TIDMSIA
RNS Number : 4166B
Soco International PLC
10 January 2018
SOCO International plc
("SOCO" or the "Company")
TRADING UPDATE
SOCO, an international oil and gas exploration and production
company, announces its trading and operations update. This
summarises the Company's current financial and operational status
and provides guidance in respect of the financial year ended 31
December 2017 and for 2018. The information contained herein has
not been audited and is subject to further review. Final audited
results are scheduled for release on 22 March 2018.
Ed Story, President and Chief Executive Officer, commented:
"The new SOCO vision is to build a growth oriented E&P
company of scale, generating through-cycle total shareholder
returns whilst adhering to the company's historic focus on
financial discipline and an annual dividend. In 2017, we stated we
would focus on new business activity and, during the year, we
reviewed a number of opportunities and continue to do so. As set
out in the Company announcement on Monday 8 January 2018,
discussions are ongoing with Kuwait Energy plc and the Company.
There can be no certainty that any agreement will be reached
between the parties and we will keep the market updated of any
material developments.
Operationally, we made important advances on a number of fronts
in 2017. Notably, in Vietnam, we gained government approval of the
Te Giac Trang Full Field Development Plan, completed development
infill drilling on time and within budget and installed additional
water-handling facilities on the H1 Wellhead Platform under budget.
We further expanded our Vietnam portfolio, adding two new offshore
blocks in the Phu Khanh Basin.
Following a review of our strategic priorities, the Board has
decided fully to impair the costs held on the balance sheet in
relation to our non-core African assets, Marine XI and Cabinda
North. There has been no change in our assessment of the potential
of these assets; however, in the short term they are no longer a
core priority for the Company and minimal capital will be spent on
them in the near future.
Steady revenues, low operating costs and a disciplined approach
to capital allocation have provided the Company with a unique
financial stability from which it has delivered a $30.0m capital
expenditure programme (Vietnam $26.0m, Africa $4.0m) in 2017, fully
funded from existing cash resources, which included the full $42.7m
Mongolia payable, which we collected during the year.
In addition, the Company has distributed a $21.0m cash return to
shareholders though a GBP0.05 dividend and has embarked on a
rigorous pursuit of portfolio rationalisation and business
development opportunities."
2017 highlights
Operational
Vietnam
-- Stable production rates were within guidance, averaging
28,506 BOEPD gross and 8,276 BOEPD net to SOCO's working interest
during 2017
o Te Giac Trang ("TGT") production averaged 6,724 BOEPD net
o Ca Ngu Vang ("CNV") production averaged 1,552 BOEPD net
-- TGT Full Field Development Plan was approved in February 2017
-- Two infill wells, TGT-30P on the H1-WHP and TGT-29P on the
H5-WHP, were executed on time and within budget
-- A Production Sharing Contract ("PSC") for Blocks 125 &
126, offshore central Vietnam, was formally signed on 27 October
2017, awarding SOCO a 70% operated interest over the two blocks
Republic of Congo (Brazzaville) and Angola
-- Following a strategic review, the assets in Congo
(Brazzaville) and Angola have been fully impaired under IFR6
-- An exploitation permit ("PEX") has been secured over each of
the four prospect areas, which had together comprised the former
Marine XI Block
Financial
-- Further strengthened balance sheet, with cash and liquid investments of $137.7m and no debt
-- Stable revenues in the region of $156.0m from Vietnam production
-- $42.7m collected in March in association with the 2005 sale of Mongolia assets
-- Low cash operating costs just under $14/bbl
-- Cash capital expenditure in the region of $30.0m
-- Net operating cash flow of around $45.0m
-- Average realised crude oil price up at $56/bbl, a $2/bbl premium to Brent
-- Following a review of its strategic priorities, the Board has
fully impaired a sum in the region of $220.0m in relation to its
non-core African assets
-- $21.0m returned to shareholders via a final dividend of 5 pence per share for 2016 paid in
June 2017
CORPORATE
-- Work was ongoing throughout the year towards identifying and
evaluating value enhancing opportunities
-- Jann Brown and Mike Watts join the Board as Executive
Directors, following the retirement of Cynthia and Roger Cagle
-- Rob Gray appointed as Deputy Chairman
OUTLOOK
-- Production guidance for 2018 is set at 8,000 to 9,000 BOEPD.
Production levels above 9,000 BOEPD are dependent upon the outcome
of the 2018 drilling programme on TGT and CNV.
-- Vietnam capital expenditure for 2018 is expected to be $40.0m
-- Ongoing focus on sustainable cash flow generation and
commitment to strategy of cash returns;
o The Company is committed to maintaining an annual dividend and
will confirm its recommendation with the preliminary results in
March.
OPERATIONS
VIETNAM
Production
Both TGT and CNV Fields achieved stable rates throughout 2017.
Gross production averaged 28,506 BOEPD gross and 8,276 BOEPD net to
SOCO's working interest. TGT Field production averaged 22.300 BOEPD
gross and 6,724 BOEPD net to SOCO's working interest. CNV Field
production averaged 6,206 BOEPD gross and 1,552 BOEPD net to SOCO's
working interest.
Block 16-1 - TGT Field Development
(30.5% working interest; operated by Hoang Long Joint Operating
Company ("HLJOC"))
Formal approval of the updated TGT Full Field Development Plan
("FFDP") was received from the Vietnamese Government in February
2017. Drilling operations on the TGT Field resumed in Q1 2017, to
drill two additional infill wells. The jack-up drilling rig,
PetroVietnam Drilling VI, spudded the TGT-30P well on 8 March 2017,
targeting the Miocene and Oligocene reservoir horizons in the
crestal part of the H1.1 fault block. TGT-30P came on-line
producing approximately 2,500 BOEPD with an as-expected 40% water
cut.
On completion of TGT-30P, the rig moved to the H5-WHP in the
southern part of the TGT Field to drill the TGT-29P infill well.
The well utilised smart completion technology to optimise
hydrocarbons recovery. The TGT-29P well was tied into the
production system in June 2017, after being completed on time and
within budget, and came on-line producing at approximately 1,600
BOEPD.
The third and final drilling operation in the 2017 TGT
Development Drilling Programme was the resumption of the TGT-14X
step-out appraisal well on the H5 south fault block, initially
spudded in 2015. The high angle and long reach of the well added
complexity to drilling operations. The well was successfully
drilled to the target depth; however, poor hole conditions
prevented successful completion of the well. Smaller, non-standard
drilling equipment will be required to re-drill the reservoir
section of the well and, consequently, completion of drilling was
deferred to the next campaign. The results of the TGT-14X were not
factored into the production guidance for 2017.
TGT Production Optimisation
Construction and installation of new processing equipment on the
H1-WHP has been completed. The start-up of the water handling
system on H1-WHP experienced setbacks and delays due to issues
resulting from damaged valves and production stabilisation issues.
However, the system is now functioning in line with expectations
and production guidance has been achieved.
Following installation, the operator identified a sub-optimal
performance issue affecting two gas compressors on the FPSO.
Evaluation of the technical solutions for and requirement for
further investment in the gas compression issues is ongoing and
these costs will be included in the 2018 budget and work
programme.
Block 9-2 - CNV Field
(25% working interest; operated by Hoan Vu Joint Operating
Company ("HVJOC"))
The CNV Field is located in the western part of Block 9-2
offshore Vietnam. Discussions with the Bach Ho owners are ongoing
to establish the most effective means of enhancing performance
through modifications at the reception terminal. Fishing operations
during 1H 2017 on CNV-6PST1 to recover wireline stuck in the
completion were unsuccessful. Alternative operations to work over
the well are being considered for execution in 2018, alongside a
side-track to an existing well to enhance recovery from the
field.
Blocks 125 & 126
SOCO signed a Production Sharing Contract ("PSC") for Blocks 125
& 126, offshore central Vietnam, with PetroVietnam and SOVICO
Holdings on 27 October 2017. The PSC awards SOCO a 70% operated
interest over the two blocks. Blocks 125 & 126 are in moderate
to deep water in the Phu Khanh Basin, to the north of the Cuu Long
Basin, and have multiple structural and stratigraphic plays
observed on the available seismic data. Interpretation of the
available data indicates there is good potential for source,
expulsion and migration of oil with numerous reservoir and seal
intervals likely. Initial activities will include reprocessing and
interpretation of seismic data, with a view to there being a first
exploration well potentially in 2021-2022.
2018 guidance
The 2018 Vietnam work programme includes modification works on
the FPSO and drilling of 4 wells on the TGT Field and one well on
CNV. Capital expenditure for 2018 is budgeted at $40m. Production
guidance for 2018 is set at 8,000 to 9,000 BOEPD. Production levels
above 9,000 BOEPD are dependent upon the outcome of the 2018
drilling programme on TGT and CNV.
REPUBLIC OF CONGO (BRAZZAVILLE) & ANGOLA
In 2017, progress was made on our African licences.
-- In November 2017, we announced the award of three additional
exploitation permits, Lideka, Viodo and Loubana, which were
originally part of the Marine XI exploration block in the Republic
of Congo (Brazzaville).
-- Also in November 2017, Eni were appointed the operator of the
Cabinda North Block where we agreed to increase our non-operating
working interest in the Production Sharing Agreement from 17% to
22%.
Notwithstanding this progress, following a strategic review we
have concluded that these assets are no longer core priorities for
the Company.
The Cabinda North Block is dependent upon drilling a high-risk
appraisal well down dip from the Dinge discovery well. With respect
to the Marine XI block, the economics of the numerous discoveries
made on the block are a function of firstly renegotiating the
commercial terms for the permits, developing cost effective,
economic development plans and also having access to nearby
existing production and evacuation facilities. Work on full scale
developments and discussions with the owners of those facilities
have taken place over the past year, but no satisfactory
arrangements could be concluded.
The Company has advanced discussions on investment opportunities
in other areas that offer lower risk and greater growth
opportunities with the potential for significantly higher rates of
return than offered on these assets. Further, non-binding offers
have been received for both its positions in West Africa. While
there is no certainty that any transaction can be successfully
concluded, in the Company's view the capital which could have been
allocated to West Africa over the next three years, up to $180m
before considering the cost of evacuation facilities, would be
better held for investment in other opportunities; or returned to
shareholders if those opportunities do not materialize.
Although work will continue, we have no formal plans in place
for substantial future activity on these assets. The work will
focus on maintaining the licences through continued engagement with
the relevant authorities to reach agreement on modified economic
terms and on evaluating stand-alone early production schemes. In
these circumstances, the accounting rules require us to review
their carrying value and we have decided fully to impair the costs
held on the balance sheet, in the region of $220m. Further details
of the accounting treatment are set out below.
Lidongo, Loubana, Lideka East and Viodo Prospect Areas, offshore
Congo (Brazzaville)
(Operated, 40.39% working interest)
The former Marine XI Block area, located offshore Congo
(Brazzaville) in the shallow water Lower Congo Basin, exists going
forward as four distinct prospect areas following the expiry of the
exploration licence in March 2017. Loubana comprises the north west
section of the former block, Lideka East comprises the south west,
Viodo the centre and south east and Lidongo the north east.
Activity in 2016 and 2017 has focused on the successful securing
of a long term exploitation permit ("PEX") over each of the four
prospect areas beyond the expiry of the Marine XI licence in March
2017. The PEX over the Lidongo prospect area commenced in October
2016 and has a duration of 20 years. Discussions to improve its
commercial terms concluded in Q1 2017. Discussions with the
authorities and the Marine XII partners on commercialisation of
Lidongo continue. In Q1 2017, SOCO submitted three further PEX
applications over the remaining prospect areas, which were adopted
in November 2017, pending formal Congolese gazettal. Each of these
PEXes has a 25-year duration.
SOCO Exploration and Production SA, the Operator of the former
Marine XI Block, holds a 40.39% interest and continues as
designated Operator.
Cabinda North Block, onshore Cabinda, Angola
(Non-operated, 22% working interest)
Following discussions amongst the partners and the Angolan
authorities to agree a change of operatorship and a reassignment of
interests amongst the block partners, SOCO has agreed to increase
its non-operating working interest in the Cabinda North Block
Production Sharing Agreement from 17% to 22%. ENI assumes the
operatorship. The legal documents to complete the changes were
formally approved in November 2017. Final details and timing of the
formal governmental Executive Decree to enact the change of
operator and the reassignment of interests are expected
shortly.
FINANCIAL
The Group retains its strong financial position in the current
oil price environment. The Group has a robust balance sheet with no
debt, low operating cash costs and attractive Vietnam production
economics, which underpin the SOCO business model.
Cash balances and liquid resources as of 31 December 2017 were
$137.7m, including $42.7m collected in March 2017 in association
with the Company's full and final collection of the receivable due
following the disposal of its Mongolia assets in 2005 and after
returning $21.0m in cash to shareholders through a 5p per share
dividend.
Revenues for the year were approx. $156.0m. The average realised
oil price per barrel achieved for the same period was approx. $56,
representing a premium of approx. $2/bbl to Brent.
The final capital expenditure forecast for 2017 remains at
approx. $30.0m, fully funded from existing cash resources. In
Vietnam, in the region of $26.0m was included to cover the 2017 TGT
Development Drilling Programme, the infrastructure upgrade on our
existing assets and the purchase of existing seismic data for the
Blocks 125 & 126 new venture. Around $4.0m was included for
Africa to cover negotiations on for the Marine XI PEX bonuses.
Impairment of Intangible Assets
Under IFRS 6, the technical accounting rules for Exploration and
Evaluation of Mineral Resources, an impairment test is required if
facts and circumstances indicate that the asset's carrying amount
may exceed its recoverable amount. Such facts and circumstances
include situations such as those outlined above where there are
neither budgets nor plans for any substantial activity or
expenditure on the assets in question. Accordingly, we have tested
our African exploration interests for impairment. With the lack of
upcoming activity, our ability to realise value from these assets
in the near future is limited. Accordingly, the amounts held on the
balance sheet at 31 December 2017, approximately $220.0m have been
fully impaired.
Dividend
The Company remains committed to maintaining an annual dividend
and will confirm its recommendation for the year ending 31 December
2017 with the preliminary results in March.
CORPORATE
Corporate Strategy
The Company's stated objective is to strategically reshape the
business and grow the portfolio. Accordingly, corporate efforts in
2017 were focused on identifying and evaluating value enhancing
opportunities that optimise exposure to upside, without
jeopardising sustainable cash flow. These efforts continue with a
number of opportunities under review. One of these, Kuwait Energy,
was the subject of the announcement made on 8 January 2018.
Appointment of Executive Directors
Jann Brown and Dr Mike Watts joined the Board on 12 November
2017 as Executive Directors. Jann Brown was also appointed Chief
Financial Officer. Mike Watts re-joined the Board having stood down
as a Non-Executive Director in January 2017 to co-head Business
Development for the Group.
Following announcement of their retirement, Cynthia and Roger
Cagle stepped down from the Board as Executive Directors on 12
November 2017 after over 20 years with the Company. Each will
continue in employment with the Group until 11 September 2018.
Appointment of Deputy Chairman
In December 2017, the Board announced the appointment of Rob
Gray as Deputy Chairman. Rob joined the Board as a Non-Executive
Director in 2013. He is the Board's Senior Independent Director and
is a member of each of the Board Committees, namely the Nominations
Committee, Remuneration Committee, and the Audit & Risk
Committee, which he has chaired since January 2017. Rob will
continue to serve in these roles alongside his deputy
chairmanship.
STRATEGIC Outlook
The new SOCO vision is to build a growth oriented E&P
company of scale, generating through-cycle total shareholder
returns whilst adhering to the company's historic focus on
financial discipline and an annual dividend. In pursuit of this
vision the Company continues to focus upon:
1) Maintaining our disciplined approach to capital allocation;
2) Ongoing TGT production optimisation; and
3) Rationalisation and growing the portfolio of assets.
The Company is well positioned for growth and we will use this
platform to grow the business and deliver value by maintaining
focus on capital discipline, capital allocation and capital
return.
ENQUIRIES:
SOCO International plc
Jann Brown, Managing Director and Chief Financial Officer
Mike Watts, Managing Director
Tel: 020 7747 2000
Camarco
Billy Clegg
Georgia Edmonds
Tel: 020 3757 4980
NOTES TO EDITORS
SOCO is an international oil and gas exploration and production
company, headquartered in London and traded on the London Stock
Exchange. The Company has exploration, field development and
production interests in Vietnam and exploration and appraisal
interests in the Republic of Congo (Brazzaville) and Angola.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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