29th Apr 2005 07:01
Soco International PLC29 April 2005 SOCO International plc ("SOCO" or "the Company") Preliminary results for the year ended 31 December 2004 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. SOCOtoday announces preliminary results for the year ended 31 December 2004. Asannounced on 1 April 2005, SOCO has agreed to dispose of its Mongoliaoperations, subject to gaining approval from its shareholders. HIGHLIGHTS • 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 upside 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 andtaken decisive steps to streamline our portfolio. We are optimistic as we embark upon one of the most important and excitingdrilling programmes in our history that the drill bit will provide excellentresults for SOCO in the coming year. " 29 April 2005 ENQUIRIES: SOCO International plc Tel: 020 7747 2000Ed Story, President and Chief ExecutiveRoger Cagle, Deputy Chief Executiveand Chief Financial Officer College Hill Tel: 020 7457 2020Ben BrewertonNick Elwes CHAIRMAN'S AND CHIEF EXECUTIVE'S STATEMENT SOCO ended 2004 in an extremely strong position. After 12 months of intensivefoundation-laying, we are poised to deliver positive results in 2005. Much ofour preparation has, by definition, taken place behind the scenes and not in thepublic spotlight. Nevertheless, we are confident that 2004 will be remembered asone of the most important - and pivotal - years in the development of theCompany. SOCO's interests in Vietnam and Yemen remain the Group's core assets; bothproviding material upside and the latter providing strong operating cash flow.During the third quarter of 2004, the Company's first Basement targeted deviatedwell in Yemen was spudded, signifying the start of the second major multi-welldrilling campaign in the Company's history. Our multi-well drilling programme in Vietnam commenced in January 2005. Beforethe drilling programme could begin in Vietnam, we needed to improve theprocessing of our existing seismic in order to enhance the subsurface image tobetter target wells on our Ca Ngu Vang discovery. New seismic was acquired inuntested areas where geological studies indicated additional prospectivity.Accordingly, our primary focus was on seismic - both acquiring new data, andreprocessing and reinterpreting existing data. While continuing to evolve strategic alliances with key partners in all ourareas of interest, we took decisive steps to streamline our asset portfolio inothers. This continuing process is vital to ensuring that we stay focused on ourlong term strategy for building shareholder value. FINANCIAL AND OPERATING RESULTS Even while significantly rebalancing our portfolio in favour of those assetspromising the most upside, the Company produced solid operating results in 2004reporting 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 taxprofits of £5.7 million in 2003. With our production in Tunisia included in theGroup's statistics through the completion of the sale in December, productionnet to the Company's working interest increased slightly, rising to 5,533barrels of oil per day ("BOPD") in 2004 from 5,409 BOPD the prior year. TheCompany finished the year in a stronger financial position than it began as cashand investments, which includes short term deposits, totalled £37.0 millioncompared to £32.9 million at year end 2003. SIGNIFICANT EVENTS In March 2004, we completed the restructuring of our interest in the ODEXExploration Limited ("ODEX") joint venture. First announced in our 2003 annualreport, this transaction created a stronger consortium comprising SOCO NorthAfrica (34%), and subsidiaries of Oilinvest (Netherlands) B.V. (46%) and ofJoint Stock Bank of the Gas Industry Gazprombank (20%). One of the consortium'searly public technical challenges was to establish itself as a credibleparticipant during Libya's first open bid round for exploration areas, whichtook place at the beginning of 2005. Although its bid did not result in an awardof acreage, ODEX's demonstration of logistical and technical expertise duringthe 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 Gabes,offshore Tunisia, with an effective date of 1 July 2004. As a result, SOCOreceived a cash consideration of US$25 million subject to applicable workingcapital adjustments. RETROSPECTIVE Vietnam Developments in Vietnam were encouraging as we prepared for the evaluation ofearlier discoveries and for testing additional exploration targets. Theextensive programme included the advanced reinterpretation of existing seismicdata, the acquisition and interpretation of new 3D seismic data and thelogistical preparation for a complex multi-well drilling campaign. Thanks to theefforts of the Joint Operating Company staffs, we were able to improve upon theschedule of the critical path, allowing us to spud the first well ahead of theoriginal timetable. The first well in this programme will appraise the Ca Ngu Vang ("CNV") structureon Block 9-2 where the discovery well CNV-1X was drilled in 2002 and tested amaximum combined rate of approximately 4,500 barrels of crude oil equivalent perday. The high angle deviation well, CNV-3X, was spudded on 30 January 2005 andreached a measured depth of approximately 6,100 metres. Yemen Our experience with Basement reservoirs in Vietnam played an important part indriving progress in Yemen's East Shabwa Development Area ("East Shabwa"). InSeptember 2004, we commenced a four well programme, three of which were deviatedwells specifically targeting the Basement interval. These are the first deviatedwells targeting Basement to be drilled at East Shabwa and obtaining partnerconsensus 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 designedprimarily to test the limits of the Kharir Basement structure, have met orexceeded expectations, with the third well tested achieving flow rates greaterthan 6,500 BOPD and the final well testing greater than 5,500 BOPD. The firstwell drilled in the programme encountered low density fractures and is suspendedawaiting a technical decision. PROSPECTIVE Throughout 2005, we will be reporting results from the drill bit as we proceedwith the Vietnam and Yemen drilling programmes. The CNV-3X well in Vietnam iscommencing preliminary testing operations. In Yemen, we have proceeded with therig already under contract on an extension of the drilling programme initiatedin 2004, targeting both reserve additions and increased production from theKharir field. The consortium anticipates contracting another rig later in theyear to evaluate one or more new Basement structures. We also anticipatecompleting a comprehensive upgrade of the East Shabwa surface facilities. The streamlining of our asset portfolio will continue, redirecting our effortstoward projects that offer more immediate upside to the Company. In April 2005,the Company signed a sale and purchase agreement with a Chinese company whichhas agreed to purchase the entities owning the whole of SOCO's interests in theTamtsag Basin in Mongolia. This transaction will add US$30 million immediatelyto SOCO's cash balances if the deal is approved at an Extraordinary GeneralMeeting of shareholders. Additional cash consideration of US$10 million will beheld in escrow and paid 18 months after closing assuming no material undisclosedliabilities have arisen against the companies sold. Consideration tied toproduction in excess of 27.8 million barrels produced subsequent to 1 January2005 could add a further sum of approximately US$53 million to the total amountreceived. Discussions are ongoing with possible farm-in/equity participants inThailand. CORPORATE At the May 2004 Annual General Meeting, Mr Roger Brittain retired as anindependent Non-Executive Director. Roger played an instrumental role in formingSOCO and his departure - formally announced in 2003 - followed seven years ofdedicated service to the company. Mr Martin Roberts was appointed to the Board as an independent Non-ExecutiveDirector in September 2004. During his 35-year career with the international lawfirm Slaughter and May, Martin was closely involved with the energy sector. Hewas appointed a partner in 1975 and retired from the practice in 2002. Hisskills and experience have proved an immediate asset to the SOCO Board. OUTLOOK Our industry is undergoing a period of transformation as a growing number ofnational oil companies compete in the international arena, deploying formidableresources beyond their national borders. Results from recent bidding rounds,including those in Libya and Yemen, indicate that these companies are preparedto bid aggressively to establish a presence in new territories in order toprotect 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 ourstrategic partnerships with these entities and creating new relationships in theearly development of other national oil companies' activities abroad. Thesegroups control access to some of the world's most prolific and potentiallyproductive hydrocarbon reserves. Indeed, since our formation, we have worked hard to build relationships withnational oil companies in those parts of the world where we plan to focus ourportfolio. We have focused on capitalising on these links, which were greatlyexpanded by the alliance forged between the Company and its strategicshareholder group in 1999 and we expect the alliance to become an increasinglyimportant building block in realising this strategy. SOCO strives to bring a fresh perspective to industry challenges and to applystandard tools in different ways. This capacity for innovation, coupled withstrong regional ties, is the key to opening up new horizons and deliveringresults. During the next chapter in SOCO's development, drill bits will write theheadlines. This time next year, we are optimistic that they will tell a story ofdemonstrable results based on the solid foundations that have been laid. We willcontinue to build on these foundations by playing to our strengths whilestreamlining our portfolio and further focusing our resources. As we negotiate the challenges ahead, our strategic partnerships will becomeincreasingly important. These alliances have always been fundamental to SOCO'sgrowth. Looking ahead, they will be one of the key drivers in delivering ourstrategic goals - recognising opportunity, capturing potential and realisingvalue. REVIEW OF OPERATIONS During 2004, solid foundations were laid for the future growth of the Company inpreparation for the most important exploration drilling programme in SOCO'shistory. This programme began with positive results in Yemen which immediatelyimpacted production during 2004. Overall, crude oil production net to the Group's working interest for 2004 wasup slightly to 5,533 barrels of oil per day ("BOPD") compared to 5,409 BOPD in2003. This increase reflected a good rebound from the first half of 2004 aspositive production results came in from the Basement drilling programme inYemen and a second producing well was put on line in Tunisia. Despite drillingdelays due to lack of rig availability in the first half of 2004, net dailyproduction from the East Shabwa Development Area ("East Shabwa") in Yemencontributed 3,958 BOPD to the total, compared to 3,896 BOPD in 2003. InMongolia, production was 338 BOPD, compared to 412 BOPD in 2003, as theremoteness of operations there made sourcing spare parts for productionequipment failures difficult, thus causing interruptions. The discontinuedoperations in Tunisia, where production statistics were included through thecompletion date in December 2004, contributed the remainder of total production. VIETNAM SOCO holds its interests in Vietnam through an 80% holding in its subsidiarySOCO Vietnam Ltd ("SOCO Vietnam"). SOCO Vietnam holds a 25% working interest inBlock 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 PTTExploration and Production Public Company Ltd of Thailand (PTTEP Thailand) andPetrovietnam, Vietnam's state oil company. Together, the partners operatethrough Joint Operating Companies ("JOCs"). Both Blocks are contiguous to the Bach Ho field, where 2004 productionreportedly averaged approximately 220,000 BOPD and 220 million cubic feet of gasper day ("MMCFD"), and the Rang Dong field, where production reportedly averagedapproximately 45,000 BOPD, mainly from the Basement. Review of 2004 activities In Vietnam, the year started with the focus firmly on seismic - both acquiringnew data and reprocessing and reinterpreting existing data. The results of thiswork formed the basis of an extensive exploratory and appraisal drillingprogramme, which is scheduled to continue throughout much of 2005. In total, the JOCs acquired approximately 650 square kilometres of new 3Dseismic over several leads and prospects in Block 9-2 and Block 16-1.Encouragingly, these leads and prospects appear similar to recent significantdiscoveries in nearby blocks within the Cuu Long Basin. During the year, existing data over and around the Ca Ngu Vang ("CNV") structurewas reprocessed using advanced pre-stack depth migration ("PSDM") technology.This technology produces higher quality data by using segmented velocityinformation to enhance seismic images of sub-surface features. To date, PSDM hasbeen successfully used by other operators elsewhere in Vietnam. The reprocessingresulted in a clearer subsurface image allowing a more accurate interpretationand well targeting. Based on the data interpretation of the new and reprocesseddata, detailed well planning and procurement were undertaken to ensure acost-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 reachedtarget depth on 16 April 2005. Reaching a measured depth ("MD") of 6,123metres, the CNV-3X well has the distinction of being the longest MD well everdrilled in Vietnam. The well reached a total vertical depth of 4,426 metrespenetrating approximately 2,000 metres of granitic Basement at an average angleof 82 degrees from vertical intersecting various fault and fracture domains inthe central and western parts of the structure to the west of CNV-1X, thediscovery well drilled in 2002. CNV-1X tested to a maximum combined rate of approximately 4,500 barrels of crudeoil equivalent daily. This comprised approximately 3,100 BOPD and approximately7.9 MMCFD from the Basement interval. At the date of this report, the well is commencing preliminary testingoperations. A full evaluation of the CNV-3X well will be performed and, shouldthe well confirm the potential of the structure, the results will beincorporated into an application to the Vietnamese authorities for approval ofan accelerated development schedule. Upon completion of the CNV-3X programme, the rig will be moved to Block 16-1 tospud an exploratory well to test the Te Giac Trang ("TGT") structure in theeastern part of the Block. The TGT structure is one of a series of Oligoceneprospects delineated by the 3D seismic acquired over the Block in 2004. This isthe same geological sequence in a similar setting in which a major discovery wasrecently reported in another part of the Cuu Long Basin. YEMEN SOCO continues to derive most of its production from its interests in Yemen.During 2004, production increased compared to the previous year due to thecontinued appraisal and development of the Basement interval in concert with aproactive workover campaign designed to reduce individual well water cuts fromthe producing Cretaceous reservoir. By the end of 2004, the field was producingat around 29,000 BOPD compared to 23,000 BOPD at the end of 2003. Production from East Shabwa is transported by pipeline and commingled withproduction from the neighbouring Masila block before transportation by pipelineto the coastal Ash Shihr export terminal. SOCO's crude entitlement is sold undera 12-month spot market contract. The Group holds its interest in East Shabwa through its 58.75% majorityshareholding in Comeco Petroleum Inc., ("Comeco"), which holds a 28.57% directinterest in Block 10. A subsidiary of Occidental Petroleum, which is also aco-venturer in East Shabwa with a 28.57% interest, holds the remaining minorityinterest in Comeco. Total E&P Yemen, with an interest equal to Comeco's,operates the concession and a subsidiary of Kufpec, the Kuwaiti foreign oilcompany, 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 subsequentacceleration of the appraisal and development of this horizon in Yemen. Despitedelays caused by the lack of rig availability, the consortium launched anextended drilling campaign in the second half of 2004. This campaign includedthe consortium's first ever deviated wells specifically targeting the Basementinterval. To date, most production has come from the Cretaceous clastic Biyad reservoir inthe Kharir field. This interval is characterised by the high water cuts that aretypical of other regional wells producing from this reservoir. To mitigate theissues associated with dealing with the disposal of high volumes of producedwater, the consortium launched a major workover campaign designed to reducewater cuts from individual wells and improve well performance. The success ofthis campaign was demonstrated by the fact that the consortium was able tomaintain the average oil production rate from the Cretaceous during 2004 at 2003levels. During the year, work was completed on production facilities to reducebottlenecks and increase oil handling capacity. In addition, facilities andtechniques specifically designed to handle a large volume of associated gas fromthe Basement have been evaluated. Extra facilities will be installed and someadditional techniques will be employed over the next two or three years in orderto enable the consortium to increase its capability to produce from Basement.This, together with adding water injection capability to improve pressuremaintenance in the Basement reservoir, should add considerable productivecapability 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 wascompleted during 2004. Interpretation of this new data was used to identifyseveral high potential exploration targets. The most prospective will be drilledas part of the 2005 drilling programme. During the year, the partnership drilled two new production wells on theCretaceous Atuf field. The first of these, ANW006B, was originally drilled as aninjector well. It reached a depth of 1,829 metres, where it encounteredunexpected reserves in the Upper Biyad formation. Consequently, ANW006B wascompleted as a producer rather than an injector well and produces approximately1,500 BOPD. The second well, ANW007, also encountered the target interval higher thanexpected. It was completed as a producer and tied into the field's productionsystem mid-year. In line with test expectations, ANW007 crude production iscurrently averaging approximately 1,800 BOPD. As a result of these successes, work began on a re-evaluation of the Atuf fieldto identify additional producing locations. We are optimistic that thisre-evaluation will deliver substantial benefits during 2005 and beyond. In August, work began on drilling deviated wells specifically targeting theBasement interval of the Kharir structure. The first of these, KHA-401, reacheda depth of 3,873 metres. The principal objective of the well was to test thedevelopment of potential productive fractures at depth, in this case over 600metres below the top of the Basement and well below the Basement intervalpenetrated by previous wells. Initial interpretations of test results on KHA-401 indicate that it encounteredreservoir, but that the fracture development appears inadequate to supporteconomic production at this depth and location. Currently the well is suspendedwhile 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. Thewell was drilled to test the potential of the eastern end of the Kharir field onthe flank of the structure. The well was initially tested in December, achievinga rate of 550 BOPD before being shut-in for a long-term build-up test. The wellwas 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 andreached a total depth of 3,383 metres. The well was drilled to delineate theBasement to the west and to evaluate reservoir development in the undrilledwestern extension of the structure. Tested in February 2005, KHA-403 produced atmore than 6,500 BOPD and is now connected to Kharir's main productionfacilities. 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. Thewell was drilled into the northern extension of the Basement with the objectivesof appraising this area and providing information for a pilot water injectionprogramme. 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 Basementevaluation programme. This year there will be the continuation of a very active drilling programme onBlock 10. Towards the end of this period, it is possible that two explorationwells will be drilled on recently identified Basement prospects. Initially, theexploitation programme will continue with plans to drill six wells. A seconddrilling phase of seven wells is contingent upon the success of phase one. Inparallel, the need for gas handling, water re-injection equipment and facilitydebottlenecking will mean further upgrades to the surface production facilities. MONGOLIA 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 toSOTAMO, did not meet the specific conditions required in order for it to take apro rata working interest of 10% in the PSCs. A 5% working interest, carried bythe Group through the exploration phase, is held by Petrovietnam, the Vietnamesenational 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 Hohhotand sold at the prevailing market rate. During 2004, the Group drilled four exploration wells. Three were designed toappraise the Tolson Uul North field discovered in 2003, whilst the fourth was awildcat 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 inJanuary 2004, the Group completed a 102 square kilometre 3D seismic programmeover the Tolsun Uul North area to better define the structure and select welllocations. During the period from July to October, SOTAMO completed the fourwell drilling programme to appraise the Tolsun Uul North discovery and explore asimilar structure to the north. All four wells encountered hydrocarbons and twowere 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 productionsteadied at approximately 70 BOPD. Well 19-21 encountered good oil shows in theZuunbayan and the Tsagaantsav formations while drilling to a TD of 2,625 metres.This well was completed in the Zuunbayan formation with an initial productionrate 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 suddenand total loss of circulation occurred in a fracture zone during drilling. Thewell was successfully cased and will be further evaluated during 2005. The finalwell of the 2004 programme, the 19-23, was drilled on a previously untestedstructure to a TD of 2,253 metres. It encountered good oil shows in theZuunbayan formation, extending the basin's productive area approximately ninekilometres to the north. The well has since been suspended for furtherevaluation. Subsequent events and 2005 outlook In April 2005, the Company entered into an agreement to sell the whole of itsMongolia interest to Daqing Oilfield Limited Company. LIBYA In March 2004, the Group restructured its interest in the ODEX ExplorationLimited ("ODEX") joint venture. This move created a consortium in ODEXcomprising 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 competefor significant opportunities during Libya's first open bid round at the startof 2005. Although the consortium did not win any of its bids in this auctionprocess, it is clear that it now has the scope to compete seriously with majorcompanies on larger opportunities and the logistical and technical expertise tocapitalise on any coming opportunities. Subsequent events and 2005 outlook ODEX will continue to be the vehicle through which we explore variousopportunities that may arise in Libya and certain parts of Africa. Theconsortium is well placed to take advantage of its strong regional relationshipsthat could provide competitive advantages to some emerging hydrocarbonpotential. THAILAND Through its wholly owned Thailand subsidiary, SOCO holds a 100% interest inBlock B8/38 located offshore in the Gulf of Thailand. This Block contains asmall, undeveloped crude oil field, Pornsiri. Due to the marginal economics ofthe field under previously prevailing price scenarios, little activity has takenplace on the concession subsequent to the last drilling programme conductedthere. By the end of 2004, market economics had shifted dramatically in favour ofre-evaluating this asset. Accordingly, we began work on an application to theThailand authorities to renew the concession on Block B8/38 beyond its scheduled2005 relinquishment date. The nature and scope of activity on the Block is verymuch conditional upon the Group's ability to attract additional participation onthe concession. Currently, the Company is in advanced discussion with multipleparties regarding the evaluation of the Pornsiri field. TUNISIA On 18 November, SOCO announced that it had entered into a sale and purchaseagreement for the sale of its interests in the Zarat Permit in the Gulf ofGabes, offshore Tunisia. On 3 December, the sale was completed. Consolidated profit and loss account for the year to 31 December 2004 (Restated) 2004 2003 £000's £000'sTurnoverContinuing operations 17,707 19,039Discontinued operations 7,394 6,451 25,101 25,490Cost of sales (10,251) (13,800) Gross profit 14,850 11,690Administrative expenses (2,412) (2,667) Operating profitContinuing operations 7,319 6,066Discontinued operations 5,119 2,957 12,438 9,023 Profit on sale of discontinued operations 8,391 - Profit on ordinary activities before finance charges 20,829 9,023Investment income 366 815Interest payable and similar charges (136) (37) Profit on ordinary activities before taxation 21,059 9,801Tax on profit on ordinary activities (5,560) (4,114) Profit for the financial year 15,499 5,687 Earnings per shareBasic 22.2p 8.2pDiluted 19.7p 7.2p Consolidated statement of total recognised gains and losses for the year to 31 December 2004 (Restated) 2004 2003 £000's £000's Profit for the financial year 15,499 5,687Unrealised currency translation differences (9,001) (14,354) Total recognised gains (losses) relating to the year 6,498 (8,667)Prior year adjustment (315) - Total gains (losses) recognised since last annual report andaccounts 6,183 (8,667) Balance sheets as at 31 December 2004 Group Company (Restated) (Restated) 2004 2003 2004 2003 £000's £000's £000's £000's Fixed assetsIntangible assets 85,161 82,311 - -Tangible assets 13,296 18,973 428 35Investments 96,290 72,326 - - 98,457 101,284 96,718 72,361 Current assetsStocks 106 - - 40Debtors 5,959 4,763 445 406Investments 6,569 - - -Cash at bank and in hand 30,477 32,898 59 387 43,111 37,701 504 793 Creditors: Amounts falling due within one year (5,547) (8,586) (417) (173) Net current assets 37,564 29,115 87 620 Total assets less current liabilities 136,021 130,399 96,805 72,981 Provisions for liabilities and charges (1,665) (3,279) - - Net assets 134,356 127,120 96,805 72,981 Capital and reservesCalled-up equity share capital 14,455 14,396 14,455 14,396Share premium account 41,628 41,325 41,628 41,325Other reserves 33,742 33,366 (424) (424)Profit and loss account 44,531 38,033 41,146 17,684 Equity shareholders' funds 134,356 127,120 96,805 72,981 Consolidated cash flow statement for the year to 31 December 2004 2004 2003 £000's £000's Net cash inflow from operating activities 14,446 16,610 Returns on investments and servicing of financeInterest received 355 677Interest paid and similar charges (28) (17) 327 660 Taxation paid (3,311) (4,169) Capital expenditure and financial investmentPurchase of intangible fixed assets (11,747) (21,651)Purchase of tangible fixed assets (4,352) (6,116)Purchase of own shares by employee benefit trust - (583)Purchase of own shares into treasury - (424) (16,099) (28,774) Acquisitions and disposalsSale of subsidiary undertaking 9,160 -Sale of intangible fixed asset 1,181 - 10,341 - Cash inflow (outflow) before management of liquid resources andfinancing 5,704 (15,673) Management of liquid resourcesIncrease in funds placed on short term deposit (6,541) - FinancingIssue of ordinary share capital 362 862 Decrease in cash in the year (475) (14,811) Notes to the accounts 1. Basis of accounting The accounts have been prepared under the historical cost convention and inaccordance with applicable accounting standards and the Statement of RecommendedPractice "Accounting for Oil and Gas Exploration, Development, Production andDecommissioning Activities". During 2004, the Group adopted UITF Abstract 38"Accounting for ESOP Trusts" and the related amendments to UITF Abstract 17(revised 2003) "Employee Share Schemes". UITF Abstract 38 changes thepresentation of own shares held by the SOCO Employee Benefit Trust wherebyconsideration paid for shares is deducted in arriving at shareholders' fundsrather than being recognised as an asset. UITF Abstract 17 (revised 2003)requires the amounts recognised in the profit and loss account to be based onfair value of shares at the date an award is made rather than book value of ownshares available for the award. As the adoption of UITF Abstract 38 and UITFAbstract 17 (revised 2003) represents a change in accounting policy prior yearamounts have been restated to ensure that they are presented on a consistentbasis. 2. Basis of preparation The financial information set out above does not constitute the Company'sstatutory accounts for the years ended 31 December 2004 or 2003, but is derivedfrom those accounts. Statutory accounts for 2003 have been delivered to theRegistrar of Companies and those for 2004 will be delivered following thecompany's annual general meeting. The auditors have reported on those accounts;their reports were unqualified and did not contain statements under s237(2) or(3) Companies Act 1985. 3. Dividend The Directors are not recommending the payment of a dividend. 4. Tax on profit on ordinary activities Analysis of charge 2004 2003 £000's £000'sCurrent taxUK corporation tax at 30% (2003 - 30%) - -Overseas taxation 5,178 4,722 5,178 4,722 Adjustments in respect of previous years:UK corporation tax at 30% (2003 - 30%) - -Overseas taxation (237) (201) 4,941 4,521 Deferred taxationOrigination and reversal of timing differences 619 (407) 5,560 4,114 Deferred taxation includes recognition of a net deferred tax charge of £201,000(2003 credit - £181,000) in respect of the Tunisia interest and a net deferredtax charge of £439,000 (2003 credit - £126,000) in respect of the Yemeninterest. There is no unprovided deferred taxation at either balance sheet dateexcept for an unprovided deferred tax asset arising in respect of tax lossesthat are not expected to be utilised. 5. Prior year adjustment Effective 1 January 2004, the Group adopted Urgent Issues Task Force ("UITF")Abstract 38 "Accounting for ESOP Trusts" and the related amendments to UITFAbstract 17 (revised 2003) "Employee Share Schemes". The adoption of UITFAbstract 38 and UITF Abstract 17 (revised 2003) represents a change inaccounting policy for the way the Group presents and accounts for own sharesheld by the SOCO Employee Benefit Trust. The comparative figures in the primarystatements and notes have been restated to ensure that they are presented on aconsistent basis. The net effects of the change in policy are summarised below: 2004 2003 £000's £000's Profit and loss accountIncrease in administrative expenses 125 150 Balance sheetDecrease in fixed asset investments 1,411 1,486 Decrease in other reserves 794 1,171Decrease in profit and loss account 617 315Decrease in net assets 1,411 1,486 6. Earnings per share The calculation of the basic earnings per share is based on the profit for thefinancial year and on 69,740,521 (2003 - 69,337,797) ordinary shares, being theweighted average number of ordinary shares in issue and ranking for dividendduring the year, excluding 2,475,000 (2003 - 2,227,342) ordinary shares of theCompany held by the Group. The calculation of the diluted earnings per share is based on the profit for thefinancial year and on 78,812,689 (2003 - 78,577,437) ordinary shares, being theweighted average number of ordinary shares in issue and ranking for dividendduring the year including 2,475,000 (2003 - 2,227,342) ordinary shares of theCompany held by the Group and 6,597,168 outstanding share options and warrants(2003 - 7,012,298) that have a diluting effect on earnings per share. 7. Reconciliation of movements in Group equity shareholders' funds (Restated) 2004 2003 £000's £000's Opening equity shareholders' funds (restated) 127,120 135,210Profit for the financial year 15,499 5,687Unrealised currency translation differences (9,001) (14,354)New shares issued 362 862Treasury shares purchased - (424) Shares purchased for employee benefit trust - (583) Amortisation of employee benefit trust shares 376 722Closing equity shareholders' funds 134,356 127,120 The Group's unrealised currency translation differences arise on retranslationof the balance sheets of overseas operations, which are denominated in USdollars, at rates ruling as of year end. 8. Reconciliation of operating profit to operating cash flows (Restated) 2004 2003 £000's £000's Operating profit 12,438 9,023Depreciation, depletion and amortisation 3,902 4,998(Increase) decrease in stocks (343) 268Increase in debtors (552) (508)(Decrease) increase in creditors (999) 2,829Net cash inflow from operating activities 14,446 16,610 Net cash inflow from operating activities comprises:Continuing operating activities 8,933 11,621Discontinued operating activities 5,513 4,989 14,446 16,610 9. Analysis and reconciliation of net funds As at 1 Exchange As at 31 Jan 2004 Cash flow movement Dec 2004 £000's £000's £000's £000's Cash at bank and in hand 32,898 (475) (1,946) 30,477Current asset investments - 6,541 28 6,569Net funds 32,898 6,066 (1,918) 37,046 10. Disposal of Tunisia assets In December 2004 the Group completed a transaction with an economic effectivedate of 1 July 2004 whereby it sold its 100% subsidiary, SOCO Overseas Limited("SOCO Overseas"), the parent of the wholly owned subsidiary SOCO Tunisia PtyLimited ("SOCO Tunisia"). SOCO Tunisia directly held the Group's Tunisiainterest in the Zarat Permit offshore Tunisia in the Gulf of Gabes. PAResources AB acquired SOCO Overseas for cash consideration of approximately£10.7 million after working capital adjustments and post economic date cash flowadjustments. The sale resulted in a net cash inflow in 2004 in the amount of£9.2 million reflecting the £10.7 million cash consideration net of transactioncosts of £0.2 million and the Group's share of cash held by SOCO Tunisia of £1.3million, and a profit of £8.4 million. During the financial period up to thecompletion date of the sale, the Tunisia interest contributed £5.1 million tothe Group operating profit (2003 - £3.0 million). Immediately prior to the salethe Group's share of net assets held by the Tunisia interest was £6.3 million,including £4.2 million related to post economic date cash flow adjustments. 11. Sale of OILSOC Investment Company Limited In March 2004 the Group's 100% owned subsidiary, SOCO North Africa Ltd ("SOCONorth Africa"), and Oilinvest (Netherlands) B.V. ("Oilinvest") completed atransaction with a subsidiary of Joint Stock Bank of the Gas IndustryGazprombank ("Gazprombank") whereby Gazprombank acquired the entire issued sharecapital of OILSOC Investment Company Limited ("OILSOC"), a company which wasowned by Oilinvest (55%) and SOCO North Africa (45%). OILSOC assets consistentirely of its 20% shareholding in ODEX Exploration Limited ("ODEX"), aspecific purpose upstream joint venture formed by Oilinvest and SOCO NorthAfrica. The sale resulted in a net cash inflow in 2004 in the amount of £1.2million reflecting £1.3 million cash consideration net of the Group's share ofnet assets held by OILSOC, which has been recorded against the carrying value ofintangible fixed assets in the balance sheet. Following completion of thetransaction, the ODEX shareholders are Oilinvest (46%), SOCO North Africa (34%)and Gazprombank via its OILSOC purchase (20%). 12. Subsequent events In April 2005 the Group entered into a Sale and Purchase Agreement ("Agreement")with an economic effective date of 1 January 2005, to sell its 100% ownedsubsidiaries SOCO Tamtsag Mongolia, LLC ("SOTAMO") and SOCO Mongolia Ltd ("SOCOMongolia") to Daqing Oilfield Limited Company ("Daqing"), a subsidiary ofPetroChina. Together SOTAMO and SOCO Mongolia hold the Group's Mongoliainterest. Under the terms of the Agreement, the Group will receiveconsideration of up to approximately US$93.0 million comprised of cashconsideration of US$40.0 million plus a subsequent payment based on total crudeoil produced from the Mongolia interest after the effective date in excess of27.8 million barrels of oil. The US$40.0 million cash consideration is payable in two tranches, the firstUS$30.0 million being payable, subject to normal working capital adjustments,upon completion. The second tranche of US$10.0 million will be paid into anescrow account by Daqing upon completion to be released to the Group 18 monthslater upon the satisfaction of the condition that no material undisclosedadditional liabilities are discovered. The remaining consideration is payableonce cumulative production reaches 27.8 million barrels of oil as describedabove, at the rate of 20% of the average monthly posted marker price for Daqingcrude multiplied by the aggregate production for that month, up to a total ofapproximately US$53.0 million based on the estimated recoverable costs incurredto 31 December 2004 and expected to be approved by the Mineral Resources andPetroleum Authority of Mongolia. For the year ended 31 December 2004, turnover of £1.7 million was attributableto the Mongolia interest. As this turnover arose from test production during anappraisal programme, an amount was charged from appraisal costs to cost of salesso as to reflect a zero net margin. As at 31 December 2004, the Group's shareof net assets held by the Mongolia interest was £35.5 million. 13. Preliminary results announced Copies of the announcement will be available from the Company's head office, St.James's House, 23 King Street, London, SW1Y 6QY. The Annual Report and Accounts2004 will be posted to shareholders in due course. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
Pharos Energy