Interim Results for the Half-Year to 30 June 2014
- Production averaged 13,960 BOEPD in the first half; 2014 full year production guidance remains 14-15,000 BOEPD
- TGT 2014 in-fill drilling programme is ongoing with 6 development wells to be drilled in 2014
- TGT FPSO total liquids test to 140,000 barrels of liquids completed; the oil production test to above 60,000 BOPD expected in H1 2015
- The TGT H5 development is progressing as planned – the H5 wellhead jacket and drilling deck will be installed in Q3 2014 and first oil is on target for September/October 2015
- Currently drilling an exploration well on the Marine XI Block, offshore the Republic of Congo (Brazzaville)
- Financial results in the first half in line with the Company’s expectations; revenue of $246.4 million (1H 2013: $324.0m) and net profit of $79.8 million (1H 2013: $105.4m) reflecting the TGT FPSO sharing from May 2013
- Continued strong cash generation from Vietnam
- Strong balance sheet with net cash and liquid investments of $284 million as at 30 June 2014; capex guidance for the full year 2014 at $160-170 million
- Proposed cash return of $121 million, or 22 pence per share, representing c. 60% of free cash flow for 2013
Ed Story, Chief Executive Officer, commented:
“Our focus this year has been on delivering steady progress on the TGT field which continues to perform as expected. The 2014 TGT in-fill development drilling programme is underway with three wells drilled to date. The H5 development project is progressing according to plan targeting first oil in just a little over a year. Our exciting two-well exploration programme offshore the Republic of Congo is underway with the first well in the programme, the Lidongo X Marine-101, currently being drilled.
Our revenue and cash flows in the first half continued to be strong. We are pleased to recommend a return of 22 pence per share to shareholders. With continued strong cash generation and a solid balance sheet, SOCO is well positioned to fund its development and exploration programme and to continue the strategy of targeting half of free cash flow to return to shareholders.”
SOCO International plc
Anya Weaving, Chief Financial Officer
Tel: 020 7747 2000
Tel: 020 7861 3232
NOTES TO EDITORS:
SOCO is an international oil and gas exploration and production company, headquartered in London, traded on the London Stock Exchange and a constituent of the FTSE 250 Index. The Company has interests in Vietnam, the Republic of Congo (Brazzaville), the Democratic Republic of Congo (Kinshasa) and Angola, with production operations in Vietnam.
STRATEGIC OVERVIEW AND OUTLOOK
Our strategy remains two-pronged: delivering to shareholders both value – through meaningful ongoing cash returns – and growth from relatively low risk upside through the exploration part of our business model. Furthermore, we will continue to explore all options to maximise value creation for shareholders including increasing the value of our existing asset base and investing in growth organically or inorganically. We see growth as an important part of the SOCO story but we will continue to manage our portfolio and make new investment decisions in a manner which is consistent with our capital discipline, without committing a disproportionate share of our capital expenditure budget to exploration drilling.
Following our first capital return to shareholders last year and commitment to target a 50% return of annual free cash flow, the Directors of the Company are pleased to recommend the return of 22 pence per share, approximately £73 million ($121 million), subject to the approval of shareholders. The total cash return represents approximately 60% of the 2013 free cash flow of c.$200 million. As last year, the cash return is being structured in a tax efficient manner as a B and/or C Share scheme. Going forward, as we use up good tax capital, we will explore other options including a move to dividend payments, with the level of return still targeting 50% of annual free cash flow.
The TGT field has continued to perform in line with the Company’s expectations, with Group production target for the full year 2014 maintained at 14-15,000 BOEPD. After initial delays, the 2014 TGT in-fill development drilling programme is now underway, with three wells having been completed so far. The H5 development project is progressing well still targeting first oil in September/October 2015. While the partners are working toward the formal sanctioning of the H5 project, all development activities are progressing as planned, with the H5 well head platform due to be installed ahead of schedule by mid-September in preparation for the five initial development wells to be drilled after installation. The Company has commenced drilling the Lidongo X Marine-101 well on the Marine XI Block, the first of its exciting two-well exploration programme offshore the Republic of Congo. The second well, on the Mer Profonde Sud Block, is expected to be drilled mid 2015.
The operational focus for the rest of 2014 will be development drilling on the TGT field including the H5 fault block. Despite the delay due to rig issues earlier this year, we now expect a total of six in-fill development wells, in addition to the planned H5 wells, to be drilled this year, with the Hoang Long Joint Operating Company close to finalising a contract for another rig which would allow us to continue drilling wells through the winter. FPSO de-bottlenecking and increase in production remains another strategic priority. We have successfully tested the FPSO total liquids handling capacity to 140,000 barrels per day and will continue to work towards a second oil capacity handling test to above 60,000 BOPD, which will most likely now take place in the first half of 2015.
On the CNV field, we commenced drilling the CNV-7P well which unfortunately had to be suspended due to unexpected geological issues. It is anticipated that the well will be re-entered during the 2015 programme. The decision to suspend the well is not expected to have any material impact on the Company’s financial performance.
First half 2014 revenue, net profit and cash flows, although reduced in comparison with 2013, are in line with the Company’s expectations reflecting the contractual sharing of FPSO production capacity from May 2013. With the additional rig to progress the TGT drilling programme and complications on the CNV-7P well, capital expenditure for the full year 2014 is expected to be in the region of $160-170 million, the exact amount depending on the pace of the development drilling programme.
SOCO remains well financed with no debt on the balance sheet and $284 million of cash, cash equivalents and liquid investments as at 30 June 2014. With its strong cash generation, the Company is well positioned to fund its development and exploration programme and to continue the strategy of targeting a return of 50% of annual free cash flow to shareholders.