27th Sep 2005 07:00
Soco International PLC27 September 2005 SOCO International plc ("SOCO" or "the Company") Interim Results for the six months ended 30 June 2005 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 2005. HIGHLIGHTS Operating Highlights Exploration / Development • Five exploration/appraisal wells drilled this year have tested at an average production rate exceeding 8,350 BOEPD • VIETNAM • CNV-3X spudded on 30 January 2005 and tested water-free at a maximum combined rate of approximately 13,040 BOEPD • TGT-1X spudded on 2 June 2005 and tested water-free at a maximum combined rate of 9,432 BOEPD • CNV-4X spudded on 31 August 2005 and is currently drilling above the targeted Basement • Negotiations are underway to extend the drilling rig contract for additional wells • YEMEN • The KHA 1-09 well spudded on 6 December 2004 and produced over 6,500 BOPD when tested in February 2005 • The KHA 2-16 well spudded on 1 February 2005 and produced over 5,500 BOPD when tested in April 2005 • The KHA 1-10 well spudded on 28 March 2005 and produced over 7,300 BOPD New Core Area - West Africa • REPUBLIC OF CONGO (BRAZZAVILLE) • In August the Company's 85% owned subsidiary, SOCO Exploration and Production Congo (SOCO EPC), signed a PSA acquiring a 75% interest in the Marine XI Block • Marine XI forms the cornerstone in what SOCO envisions to become a new core area for the Company in West Africa Financial Highlights - from continuing operations • Revenue up to US$27.5 million (H1 2004 : US$8.9 million) • Operating profit increased over 130% to US$14.3 million (H1 2004 : US$6.1 million) • Basic earnings per share up over 150% to 12.6 cents (H1 2004 : 4.9 cents) • Net cash from operating activities increased to US$12.2 million (H1 2004 : US$0.4 million) • Production, net to the Company's working interest, increased to 5,057 BOPD (H1 2004 : 3,790 BOPD) Corporate Highlights • SOCO disposed of its interests in Mongolia for consideration of up to approximately US$93 million • In August 2005 SOCO agreed a US$45 million reserve-based, revolving credit facility with the International Finance Corporation, the private sector arm of the World Bank Ed Story, Chief Executive Officer, commented: "SOCO has had an excellent year to date with the drill bit, and demonstrated itsexploration expertise with a 100 percent success ratio in both Yemen and Vietnamacross five exploration/appraisal wells. Comprehensive drilling programmes willcontinue in both countries over the remainder of 2005 and into 2006. Our interest in the Marine XI Block in the Republic of Congo (Brazzaville) isthe cornerstone of a new area in West Africa and we continue to seek additionalopportunities in the region to bolster our portfolio." Enquiries: SOCO International plc Tel : 020 7747 2000Roger CagleExecutive Vice President , Deputy CEO and Chief Financial Officer Pelham PR Tel: 020 7743 6676James HendersonAlisdair Haythornthwaite Chairman's and Chief Executive's Statement During the first half of 2005, the Group has made significant progress on anumber of fronts. Nowhere has the progress been more telling than in thedrilling programme where we have experienced a 100 per cent success ratio bothin Vietnam and Yemen. Five exploration/appraisal wells drilled this year thusfar have tested from 5,500 barrels of oil equivalent per day (BOEPD) to over13,000 BOEPD, with the average production test exceeding 8,350 BOEPD. In addition to the excellent results from the very active drilling programme,the Company advanced its portfolio through subtraction and addition. It soldthe entities holding its Mongolia interests to a subsidiary of PetroChina thatimmediately added approximately US$30 million to the Group's cash position withan additional US$10 million receivable placed in escrow. Subsequentcompensation that could yield up to US$53 million associated with futureproduction from the interests sold would bring the total compensation to US$93million. SOCO also added some prime prospective acreage in August of this yearwhen a subsidiary acquired a 75% working interest and operatorship of the MarineXI Block offshore the Republic of Congo (Brazzaville). The Company also gained increased flexibility when it signed a reserve-basedfinancing facility with the International Finance Corporation (IFC). Thefacility of up to US$45 million is a seven year revolver and gives the Companyextra financial flexibility as well as providing a respected ally in thecountries in which we conduct our business. OperationsExploration/Development Vietnam SOCO holds its interests in Vietnam, all in the Cuu Long Basin offshore, throughits 80% owned subsidiary SOCO Vietnam Ltd (SOCO Vietnam). SOCO Vietnam holds a25% working interest in Block 9-2, which is operated by the Hoan Vu JointOperating Company and a 28.5% working interest in Block 16-1, which is operatedby the Hoang Long Joint Operating Company (JOCs). The first well drilled in 2005 by the JOCs was an appraisal well to the 2002discovery well that tested approximately 4,500 BOEPD on the Ca Ngu Vang (CNV)structure. The CNV-3X spudded on 30 January 2005 and reached a measured depth(MD) of 6,123 metres on 16 April 2005, giving it the distinction of being thelongest MD well ever drilled in Vietnam. The well reached a total verticaldepth of 4,426 metres penetrating 2,017 metres of granitic Basement at anaverage angle of 82 degrees from vertical intersecting various fault andfracture domains within the reservoir. Due to its highly fractured nature thegranitic Basement reservoir was drilled with total losses of drilling fluid/seawater to the formation of more than 150,000 barrels resulting in an extensiveclean-up period before flow testing began. The well tested water-free during thefinal unstimulated open hole test conducted over a 12 hour period at a maximumcombined rate of approximately 13,040 BOEPD comprising approximately 9,010 BOPDand approximately 22.6 million cubic feet of gas per day (MMCFPD). The well wassuspended as a potential producer. A wildcat exploration well on the Te Giac Trang (TGT) structure on thepreviously undrilled H prospect on Block 16-1 offshore Vietnam, the TGT-1X,spudded on 2 June 2005. It was designed to test several Miocene and Oligoceneintervals in a previously unexplored part of the Block. The well was drilledsignificantly deeper than the original prognosis due to the presence ofencouraging hydrocarbon shows continuing below the original target depthreaching final MD of 4,478 metres at the end of July. The TGT-1X testedwater-free at a combined maximum rate of 9,432 BOEPD comprising 8,566 BOPD of 37degree API gravity crude and approximately 4.86 MMCFPD. The drill stem test was conducted over the Lower Bach Ho formation in theMiocene interval between 2,701 metres and 2,760 metres. The calculated net paywas approximately 31 metres over the test interval. An additional 33 metres ofnet pay interval were not perforated due to the limited equipment and materialsavailable within the applicable time constraints. Based on the data from thewell test, oil samples from wireline formation tests, and well logs, theuntested interval is considered oil bearing and productive. A brief test was also conducted over a deeper Oligocene interval wheresignificant oil shows were encountered during drilling. However, the formationwas determined to be tight and thus unable to flow commercial quantities ofhydrocarbons. Evaluation of the well results continues and an appraisal plan for the discoveryis being prepared. An additional appraisal well is planned for the TGTstructure later this year. Success at the TGT-1X well confirms a clastic playfairway that has been mapped in the eastern and southeastern part of Block 16-1.Following appraisal of the TGT discovery, exploration drilling will continueon adjacent prospects. Additional leads will be further delineated by 3Dseismic early in 2006. Following completion of testing operations on the TGT-1X well, the rig movedimmediately to drill a follow-up appraisal well to the CNV-3X discovery. TheCNV-4X spudded on 31 August 2005 and is currently drilling above the targetedBasement interval as this report goes to press. The CNV-4X is the third in an expected six well minimum drilling programme thatwill continue into next year. Negotiations are underway to extend the drillingrig contract for additional wells. Detailed discussions evaluating various options for development are currentlyunderway with other operators in the region. Should these discussions provefruitful, expectations are that CNV and TGT could be brought into productionmuch sooner and more cost effectively than if the JOCs were required toconstruct separate newly built production and development facilities. The contracting parties are currently in negotiations with PetroVietnam toextend both licences. Yemen During 2005, the East Shabwa Block 10 consortium, comprising Comeco Petroleum,Inc. (28.57% interest), in which SOCO holds a 58.75% interest, TOTAL Yemen, S.A.(28.57% interest and operator), Occidental Yemen Ltd. (28.57% interest) andKuwait Foreign Petroleum Exploration Co. (14.29% interest), continued itsdrilling programme that was initiated in 2004 specifically targeting theBasement underlying the Kharir field. The consortium's three part programme forthe year was designed to appraise the Kharir Basement structure, increasereserves through exploration and increase production from the 29,000 BOPD levelat the end of 2004. Step out wells were successfully drilled resulting in an expansion of theparameters of the field. The KHA 1-09 well (formerly referred to as the KHA-403 prior to the consortiumagreeing a new well designation scheme proposed by the government) spudded on 6December 2004 and reached a total depth of 3,383 metres. The objectives for thewell were to delineate the Basement and evaluate reservoir development in thepreviously undrilled western extension of the Kharir structure. The wellproduced over 6,500 BOPD when tested in February 2005 prior to being connectedto Kharir's main production facilities. Spudded on 1 February 2005, the KHA 2-16 well (formerly KHA-404) reached a totaldepth of 3,539 metres. The objectives for the well were to delineate theBasement and evaluate reservoir development in the northern extension of theKharir structure. It produced over 5,500 BOPD when tested in April 2005. The KHA 1-10 well (formerly KHA-405) spudded on 28 March 2005 and reached atotal depth of 3,755 metres. The objectives for the well were to delineate theBasement and evaluate reservoir development in the eastern extension of theKharir structure as then mapped. The well produced over 7,300 BOPD when tested.Production was limited by capacity limitations of the Kharir's main productionfacilities. This well marked the fourth consecutive drilling success in theevaluation of the Basement reservoir in the Kharir Field. A fourth Basement well in the 2005 drilling programme, but the first designed tobe a water injection well, the KHA 2-17 well (formerly KHA-406), spudded on 11June 2005. It is currently being connected to the appropriate facilities priorto commencing a water injectivity test. A preliminary reserve assessment has been conducted based on the results of theBasement drilling programme to date. A more complete review and assessment ofboth Yemen and Vietnam reserves will be conducted in association with the 2005Annual Report and Accounts. Republic of Congo (Brazzaville) In August the Company's 85% owned subsidiary, SOCO Exploration and ProductionCongo (SOCO EPC), signed a production sharing agreement with Societe Nationaledes Petroles du Congo (SNPC) wherein it acquired an interest in the Marine XIBlock, offshore the Republic of Congo (Brazzaville). SOCO EPC will be the operator with a 75% working interest in the Block that waslicenced to SNPC by presidential decree in July 2005. The exploration andproduction branch of SNPC (15%) and Africa Oil & Gas Corporation (10%) hold theremaining interests. The Block, located in the Lower Congo Basin, is in shallowwater adjacent to the coast with water depths ranging up to 110 metres andcovers approximately 1,400 square kilometres. There has been previousexploration activity on the Block resulting in four small oil discoveries, thelargest of which has initial recoverable reserves estimated to be in the 20million barrel range. The previous discoveries are in the shallower horizons of the sedimentarysection in Marine XI. The deeper section, productive onshore and on trend tothe south in Cabinda, has not been adequately evaluated as it could not beaccurately mapped using older seismic data. By employing the modern seismictechniques that the Company successfully applied in Vietnam to map the Basementreservoir, SOCO EPC expects to exploit the potential of the deeper section. Asexploration in West Africa moves into ever deeper waters, the application of newtechnology provides access to significant reserve potential in under exploredshallow water areas. Although the Group is in discussions with various parties to farm-out a portionof its interests in Marine XI, it would retain a significant portion of theBlock and operatorship. Thailand The Group submitted a development plan for the Pornsiri field to the appropriateThailand regulatory agency during the first half of 2005. The plan is expectedto be finalised shortly. Meanwhile, discussions with various companies continueas the Group still favours farming out a portion of its 100% interest in BlockB8/38 to a third party, who would take the lead in developing the field, thusallowing the Group to focus its resources elsewhere. RESULTS Financial For the first time SOCO is reporting under International Financial ReportingStandards (IFRS) as required by the European Union. In order to providecomparative financial information SOCO has published on its website areconciliation of UK GAAP to IFRS for the periods ending 30 June 2004 and 31December 2004 as well as its revised accounting policies under IFRS. TheGroup's balance sheet at the date of transition to IFRS (1 January 2004) is alsoincluded. The Group has adopted US dollars as its presentation currency reflecting theprimary economic environment in which the Group operates. Financialinformation for comparative periods has been restated in US dollars in the IFRSreconciliations published on the Company's website. Historically high crude oil prices realised by the Group during the first halfof 2005 increased the average oil sales price per barrel to US$45.79 fromUS$31.69 for the same period last year. Production from Yemen, net to theGroup's working interests, during this period increased to 5,057 BOPD versus3,790 BOPD in the same period last year. This, combined with the higher oilprices, increased revenue by US$11.6 million in the six months to 30 June 2005compared to the same period last year. Adjustment for lifting imbalancesarising in prior periods amounting to US$7.0 million brings the revenue for thesix months to 30 June 2005 to US$27.5 million compared to US$8.9 million in thesame period last year. Cost of sales of US$10.2 million were reported for the current period comparedto US$2.3 million for the same period last year primarily due to the adjustmentfor lifting rebalancing, which increased operating expenses from continuingoperations by US$7.0 million. Operating expenses on a per barrel basis (excluding lifting imbalances andinventory) from continuing operations dropped from approximately US$5.30 in thefirst half of 2004 to approximately US$4.00 per barrel in the first half of2005. This is primarily due to the dilution of per barrel fixed operating costscaused by the increased production in Yemen. Depreciation, depletion and abandonment (DD&A) costs on continuing operationsincreased by US$1.1 million compared to the same period last year reflecting theincreased production along with the addition of future development costsassociated with the Basement reserves. On a per barrel basis, DD&A oncontinuing operations increased to approximately US$3.90 per barrel compared toUS$3.58 during the equivalent period last year. Administrative expenses increased from US$1.6 million in the six months to 30June 2004 to US$2.5 million in the current period. This is mainly due to lowercosts in 2004 associated with reversing the amortisation of share awards withperformance periods ending in 2004 that were no longer anticipated to vest and areduction in anticipated taxation obligations under the share option scheme.Exploration expenses associated with pre-licence costs were US$0.5 million inthe six months ended 30 June 2005 compared to US$1.0 million in the equivalentperiod last year reflecting the Company's emphasis on acquiring licences in itsnew core area. In the first half of 2004 SOCO sold its interest in OILSOCInvestment Company Limited netting a gain of US$2.2 million under IFRS. As a result of the above, the Group's operating profit from continuingoperations increased by over 130% to US$14.3 million from US$6.1 million for theequivalent period last year. Higher cash balances as a result of the sale of the Group's Tunisia interest aswell as higher oil revenues caused investment income to rise from US$0.2 millionin the period to 30 June 2004 to US$0.9 million in the current reporting period.The tax charge on continuing operations increased from US$2.9 million in theequivalent period last year to US$6.1 million in the current period consistentwith the increase in operating profit. Discontinued operations comprises the results for the period from the Group'sTunisia interest which was sold in December 2004 as well as the profit ondisposal. Drilling activity in both Vietnam and Yemen caused capital expenditure toincrease slightly to US$17.3 million from US$16.5 million for the equivalentperiod last year despite the absence this year of Tunisia from the capitalprogramme and reduced activity in Mongolia pending the completion of the sale. SOCO's cash and cash equivalents were reduced from the year end 2004 amount ofUS$71.1 million to US$66.1 million at 30 June 2005 reflecting the investment incapital projects, particularly in Vietnam and Yemen. Production Even with the divestiture of its Tunisia interests in the second half of lastyear, production, net to the Group's working interest, in the first half of 2005increased to 5,310 BOPD from 5,193 BOPD during the same period last year. Morethan 95% of the Group's production arises from its interests in Yemen and theincrease reflects the success of the consortium's Basement focused drillingprogramme there as production from this interval more than offsets the declinein production from the Biyad reservoir. Corporate Developments Sale of Mongolia Assets Consistent with the Company's stated strategy of rationalising its portfolio bymonetising non-core assets, it disposed of its interests in Mongolia by sellingthe companies SOCO Mongolia Ltd (SOCO Mongolia) and SOCO Tamtsag Mongolia, LLC(SOTAMO) through which it held these interests. Daqing Oilfield LimitedCompany (Daqing), a subsidiary of PetroChina, acquired the entire shareholdingof these disposed entities for a consideration of up to approximately US$93million comprising a cash consideration of US$40 million, plus a subsequent cashpayment amount based on total crude oil produced from the interests acquiredsubsequent to 1 January 2005 in excess of 27.8 million barrels. The cashconsideration is payable in two tranches. The first tranche of approximatelyUS$30 million, following applicable settlement adjustments, was paid uponcompletion in August. The second tranche of US$10 million was paid into anescrow account for release to the Company 18 months from completion assumingsatisfaction of the condition that no material undisclosed additionalliabilities are discovered in the interim. A subsequent payment of up to US$53 million will be tied to future production inexcess of 27.8 million barrels in respect of all crude oil produced from thedivested interests. Once the 27.8 million barrels threshold is exceeded, thebuyer is obliged to pay to SOCO an amount equal to the total aggregateproduction for that month multiplied by the average monthly posted marker pricefor Daqing crude oil multiplied by 20%. The timescale for the production ofcrude oil in excess of 27.8 million barrels and the price of Daqing marker crudeoil are factors that cannot be accurately predicted. However, based upon theDirectors' current estimates of proven and probable reserves from the Mongoliainterests and the development scenarios as discussed with the buyer, theDirectors believe that the full subsequent payment amount estimated to be US$53million will be payable. Financing Facility In August 2005, SOCO agreed a credit facility with IFC, the private sector armof the World Bank. The US$45 million reserve-based, revolving credit facilityhas a seven year term that will be made available to SOCO in two tranches. Thefirst tranche of US$25 million will be immediately accessible and the secondtranche of US$20 million is a standby loan. We are pleased to have the involvement of IFC as they bring not only expertisein the oil and gas sector, but are also leaders on the environmental and socialsustainability front. The long-term availability of the financing will provideus with needed flexibility to finance current operations and pursue futureopportunities. IFC is a strong ally in the countries in which we have currentoperations as well as those frontier countries in which we hope to initiateprojects in the future. Outlook The Group is in the midst of very active drilling campaigns in Yemen andVietnam. Each of these drilling programmes will continue throughout much of2006. Additionally the Group will begin operations in 2006 on its newlyacquired interests in the Republic of Congo (Brazzaville) where a 3D acquisitionprogramme of 700 square kilometres is expected to commence in the secondquarter. The Company believes that the Marine XI interests are the cornerstone of a newcore area in West Africa and it continues to seek additional opportunities inthe region to bolster its portfolio. The upside potential already available tothe Group through its Vietnam and Yemen interests has been substantiallyenhanced by the addition of the Marine XI interests. News flow for the drilling programme will continue throughout the immediateterm. Whilst the divestiture of the Mongolia assets significantly reduced thenumber of reserves attributable to the Company's entitlement interests, we fullyexpect these reserves to be more than replaced by the continuing successes inVietnam and Yemen. Although further reserves additions will be booked in thesecond half of this year, the real impact of the drilling success will bereflected next year. Although success for a company with a large exploration portfolio continues tohave a substantial element of risk, we are confident that the risk has beenmitigated a great deal with the success to date in both Yemen and Vietnam. Wetrust that the next several months will only further the substantial progress wehave made to date. Patrick Maugein Ed StoryChairman President and Chief Executive 26 September 2005 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 2005 which comprises the consolidated incomestatement, the consolidated statement of recognised income and expenses, theconsolidated balance sheet, 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. International Financial Reporting Standards As disclosed in Note 2, the next annual financial statements of the group willbe prepared in accordance with International Financial Reporting Standards asadopted for use in the EU. Accordingly, the interim report has been prepared inaccordance with the recognition and measurement criteria of IFRS and thedisclosure requirements of the Listing Rules. The accounting policies areconsistent with those that the Directors intend to use in the annual financialstatements. There is, however, a possibility that the Directors may determinethat some changes to these policies are necessary when preparing the full annualfinancial statements for the first time in accordance with IFRSs as adopted foruse in the EU. This is because, as disclosed in Note 2, the Directors haveanticipated that it is possible that further changes to the accounting policiesand the comparatives will be required before these are published in the nextannual financial statements. 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 2005. Deloitte & Touche LLPChartered AccountantsLondon 26 September 2005 Notes: A review does not provide assurance on the maintenance and integrity ofthe website, including controls used to achieve this, and in particular onwhether any changes may have occurred to the financial information since firstpublished. These matters are the responsibility of the Directors but no controlprocedures can provide absolute assurance in this area. Legislation in the United Kingdom governing the preparation and dissemination offinancial information differs from legislation in other jurisdictions. Consolidated income statement (unaudited) (unaudited) six months ended six months ended Year ended 30 Jun 05 30 Jun 04 31 Dec 04 Notes $000's $000's $000's Continuing operationsRevenue 3 27,518 8,898 29,386Cost of sales (10,207) (2,260) (11,347)Gross profit 17,311 6,638 18,039 Administrative expenses (2,527) (1,617) (4,039)Exploration expenses (495) (1,043) (1,946)Gain on disposal of exploration venture - 2,156 2,156Operating profit from continuing operations 3 14,289 6,134 14,210 Investment income 869 240 772Finance costs (237) (58) (95) Profit before tax from continuing operations 14,921 6,316 14,887Tax 4 (6,132) (2,880) (6,686) Profit for the period from continuing operations 8,789 3,436 8,201 Discontinued operationsOperating profit from discontinued operations 5 - 2,734 9,261Other expenses from discontinued operations - (242) (249)Profit on disposal 5 - - 15,856Tax 4 - (896) (3,498) Profit for the period from discontinued operations - 1,596 21,370 Profit for the period 8,789 5,032 29,571 Earnings per share 6From continuing operationsBasic 12.6c 4.9c 11.8cDiluted 11.1c 4.4c 10.4c From continuing and discontinued operationsBasic 12.6c 7.2c 42.4cDiluted 11.1c 6.4c 37.5c Consolidated statement of recognised income and expense (unaudited) (unaudited) six months ended six months ended year ended 30 Jun 05 30 Jun 04 31 Dec 04 $000's $000's $000's Profit for the period 8,789 5,032 29,571Unrealised currency translation differences (185) 92 341 Total recognised income for the period 8,604 5,124 29,912 Consolidated balance sheet (unaudited) (unaudited) 30 Jun 05 30 Jun 04 31 Dec 04 Notes $000's $000's $000'sNon-current assetsIntangible assets 101,007 143,563 152,990Property, plant and equipment 26,260 34,059 25,273Deferred tax assets 2,423 2,675 2,118 129,690 180,297 180,381 Current assetsInventories 177 205 -Trade and other receivables 5,122 7,987 8,327Tax receivables 512 170 999 Cash and cash equivalents 66,077 48,342 71,122 71,711 56,676 80,653 Assets classified as held for sale 5, 9 73,076 - - Total assets 274,477 236,973 261,034 Current liabilitiesTrade and other payables (11,125) (7,084) (10,588)Tax payables (66) (945) (62)Liabilities associated with assets 5, 9 (6,047)classified as held for sale - - (17,238) (8,029) (10,650) Non-current liabilitiesDeferred tax liabilities (3,566) - -Long-term provisions (2,626) (2,927) (3,197) (2,626) (6,493) (3,197) Total liabilities (19,864) (14,522) (13,847) Net assets 254,613 222,451 247,187 EquityShare capital 7 23,479 23,347 23,348Share premium account 68,221 67,874 67,877Other reserves 54,166 53,558 53,502Retained earnings 108,747 77,672 102,460 Total equity 254,613 222,451 247,187 Consolidated cash flow statement (unaudited) (unaudited) six months ended six months year ended ended 30 Jun 05 30 Jun 04 31 Dec 04 Notes $000's $000's $000's Net cash from operating activities 8 12,219 3,113 19,157 Investing activitiesPurchase of intangible assets (13,444) (12,772) (19,572)Purchase of property, plant and equipment (3,813) (3,765) (8,011)Proceeds on disposal of subsidiary undertaking 5 - - 17,743Proceeds on disposal of exploration venture - 2,156 2,156 Net cash used in investing activities (17,257) (14,381) (7,684) Financing activitiesProceeds on issue of ordinary share capital 14 656 660 Net cash from financing activities 14 656 660 Net (decrease) increase in cash and cash equivalents (5,024) (10,612) 12,133 Cash and cash equivalents at beginning of period 71,122 58,893 58,893 Effect of foreign exchange rate changes (21) 61 96 Cash and cash equivalents at end of period 66,077 48,342 71,122 Notes to the consolidated financial statements 1. General information The information for the year ended 31 December 2004 does not constitutestatutory accounts as defined in section 240 of the Companies Act 1985. A copyof the statutory accounts for that year has been delivered to the Registrar ofCompanies. The auditors' report on those accounts was unqualified. These financial statements are 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. 2. Significant accounting policies The interim financial report has been prepared using accounting policies inaccordance with International Financial Reporting Standards (IFRS) for the firsttime. The same accounting policies and methods of computation are followed in theinterim financial report as published by the Company on 23 September 2005 in itsIFRS transition document which is available on the Company's website atwww.socointernational.co.uk. That document sets out SOCO's preliminarycomparative 2004 financial information for the year ended 31 December 2004 andthe six months ended 30 June 2004, restated under IFRS in US dollars, includingreconciliations of the consolidated income statements, consolidated balancesheets and consolidated cash flow statements between UK GAAP and IFRS. Thedocument additionally sets out the Group's balance sheet under IFRS at thetransition date of 1 January 2004, including a reconciliation to the UK GAAPbalance sheet at that date. The preliminary restated financial information was prepared in accordance withIFRS currently in issue and adopted by the European Commission (EC). These aresubject to ongoing amendment by the International Accounting Standards Board andsubsequent endorsement by the EC. Interpretation of the standards and bestpractice is currently evolving, both generally and with regard to certainsector-specific issues. It is therefore possible that further changes to theaccounting policies and the comparative financial information will be requiredbefore these are published in the 2005 Annual Report and Accounts. 3. Segment information Geographical segments The Group's operations are located in Central Asia, South East Asia, NorthAfrica and the Middle East and form the basis on which the Group reports itsprimary segment information. Segment results, which arise from locations withproduction operations, are presented below. Six months ended 30 June 2005 (unaudited) Central Asia2 N Africa 1 Middle East Unallocated Group $000's $000's $000's $000's $000's Revenue 1,498 - 27,518 - 29,016 Segment result - - 17,200 (2,911) 14,289 Six months ended 30 June 2004 (unaudited) Central Asia2 N Africa 1 Middle East Unallocated Group $000's $000's $000's $000's $000's Revenue 1,372 5,079 8,898 - 15,349 Segment result - 2,734 6,532 (398) 8,868 Year ended 31 December 2004 Central Asia2 N Africa 1 Middle East Unallocated Group $000's $000's $000's $000's $000's Revenue 3,188 13,413 29,386 - 45,987 Segment result - 9,261 17,815 (3,605) 23,471 1 In December 2004 the Group disposed of its North Africa segment whichcomprised its Tunisia interest. The results of this segment are thereforeincluded in discontinued operations (see Note 5). 2 In April 2005 the Group reclassified its Central Asia segment, which comprisesits Mongolia interest, as an asset classified as held for sale. The results ofthis segment are therefore included in discontinued operations (see Notes 5 and9). 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 Analysis of charge (unaudited) (unaudited) six months ended six months ended year ended 30 Jun 05 30 Jun 04 31 Dec 04 $000's $000's $000'sCurrent taxUK corporation tax at 30% (2004 - 30%) - - -Foreign tax 6,588 3,379 9,458 6,588 3,379 9,458Adjustments in respect of previous years:UK corporation tax at 30% (2004 - 30%) - - -Foreign tax (151) (445) (434) 6,437 2,934 9,024Deferred taxationOrigination and reversal of temporary differences (305) 842 1,160 6,132 3,776 10,184 5. Discontinued operations 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 Tunisia interestin the Zarat Permit offshore Tunisia in the Gulf of Gabes. PA Resources ABacquired SOCO Overseas for cash consideration of approximately US$20.7 millionafter working capital adjustments and post economic cash flow adjustments. Thesale resulted in a net cash inflow in 2004 in the amount of US$17.7 millionreflecting the US$20.7 million cash consideration net of transaction costs ofUS$0.5 million and the Group's share of cash held by SOCO Tunisia of US$2.5million, and a profit of US$15.9 million. During the financial period up to thecompletion date of the sale, the Tunisia interest contributed US$9.3 million tothe Group operating profit (period ended 30 June 2004 - US$2.7 million).Immediately prior to the sale the Group's share of net assets held by theTunisia interest was US$12.0 million (30 June 2004 - US$6.1 million), includingUS$8.1 million related to post economic date cash flow adjustments. As disclosed in Note 3, the Group reclassified its Central Asia segment, whichcomprises the Mongolia asset, as an asset classified as held for sale. As thisis now classed as a discontinued operation the revenue and cost of sales havebeen removed from continuing operations. There is no impact on operating profitas turnover arose from test production during an appraisal programme and anamount was charged from appraisal costs to cost of sales so as to reflect a zeronet margin. Turnover attributable to the Mongolia interest for the period ended30 June 2005 was US$1.5 million (year ended 31 December 2004 - US$3.2 millionand period ended 30 June 2004 - US$1.4 million). The Group's share of netassets associated with the Mongolia interest as at 30 June 2005 was US$67.0million (31 December 2004 - US$65.4 million and 30 June 2004 - US$65.3 million).Further details of the transaction are disclosed in Note 9. 6. Earnings per share The calculation of the basic earnings per share is based on the profit for thefinancial period from continuing operations and from continuing and discontinuedoperations and on 69,845,629 (year ended 31 December 2004 - 69,740,521 and sixmonths ended 30 June 2004 - 69,679,931) ordinary shares, being the weightedaverage number of ordinary shares in issue and ranking for dividend during theyear, excluding 2,475,000 (year ended 31 December 2004 - 2,475,000 and sixmonths ended 30 June 2004 - 2,475,000) ordinary shares of the Company held bythe Group. The calculation of the diluted earnings per share is based on the profit for thefinancial period from continuing operations and from continuing and discontinuedoperations and on 79,037,177 (year ended 31 December 2004 - 78,812,689 and sixmonths ended 30 June 2004 - 78,837,729) ordinary shares, being the weightedaverage number of ordinary shares in issue and ranking for dividend during theyear including 2,475,000 (year ended 31 December 2004 - 2,475,000 and six monthsended 30 June 2004 - 2,475,000) ordinary shares of the Company held by the Groupand 6,716,548 outstanding share options and warrants (year ended 31 December2004 - 6,597,168 and six months ended 30 June 2004 - 6,682,798) that have adiluting effect on earnings per share. 7. Share Capital The Company issued 356,007 new ordinary shares of £0.20 each during the sixmonths ended 30 June 2005 (year ended 31 December 2004 - 297,086 and six monthsended 30 June 2004 - 294,086), including 347,007 shares issued upon the exerciseof certain share options to purchase shares at £0.725 and 9,000 shares issuedupon the exercise of certain share options to purchase shares at £0.77. 8. Reconciliation of operating profit to operating cash flows (unaudited) (unaudited) six months ended six months ended year ended 30 Jun 05 30 Jun 04 31 Dec 04 $000's $000's $000's Operating profit 14,289 8,868 23,471Depreciation, depletion and amortisation 4,251 3,389 6,516Gain on disposal of exploration venture - (2,156) (2,156) Operating cash flows before movements in working 10,101 27,831capital 18,540Decrease (increase) in inventories 141 (105) (599)Increase in receivables (2,933) (3,391) (649)Increase (decrease) in payables 1,659 (2,363) (1,886) Cash generated by operations 17,407 4,242 24,697 Interest received 837 290 653Interest paid (121) (13) (52)Income taxes paid (5,904) (1,406) (6,141) Net cash from operating activities 12,219 3,113 19,157 Cash generated from operating activities comprises:Continuing operating activities 12,219 413 9,663Discontinued operating activities - 2,700 9,494 12,219 3,113 19,157 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 with a maturity of three months or less. 9. Events after the balance sheet date Disposal of Mongolia interest 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 held the Group's Mongoliainterest. In August 2005 the Group completed the transaction. Under the termsof the Agreement the Group will receive consideration of up to approximatelyUS$93.0 million comprising cash consideration of US$40.0 million plus asubsequent payment based on total crude oil produced from the Mongolia interestafter the effective date in excess of 27.8 million barrels of oil. The US$40.0 million cash consideration is payable in two tranches. The firstUS$30.0 million was paid, less applicable settlement adjustments of US$0.4million, in August 2005 upon completion. The second tranche of US$10.0 millionwas paid into an escrow account by Daqing upon completion to be released to theGroup 18 months later upon the satisfaction of the condition that no materialundisclosed additional liabilities are discovered. The remaining considerationis payable, once cumulative production reaches 27.8 million barrels of oil asdescribed above, at the rate of 20% of the average monthly posted marker pricefor Daqing crude multiplied by the aggregate production for that month, up to atotal of approximately US$53.0 million based on the estimated recoverable costsincurred to 31 December 2004, as approved by the Mineral Resources and PetroleumAuthority of Mongolia. Licence Acquisition In August 2005 the Company's 85% owned subsidiary, SOCO Exploration andProduction Congo (SOCO EPC), signed a production sharing agreement with SocieteNationale des Petroles du Congo (SNPC) wherein it acquired a 75% interest in theMarine XI Block, offshore the Republic of Congo (Brazzaville). The Group is indiscussions with various parties to farm-out a portion of its interests. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
Pharos Energy