AGM Trading and Operations Update Jun 2015

SOCO International plc issues the following trading and operations update in advance of the Company’s Annual General Meeting to be held at 10:00 today. At the meeting, Ed Story, Chief Executive Officer, will make a presentation with a brief corporate and activity overview. A copy of the presentation will be made available on the Company website http://www.socointernational.com.

Ed Story, CEO, said:

“As Brent seems to have found some stability around the $60-$65 per barrel mark, it is an appropriate time to evaluate the economic attractiveness of significant future project investments. Accordingly, the Company has undertaken an effort to evaluate its African portfolio with a view toward further rationalisation.

We remain committed to realising the full potential of the TGT field and are engaged with our partners to initiate further development of the field.   Although we are making some progress in this regard, we expect the commencement of production from the H5 platform in several months to serve as the catalyst to bring these efforts into focus.

Whereas production of 11.9 KBOEPD so far this year is largely in line with our expectations, the key variable for the remainder of the year is the timing and associated production rates of H5 coming on stream. Until that time, our full year production guidance for 2015 is maintained at 10.5-12 KBOEPD.

Lastly, we are pleased to deliver on our commitment to commission an independent reserve audit, with Gaffney, Cline & Associates confirming SOCO’s reserves and contingent resources estimates released at Full Year Results in March.”

Operational Highlights

• Production averaged 11.9 KBOEPD year to date through 31 May 2015. Production guidance for the full year 2015 is maintained at 10.5-12 KBOEPD, with the high end of the range depending on earlier start-up time of H5, H5 well performance as well as optimised reservoir management.
• TGT/H5 drilling programme for 2015 has completed with both rigs released. Five wells out of a planned 5-6 have been drilled and completed since the beginning of the year.
• The TGT H5 development continues to progress well and is currently ahead of the first oil schedule of September/October 2015.
• The TGT partners are working with the HLJOC to submit an updated RAR/FDP for the TGT field in Q3/Q4 respectively.
• An independent audit by Gaffney, Cline & Associates completed in June 2015 has confirmed SOCO’s management estimates of Commercial Reserves and Contingent Resources for TGT and CNV as of 31 December 2014.

Strategy and Financial

• Dividend of 10p per share (c.$50 million) to be approved at the AGM and to be paid on 19 June 2015.
• Net cash balance (including cash equivalents and liquid investments) as of 9 June 2015 was c.$151 million or c.$101 million post expected payment of the c.$50 million dividend.
• 2015 capex guidance is maintained, with firm capex budget expected in the region of $90 million, with c.$70 million for Vietnam and c.$20 million for Africa, and a contingent capex budget of c.$25 million pending approval of additional development wells in Vietnam.
• Cost savings are underway both at the Vietnam JOC level and across SOCO’s cost base. Capex and opex savings of c.10% have been reflected in this year’s Vietnam expenditure programme. The Company is implementing the targeted G&A cost savings – mostly in the African region and associated with the new ventures activities – amounting to c. 25% of the associated G&A. Further cost savings are being targeted across the organisation and at the JOC level.
• SOCO is reviewing options to maximise value from its Africa portfolio including rationalisation and farm-out of all or part of its asset base in the region.
• SOCO retains its financial flexibility, given no debt on the balance sheet, low operating costs and attractive Vietnam production economics with operating cash flow break-even oil price per barrel in the low $20s.
• SOCO’s Board continues to be committed to its strategy of shareholder value creation through cash returns to shareholders and growth of the ongoing business. Its primary focus remains on having a sustainable business and any decision as to the level of future cash returns will naturally be made in light of the prevailing market conditions and trading performance at the time.

Group Production and Operations

Production of oil and gas by field

(BOEPD unless stated otherwise)
	January - May 2015	FY 2014
GROSS BASIS
TGT Field Production	33,788	38,462
Oil (BOPD)	30,862	34,875
Gas	2,926	3,587
NET BASIS
TGT Production	10,153	11,538
Oil (BOPD)	9,274	10,464
Gas	879	1,074
CNV Production	1,735	2,067
Oil (BOPD)	1,183	1,423
Gas	552	644
Total SOCO Production	11,888	13,605
Oil (BOPD)	10,457	11,887
Gas	1,431	1,719

 

Te Giac Trang (TGT) Field 
(30.5% interest; operated by Hoang Long Joint Operating Company (“HLJOC”))

• TGT field production for January-May averaged 33.8 thousand barrels of oil equivalent per day (“KBOEPD”), 10.2 KBOEPD net to SOCO. The level of production was slightly below the Company’s expectations due to drilling delays. A lower level of production is expected during Q3 due to planned FPSO shutdown for H5 hook-up and maintenance. Therefore, the Company’s Group production guidance for full year 2015 is maintained at 10.5-12 KBOEPD, with the high end of the range depending on earlier start-up time of H5, H5 well performance as well as optimised reservoir performance through water shut-offs and additional perforations on existing wells.
• As part of the regular evaluation programme, the HLJOC has recently completed a production logging programme on a selection of wells on the field. This work is being evaluated to inform the next batch of proposals for additional perforations and/or water shut-offs.
• The TGT/H5 drilling programme for 2015 has now completed with both rigs released. Due to drilling issues and delays, of the six planned wells five have been drilled and completed since the beginning of the year – two wells from the H5 platform and three from the H4 platform.
• On the H5 fault block, in total five wells out of six planned have been drilled and completed: four producer wells TGT-22P, -23P, -24P and -25P, and one appraisal well TGT-12X.
  • The TGT-25P development well was also drilled to appraise the deeper Oligocene section, however, this section was plugged and abandoned due to encountered high pressure. The HLJOC is reviewing means to revisit this deep section in future drilling campaigns. The TGT-25P well has been completed and is ready for perforation with the other H5 development wells.
  • Of the anticipated two appraisal wells, only the TGT-12X – targeting the previously undrilled H5N fault block – was drilled. As previously announced, this well only encountered a minor oil column in the target Miocene section. Notwithstanding the well has been completed ready for production once the H5 development is brought on stream. There was insufficient time to drill the H5S fault block appraisal well TGT-14X prior to the release of the rig. This well will be drilled in the next drilling campaign.
• From the H4 platform, TGT-20P, -21P and -26P wells have been drilled this year. The TGT-20P well, an in-fill producer on the H4 fault block targeting the Oligocene encountered completion problems that meant that this well was completed in the Miocene section instead. In order to access the Oligocene, the TGT-26P well path was modified and deepened to encounter the Oligocene and to replace the TGT-20P as an Oligocene producer. The TGT-21P was drilled as an H3N in-fill producer. These wells have been completed and are either on stream or will be brought on stream shortly.
• The H5 development project is progressing well with contracts now awarded for the installation, hook-up and commissioning of the project. The anticipated installation date for the topsides is now mid-July 2015. Successful execution of the installation should mean that the first oil from H5 will be ahead of the target start-up date of September/October 2015.
• As previously announced, in light of the current oil price environment and PetroVietnam’s stated reduction in scope for 2015 expenditures, the current drilling programme for this year remains limited to the completed firm 2015 programme.
• The HLJOC partners are preparing an update to the TGT Hydrocarbons In Place (Reserve Assessment Report or RAR) and the TGT Field Development Plan (FDP) for submission to the Vietnamese authorities. Current targets are for the submission of the TGT RAR in July 2015 and the TGT FDP in Q4 2015. The scope of the development programme in the updated FDP will to a large extent depend on the oil price outlook at the time and the HLJOC partners’ alignment on a development path and appetite to commit capital.

Ca Ngu Vang Field (CNV)
(25% interest; operated by Hoan Vu Joint Operating Company (“HVJOC”))

• CNV production for the period January-May averaged 1.7 KBOEPD net to the Company’s working interest.
• The HVJOC is reviewing means for increasing production through modifications to the process facilities on the reception platform at Bach Ho. Engineering studies have been initiated and technical options are expected to be presented to the partners by the end of Q3.
• The decision as to the timing of re-entering the CNV-7P well is expected to be made in July/August 2015 following completion of ongoing drilling engineering-related studies. The cost of the well is included in the contingent budget for 2015, however, in SOCO’s view, it is unlikely to be re-drilled this year.

Africa Portfolio

• SOCO is reviewing options to maximise value from its Africa portfolio including rationalisation and farm-out of all or part of its asset base in the region.
• Marine XI: Having completed the analysis of the results of the Lidongo X Marine-101 exploration well, SOCO is in dialogue with the Republic of Congo authorities with regards to commercialisation options of the field. The government has requested that the results of the Lidongo well be presented as a Production License Application (PEX) format. This report is being prepared and formal submission is expected by the end of Q3. Separately, seismic reprocessing following successful ENI discoveries on the neighbouring blocks is ongoing and expected to be completed by the end of 2015.
• Mer Profonde Sud (MPS): MPS well is currently planned for Q1 2016 with detailed well design work in progress.
• Cabinda North: The authorities in Angola have issued a decree, gazetted on 21 April 2015, to extend the licence by three years. Discussions are ongoing amongst the partners to agree the composition of the new partnership, operator and work programme.

Corporate

Completion of Legal Review of Allegations

• As set out in our 2014 Preliminary Results and Annual Report and Accounts, SOCO commissioned an independent review by Clifford Chance LLP of allegations made in various quarters about SOCO’s operations in Block V in the DRC. Clifford Chance found that the allegations were substantially inaccurate though it found non-material instances where payments were made in breach of Group policy. The company has liaised with the relevant UK authorities throughout and Clifford Chance is advising on improvement of the Group's policies and processes for the future. A statement on the outcome of the review will be released on the website later today.

ENQUIRIES:

SOCO International plc
Anya Weaving, Chief Financial Officer
Tel: 020 7747 2000

Bell Pottinger
Nick Lambert
Elizabeth Snow
Tel: 020 3772 2500                 

NOTES TO EDITORS:

SOCO is an international oil and gas exploration and production company, headquartered in London and traded on the London Stock Exchange. The Company has interests in Vietnam, the Republic of Congo (Brazzaville), the Democratic Republic of Congo (Kinshasa) and Angola, with production operations in Vietnam.