7th Sep 2006 07:02
Soco International PLC07 September 2006 SOCO International plc ("SOCO" or "the Company") Interim Results For The Six Months Ended 30 June 2006 SOCO (LSE:SIA), the international oil and gas exploration and productioncompany, headquartered in London, traded on the London Stock Exchange and aconstituent of the FTSE 250 Index, today announces its Interim Results for thesix 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 Outlook • 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 inVietnam, ongoing operational success in Yemen, the award of highly prospectiveacreage in West Africa coupled with a successful US$250 million convertible bondoffering. With core businesses in all stages of the E&P value chain across three of theworld's most exciting oil regions and with an intensive work programme underwaySOCO is ideally positioned for significant additional reserve and productiongrowth with the financial capacity to make it happen." 7 September 2006 Enquiries:SOCO International plc Tel : 020 7747 2000Roger CagleExecutive VP, Deputy CEO and Chief Financial Officer Pelham PR Tel: 020 7743 6676James HendersonAlisdair Haythornthwaite Chairman's and Chief Executive's Statement SOCO has had an exceptional first half of 2006 with excellent drilling resultson Block 16-1 in Vietnam, a significant increase in production in Yemen, theaddition of prime exploration acreage in West Africa and a successful $250million fund raising. The drilling success in Vietnam has resulted in theaddition of approximately 25 million barrels of proven plus probable reserves inthe first half of 2006, an increase of approximately 40%. Two Te Giac Trang (TGT) wells drilled this year in Vietnam, the TGT-2X andTGT-3X, tested at a total combined flow rate of approximately 17,500 barrels ofoil equivalent per day (BOEPD) and 9,908 BOEPD, respectively. Success at thethree TGT exploration wells drilled to date confirms the prospectivity of thestructure, comprising five fault blocks extending over 15 kilometres on a Northto South trend within an 80 kilometre long play fairway that extends along theeastern and southern portion of Block 16-1. In addition to the outstanding drilling results on TGT, the Group achieved earlyclearance for the rapid development of the Ca Ngu Vang (CNV) field on Block 9-2obtaining a declaration of commerciality and gaining approval of an outlinedevelopment plan. This sets us on a fast track to bring the CNV field onproduction in late 2007. By the end of the first half of 2006, production in East Shabwa Block 10 inYemen 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 alsoachieved appraisal drilling success in Yemen with several in-field wells in theKharir field expanding the productive potential there. The exploration portfolio grew as well as we added exciting potential in WestAfrica. We expanded our Congo Basin footprint when we signed a productionsharing contract on the Nganzi concession in the Democratic Republic of Congo(Kinshasa). Further, we ensured that we would have the financial capacity to take advantageof our growing opportunities when we raised $250 million, $50 million more thaninitially planned due to strong investor demand, through the issuance ofconvertible bonds in May of 2006. OperationsExploration/DevelopmentVietnam Block 16-1 In March 2006, the TGT-2X appraisal well on the Te Giac Trang structure on Block16-1, an up-dip follow-up well to last year's TGT-1X discovery well, tested witha total combined flow rate of approximately 17,500 BOEPD from the Miocene LowerBach Ho 5.2 (LBH 5.2) and Oligocene "C" intervals. Two main pay zones were perforated and tested within the LBH 5.2 interval, onebetween 2,763 and 2,817 metres and the other between 2,666 and 2,726 metres. Atotal of 89 metres of pay was confirmed by log analysis in this reservoirhorizon. The combined stabilised flow rate from the two Miocene zones was 14,053 BOEPDcomprising 12,615 BOPD of 38 degree API gravity crude and approximately 8.63million cubic feet of gas per day (MMCFD) through a one inch choke size. Flowrates were limited due to a mechanical failure in the surface separationequipment. The first drill stem test, over the Oligocene "C" interval, tested water-free ata stabilised rate of 3,300 BOPD of 37.5 degree API gravity crude andapproximately 0.88 MMCFD through a 52/64 inch choke size. As was expected from the log analysis, water was produced from the lower set ofperforations in the Miocene. The approximate 8% water cut provided evidence ofthe presence of an aquifer, which will be factored into plans for the field'sdepletion management. A third reservoir horizon, the Lower Bach Ho 5.1 which is considered to beoil-bearing and productive, was also identified, but not tested as this wouldlimit the ability to retain the well as a future producer, as originallydesigned. This horizon had 18 metres of net pay, and from the analysis of logsand oil samples from wireline formation tests, is considered to be oil-bearingand productive. Success at the TGT-2X well confirms the presence of a highly prospective sectionof clastic reservoirs in Block 16-1. Regional mapping has defined a clastic playfairway that extends for some 80 km to the south and west of TGT along theeastern and southern parts of the Block. Data from the TGT wells provides a firmfoundation for continued exploration drilling on this trend. Following the temporary suspension of the TGT-2X well, the rig moved immediatelyto drill a follow-up appraisal well, the TGT-3X, approximately 10 kilometres tothe south on a separate fault block on the structure. A drill stem test wasconducted in the LBH 5.2, the formation that was also tested in the discoverywell and the primary interval in the follow-up TGT-2X well. The testedinterval, perforated between 2,827 and 2,887 metres, flowed at a combinedmaximum rate of 9,908 BOEPD comprising 9,008 BOPD of 40.5 degree API gravitycrude 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 werepresent in the LBH 5.2. Additionally, approximately six metres of net pay in theLower 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 thosetested in the TGT-1X and TGT-2X wells. This proves the presence of a laterallyextensive marine sand in the Block, further reducing the risk of the otherprospects and leads along the play fairway. The third and final well drilled on Block 16-1 in the first six months of thisyear was the first exploration well on the "L" prospect approximately 30kilometres south of the TGT-3X discovery. The Te Giac Vang 1X (TGV-1X) spuddedon 2 May and reached a total measured depth of 3,926 metres in the UpperOligocene. The well was deepened from its original prognosis due to thepresence of encouraging hydrocarbon shows continuing below the original targetdepth. It was primarily positioned to test a closure at the LBH 5.2 level, themain productive horizon at the TGT discoveries. The well intersected a clastic sequence at the LBH 5.2 horizon, however thereservoir sands were poorly developed at the location and no pay wasencountered. The sediments encountered suggested that the well was locatedoutside the LBH 5.2 play fairway and that this fairway is to the north and westof the TGV-1X location. The well was also drilled into the Oligocene, however the location was down-dipon the flank of the structure. Despite being in a flank position, good oil showswere encountered in several sands. After analysis of the logs, although thesands were confirmed to be hydrocarbon bearing, it appeared that these lackedsufficient permeability to produce at commercial rates and were therefore nottested. These overall encouraging well results will be evaluated and the seismicre-interpreted prior to drilling a follow-up well to fully test the Oligocene ina more prospective up-dip position. The well also penetrated the source rocksection at the top of the Oligocene validating the geological interpretation andconfirming the potential of the deep Oligocene and Basement prospect underlyingthe shallower closures. A new drilling campaign has commenced on the Block 16-1 play fairway. TheTransocean Trident 9 jack-up rig spudded the TGT-4X well on the "H" fault blockin the TGT structure on 31 August. The well was at approximately 1,225 metresand 133/8" casing was being set as this report goes to press. Target depth is3,537 metres. Block 9-2 Following the TGV well, the rig was moved to drill the sidetrack to the CNV-4Xwell on Block 9-2 that was temporarily suspended late last year afterencountering unexpected high pressures in the Oligocene sequence above theBasement. The sidetrack of the appraisal well, CNV-4XST, is currently atapproximately 6,000 metres measured depth, approaching target depth. The rig which has been conducting the Group's Vietnam drilling programme sincethe beginning of 2005 moves out of Vietnamese waters after completion of theCNV-4XST. A letter of intent has been signed to bring another rig into theGroup's Vietnam drilling programme in the first quarter of 2007. Negotiationsfor a third rig are underway. Preparations for development of the CNV field picked up momentum in April of2006 following the unanimous approval of the Declaration of Commerciality on thefield by the shareholders of the Hoan Vu (HV) Joint Operating Company (JOC).The official development plan was approved in August and the project budget isup for management committee approval later in September. Meanwhile negotiations continue on a gas sales agreement for the associated gasproduced from the CNV field. Long lead items have been ordered in anticipationof having first oil by the end of next year. SOCO holds its interests in Vietnam, all in the Cuu Long Basin offshore, throughits 80% owned subsidiary SOCO Vietnam Limited (SOCO Vietnam) and through its100% 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 theHVJOC and holds a 28.5% working interest in Block 16-1, which is operated by theHoang Long JOC. OPECO, Inc. holds a 2% interest in Block 16-1. Yemen In the first half of 2006, the East Shabwa Block 10 consortium continued itsprogramme to further appraise the Kharir field and increase production capacityfrom Block 10. Drilling results and the addition of a self-contained production facility haveenabled the fields to exceed all previous production records. At the end of thefirst half of 2006, production exceeded 45,000 BOPD, up more than 12,000 BOPDfrom the 2005 year average. In addition the consortium began a very activeexploration programme in the northern part of the Block. A number of successful development wells were drilled in the Kharir during thefirst half of 2006. These include the KHA-1-12 well in the western part of thestructure, the KHA-1-14 well in the southern flank of the structure and theKHA-1-07.G1 sidetrack, which was drilled as a water injection well but completedas a producer based on drilling results. These wells are all connected to theproduction facilities and were tested at rates between 5,500 and 8,000 BOPD. The drilling of wells designed to ensure field pressure maintenance is beingaccelerated in parallel. The KHA-1-11 gas injection well is nearing completion.It is being drilled using underbalanced drilling technology that allows theassessment of connectivity between a nearby producer and an actively drillinginjection well. Gas injection is scheduled to commence late summer. TheKHA-1-13 water injection well, designed to provide pressure support to theeastern 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, designedto continue the delineation of the reservoir in the eastern part of thestructure as currently mapped, is being tested. The KHA-1-17 water injectionwell, aimed at providing pressure support to the wells draining the northwestend of the structure, has reached total depth and is being logged. The thrust of the exploration programme this year has been in the northern partof 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, isexpected 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 forprocessing and export, enabling rapid and economic development. The sidetrack of the second exploration well in the Jathma area, the JAT-02well, has been completed. The objective of the sidetrack was to evaluatefracture development away from the original wellbore. Testing programmes on theJAT-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, butdid not flow commercial volumes of hydrocarbons when tested. An evaluation of the results of all the Jathma area wells drilled to date willnow be conducted. A 3D seismic programme is currently being considered toacquire 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 KuwaitForeign Petroleum Exploration Co. (14.29% interest). Republic of Congo (Brazzaville) SOCO Exploration and Production Congo S.A. (SOCO EPC), the Company's 85% ownedsubsidiary, was awarded a 75% interest in the Marine XI Block offshore theRepublic of Congo (Brazzaville). The terms of the Production Sharing Agreementsigned by the Societe Nationale des Petroles du Congo (SNPC) and SOCO EPC wasapproved during the Congolese Parliament and the Senate extraordinary session inthe first quarter of 2006. The law became effective on 30 March when signed bythe President of the Republic. It was just recently announced that SOCO EPC farmed-out one half of its interestin the Marine XI Block, 18.75% to each of a subsidiary of Lundin Petroleum ABand Raffia Oil SARL. SOCO EPC will remain as the operator with a 37.5% workinginterest in the Block. The exploration and production branch of SNPC (15%) andAfrica Oil & Gas Corporation (10%) hold the remaining interests. The assignmentof interests in the Agreement is subject to approval of the appropriateregulatory authorities of the Government of the Republic of Congo (Brazzaville). The Block, located in the Lower Congo Basin, is in shallow water adjacent to thecoast with water depths ranging up to 110 metres and covers approximately 1,400square kilometres. There has been previous exploration activity on the Blockresulting in four small oil discoveries, the largest of which has initialrecoverable 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 3Dseismic programme. Acquisition is expected to begin early in the fourth quarterof 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 thegovernment of the Democratic Republic of Congo and La Congolaise desHydrocarbures (Cohydro), the state owned oil company, wherein it acquired aninterest 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 ofunderstanding signed with the government, SOCO carried out a reconnaissanceaeromagnetic and gravity survey over the onshore extension of the coastal basinin order to delineate prospective areas for hydrocarbon generation andmigration. The survey indicated the presence of a deep pre-salt source graben inthe northern part of the basin in the Nganzi Block. Regional mapping shows thegraben to be on trend with the source basin for the M'Boundi field in thesouthern part of the Republic of Congo (Brazzaville). Several leads, interpretedas large horst blocks, have been identified on the Block. These will be furtherevaluated by 2D seismic in 2007. The Nganzi Block comprises an area of approximately 800 square kilometres. Therehas been little previous activity. Two wells were drilled on poor qualityseismic in the 1970s, no other seismic has been acquired. Using modern seismictechniques and applying new pre-salt play concepts, SOCO DRC expects to exploitthe potential of the Block. Thailand Upon securing approval from the Thailand Department of Mineral Fuels to convertthe Bualuang field from an exploration to production licence in the firstquarter of 2006, SOCO Exploration (Thailand) Co. Ltd. (SOCO Thai) signed anagreement to allow a two group consortium to earn up to a 60% working interestin the licence in the Gulf of Thailand. If the earn-in terms of the agreementare 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 Farmeeconsortium upon the conclusion of a Phase I work programme wherein the Farmeemust conclude a high resolution 100 kilometre 2D seismic programme and drill onewell in the Bualuang Field. At the election of Farmee, a further 40% workinginterest can be earned in the Phase II work programme. The Phase II workprogramme, during which SOCO Thai would fund only 8% of the cost, requires theFarmee to drill up to eight wells, install a platform and take the project tofirst oil. After the end of the Phase II period, the Farmee shall be designated theoperator of the project and shall engage an independent reservoir engineer toperform an analysis of the proven reserves contained in the Bualuang Field. TheFarmee shall pay SOCO Thai an amount equal to one dollar ($1.00) for each barrelproduced over 10.4 million barrels. The assignment of interests in the agreement is subject to approval of theappropriate regulatory authorities of the Government of Thailand. RESULTS Financial Historically high crude oil prices realised by the Group during the first halfof 2006 increased the average oil sales price per barrel to $63.15 from $45.79for the same period last year. Production from Yemen, net to the Group'sworking interests, during this period increased to 6,407 BOPD versus 5,057 BOPDin 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 to30 June 2006 compared to the same period last year. Adjustment for liftingimbalances arising in prior periods amounting to $3.5 million brings the revenuefrom continuing operations for the six months to 30 June 2006 to $38.8 millioncompared 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 higherproduction and higher field operating expenses partially offset by theadjustment for lifting rebalancing, which decreased operating expenses fromcontinuing operations by $3.5 million. Operating expenses on a per barrel basis (excluding lifting imbalances andinventory) from continuing operations increased from approximately $4.00 in thefirst half of 2005 to approximately $6.50 per barrel in the first half of 2006.This reflects additional resources required to increase capacity and accelerateproduction along with increased diesel costs, higher manpower rates and highertransportation costs associated with the Group's non-operated activities inYemen. Depreciation, depletion and abandonment (DD&A) costs on continuing operationsincreased by $0.6 million compared to the same period last year reflecting theincreased production offset by higher reserves. On a per barrel basis, DD&A oncontinuing operations decreased to approximately $3.60 per barrel compared toapproximately $3.90 during the equivalent period last year reflecting the yearend 2005 reserve additions. Administrative expenses increased from $2.5 million in the six months to 30 June2005 to $3.5 million in the current period. This is mainly due to highernational insurance obligations arising on share options as the Company's shareprice increased from £5.975 at 30 June 2005 to £13.680 at 30 June 2006 andadministrative costs associated with the Company's corporate funding activities.Exploration expenses associated with pre-licence costs were $0.2 million inthe six months ended 30 June 2006 compared to $0.5 million in the equivalentperiod last year reflecting the Company's continuing success in acquiringlicences in its new core area. As a result of the above, the Group's operating profit from continuingoperations increased by over 68% to $24.0 million from $14.3 million for theequivalent period last year. Following the issue of convertible bonds, discussed below, the Group had asignificantly higher cash and cash equivalents balance which caused investmentincome to rise from $0.9 million in the period to 30 June 2005 to $2.8 millionin the current reporting period. The increase in other gains and losses from nilin the first half of 2005 to $0.3 million in the period ended June 2006 ismostly represented by the unwinding of the discount relating to the financialasset associated with the subsequent payment amount tied to future oilproduction from the Group's divested Mongolia interest. Finance costs haveincreased from $0.2 million in the six months ended 30 June 2005 to $2.0 millionfor the current period mostly due to the interest expense on the liabilitycomponent of the convertible bonds. The tax charge on continuing operationsincreased from $6.1 million in the equivalent period last year to $10.0 millionin 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 increaseddrilling activity in both Vietnam and Yemen as well as a facilities upgrade inYemen. Further, in June 2006 the Group acquired an additional 2% workinginterest 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 alsocontributed to the increase in capital expenditure. During the period to June 2006 the Company purchased 608,000 treasury shares ata cost of $13.6 million. Of these 580,500 plus brought forward treasury sharesof 150,000 were used to satisfy the obligation to issue shares in settlement ofcertain share options. As at 30 June 2006 the Company held 27,500 treasuryshares. 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 ofthe convertible bond issue offset by the continuing investment in capitalprojects, particularly in Vietnam and Yemen. Production 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 comparedto 5,310 BOPD in the first half of 2005. All of the Group's production issourced from the East Shabwa Development Area in Yemen. Corporate Developments Convertible Bonds In May 2006, SOCO Finance (Jersey) Limited issued $250 million in guaranteedconvertible bonds (Bonds). The Bonds are convertible into the preference sharesof 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 increasedfrom $200 million due to strong institutional demand, but was still six timesoversubscribed upon issue. The Bonds were priced at par and will pay a coupon of 4.50% per annum. The Bondswill initially be convertible into an aggregate of approximately 6.238 millionordinary shares. The conversion premium was set at 42.00%. The initialconversion price is £21.847 per ordinary share. The conversion price will besubject to adjustment from time to time upon the occurrence of certain events.Payment for, and settlement of, the Bonds occurred on 16 May 2006. Unlesspreviously converted or redeemed, the Bonds will be repaid at 100 per cent oftheir principal amount on 16 May 2013. The Bonds have been admitted to the Official List of the UK Listing Authorityand have been admitted to trading on the London Stock Exchange's ProfessionalSecurities 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 totalconsideration of $22 million. OPECO, Inc. in turn holds the entirety of theshareholding of OPECO Vietnam, Ltd., which holds a direct 2% interest in Block16-1 in the Cuu Long Basin offshore Vietnam. Outlook The Company is rapidly moving from a primarily exploration led company to asizeable producer with first production from its high profile Vietnam portfoliodue in 2007. Recent exploration success has significantly de-risked the Group'sportfolio. In Vietnam we have established multiple play types in a large playfairway with tremendous potential. For the medium term we will continue our very active drilling programme, whichhas the potential to have a significant impact on the rating of the Company. Aswas intimated in last year's interim results, the results in the past have beenmanifested by a significant addition of reserves, qualitatively as well asquantitatively. This is a process that we see as only beginning. We believe the West African additions to our portfolio will allow us toreplicate our success in Vietnam and Yemen. Over the near term the news flowwill be dominated by the growth in reserves and production. With a balancedportfolio across Yemen, Vietnam and West Africa, near term development and alarge exploration programme underway the outlook for SOCO has never beenstronger. Patrick Maugein Ed StoryChairman President and Chief Executive 6 September 2006 INDEPENDENT REVIEW REPORT TO SOCO INTERNATIONAL PLC Introduction We have been instructed by the Company to review the financial information forthe six months ended 30 June 2006 which comprise the consolidated incomestatement, the consolidated balance sheet, the consolidated statement ofrecognised income and expense, the consolidated cash flow statement and relatednotes 1 to 9. We have read the other information contained in the interimreport and considered whether it contains any apparent misstatements or materialinconsistencies with the financial information. This report is made solely to the Company in accordance with Bulletin 1999/4issued by the Auditing Practices Board. Our work has been undertaken so that wemight state to the Company those matters we are required to state to them in anindependent review report and for no other purpose. To the fullest extentpermitted by law, we do not accept or assume responsibility to anyone other thanthe Company, for our review work, for this report, or for the conclusions wehave formed. Directors' responsibilities The interim report, including the financial information contained therein, isthe responsibility of, and has been approved by, the Directors. The Directorsare responsible for preparing the interim report in accordance with the ListingRules of the Financial Services Authority which require that the accountingpolicies and presentation applied to the interim figures are consistent withthose applied in preparing the preceding annual accounts except where anychanges, and the reasons for them, are disclosed. Review work performed We conducted our review in accordance with the guidance contained in Bulletin1999/4 issued by the Auditing Practices Board for use in the United Kingdom. Areview consists principally of making enquiries of Group management and applyinganalytical procedures to the financial information and underlying financial dataand, based thereon, assessing whether the accounting policies and presentationhave been consistently applied unless otherwise disclosed. A review excludesaudit procedures such as tests of controls and verification of assets,liabilities and transactions. It is substantially less in scope than an auditperformed in accordance with International Standards on Auditing (UK andIreland) and therefore provides a lower level of assurance than an audit.Accordingly, we do not express an audit opinion on the financial information. Review conclusion On the basis of our review we are not aware of any material modifications thatshould be made to the financial information as presented for the six monthsended 30 June 2006. Deloitte & Touche LLPChartered AccountantsLondon 6 September 2006 Consolidated income statement (unaudited) (unaudited) six months six months ended ended year ended 30 Jun 06 30 Jun 05 31 Dec 05 Notes $000's $000's $000's Continuing operationsRevenue 3 38,755 27,518 57,160 Cost of sales (10,977) (10,207) (19,588) Gross profit 27,778 17,311 37,572 Administrative expenses (3,545) (2,527) (5,295)Exploration expenses (204) (495) (1,013) Operating profit from continuing operations 3 24,029 14,289 31,264 Investment revenue 2,759 869 2,042Other gains and losses 342 - 853 Finance costs (1,993) (237) (497) Profit before tax from continuing operations 25,137 14,921 33,662Tax 4 (10,039) (6,132) (13,366) Profit for the period from continuing operations 15,098 8,789 20,296 Profit for the period from discontinued operations - - 181 Profit for the period 15,098 8,789 20,477 Earnings per share (cents) 5BasicFrom continuing operations 21.5 12.6 29.0From discontinued operations - - 0.3From continuing and discontinued operations 21.5 12.6 29.3 DilutedFrom continuing operations 19.2 11.1 25.6From discontinued operations - - 0.2From continuing and discontinued operations 19.2 11.1 25.8 Consolidated balance sheet (unaudited) (unaudited) 30 Jun 06 30 Jun 05 31 Dec 05 Notes $000's $000's $000's Non-current assetsIntangible assets 187,494 101,007 151,213Property, plant and equipment 41,748 26,260 29,988Financial asset 32,169 - 31,882Other receivable - - 10,134Deferred tax assets 3,452 2,423 2,591 264,863 129,690 225,808 Current assetsInventories 71 - 310Trade and other receivables 17,027 5,122 6,285Tax receivables 211 512 1,138Cash and cash equivalents 251,496 66,077 50,967 268,805 71,711 58,700 Assets classified as held for sale - 73,076 - Total assets 533,668 274,477 284,508 Current liabilitiesTrade and other payables (28,479) (11,125) (15,233)Tax payables (2,297) (66) (446)Liabilities associated with assets classified (6,047) -as held for sale - (30,776) (17,238) (15,679) Non-current liabilitiesConvertible bonds 6 (218,558) - -Long-term provisions (2,732) (2,626) (2,590) (221,290) (2,626) (2,590) Total liabilities (252,066) (19,864) (18,269) Net assets 281,602 254,613 266,239 EquityShare capital 23,532 23,479 23,479Share premium account 68,325 68,221 68,221Other reserves 7 54,235 54,166 54,259Retained earnings 135,510 108,747 120,280 Total equity 281,602 254,613 266,239 Consolidated cash flow statement (unaudited) (unaudited) six months six months ended ended year ended 30 Jun 06 30 Jun 05 31 Dec 05 Notes $000's $000's $000's Net cash from operating activities 8 21,370 12,219 30,536Investing activitiesPurchase of intangible assets (38,286) (13,444) (65,268)Purchase of property, plant and equipment (12,079) (3,813) (10,907)Purchase of own shares into treasury 7 (13,634) - -Proceeds of disposal of subsidiary undertaking - - 27,510 Net cash used in investing activities (63,999) (17,257) (48,665) Financing activitiesShare-based payments - - (1,837)Proceeds on issue of convertible bonds 6 243,150 - -Proceeds on issue of ordinary share capital - 14 14 Net cash from (used in) financing activities 243,150 14 (1,823) Net increase (decrease) in cash and cash equivalents 200,521 (5,024) (19,952) Cash and cash equivalents at beginning of period 50,967 71,122 71,122 Effect of foreign exchange rate changes 8 (21) (203) Cash and cash equivalents at end of period 251,496 66,077 50,967 Consolidated statement of recognised income and expense (unaudited) (unaudited) six months six months year ended ended ended 30 Jun 06 30 Jun 05 31 Dec 05 $000's $000's $000's Profit for the period 15,098 8,789 20,477 Unrealised currency translation differences 132 (185) (363) Total recognised income for the period 15,230 8,604 20,114 Notes to the consolidated financial statements 1 General information The information for the year ended 31 December 2005 does not constitutestatutory accounts as defined in section 240 of the Companies Act 1985 (theAct). A copy of the statutory accounts for that year has been delivered to theRegistrar of Companies. The auditors' report on those accounts was notqualified and did not contain statements under section 237(2) or (3) of the Act. The interim financial report is presented in US dollars because that is thecurrency of the primary economic environment in which the Group operates. The Directors do not recommend the payment of a dividend. The interim financial report for the six months ended 30 June 2006 was approvedby the Directors on 6 September 2006. 2 Significant accounting policies The interim financial report, which is unaudited, has been prepared inaccordance with the recognition and measurement criteria of InternationalFinancial Reporting Standards and the disclosure requirements of the ListingRules and using the same accounting policies and methods of computation aspublished by the Company in its 2005 Annual Report and Accounts for the yearended 31 December 2005. The accounting policy adopted in respect of theconvertible bonds issued during the period is shown in Note 6. 3 Segment information Geographical segments The Group's operations are located in Southeast Asia, West Africa and the MiddleEast and form the basis on which the Group reports its primary segmentinformation. Segment results, which arise from locations with productionoperations, are presented below. Six months ended 30 June 2006 (unaudited) Central Asia1 Middle East Unallocated Group $000's $000's $000's $000's Oil sales - 38,755 - 38,755 Operating profit - 27,656 (3,627) 24,029 Six months ended 30 June 2005 (unaudited) Oil sales 1,498 27,518 - 29,016 Operating profit - 17,200 (2,911) 14,289 Year ended 31 December 2005 Oil sales 1,498 57,160 - 58,658 Operating profit - 37,263 (5,999) 31,264 1 In April 2005 the Group reclassified its Central Asia segment, which comprisesits Mongolia interest, as an asset classified as held for sale. In August 2005the sale of the Group's Mongolia interest was completed. The results of thissegment are therefore included in discontinued operations. Business segment The Group has one principal business activity being oil and gas exploration andproduction. Revenue by destination does not materially differ from revenue byorigin. There are no inter-segment sales. 4 Tax (unaudited) (unaudited) six months six months ended ended year ended 30 Jun 06 30 Jun 05 31 Dec 05 $000's $000's $000's Current tax 10,900 6,437 13,839Deferred tax (861) (305) (473) 10,039 6,132 13,366 UK corporation tax is calculated at 30% of the estimated assessable profit foreach period. Taxation in other jurisdictions is calculated at the ratesprevailing in the respective jurisdictions. During each period both current anddeferred taxation have arisen in overseas jurisdictions only. 5 Earnings per share The calculation of the basic and diluted earnings per share is based on thefollowing data: (unaudited) (unaudited) six months six months ended ended year ended 30 Jun 06 30 Jun 05 31 Dec 05 $000's $000's $000'sEarnings from continuing operations 15,098 8,789 20,296Earnings from discontinued operations - - 181 15,098 8,789 20,477 Number of shares (unaudited) (unaudited) six months six months ended ended year ended 30 Jun 06 30 Jun 05 31 Dec 05Weighted average number of ordinary shares for the purpose of 70,146,241 69,845,629 70,003,067basic earnings per share Effect of dilutive potential ordinary shares:Share options and warrants 5,961,649 6,716,548 7,010,483Ordinary shares of the Company held by the Group 2,446,946 2,475,000 2,423,300Weighted average number of ordinary shares for the purpose of 78,554,836 79,037,177 79,436,850diluted earnings per share The denominators used for the purposes of calculating earnings per share on bothcontinuing and discontinued operations are the same. At 30 June 2006 up to6,238,000 potential ordinary shares in the Company that are underlying theCompany's convertible bonds (see Note 6) and that may dilute earnings per sharein the future have not been included in the calculation of diluted earnings pershare because they are antidilutive for the period to 30 June 2006. 6 Convertible bonds In May 2006 the Group issued bonds at a par value of $250 million which areconvertible into ordinary shares of the Company at any time from June 2006 untilsix days before their maturity date of 16 May 2013. At the initial conversionprice of £21.847 per share there are 6,238,000 ordinary shares of the Companyunderlying the bonds. If the bonds have not been previously purchased andcancelled, redeemed or converted, they will be redeemed at par value on 16 May2013. Interest of 4.5% will be paid semi-annually up to that date. The net proceeds received from the issue of the convertible bonds were splitbetween a liability element and an equity component at the date of issue. Thefair value of the liability component was estimated using the prevailing marketinterest rate for similar non-convertible debt. The difference between theproceeds of issue of the convertible bonds and the fair value assigned to theliability component, representing the embedded option to convert the liabilityinto equity of the Group, was included in other reserves within equity. Issue costs were apportioned between the liability and equity components of theconvertible bonds based on their relative carrying amounts at the date of issue.The portion relating to the equity component was charged directly againstequity. The interest expense on the liability component was calculated by applying theprevailing market interest rate for similar non-convertible debt to theliability component of the instrument. The difference between this amount andthe interest paid has been added to the liability component of the convertiblebonds. The above principles have been reflected as follows: $000'sNominal value of convertible bonds issued net of issue costs 243,150Equity component (25,056)Liability component at date of issue 218,094Interest charged 1,901Total liability component at 30 June 2006 219,995 Reported in: Interest payable in current liabilities 1,437Non-current liabilities 218,558Total liability component at 30 June 2006 219,995 7 Other reserves Other reserves increased in the amount of $25.1 million in respect of the equitycomponent of the convertible bonds issued (see Note 6). During the period theCompany purchased 608,000 ordinary shares of £0.20 each in the capital of theCompany (Shares) into treasury at a cost of $13.6 million. Options over1,445,587 Shares were exercised and settled by the transfer of 730,500 Sharesheld in treasury, the issue of 144,176 new Shares and settlement of theparticipant's associated tax liabilities of $11.4 million which was recorded asa reduction to other reserves. 8 Reconciliation of operating profit to operating cash flows (unaudited) (unaudited) six months six months ended ended year ended 30 Jun 06 30 Jun 05 31 Dec 05 $000's $000's $000's Operating profit 24,029 14,289 31,264Share-based payments 277 511 521Depreciation, depletion and amortisation 4,329 3,740 7,325 Operating cash flows before movements in working capital 28,635 18,540 39,110Decrease (increase) in inventories 239 141 (172)Decrease (increase) in receivables 753 (2,933) (710)(Decrease) increase in payables (720) 1,659 4,754 Cash generated by operations 28,907 17,407 42,982 Interest received 1,356 837 1,943Interest paid (149) (121) (460)Income taxes paid (8,744) (5,904) (13,929) Net cash from operating activities 21,370 12,219 30,536 Cash generated is derived from continuing operating activities only. Cash and cash equivalents (which are presented as a single class of asset on thebalance sheet) comprise cash at bank and other short term highly liquidinvestments that are readily convertible to a known amount of cash and which aresubject to an insignificant risk of change in value. 9 Events after the balance sheet date In July 2006 the Group announced that its subsidiary, SOCO DRC Limited (SOCODRC), signed, subject to presidential decree, a Production Sharing Contract withthe government of the Democratic Republic of Congo and La Congolaise desHydrocarbures (Cohydro), the state owned oil company, wherein it acquired aninterest in the Nganzi Block, onshore the Democratic Republic of Congo(Kinshasa). SOCO DRC will be the operator with an 85% working interest in theBlock. Cohydro holds the remaining interest. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
Pharos Energy