT-3X tested at a total combined flow rate of 9,908 BOEPD

      • Additional 2% acquired in Block 16-1 in Vietnam

    • Declaration of commerciality and approval of official development plan for CNV attained

  • Group year-on-year working interest production increased by more than 20%, from 5,310 BOPD in H1 2005 to 6,407 BOPD in H1 2006

  • Successful appraisal drilling in Yemen and production exceeding 45,000 BOPD, up over 12,000 BOPD from the 2005 average

  • Expansion of West African portfolio with the signing of a production sharing contract on the Nganzi concession in the Democratic Republic of Congo

Financial Highlights

  • Operating cash flow up over 75% year-on-year to US$21.4 million
    (H1 2005 : US$12.2 million)

  • Profit after tax increased 72% to US$15.1 million
    (H1 2005 : US$8.8 million)

  • Highly successful convertible bond offering raised US$250 million and secured funding for the extensive exploration and development programmes in place


  • Exploration and development activities continue at pace in Vietnam with first production from the CNV field in 2007

    • The sidetrack to the previously suspended CNV-4X well nearing total depth

    • New drilling campaign commenced on Block 16-1 play fairway targeting series of drillable prospects each estimated at 100 mmbbls in size

  • Exploration and appraisal drilling, along with the expansion of production facilities, continuing in Yemen

    • Ramping up production to over 50,000 BOPD by the end of 2006

    • Currently testing well that could add significant recoverable reserves to Kharir Field

Ed Story , Chief Executive Officer, commented:

“SOCO has had a strong start to 2006 with world class exploration discoveries in Vietnam, ongoing operational success in Yemen, the award of highly prospective acreage in West Africa coupled with a successful US$250 million convertible bond offering.

With core businesses in all stages of the E&P value chain across three of the world's most exciting oil regions and with an intensive work programme underway SOCO is ideally positioned for significant additional reserve and production growth with the financial capacity to make it happen.”

7 September 2006

Enquiries :

SOCO International plc Tel : 020 7747 2000
Roger Cagle  
Executive VP, Deputy CEO and Chief Financial Officer  
Pelham PR Tel: 020 7743 6676
James Henderson  
Alisdair Haythornthwaite  

Chairman's and Chief Executive's Statement

SOCO has had an exceptional first half of 2006 with excellent drilling results on Block 16-1 in Vietnam, a significant increase in production in Yemen, the addition of prime exploration acreage in West Africa and a successful $250 million fund raising. The drilling success in Vietnam has resulted in the addition of approximately 25 million barrels of proven plus probable reserves in the first half of 2006, an increase of approximately 40%.

Two Te Giac Trang (TGT) wells drilled this year in Vietnam, the TGT-2X and TGT-3X, tested at a total combined flow rate of approximately 17,500 barrels of oil equivalent per day (BOEPD) and 9,908 BOEPD, respectively. Success at the three TGT exploration wells drilled to date confirms the prospectivity of the structure, comprising five fault blocks extending over 15 kilometres on a North to South trend within an 80 kilometre long play fairway that extends along the eastern and southern portion of Block 16-1.

In addition to the outstanding drilling results on TGT, the Group achieved early clearance for the rapid development of the Ca Ngu Vang (CNV) field on Block 9-2 obtaining a declaration of commerciality and gaining approval of an outline development plan. This sets us on a fast track to bring the CNV field on production in late 2007.

By the end of the first half of 2006, production in East Shabwa Block 10 in Yemen had reached peak production exceeding 45,000 barrels of oil per day (BOPD), up more than 12,000 BOPD from the 2005 year average. The Group also achieved appraisal drilling success in Yemen with several in-field wells in the Kharir field expanding the productive potential there.

The exploration portfolio grew as well as we added exciting potential in West Africa. We expanded our Congo Basin footprint when we signed a production sharing contract on the Nganzi concession in the Democratic Republic of Congo (Kinshasa).

Further, we ensured that we would have the financial capacity to take advantage of our growing opportunities when we raised $250 million, $50 million more than initially planned due to strong investor demand, through the issuance of convertible bonds in May of 2006.



Block 16-1

In March 2006, the TGT-2X appraisal well on the Te Giac Trang structure on Block 16-1, an up-dip follow-up well to last year’s TGT-1X discovery well, tested with a total combined flow rate of approximately 17,500 BOEPD from the Miocene Lower Bach Ho 5.2 (LBH 5.2) and Oligocene “C” intervals.

Two main pay zones were perforated and tested within the LBH 5.2 interval, one between 2,763 and 2,817 metres and the other between 2,666 and 2,726 metres. A total of 89 metres of pay was confirmed by log analysis in this reservoir horizon.

The combined stabilised flow rate from the two Miocene zones was 14,053 BOEPD comprising 12,615 BOPD of 38 degree API gravity crude and approximately 8.63 million cubic feet of gas per day (MMCFD) through a one inch choke size. Flow rates were limited due to a mechanical failure in the surface separation equipment.

The first drill stem test, over the Oligocene “C” interval, tested water-free at a stabilised rate of 3,300 BOPD of 37.5 degree API gravity crude and approximately 0.88 MMCFD through a 52/64 inch choke size.

As was expected from the log analysis, water was produced from the lower set of perforations in the Miocene. The approximate 8% water cut provided evidence of the presence of an aquifer, which will be factored into plans for the field’s depletion management.

A third reservoir horizon, the Lower Bach Ho 5.1 which is considered to be oil-bearing and productive, was also identified, but not tested as this would limit the ability to retain the well as a future producer, as originally designed. This horizon had 18 metres of net pay, and from the analysis of logs and oil samples from wireline formation tests, is considered to be oil-bearing and productive.

Success at the TGT-2X well confirms the presence of a highly prospective section of clastic reservoirs in Block 16-1. Regional mapping has defined a clastic play fairway that extends for some 80 km to the south and west of TGT along the eastern and southern parts of the Block. Data from the TGT wells provides a firm foundation for continued exploration drilling on this trend.

Following the temporary suspension of the TGT-2X well, the rig moved immediately to drill a follow-up appraisal well, the TGT-3X, approximately 10 kilometres to the south on a separate fault block on the structure. A drill stem test was conducted in the LBH 5.2, the formation that was also tested in the discovery well and the primary interval in the follow-up TGT-2X well. The tested interval, perforated between 2,827 and 2,887 metres, flowed at a combined maximum rate of 9,908 BOEPD comprising 9,008 BOPD of 40.5 degree API gravity crude and approximately 5.4 MMCFD per day through a 88/64 inch choke size.

Log analysis of the well indicated approximately 68 metres of net pay were present in the LBH 5.2. Additionally, approximately six metres of net pay in the Lower Oligocene “C” interval were also identified but not tested.

The LBH 5.2 reservoir sands encountered in the TGT-3X well are the same as those tested in the TGT-1X and TGT-2X wells. This proves the presence of a laterally extensive marine sand in the Block, further reducing the risk of the other prospects and leads along the play fairway.

The third and final well drilled on Block 16-1 in the first six months of this year was the first exploration well on the “L” prospect approximately 30 kilometres south of the TGT-3X discovery. The Te Giac Vang 1X (TGV-1X) spudded on 2 May and reached a total measured depth of 3,926 metres in the Upper Oligocene. The well was deepened from its original prognosis due to the presence of encouraging hydrocarbon shows continuing below the original target depth. It was primarily positioned to test a closure at the LBH 5.2 level, the main productive horizon at the TGT discoveries.

The well intersected a clastic sequence at the LBH 5.2 horizon, however the reservoir sands were poorly developed at the location and no pay was encountered. The sediments encountered suggested that the well was located outside the LBH 5.2 play fairway and that this fairway is to the north and west of the TGV-1X location.

The well was also drilled into the Oligocene, however the location was down-dip on the flank of the structure. Despite being in a flank position, good oil shows were encountered in several sands. After analysis of the logs, although the sands were confirmed to be hydrocarbon bearing, it appeared that these lacked sufficient permeability to produce at commercial rates and were therefore not tested.

These overall encouraging well results will be evaluated and the seismic re-interpreted prior to drilling a follow-up well to fully test the Oligocene in a more prospective up-dip position. The well also penetrated the source rock section at the top of the Oligocene validating the geological interpretation and confirming the potential of the deep Oligocene and Basement prospect underlying the shallower closures.

A new drilling campaign has commenced on the Block 16-1 play fairway. The Transocean Trident 9 jack-up rig spudded the TGT-4X well on the "H" fault block in the TGT structure on 31 August. The well was at approximately 1,225 metres and 133/8" casing was being set as this report goes to press. Target depth is 3,537 metres.

Block 9-2

Following the TGV well, the rig was moved to drill the sidetrack to the CNV-4X well on Block 9-2 that was temporarily suspended late last year after encountering unexpected high pressures in the Oligocene sequence above the Basement. The sidetrack of the appraisal well, CNV-4XST, is currently at approximately 6,000 metres measured depth, approaching target depth.

The rig which has been conducting the Group’s Vietnam drilling programme since the beginning of 2005 moves out of Vietnamese waters after completion of the CNV-4XST. A letter of intent has been signed to bring another rig into the Group’s Vietnam drilling programme in the first quarter of 2007. Negotiations for a third rig are underway.

Preparations for development of the CNV field picked up momentum in April of 2006 following the unanimous approval of the Declaration of Commerciality on the field by the shareholders of the Hoan Vu (HV) Joint Operating Company (JOC). The official development plan was approved in August and the project budget is up for management committee approval later in September.

Meanwhile negotiations continue on a gas sales agreement for the associated gas produced from the CNV field. Long lead items have been ordered in anticipation of having first oil by the end of next year.

SOCO holds its interests in Vietnam, all in the Cuu Long Basin offshore, through its 80% owned subsidiary SOCO Vietnam Limited (SOCO Vietnam) and through its 100% ownership of OPECO, Inc. (see below for details of the OPECO acquisition). SOCO Vietnam holds a 25% working interest in Block 9-2, which is operated by the HVJOC and holds a 28.5% working interest in Block 16-1, which is operated by the Hoang Long JOC. OPECO, Inc. holds a 2% interest in Block 16-1.


In the first half of 2006, the East Shabwa Block 10 consortium continued its programme to further appraise the Kharir field and increase production capacity from Block 10.

Drilling results and the addition of a self-contained production facility have enabled the fields to exceed all previous production records. At the end of the first half of 2006, production exceeded 45,000 BOPD, up more than 12,000 BOPD from the 2005 year average. In addition the consortium began a very active exploration programme in the northern part of the Block.

A number of successful development wells were drilled in the Kharir during the first half of 2006. These include the KHA-1-12 well in the western part of the structure, the KHA-1-14 well in the southern flank of the structure and the KHA-1-07.G1 sidetrack, which was drilled as a water injection well but completed as a producer based on drilling results. These wells are all connected to the production facilities and were tested at rates between 5,500 and 8,000 BOPD.

The drilling of wells designed to ensure field pressure maintenance is being accelerated in parallel. The KHA-1-11 gas injection well is nearing completion. It is being drilled using underbalanced drilling technology that allows the assessment of connectivity between a nearby producer and an actively drilling injection well. Gas injection is scheduled to commence late summer. The KHA-1-13 water injection well, designed to provide pressure support to the eastern end of the structure, has been connected to the water injection system.

As of the date of publishing this report, the KHA-1-16 production well, designed to continue the delineation of the reservoir in the eastern part of the structure as currently mapped, is being tested. The KHA-1-17 water injection well, aimed at providing pressure support to the wells draining the northwest end of the structure, has reached total depth and is being logged.

The thrust of the exploration programme this year has been in the northern part of Block 10 in the Jathma/Wadi Taribah area. The first Jathma exploration well, the JAT-01 that tested over 1,900 BOPD when tested early in the year, is expected to be placed on long term production in the third quarter of this year. The oil produced will be trucked to the existing Kharir facilities for processing and export, enabling rapid and economic development.

The sidetrack of the second exploration well in the Jathma area, the JAT-02 well, has been completed. The objective of the sidetrack was to evaluate fracture development away from the original wellbore. Testing programmes on the JAT-02-ST and the exploration well on the eastern side of the Jathma area, JAT-04, have been completed. Both wells encountered significant oil columns, but did not flow commercial volumes of hydrocarbons when tested.

An evaluation of the results of all the Jathma area wells drilled to date will now be conducted. A 3D seismic programme is currently being considered to acquire better definition of the fracture zones in the Jathma area.

The East Shabwa Block 10 consortium comprises Comeco Petroleum, Inc. (28.57% interest), in which SOCO holds a 58.75% interest, TOTAL E&P Yemen (28.57% interest and operator), Occidental Yemen Ltd. (28.57% interest) and Kuwait Foreign Petroleum Exploration Co. (14.29% interest).

Republic of Congo (Brazzaville)
SOCO Exploration and Production Congo S.A. (SOCO EPC), the Company’s 85% owned subsidiary, was awarded a 75% interest in the Marine XI Block offshore the Republic of Congo (Brazzaville). The terms of the Production Sharing Agreement signed by the Société Nationale des Pétroles du Congo (SNPC) and SOCO EPC was approved during the Congolese Parliament and the Senate extraordinary session in the first quarter of 2006. The law became effective on 30 March when signed by the President of the Republic.

It was just recently announced that SOCO EPC farmed-out one half of its interest in the Marine XI Block, 18.75% to each of a subsidiary of Lundin Petroleum AB and Raffia Oil SARL. SOCO EPC will remain as the operator with a 37.5% working interest in the Block. The exploration and production branch of SNPC (15%) and Africa Oil & Gas Corporation (10%) hold the remaining interests. The assignment of interests in the Agreement is subject to approval of the appropriate regulatory authorities of the Government of the Republic of Congo (Brazzaville).

The Block, located in the Lower Congo Basin, is in shallow water adjacent to the coast with water depths ranging up to 110 metres and covers approximately 1,400 square kilometres. There has been previous exploration activity on the Block resulting in four small oil discoveries, the largest of which has initial recoverable reserves estimated to be in the 30 to 60 million barrel range.

A contract has been awarded for the acquisition of a 1,200 square kilometre 3D seismic programme. Acquisition is expected to begin early in the fourth quarter of 2006.

Democratic Republic of Congo (Kinshasa)
In July, the Company’s 85% owned subsidiary, SOCO DRC Limited (SOCO DRC), signed, subject to presidential decree, a Production Sharing Contract with the government of the Democratic Republic of Congo and La Congolaise des Hydrocarbures (Cohydro), the state owned oil company, wherein it acquired an interest in the Nganzi block, onshore the Democratic Republic of Congo (Kinshasa).

SOCO DRC is the designated operator with an 85% working interest in the Block. Cohydro holds the remaining interest. In 2005 under a memorandum of understanding signed with the government, SOCO carried out a reconnaissance aeromagnetic and gravity survey over the onshore extension of the coastal basin in order to delineate prospective areas for hydrocarbon generation and migration. The survey indicated the presence of a deep pre-salt source graben in the northern part of the basin in the Nganzi Block. Regional mapping shows the graben to be on trend with the source basin for the M’Boundi field in the southern part of the Republic of Congo (Brazzaville). Several leads, interpreted as large horst blocks, have been identified on the Block. These will be further evaluated by 2D seismic in 2007.

The Nganzi Block comprises an area of approximately 800 square kilometres. There has been little previous activity. Two wells were drilled on poor quality seismic in the 1970s, no other seismic has been acquired. Using modern seismic techniques and applying new pre-salt play concepts, SOCO DRC expects to exploit the potential of the Block.

Upon securing approval from the Thailand Department of Mineral Fuels to convert the Bualuang field from an exploration to production licence in the first quarter of 2006, SOCO Exploration (Thailand) Co. Ltd. (SOCO Thai) signed an agreement to allow a two group consortium to earn up to a 60% working interest in the licence in the Gulf of Thailand. If the earn-in terms of the agreement are fulfilled, SOCO Thai would retain a 40% working interest in the field.

Under the terms of the agreement, a 20% interest can be earned by the Farmee consortium upon the conclusion of a Phase I work programme wherein the Farmee must conclude a high resolution 100 kilometre 2D seismic programme and drill one well in the Bualuang Field. At the election of Farmee, a further 40% working interest can be earned in the Phase II work programme. The Phase II work programme, during which SOCO Thai would fund only 8% of the cost, requires the Farmee to drill up to eight wells, install a platform and take the project to first oil.

After the end of the Phase II period, the Farmee shall be designated the operator of the project and shall engage an independent reservoir engineer to perform an analysis of the proven reserves contained in the Bualuang Field. The Farmee shall pay SOCO Thai an amount equal to one dollar ($1.00) for each barrel produced over 10.4 million barrels.

The assignment of interests in the agreement is subject to approval of the appropriate regulatory authorities of the Government of Thailand.


Historically high crude oil prices realised by the Group during the first half of 2006 increased the average oil sales price per barrel to $63.15 from $45.79 for the same period last year. Production from Yemen, net to the Group’s working interests, during this period increased to 6,407 BOPD versus 5,057 BOPD in the six months to 30 June 2005. This, combined with the higher oil prices, increased revenue on an entitlement basis by $14.8 million in the six months to 30 June 2006 compared to the same period last year. Adjustment for lifting imbalances arising in prior periods amounting to $3.5 million brings the revenue from continuing operations for the six months to 30 June 2006 to $38.8 million compared to $27.5 million in the same period last year.
Cost of sales of $11.0 million were reported for the current period compared to $10.2 million for the same period last year, primarily attributable to higher production and higher field operating expenses partially offset by the adjustment for lifting rebalancing, which decreased operating expenses from continuing operations by $3.5 million.
Operating expenses on a per barrel basis (excluding lifting imbalances and inventory) from continuing operations increased from approximately $4.00 in the first half of 2005 to approximately $6.50 per barrel in the first half of 2006. This reflects additional resources required to increase capacity and accelerate production along with increased diesel costs, higher manpower rates and higher transportation costs associated with the Group’s non-operated activities in Yemen.
Depreciation, depletion and abandonment (DD&A) costs on continuing operations increased by $0.6 million compared to the same period last year reflecting the increased production offset by higher reserves. On a per barrel basis, DD&A on continuing operations decreased to approximately $3.60 per barrel compared to approximately $3.90 during the equivalent period last year reflecting the year end 2005 reserve additions.
Administrative expenses increased from $2.5 million in the six months to 30 June 2005 to $3.5 million in the current period. This is mainly due to higher national insurance obligations arising on share options as the Company’s share price increased from £5.975 at 30 June 2005 to £13.680 at 30 June 2006 and administrative costs associated with the Company’s corporate funding activities. Exploration expenses associated with pre-licence costs were $0.2 million in the six months ended 30 June 2006 compared to $0.5 million in the equivalent period last year reflecting the Company’s continuing success in acquiring licences in its new core area.
As a result of the above, the Group’s operating profit from continuing operations increased by over 68% to $24.0 million from $14.3 million for the equivalent period last year.
Following the issue of convertible bonds, discussed below, the Group had a significantly higher cash and cash equivalents balance which caused investment income to rise from $0.9 million in the period to 30 June 2005 to $2.8 million in the current reporting period. The increase in other gains and losses from nil in the first half of 2005 to $0.3 million in the period ended June 2006 is mostly represented by the unwinding of the discount relating to the financial asset associated with the subsequent payment amount tied to future oil production from the Group’s divested Mongolia interest. Finance costs have increased from $0.2 million in the six months ended 30 June 2005 to $2.0 million for the current period mostly due to the interest expense on the liability component of the convertible bonds. The tax charge on continuing operations increased from $6.1 million in the equivalent period last year to $10.0 million in the current period consistent with the increase in operating profit.

Capital expenditure of $50.4 million in the current review period compared to $17.3 million for the equivalent period last year reflects the Group’s increased drilling activity in both Vietnam and Yemen as well as a facilities upgrade in Yemen. Further, in June 2006 the Group acquired an additional 2% working interest in Block 16-1 offshore Vietnam for consideration paid of $22.0 million. Exploration expenditure in the Group’s new core area of West Africa also contributed to the increase in capital expenditure.

During the period to June 2006 the Company purchased 608,000 treasury shares at a cost of $13.6 million. Of these 580,500 plus brought forward treasury shares of 150,000 were used to satisfy the obligation to issue shares in settlement of certain share options. As at 30 June 2006 the Company held 27,500 treasury shares.

SOCO’s cash and cash equivalents were increased from the year end 2005 amount of $51.0 million to $251.5 million at 30 June 2006 mainly due to the proceeds of the convertible bond issue offset by the continuing investment in capital projects, particularly in Vietnam and Yemen.

Production net to the Company’s working interest increased approximately 21% period on period averaging 6,407 BOPD during the first half of 2006 as compared to 5,310 BOPD in the first half of 2005. All of the Group’s production is sourced from the East Shabwa Development Area in Yemen.

Corporate Developments
Convertible Bonds
In May 2006, SOCO Finance (Jersey) Limited issued $250 million in guaranteed convertible bonds (Bonds). The Bonds are convertible into the preference shares of the issuer, which are exchangeable for fully paid ordinary shares of SOCO. The Company is guarantor of the offering. The size of the offering was increased from $200 million due to strong institutional demand, but was still six times oversubscribed upon issue.

The Bonds were priced at par and will pay a coupon of 4.50% per annum. The Bonds will initially be convertible into an aggregate of approximately 6.238 million ordinary shares. The conversion premium was set at 42.00%. The initial conversion price is £21.847 per ordinary share. The conversion price will be subject to adjustment from time to time upon the occurrence of certain events. Payment for, and settlement of, the Bonds occurred on 16 May 2006. Unless previously converted or redeemed, the Bonds will be repaid at 100 per cent of their principal amount on 16 May 2013.

The Bonds have been admitted to the Official List of the UK Listing Authority and have been admitted to trading on the London Stock Exchange's Professional Securities Market.

Acquisition of Minority Interest in Vietnam
In June, the Company’s wholly owned subsidiary SOCO International (Cayman) Limited acquired the entirety of the shareholding of OPECO, Inc. for a total consideration of $22 million. OPECO, Inc. in turn holds the entirety of the shareholding of OPECO Vietnam, Ltd., which holds a direct 2% interest in Block 16-1 in the Cuu Long Basin offshore Vietnam.


The Company is rapidly moving from a primarily exploration led company to a sizeable producer with first production from its high profile Vietnam portfolio due in 2007. Recent exploration success has significantly de-risked the Group’s portfolio. In Vietnam we have established multiple play types in a large play fairway with tremendous potential.

For the medium term we will continue our very active drilling programme, which has the potential to have a significant impact on the rating of the Company. As was intimated in last year’s interim results, the results in the past have been manifested by a significant addition of reserves, qualitatively as well as quantitatively. This is a process that we see as only beginning.

We believe the West African additions to our portfolio will allow us to replicate our success in Vietnam and Yemen. Over the near term the news flow will be dominated by the growth in reserves and production. With a balanced portfolio across Yemen, Vietnam and West Africa, near term development and a large exploration programme underway the outlook for SOCO has never been stronger.

Patrick Maugein Ed Story
Chairman President and Chief Executive

7 September 2006

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