Soco Sees Exceptional Results from First Half 2006
SOCO has had an exceptional first half of 2006 with excellent drilling results on Block 16-1 in Vietnam, a significant increase in production in Yemen, the addition of prime exploration acreage in West Africa and a successful $250 million fund raising. The drilling success in Vietnam has resulted in the addition of approximately 25 million barrels of proven plus probable reserves in the first half of 2006, an increase of approximately 40%.
Two Te Giac Trang (TGT) wells drilled this year in Vietnam, the TGT-2X and TGT-3X, tested at a total combined flow rate of approximately 17,500 barrels of oil equivalent per day (BOEPD) and 9,908 BOEPD, respectively. Success at the three TGT exploration wells drilled to date confirms the prospectivity of the structure, comprising five fault blocks extending over 15 kilometers on a North to South trend within an 80 kilometer long play fairway that extends along the eastern and southern portion of Block 16-1.
In addition to the outstanding drilling results on TGT, the Group achieved early clearance for the rapid development of the Ca Ngu Vang (CNV) field on Block 9-2 obtaining a declaration of commerciality and gaining approval of an outline development plan. This sets us on a fast track to bring the CNV field on production in late 2007.
By the end of the first half of 2006, production in East Shabwa Block 10 in Yemen had reached peak production exceeding 45,000 barrels of oil per day (BOPD), up more than 12,000 BOPD from the 2005 year average. The Group also achieved appraisal drilling success in Yemen with several in-field wells in the Kharir field expanding the productive potential there.
The exploration portfolio grew as well as we added exciting potential in West Africa. We expanded our Congo Basin footprint when we signed a production sharing contract on the Nganzi concession in the Democratic Republic of Congo (Kinshasa).
Further, we ensured that we would have the financial capacity to take advantage of our growing opportunities when we raised $250 million, $50 million more than initially planned due to strong investor demand, through the issuance of convertible bonds in May of 2006.
Historically high crude oil prices realized by the Group during the first half of 2006 increased the average oil sales price per barrel to $63.15 from $45.79 for the same period last year. Production from Yemen, net to the Group's working interests, during this period increased to 6,407 BOPD versus 5,057 BOPD in the six months to June 30, 2005. This, combined with the higher oil prices, increased revenue on an entitlement basis by $14.8 million in the six months to June 30, 2006 compared to the same period last year. Adjustment for lifting imbalances arising in prior periods amounting to $3.5 million brings the revenue from continuing operations for the six months to June 30, 2006 to $38.8 million compared to $27.5 million in the same period last year.
Cost of sales of $11.0 million were reported for the current period compared to $10.2 million for the same period last year, primarily attributable to higher production and higher field operating expenses partially offset by the adjustment for lifting rebalancing, which decreased operating expenses from continuing operations by $3.5 million. Operating expenses on a per barrel basis (excluding lifting imbalances and inventory) from continuing operations increased from approximately $4.00 in the first half of 2005 to approximately $6.50 per barrel in the first half of 2006. This reflects additional resources required to increase capacity and accelerate production along with increased diesel costs, higher manpower rates and higher transportation costs associated with the Group's non-operated activities in Yemen.
Depreciation, depletion and abandonment (DD&A) costs on continuing operations increased by $0.6 million compared to the same period last year reflecting the increased production offset by higher reserves. On a per barrel basis, DD&A on continuing operations decreased to approximately $3.60 per barrel compared to approximately $3.90 during the equivalent period last year reflecting the year end 2005 reserve additions.
Administrative expenses increased from $2.5 million in the six months to June 30, 2005 to $3.5 million in the current period. This is mainly due to higher national insurance obligations arising on share options as the Company's share price increased from £5.975 at June 30, 2005 to £13.680 at June 30, 2006 and administrative costs associated with the Company's corporate funding activities. Exploration expenses associated with pre-license costs were $0.2 million in the six months ended June 30, 2006 compared to $0.5 million in the equivalent period last year reflecting the Company's continuing success in acquiring licenses in its new core area.
As a result of the above, the Group's operating profit from continuing operations increased by over 68% to $24.0 million from $14.3 million for the equivalent period last year.
Following the issue of convertible bonds, discussed below, the Group had a significantly higher cash and cash equivalents balance which caused investment income to rise from $0.9 million in the period to June 30, 2005 to $2.8 million in the current reporting period. The increase in other gains and losses from nil in the first half of 2005 to $0.3 million in the period ended June 2006 is mostly represented by the unwinding of the discount relating to the financial asset associated with the subsequent payment amount tied to future oil production from the Group's divested Mongolia interest. Finance costs have increased from $0.2 million in the six months ended June 30, 2005 to $2.0 million for the current period mostly due to the interest expense on the liability component of the convertible bonds. The tax charge on continuing operations increased from $6.1 million in the equivalent period last year to $10.0 million in the current period consistent with the increase in operating profit.
Capital expenditure of $50.4 million in the current review period compared to $17.3 million for the equivalent period last year reflects the Group's increased drilling activity in both Vietnam and Yemen as well as a facilities upgrade in Yemen. Further, in June 2006 the Group acquired an additional 2% working interest in Block 16-1 offshore Vietnam for consideration paid of $22.0 million. Exploration expenditure in the Group's new core area of West Africa also contributed to the increase in capital expenditure.
During the period to June 2006 the Company purchased 608,000 treasury shares at a cost of $13.6 million. Of these 580,500 plus brought forward treasury shares of 150,000 were used to satisfy the obligation to issue shares in settlement of certain share options. As at June 30, 2006 the Company held 27,500 treasury shares.
SOCO's cash and cash equivalents were increased from the year end 2005 amount of $51.0 million to $251.5 million at June 30, 2006 mainly due to the proceeds of the convertible bond issue offset by the continuing investment in capital projects, particularly in Vietnam and Yemen.
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- SOCO Net Profit, Production Down (Aug 05)