Trading and Operations Update Nov 2015

Highlights

  • Group production from January to October averaged 12.0 KBOEPD. Full year guidance is revised to 11.8-12 KBOEPD from 11-12 KBOEPD mainly due to earlier H5 start-up.
  • H5 started production on 10 August 2015, ahead of original schedule and budget, and is currently producing from 5 wells. Current H5 production of c.9 KBOPD from initially perforated zones is slightly below expectations and the initial production rates of c.11-12 KBOPD. Additional H5 production potential exists in unperforated intervals, with the scope of such perforations expected to be defined in the revised FDP.
  • The updated TGT Reserve Assessment Report (RAR) has been completed with the formal presentation to the relevant Vietnamese authorities expected in the coming weeks.
  • The work on the revised TGT Field Development Plan (FDP) is ongoing, with the formal submission to the government now expected in Q1 2016. The FDP is expected to include additional development wells and potential additional liquids handling capacity, with the scope and initial phasing of investment spend dependent on the oil price outlook and the partners’ appetite to commit capital near-term.
  • SOCO has signed contracts for the MPS commitment well which is expected to be spudded in December or January 2016 depending on when the rig is released from its current commitment.

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, traded on the London Stock Exchange. The Company has interests in Vietnam, the Republic of Congo (Brazzaville) and Angola, with production operations in Vietnam.


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

  • TGT production for January to October 2015 averaged 34.0 thousand barrels of oil equivalent per day (“KBOEPD”) (10.2 KBOEPD net to SOCO), which included the shut-down to hook-up the H5 platform and the benefit of H5 early start-up.
  • H5 was successfully brought on stream on 10 August 2015, more than one month ahead of schedule, under budget and with a total of 2.4 million man hours without a Lost Time Incident.
    • H5 is producing from five wells, TGT-22P, -23P, -24P and -25P, and the TGT-12X-ST1 appraisal well. Two producer wells and the TGT-12X-ST1 well have been perforated in the lower Miocene and two – in the Oligocene reservoir.
    • Current H5 production of c.9 thousand barrels of oil per day (“KBOPD”) is below the c.11-12 KBOPD originally targeted. The Miocene wells are producing as expected; however, the Oligocene wells are producing below expectations due to lower reservoir permeability than predicted. Work is ongoing to identify actions to optimise H5 performance from current wells. 
    • Analysis of well drilling results has indicated that the upper part of the Miocene reservoir is oil bearing rather than gas bearing as originally believed. The H5 wells have not been perforated in this interval and there is significant additional H5 production potential in currently unperforated intervals, with the scope of additional perforations expected to be defined in the revised FDP.
  • FPSO total liquids handling capacity remains the key constraint for oil production given the level of water-cut expected at this stage of H1/H4 production. Reservoir management measures, such as full or partial water shut-offs, as well as additional perforations, are required to optimise field production performance, and the HLJOC is reviewing the performance of each well and evaluating potential for additional perforations and/or water shut-offs.
  • The updated RAR has been completed with the formal presentation to the relevant Vietnamese authorities expected in the coming weeks. The revised FDP, including a history-matched dynamic model, is now expected to be submitted in Q1 2016; the delay to the original Q4 2015 schedule reflects the complex architecture of the revised geoscience model and integrated approach to field development and reservoir management. The scope of the development programme in the updated FDP is expected to include additional wells and facilities options to increase water handling capacity.
  • For 2016, no firm production target has been agreed between the HLJOC partners pending agreement on the scope of the FDP, as well as receipt of optimised 2016 production scenarios from the HLJOC utilising full reservoir potential from existing wells. Pending the FDP, the HLJOC partners have agreed to include in the 2016 contingent capex budget ($155 million gross; $47 million net to SOCO) the drilling costs for 4.5 wells (0.5 well cost being attributed to finishing drilling the TGT-14X appraisal well) as well as capex associated with water handling facilities upgrade. The 2016 firm capex budget ($14 million gross; $4 million net to SOCO) at this stage includes no drilling costs other than the budget for purchasing long lead items for the contingent wells.
  • Prior to agreement on the FDP scope and timing of wells and reservoir management with the HLJOC partners, SOCO sets preliminary 2016 group production guidance at 10-11.5 KBOEPD. The lower end reflects no new wells and natural field decline and the upper end reflects optimised reservoir management and limited production from additional wells drilled in 2016. This guidance is preliminary and will be refined with the FDP and agreement of reservoir management measures for 2016.


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

  • CNV production for January to October 2015 was 1.8 KBOEPD (net to SOCO), benefiting from higher than expected uptime.
  • With the requirement for reduced cycling of the water injector there has been a drop in required reservoir pressure maintenance. This is expected to have a negative impact on the production going forward as flow would need to be reduced to prevent gas breakthrough.
  • The HVJOC is evaluating the impact of the reservoir pressure drop on the long-term performance and recovery of the field, as well as looking into potential ways of maintaining production performance. The initiatives for the latter include conversion of the CNV-6ST1 injection well to a producer and modification of processing facilities on the Bach Ho platform to lower minimum tubing head pressure; the discussions with the owner of the Bach Ho processing facilities are under way.
  • These recent issues with reservoir pressure maintenance have resulted in the HVJOC 2016 production target being c.25% lower than 2015 levels.
  • Technical work on the means of drilling the CNV-7P well continues, however in this oil price environment it is not being included in the 2016 budget.


Africa Portfolio

  • Mer Profonde Sud (“MPS”): SOCO has contracted a rig to drill the MPS commitment well. SOCO is carrying 100% of the expected c.$25-30 million well cost. The well is targeting gross P50 prospective resource of c.330 million barrels of oil and is expected to be spudded in either December or January, depending on when the rig becomes available, and is expected to take around one month to drill.
  • Marine XI: SOCO continues discussions with the Congo authorities regarding commercialisation options for the field. The government has requested that the results be presented as a Production Licence Application (PEX), which is in the process of being finalised for submission prior to licence expiry in March 2016. SOCO continues seismic reprocessing across the block, following successful ENI discoveries on the neighbouring blocks, with the results expected by the end of 2015.
  • Cabinda North: The authorities in Angola issued a decree, gazetted on 21 April 2015, to extend the licence by three years.  Discussions remain ongoing amongst the partners to agree the composition of the new partnership, operator and work programme.

Strategy and Financial

  • Capex for full year 2015 is expected to be in line with the original guidance of c.$90 million which included the benefit of the now realised cost savings on the H5 project. If the MPS well commences drilling ahead of the original Q1 2016 timetable, part of the estimated $25-30 million well cost may be accrued in 2015.
  • Following the signing of a Memorandum of Understanding, SOCO continues to work together with PetroVietnam and SOVICO Holdings towards formalisation of a Production Sharing Agreement over Blocks 125-126, offshore Vietnam.
  • SOCO continues to review options to maximise value from its Africa portfolio including rationalisation and farm-out of all or part of its asset base in the region.
  • The $52.7 million earn-out payment associated with SOCO’s disposal of its Mongolia interest in 2005 is expected to be received during 2016.
  • The Company remains committed to its long-term strategy of targeting cash returns to shareholders and pursuing future growth; at the same time, with the current oil price uncertainty and potential capital commitments, SOCO believes maintaining its balance sheet and strategic flexibility is important to deliver long-term value and growth to shareholders. Therefore, the Board will decide on the level of future cash returns in light of the oil price, cash flow generation from Vietnam and expected capital expenditure at the time.

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