Trading and Operations Update Jan 2015
SOCO International plc issues the following trading and operations update in advance of the Company’s full-year 2014 results, which are scheduled for release on 12 March 2015. The information contained herein has not been audited and may be subject to further review.
Ed Story, CEO of SOCO International plc, said:
"2014 was a strong year for SOCO: delivering the TGT development programme, getting the H5 development under way, finalising the ERC Equipoise study demonstrating TGT’s full potential, the successful Lidongo discovery and our second material cash return to shareholders.
Our business model – with strong balance sheet, low break even oil prices (in the low $20s) and capital discipline as part of our DNA – is resilient in the current oil price environment. Our capex programme is fully funded and we can continue our strategy of focusing on returns and growth, organic and inorganic, if the right opportunity comes along. Our commitment to cash returns for shareholders remains, albeit any decision as to appropriate timing and quantum will need to take into account market conditions and outlook at the time."
- 2014 production averaged c.13.6 KBOEPD in line with previous guidance of 13.3-13.8 KBOEPD. In light of the current oil price environment, the 2015 production guidance is in the range of 10.5-12 KBOEPD, reflecting reduced scope of the 2015 TGT drilling programme and conservative estimates of initial flow rates from TGT/H5. SOCO’s production year-to-date to 27 January 2015 is c.12.9 KBOEPD.
- TGT 2014/15 drilling programme is on track with 8 wells drilled in 2014 and another 5-6 expected to be completed by end of Q2.
- The TGT H5 development is progressing well and ahead of schedule for first oil in September/October 2015.
- The successful completion of the Lidongo X Marine 101 exploration well which tested more than 5,000 barrels of oil per day and ongoing assessment of commercialisation options.
Strategy and Financial
- Strong balance sheet with no debt and a cash balance (including cash equivalents and liquid investments) of approximately $166 million as at 2014 year-end and $185 million as of 28 January 2015.
- Average realised oil price for 2014 of approximately $103 per barrel, a premium of over $4 to Brent. A lower premium is expected for 2015 reflecting lower market prices for crude.
- Total oil and gas revenues for 2014 were approximately $446 million.
- SOCO benefits from low operating costs of production: 2014 cash operating costs were approximately $9 per barrel of oil equivalent and are estimated to move to just below $12 per boe in 2015, reflecting the predominantly fixed TGT cost base and lower production.
- 2014 capex is estimated at $161 million at the low end of previous guidance due to the achievement of cost and tax savings and deferral of certain costs to 2015.
- 2015 firm capex budget is expected to be in the region of $90 million, with c.$70 million for Vietnam and around $20 million for Africa, and a contingent capex budget of c.$25 million pending approval of additional development wells in Vietnam.
- Several initiatives are ongoing:
- In Vietnam a number of capex and opex cost savings have been identified to help mitigate the effect of the low oil price. These are expected to be in the region of 10% and are reflected in the capex and opex guidance provided above.
- Similarly, SOCO has taken measures to reduce G&A, especially in our African region and associated with new ventures activities. Cost savings in Africa are currently being implemented, with anticipated savings of approximately 25% of the associated G&A.
- In light of the current oil price environment, SOCO’s Board is in the process of reviewing the Company’s overall portfolio of assets and carrying values.
- Against the backdrop of the challenging oil price environment, SOCO is in a strong position given its robust balance sheet, low operating costs and attractive Vietnam production economics with operating cash flow break-even oil price per barrel in the low $20s. The Company has sufficient cash flow and cash balances to meet its ongoing development and exploration expenditure and has capacity beyond that to take advantage of opportunities that may arise in this market.
- 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 at this time is on having a sustainable business and the decision as to the appropriate quantum and timing of any cash return in 2015 will be made in light of the prevailing market conditions at the time.
Te Giac Trang (TGT) Field
(30.5% interest; operated by Hoang Long Joint Operating Company (“HLJOC”))
- TGT field production for 2014 averaged c.38.4 thousand barrels of oil equivalent per day (“KBOEPD”), c.11.5 KBOEPD net to SOCO.
- The development drilling programme at the TGT field remains on track. In the course of 2014, 8 wells were drilled in total, 5 on the main field and 3 on H5.
- The H5 development project is progressing well and is on target for first oil in September / October 2015.
- In light of the current oil price environment and PetroVietnam’s stated reduction in scope for 2015 expenditures, the HLJOC partners have decided to limit the firm 2015 capital expenditure budget to the 2014/15 winter drilling campaign which covers the wells under the original TGT field development plan (“FDP”) and the H5 FDP. The total number of firm TGT development wells currently planned for 2015 is 5-6, including 3 H5 wells (of which two are appraisal wells on the H5 North and H5 South fault blocks).
- The 2015 Group production guidance of 10.5-12 KBOEPD reflects the firm development programme. Production could be increased from the existing well stock by perforating additional horizons, optimising reservoir management and through the early start-up of the H5 development. SOCO is in discussion with the HLJOC partners about these initiatives. Furthermore, the TGT field’s low-cost, high-margin production with under-utilised producing capacity positions it well as a swing producer as overall Vietnam production plans are optimised.
- The HLJOC is preparing a revised TGT full field FDP, which is expected to be submitted and approved in Q3 2015. The HLJOC plans to review all drilling related contracts ahead of any drilling programme under the revised FDP. The results of the ERC Equipoise Limited (“ERCE”) study providing a model to optimise the development and recovery of the field, have been shared with the HLJOC. SOCO is working with the HLJOC partners to incorporate the results of the ERCE study into the revised TGT FDP.
- Increasing production, FPSO de-bottlenecking and improving field recovery performance remain key focus areas with the optimal timing for these initiatives dependent on market conditions, economics and the drilling programme and sequence in the updated TGT FDP.
Ca Ngu Vang Field (CNV) (25% interest; operated by Hoan Vu Joint Operating Company (“HVJOC”))
- Production from CNV for 2014 averaged c.2.1 KBOEPD net to the Company’s working interest.
- The decision as to the timing of re-entering the CNV-7P well is expected to be made following completion of the agreed drilling engineering studies, which are expected to be undertaken in early 2015, with the cost of the well included in the contingent budget for 2015.
- SOCO is in the process of analysing the results of the Lidongo X Marine 101 exploration well offshore the Republic of Congo. This well was successfully drilled and tested in 2014, with oil flow rates of over 5,000 barrels of oil per day significantly exceeding pre-test expectations. SOCO has commenced discussions with its partners and the government with regards to next steps to achieve commercialisation of the field.
- The Africa exploration budget for 2015 is mainly focused on further assessment and achieving commercialisation of the Lidongo discovery, seismic reprocessing on Marine XI following successful ENI discoveries on the neighbouring blocks and ongoing activity on other licences. In light of the current sector environment, the MPS well has been deferred to Q1 2016.
SOCO International plc
Anya Weaving, Chief Financial Officer
Antony Maris, Chief Operating Officer
Tel: 020 7747 2000
Tel: 020 3772 2500 / 07770 824 100
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.