SOCO has announced its Preliminary Results for the year ended 31 December 2007.
OPERATIONAL
Development
• Progress towards first oil in Vietnam and Thailand
EXPLORATION
Vietnam
• Extension of exploration licence on Block 16-1 in Vietnam
• Unconfirmed significant new discovery on Block 16-1
- Drilling on TGD-1X side track well commenced in November 2007, but series of minor, unconnected operating problems have delayed final results
West Africa
• Continued expansion of the West African portfolio by adding a Block in Angola
FINANCIAL
• Post Tax profits rose to a record high of $32.3 million [2006 : $29.1 million]
• Post year end disposal of Yemen assets will realise $465 million for reinvestment into existing and new exploration and development opportunities
2008 OUTLOOK
Vietnam
• The CNV field on Block 9-2 will come on-stream mid-year
• The Company is confident that the TGT field on Block 16-1 will be declared commercial before the end of the first half of 2008
Thailand
• First production from Bualuang field expected during the second quarter of 2008
West Africa
• First of multiple wells to spud in West Africa on Marine XI during the second half of 2008
Ed Story, President and Chief Executive of SOCO, commented:
“With near term production from the CNV field in Vietnam and the Bualuang field in Thailand, medium term development and exploration upside in Vietnam and long term exploration potential in West Africa, we are very optimistic about SOCO’s future growth prospects.
“With the proceeds following the disposal of our Yemen interests, we have the financial strength to fund this growth, whilst we look forward with anticipation to the results of the TGD well drilling on the E prospect on Block 16-1 in Vietnam.”
FINANCIAL AND OPERATING RESULTS
After tax profit reached a record high for the second consecutive year rising from $29.1 million in 2006 to $32.3 million in 2007. The Company’s entire production is attributable to its interest in Block 10 in Yemen. Profit increased despite planned production curtailment during the year to accommodate an expansion of the East Shabwa Development Area’s production and injection capacity, leading to production net to the Company’s working interest decreasing from 6,766 barrels of oil per day (BOPD) in 2006 to 6,316 BOPD in 2007.
With almost continuous drilling in Vietnam and Yemen, and with the facilities expansion in Yemen, the Group’s capital expenditures again rose year on year equalling $178.6 million in 2007 versus $114.3 million the previous year. The Company continued to fund its commitments via operating cash flow of $71.9 million and with the remainder of proceeds from the convertible bonds issued in 2006 leaving a cash balance of $68.3 million at year end 2007, as compared with $187.8 million at year end 2006.
The proceeds from the disposal of the Group’s Yemen assets, if the transaction is finalised, will strengthen the Company’s balance sheet and provide funding for existing exploration and development opportunities and other opportunities that may arise. In addition, the Group has raised short term debt finance to provide the necessary financial flexibility in the short to intermediate term.
2007 OPERATIONS REVIEW
Vietnam
Exploration - The most significant concrete news originating in 2007 from Vietnam on the exploration front was the grant by the government of Vietnam of the extension of the exploration licence on Block 16-1. In January 2008, the Company received formal notification that the Prime Minister of The Socialist Republic of Vietnam had granted the extension of the deadline of the Hoang Long Joint Operating Company's obligation of surrendering the remainder of the Block 16¬-1 Contract Area until 6 June 2008.
The exploration phase of work on Block 9-2 offshore Vietnam was concluded in 2007 when the Ca Ong Doi 2X (COD-2X) well was drilled during the first quarter on the COD structure to evaluate the possibility that the clastics play on Block 16-1 extended into this Block. This well was plugged and abandoned when the Lower Miocene sands were determined to not be charged with hydrocarbons. With the exploration licence expiring on Block 9-2 in December of 2007, the Company relinquished the remainder of the Block excluding the CNV field development area.
On Block 16-1, exploration wells drilled during 2007 targeting the Miocene, the interval which resulted in the significant TGT discovery in 2005, proved disappointing with a series of wells being plugged and abandoned including the Te Giac Cam 1X well on Prospect "S", the Te Giac Hong 1X exploration well to evaluate the "L" North prospect and the Te Giac Lam 1X well, which tested a Miocene four-way closure on one of the Basement ridges of the “O” prospect.
The newly commissioned PVD-1 rig began its two year contract by spudding the TGD-1X well on Prospect "E" in April 2007 to test the deep potential in the basin. The well encountered hydrocarbons in two Oligocene clastic sequences, which were separated by a volcanic layer. Well logs over the upper sequence indicated approximately 30 metres of net pay. After drilling through the volcanics, the well encountered a lower clastic sequence with oil and gas shows. However, the mud weight required to control the pressure and gas indicated downhole pressures at the upper limit of the safe operating capability of the drilling rig. Consequently, drilling had to be halted after only 22 metres of the sequence had been penetrated. High pressure and temperature (HPHT) also meant that the section could not be logged. In addition to having to deal with the operational challenges caused by intersecting two over pressured zones in this HPHT prospect, the rig experienced a series of control system failures, which potentially could have compromised safe continuation of drilling operations. Thus after drilling for approximately 100 days, with inconclusive results, the TGD-1X well was temporarily suspended at 4,625 metres.
The Adriatic XI rig was moved on location to drill the TGD-1XST1 well in November 2007.
Development
Development drilling commenced in the CNV field on Block 9-2 when the Petrovietnam Drilling and Well Services drilling rig, the PVD-1 which had been commissioned during the year, continued its two year contract by spudding the CNV-1P well in September. The well flowed at approximately 10,000 barrels of liquid per day (30% water cut) on an abbreviated test as is planned for all of the development wells to ensure that timely progress is made toward the target first oil date at or near the end of the second quarter of 2008. The second development well in the planned three producer, one injector development drilling programme spudded early in February 2008. Meanwhile, major facilities and equipment orders proceed apace to meet the planned onstream date.
Progress toward development on the TGT field on Block 16-1 was less seamless than that with CNV. Expectations that a declaration of commerciality by the government of Vietnam could be achieved last year fell short primarily due to a small discovery on an adjoining block, which suggested an extension of the TGT field and brought unitisation implications. Although it has subsequently been borne out that there is a small extension of the TGT field on a neighbouring block, many of the equity implications have been agreed with the other consortium and an initial reserve allocation report, the first step for agreeing commerciality, has been filed with Petrovietnam. Barring any further complications, SOCO fully expect the declaration of commerciality for the TGT field to be granted before the end of the first half of 2008.
Yemen
Drilling activity with three rigs continued throughout 2007 as the East Shabwa Block 10 Consortium continued the programme of appraisal and development of the Kharir Basement. In January 2008, production from the East Shabwa concession reached the 100 million barrel milestone. Daily production was back to peak levels in early 2008, only limited by the capacity of the processing equipment. Water injection rates reached approximately 50,000 barrels of water per day (BWPD) into the Basement, with individual injectors accepting in excess of the original 2,500 BWPD design limit. SOCO expect that this will be a positive development for the field to meet increased production targets once the facility upgrades are available.
In February 2008, the Company announced it had entered into a conditional sale and purchase agreement for the sale of its interest in the East Shabwa Development Area in Yemen.
Republic of Congo (Brazzaville)
Initial processing and Pre Stack Depth Migration of the seismic data have been completed. Interpretation continues albeit slightly behind schedule. SOCO Exploration and Production Congo SA (SOCO EPC) expects to tender for a multi-well drilling programme likely to commence in the second half of 2008.
In March 2008, SOCO EPC assigned a portion of its interests to Petrovietnam Exploration Production Corporation Ltd. (PVEP). The assignment of interests is subject to approval of the appropriate regulatory authorities of the Government of the Republic of Congo (Brazzaville), waivers of any third party preferential rights and certain obligations of PVEP.
Democratic Republic of Congo (Kinshasa)
In August 2007, the Group received Cabinet approval of its Production Sharing Contract (PSC) on the 800 square kilometre Nganzi Block, onshore the Democratic Republic of Congo (Kinshasa) (DRC). Final approval was received in March 2008.
A geochemical survey was conducted in August to evaluate the potential of several leads previously identified by an aeromagnetic and gravity survey conducted by the Company. The results will be used to help lay out a 2D seismic grid. Seismic acquisition is scheduled to begin later this year.
In March 2008, the Group entered into a new PSC with the Government of the DRC, Dominion Petroleum Limited and Cohydro, to acquire exclusive rights for hydrocarbon exploration on Block 5, located in the southern Albertine Graben in eastern DRC adjacent to the DRC/Uganda border. The Group holds a 38.25% participating interest in the PSC, which is subject to and becomes effective upon ratification by the President of the DRC.
Angola
The Company was notified in August 2007 that the Executive Decree outlining SOCO Cabinda Limited’s 17% participating interest in the Production Sharing Agreement for the Cabinda Onshore North Block became effective in July. An airborne gravity and magnetic survey was conducted over the Block in the second quarter and processing completed in the third quarter. Interpretation of the survey is underway. A contract for the acquisition of a 1,200 kilometre 2D seismic survey, based on the results of the gravity and magnetic survey, was awarded to Grant Geophysical, but was suspended and subsequently cancelled following a security incident in a remote area of the Block.
Thailand
The farm-in partner on the Bualuang field continues to move forward with the development. They have installed the production jacket and a platform drilling rig has completed the drilling of two wells during February 2008. A floating production, storage and offloading facility is also scheduled to arrive in the field and be ready for production operations in the first half of 2008. The drilling plans provide for simultaneous drilling and production operations. The first wells will be batch drilled and then completed. First production is expected to be in the first half of 2008.
Disposal of Yemen interests
In line with the Company’s track record of realising value at the appropriate stage of an asset’s life-cycle and reinvesting the capital to build significant shareholder value, the Company entered into a conditional sale and purchase agreement in February 2008 for the sale of its interest in the East Shabwa Development Area to Sinochem Petroleum Limited for $465 million, subject to certain financial adjustments.