Interim results for the half year to 30 June 2018

SOCO International plc, an international oil and gas exploration and production company, announces its Interim Results for the six months ended 30 June 2018.

A separate announcement was also made today in connection with SOCO’s proposed acquisition of Merlon Petroleum El Fayum Company.

Ed Story, President and Chief Executive Officer, commented:

“The first half of the year has seen the team focused on execution of our strategy of portfolio rationalisation and finding new growth projects, whilst returning cash to shareholders and strengthening the board. The new debt facility and the proposed acquisition of Merlon are exciting steps forward for SOCO and provide the platform to expand and diversify the Company’s resource base to create a full-cycle, growth orientated E&P company. As we look to the future, we are well positioned financially and, with a dedicated and capable team, continue to look for opportunities to grow the business”

OPERATIONAL HIGHLIGHTS

  • Production during 1H 2018, averaged 26,7731 BOEPD gross and 7,7481 BOEPD net to SOCO’s working interest (1H2017: 29,600 BOEPD and 8,606 BOEPD, respectively)

TGT production averaged 6,177[1] BOEPD net (1H2017: 7,056 BOEPD)

CNV production averaged 1,571 BOEPD net (1H2017: 1,550 BOEPD)

  • Successful extension of two key operational contracts, resulting in significant cost savings for the TGT Field: the FPSO Operations and Maintenance Agreement and the Bare Boat Charter for the FPSO Armada TGT 1
  • Two rigs are currently operating, one on each of the TGT and CNV Fields. The drilling programme has been delayed as a result of operational and weather related issues
  • Production guidance for 2018 is revised to 7,000 -7,400 BOEPD
  • Portfolio rationalisation through:
    • Completion of the sale of SOCO’s interests in Congo (Brazzaville) for a cash consideration of up to $10m and an overriding royalty on all future gross oil and condensate production sold from the interests
    • Agreement to sell SOCO’s interests in Cabinda, Angola for a total cash consideration of up to $5m

FINANCIAL HIGHLIGHTS

  • Agreement for $125m Reserve Based Lending Facility (“RBL”) signed on 15 September 2018, secured against the Group’s producing assets in Vietnam
  • Strong balance sheet; half year-end cash and liquid investments balance of $128.8m with no debt ($137.7m at 31 December 2017)
  • Low cash operating costs just under $14/bbl (1H 2017: $13/bbl)[2]
  • Average realised crude oil price up at $74.08/bbl, a $3.46 premium to Brent (1H 2017: $53.90/bbl)
  • Cash capital expenditure down to $3.6m (1H 2017: $13.2m restated) due to delays in drilling
  • Revenues up 26% at $93.2m (1H 2017: $74.0m)
  • Net operating cash flow down to $24.9m (1H 2017: $27.1m), including cash used in discontinued operating activities of $1.7m
  • Net operating cash flow (before working capital) of $56.5m (1H 2017: $42.0m)
  • 2017 full year dividend of $23.3m (1H 2017: $21.0m) paid 15 June 2018, up 5% on prior year

STRATEGIC UPDATE

M&A Activity

SOCO International plc is pleased to announce that it has agreed to acquire Merlon Petroleum El Fayum Company for approximately US$215 million (the “Proposed Transaction”).  Merlon is a privately owned oil and gas company with a 100% operated working interest in the onshore El Fayum concession in Egypt.  The consideration will be satisfied through the payment of approximately US$136 million in cash and the issue of 66 million new SOCO shares, representing 19.75% of SOCO’s current issued share capital. SOCO will also arrange for the repayment of Merlon’s net debt, which was approximately US$22 million as at 31 December 2017.

The acquisition of Merlon is a significant step forward in SOCO’s stated objective of expanding and diversifying its resource base to create a full-cycle, growth orientated E&P company of scale. The El Fayum concession is located in the low-cost and highly prolific Western Desert, c.80 km south west of Cairo and in proximity to local energy infrastructure. The acquisition is expected to add immediate cash generative production and incremental 2P (net) working interest reserves of 24 mmbbls and 2C (net) working interest resources of 37 mmbbls. Merlon produced 7,859 bopd (net) in 2017, with the potential to increase production levels to a target in excess of 15,000 bopd (net) by 2023 through the recovery of its discovered 2P reserves and 2C resources. In addition, the El Fayum concession will provide SOCO with nearly 1,570km2 of exploration acreage (of which c.70% is covered by existing 3D seismic) with multiple, identified exploration prospects in proven petroleum systems, as well as a large underexplored area in the northern portion of the concession.

Portfolio Rationalisation

Portfolio rationalisation has been achieved through the divestment of the Group’s assets in Angola and Congo (Brazzaville). As announced on 25 June 2018, SOCO signed and completed a sale and purchase agreement for its interests in Congo (Brazzaville) for a cash consideration of up to $10m and an overriding royalty on all future gross oil and condensate production sold from these interests.

Additionally, as announced on 2 July 2018 SOCO signed an agreement to sell its interests in Cabinda, Angola for a total cash consideration of up to $5m.

BOARD CHANGES

Olivier Barbaroux, a long standing Non-Executive Director, retired from the Board of SOCO in June 2018. SOCO would like to thank Olivier for his contribution to SOCO, and to wish him all the best for the future.

John Martin was appointed as an Independent Non-Executive Director and Chairman of the Audit & Risk Committee in June 2018.

We will continue to review the balance and effectiveness of the Board with a view to adding independent non-executives commensurate with our size and needs.

DIVIDEND

Following approval at the Company’s AGM on 15 June 2018, SOCO paid a final 2017 dividend to shareholders of 5.25 pence per share ($23.3m).

OUTLOOK

  • Production guidance for 2018 is modified to 7,000 - 7,400 BOEPD, reflecting the additional delays to the drilling programme resulting from the requirement to redrill the CNV-5P sidetrack, which occurred subsequent to the revision in production guidance announced on 31 July 2018.
  • Cash capital expenditure in 2018 is expected to come in under $30m reflecting the delay in the drilling campaign and the deferral to 2019 of seismic acquisition on exploration Blocks 125 & 126 in Vietnam.
  • Continued focus on financial discipline, sustainable cash flow generation and commitment to cash returns to shareholders.
  • The Proposed Transaction is a significant step forward in SOCO’s stated objective of expanding and diversifying its resource base to create a full-cycle, growth orientated E&P company of scale.

ENQUIRIES:

SOCO International plc
Tel: 020 7747 2000

Ed Story, President and Chief Executive Officer
Jann Brown, Managing Director and Chief Financial Officer
Mike Watts, Managing Director
Sharan Dhami, Group Investor Relations Manager

Camarco
Tel: 020 3781 8334

Billy Clegg
Georgia Edmonds
Owen Roberts

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 production, development and exploration interests in Vietnam.

SOCO holds a 30.5% working interest in the Te Giac Trang Field of Block 16-1, which is operated by the Hoang Long Joint Operating Company. Block 16-1 is located in the shallow water Cuu Long Basin, offshore southern Vietnam.

SOCO holds a 25% working interest in the Ca Ngu Vang field of Block 9-2, which is operated by the Hoan Vu Joint Operating Company. Block 9-2 is located in the shallow water Cuu Long Basin, offshore southern Vietnam.

SOCO holds a 70% interest in and is designated operator of Blocks 125 & 126, located in the moderate to deep water Phu Khanh Basin, offshore central Vietnam.

 

[1] TGT YTD June 2018 production was based on the final production report received in August 2018.

[2] See Non-IFRS measures on page 26.

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