Annual Report and Accounts 2018 Repositioned for Growth
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SOCO plc International Annual Report Annual ReportAnnual 2018 and Accounts and Accounts 2018 Repositioned for growth Strategic Report 02 Repositioned for growth Company overview 02 Chair’s welcome 04 Our future is one of new and Investment case 08 Market overview 10 exciting growth opportunities. CEO’s statement 12 Core strategic objectives 16 We are repositioning to enhance Our strategy in action 18 Business model 20 our existing strengths. We are Key metrics 22 Operations review 24 building new relationships and Financial review 32 Risk management 36 are on a positive course for Risks 38 business growth. Corporate Responsibility 44 Governance Report 61 Chair’s Introduction to Governance 62 Board of Directors 66 Corporate Governance Report 68 Nominations Committee Report 72 Audit and Risk Committee Report 76 Remuneration Report 82 Directors’ Report 97 We are an oil and gas exploration and production company. Financial Statements 101 Headquartered in London and listed on the main market of the Independent Auditor’s Report 102 London Stock Exchange, we have exploration, development Consolidated Income Statement 109 and production interests in Vietnam. Consolidated Statement of Comprehensive Income 109 Balance Sheets 110 Statements of Changes in Equity 111 Cash Flow Statements 112 Notes to the Consolidated Financial Statements 113 Additional Information 135 Non-IFRS Measures 136 Five Year Summary 137 Reserves Statistics 137 Report on Payments to Governments 138 Glossary of Terms 140 Company Information IBC socointernational.com 02 Strategic Strategic Report Report 61 Governance Report 101 Financial Statements 13 5 Additional Information 01 Company overview A significant step forward for SOCO 2018 has seen SOCO Group highlights focus on delivering our Lost Time Injury Frequency (LTIF) Net production strategy through planned (Per million man-hours worked) (boepd) divestments, capital structure and expanding and diversifying the 0 7, 274 resource base beyond Vietnam with the proposed Cash operating costs Return to shareholders acquisition of assets in ($/boe) (Pence per ordinary share) Egypt. Our culture of capital discipline and a $13.63/boe 5.25p commitment to building value for shareholders Cash, cash equivalents and Revenue through dividends and liquid investments ($m) ($m) growth of the Company remains as strong as ever. $240.1 $175.1 02 SOCO International plc Annual Report and Accounts 2018 Vietnam portfolio Block 16-1 Block 9-2 SOCO interest SOCO interest 30.5% working interest 25% working interest Strategic Report Operator Operator Hoang Long Hoan Vu Joint Operating Company Joint Operating Company Operational phase Operational phase Production/field Production/field development development Blocks 125 & 126 Block 125 SOCO interest 70% working interest Block 126 Operator SOCO Exploration (Vietnam) Operational phase Exploration Block 9-2 2018 Vietnam production (net) CNV 1,588 boepd Block 16-1 TGT 5,686 boepd Operations review page 24 Egypt portfolio SOCO interest 100% participating interest Operator Petrosilah Cairo Location Western Desert, Egypt El Fayum Operational phase Production/ field development/ exploration 24 (2P) mmbbls 37 (2C) mmbbls Operations review page 24 On 25 September 2018, SOCO announced the proposed acquisition of Merlon Petroleum El Fayum Company. Shareholder approval was gained on the 21 December 2018. Completion remains subject to the satisfaction or, where permitted, waiver of certain Conditions under the Share Purchase Agreement. SOCO expects the completion of the acquisition will occur in 1H 2019. 03 Chair’s welcome Repositioned for growth Last year I reported that the Company economic prosperity and to deliver value Prudent planning and risk management had renewed its focus and commitment for all our stakeholders. Risk Management has always been to the pursuit of growth opportunities, a primary focus of the Board but, in these SOCO is also committed to responsible supported by the establishment of an highly volatile commodity markets, we are and sustainable development, resulting experienced business development team. giving the matter even more attention. in value for the host countries and local In September 2018, SOCO announced Efective risk management is integral communities as well as for our staf and that it had signed a sale and purchase to SOCO achieving its corporate strategy shareholders. In Vietnam, community agreement for the acquisition of Merlon to further strengthen the business through projects are selected by HLHVJOC and Petroleum El Fayum Company (“Merlon”), growth. On pages 36 to 43 of the 2018 during 2018, the HLHVJOC Charitable which has onshore oil assets in Egypt. Annual Report and Accounts, we set out Donation programme focused on long The transaction was approved by our assessment of the principal risks term goals to assist in the development shareholders in December 2018 and facing the business and the mitigation of poor rural areas especially in healthcare, is on track for completion in 1H 2019. measures we have adopted, whilst education and assistance to food victims. The proposed acquisition of Merlon focusing on maintaining a business that complements and diversifes SOCO’s Financial discipline remains robust and competitive. existing Vietnam-focused portfolio, builds Capital discipline and fnancial stability Board engagement and changes scale through doubling of our reserves have been SOCO hallmarks from inception Olivier Barbaroux, a long standing and resources, increases SOCO’s fnancial and continue to underpin the business. non-executive director, retired from the resilience through the low cost resource Capital investment and divestment Board of SOCO following conclusion base and provides tangible production decisions are taken to allocate capital of last year’s AGM on 7 June 2018. growth, re-setting SOCO’s growth where it will provide the best risk adjusted SOCO would like to thank Olivier for his trajectory. This acquisition is a signifcant returns. It is this approach that has allowed contribution to the Company and to wish step forward for SOCO in our vision to us to return signifcant amounts of capital him all the best for the future. On the same become a full-cycle, growth orientated to shareholders. SOCO continues to have date, John Martin was appointed as an E&P company of scale. a stable fnancial base. The balance sheet Independent non-executive director, remained strong throughout 2018 and the Safety remains the highest priority Chair of the Audit and Risk Committee Company had solid cash fows and low within the business and on the Board and a member of the Remuneration cash operating costs. To improve the agenda. We are proud to report that Committee and the Nominations efciency of the balance sheet and SOCO’s Joint Operations continue to Committee. John has more than 30 years’ provide fnancial fexibility, SOCO signed achieve a high record of safety and experience in international banking in a $125m Reserved Base Lending facility have maintained commitment to local the oil and gas industry. Ambassador (“RBL”) secured against the Group’s sourcing, employment, training and António Monteiro, non-executive director, producing assets in Vietnam with a further industry upskilling. In Vietnam, we are will retire from the Board of SOCO at the $125m available on an uncommitted pleased by HLHVJOCs’ high level of safe conclusion of the Company’s forthcoming accordion basis. In December 2018 SOCO operations, with zero LTIs in over 24 million AGM. SOCO would like to thank António drew down $100m from the RBL facility. man-hours worked since project inception, for his service to the Company and wish representing seven production years The Group fnished the year with him all the very best in his retirement. on TGT and 10 production years on CNV. $240.1m in cash, after returning $23.3m Marianne Daryabegui has been appointed SOCO aims to have a positive presence to shareholders through a 5.25 pence per as an Independent non-executive director in the countries where it operates. Our share fnal dividend for the 2017 fnancial with efect from 15 March 2019 and will purpose is the responsible development year and bringing the total return to also serve as a member of the Audit and of energy from natural resources for global shareholders since 2006 to $0.5 bn. Risk Committee, the Remuneration 04 SOCO International plc Annual Report and Accounts 2018 Rui de Sousa Chair Strategic Report Committee and the Nominations Outlook and future opportunities We would like to thank our shareholders Committee. Marianne has extensive There is much for SOCO to look forward for their continued support. It is the experience in oil and gas corporate to in 2019 as the Company returns frm belief of your Board, that with our transactions and capital markets. to growth. In Egypt, upon completion competitive low-cost development Both John and Marianne bring a wealth of the Merlon acquisition, we will seek projects, our strong fnancial stability, of oil and gas experience and expertise to implement an increased drilling our culture of fnancial discipline and our which will complement and enhance programme as we further develop the talented and committed staf, SOCO is the experience of the Board. Each of discovered resource base and test new well placed to grow the business. The them will ofer themselves for election exploration play concepts. In Vietnam Board remains committed to delivering by shareholders for the frst time at the we will look to pro-actively manage total shareholder returns through both forthcoming AGM. the production decline of TGT and dividends and capital growth. We continue CNV. On Blocks 125 & 126 2D seismic to pursue new business opportunities The Board looks to foster a genuine acquisition will commence mid-2019 where they are determined by the Board to two-way dialogue between the Company in a new and exciting exploration be in the best interest of our shareholders. and its stakeholders and welcomes the basin. Upon completion of the Merlon requirements of the 2018 Corporate acquisition and the implementation of Governance Code on engaging with the the drilling programme in Egypt, our workforce and other stakeholders.