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, Thailand, the Republic of Congo (Brazzaville), the Democratic Republic of Congo (Kinshasa) and Angola.
Financial -- Record first half turnover and after tax profit from continuing operations
Ed Story, Chief Executive commented, "In the first six months of the year SOCO has continued to perform strongly, progressing its key development projects, increasing production and setting the stage for the most extensive exploration campaign in the Company's history. Our Africa portfolio is an exciting opportunity to create a significant new growth story. The drilling in Congo will begin this month and with Vietnam development projects only awaiting final regulatory approval SOCO is well positioned to continue to deliver growth and value to shareholders."
HALF YEAR REPORT FOR THE SIX MONTHS ENDED JUNE 30, 2009
SOCO is pleased to announce record first half turnover of $66.6 million and after tax profit from continuing operations of $31.6 million. Additionally, SOCO retains a very strong balance sheet and has not needed to secure additional funding. Both are significant achievements, particularly when taken in the context of the recent industry and economic environment.
The Company has also made good progress in lining out production projects in Vietnam and Thailand, gained national oil company approval of the development area on the Te Giac Trang (TGT) field, the largest field discovery in the Company's history, received an award for an extremely prospective appraisal area in Vietnam and added to its attractive portfolio of exploration assets in its newest core area in Africa.
Not only have we had a notable first six months of the year, over the next 12 to 18 months we will be involved in one of the most active exploration campaigns in our history, targeting mean, unrisked exploration potential upwards of 600 million barrels of recoverable crude oil.
In Vietnam, we completed the initial phase of the development programme on the Ca Ngu Vang (CNV) field. We are assessing the results, which indicate that the eastern lobe of the Basement field has less intensive fracturing, before deciding how to progress further development.
On July 1, 2009, Petrovietnam became a full paying participant on its 41% share of the TGT field development after approving the TGT Field Development Area, which is targeted for first oil in mid-2011.
In Africa, as operator, we conducted a seismic programme in Marine XIV offshore Congo (Brazzaville), after receiving governmental approval of our farm-in earlier this year. Also in Congo (Brazzaville), preparations for a two well drilling campaign in Marine XI have been nearly completed as the first well is expected to spud in mid-August. Initial interpretation on seismic acquired last year in the Nganzi Block onshore Congo (Kinshasa) is underway and several interesting leads have already been identified with early indications of 100 million barrel plus potential. Seismic acquisition is due to recommence this month in Angola in the Cabinda North province.
With a full period of production, averaging 6,734 barrels of oil equivalent per day (BOEPD) combined from the CNV project and the Bualuang project in Thailand, the Group reported record first half after tax profit of $31.6 million. After capital expenditures of just over $36 million in the first half, cash and liquid investment balances as at June 30, 2009 were $294 million. With consideration for the upcoming exploration and development programme and the one time early redemption option for the convertible bonds in May of next year, the Directors do not recommend a dividend.
Start up of production operations in the Group's CNV field in Vietnam in July 2008 was shortly followed by production from the Bualuang field in Thailand in August 2008. Accordingly, these interim results report the first return to a full six months of production operations since the sale of the Group's Yemen asset in April 2008.
Group oil and gas revenues from continuing operations in the first half of 2009 were $66.6 million compared with $55.3 million in the second half of 2008 following the start-up of production operations in Vietnam and Thailand. During the first six months of 2009, the Group realized a price of $47.48 per barrel of oil compared to $55.27 per barrel in the period from start up of operations in South East Asia to year end 2008. The Group's working interest share of production from continuing operations during the period was 6,734 BOEPD up from 2,533 BOEPD averaged over 2008 (6,415 BOEPD averaged over the period from start up to year end 2008).
Cost of sales on continuing operations in the period was $19.1 million for the six month period to June 30, 2009 up from $18.9 million in the second half of 2008, which included approximately five months of operations from the CNV field and four months from the Bualuang field. On a per barrel basis, excluding inventory, operating costs were approximately $10.70 per barrel compared to $13.50 per barrel in the second half of 2008. Higher operating costs in the initial months of production during 2008 were anticipated as it is common with start-up operations that production levels during the first few months can be erratic due to initial testing of well flow capability and minor operational interruptions. As production levels have stabilized, operating costs per barrel have reduced.
Depreciation, depletion and decommissioning costs (DD&A) on continuing operations included in cost of sales was $9.9 million compared to $7.9 million in the second half of 2008 consistent with greater production. On a per barrel basis, DD&A remained at approximately $6.00 per barrel (as compared to the second half of 2008).
Administrative costs relating to continuing operations for the first six months increased from $3.2 million in 2008 to $3.5 million in 2009. Although offset by the effects of the weaker GB Pound and reduced payroll costs, the increase is primarily associated with a greater proportion of the Group's overhead being attributed to the Company's corporate activities.
Operating profit for the period was $44.0 million arising from the Group's continuing production operations in Vietnam and Thailand.
Investment income reduced from $2.7 million in the first half of 2008 to $1.7 million for the current period, despite a higher average cash balance following the completion of the Yemen sale in April 2008, reflecting lower interest rates as a result of the deteriorating economic climate.
The increase in other gains and losses from $0.6 million in the first half of 2008 to $0.9 million in the first half of 2009 is primarily due to a higher gain in the period on the change in fair value of the financial asset (associated with the subsequent payment amount tied to future oil production from the Group's divested Mongolia interest) mainly due to revision of the risk free interest rate.
CASH AND LIQUID INVESTMENTS
SOCO's cash, cash equivalents and liquid investments at June 30, 2009 was $294.0 million (December 31, 2008 - $303.4 million and 30 June 30, 2008 - $410.2 million). This reduction is a result of the Group's capital development programs in Vietnam and Thailand and exploration activity in Africa offset by cash inflows from the new production operations in Vietnam and Thailand.
As the Group has a strong financial position it has purchased short term liquid investments of over six months maturity in order to maximise investment revenues. As at June 30, 2009 the Group had liquid investments of $102.1 million (December 31, 2008 and June 30, 2008 - $nil) and cash and cash equivalents of $191.9 million (December 31, 2008 - $303.4 million and June 30, 2008 - $410.2 million).
As at June 30, 2009 the Group's only debt was the convertible bonds issued in 2006 at a par of $250 million, further details of which are in Note 23 to the 2008 Annual Report and Accounts. The liability component of the bonds has been reclassified as a current liability on the balance sheet as at June 30, 2009 as the bonds may be redeemed at par at the option of each bondholder on May 16, 2010.
Capital expenditure of $36.2 million in the first half of 2009 was lower than the $120.7 million spend in the first half of 2008 following the successful hook up and completion of the majority of the Group's construction and development activities on the CNV field in Vietnam and the Bualuang development in Thailand in 2008. During the current period certain development activities continued on these projects including the drilling of two additional development wells in Thailand and the completion of a development well and a capital workover in Vietnam. In addition, there was exploration activity in the Group's Africa region where in Marine XIV a seismic acquisition programme was conducted and in Marine XI preparations for the drilling campaign commenced.
During the first half of 2009 the Group's production, net to the Group's working interest, of 6,734 BOEPD was sourced from its CNV field in Vietnam (3,083 BOEPD) and its Bualuang field in Thailand (3,651 BOPD). This is up, on a pro rata basis, from 6,501 BOEPD in the equivalent period last year from its Yemen interest prior to its disposal in April 2008. This is also an increase from 4,464 BOEPD produced in 2008 from both continuing and discontinued operations.
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