Last checked at 4 Apr 2019 16:30
("SOCO" or the "Company")
Annual Report & Accounts and Notice of Meeting
The Annual Report & Accounts of the Company for the year ended 31 December 2018 and a Shareholder Circular, which includes Notice of the 2019 Annual General Meeting, are now available on the Company's website and can be accessed via www.socointernational.com.
The 2019 Annual General Meeting will be held at the offices of Clifford Chance LLP, 10 Upper Bank Street, London E14 5JJ on 23 May 2019 at 12.30 p.m.
Paper copies of the above two documents are available on request from the Company Secretary at the Company's registered office at 48 Dover Street, London W1S 4FF, United Kingdom. Paper copies of the above two documents, together with a Form of Proxy, have been mailed to those shareholders having elected to receive paper copies.
In accordance with LR 9.6.1, copies of the above two documents, together with a Form of Proxy, have been submitted to the National Storage Mechanism and will shortly be available for inspection on the National Storage Mechanism's website, http://www.morningstar.co.uk/uk/NSM
This dissemination announcement is based upon the Company's announcement of Preliminary Results for the Year Ended 31 December 2018 made on 6 March 2019 with the addition of information required by Disclosure and Transparency Rule (DTR) 6.3.5R set out below in the Appendix.
For further information, please contact:
SOCO International plc
Tony Hunter, Company Secretary
Tel: 020 7603 1515
Appendix
Following the release of the Company's Preliminary Results for the Year Ended 31 December 2018 made on 6 March 2019 additional information is set out below in accordance with DTR 6.3.5R.
1) The following is extracted from page 100 of the Company's Annual Report and Accounts 2018 at www.socointernational.com.
Directors' Responsibility Statement
The Directors confirm that, to the best of each person's knowledge:
(a) the Financial Statements set out on pages 109 to 134, which have been prepared in accordance with applicable United Kingdom law and IFRS as adopted by the European Union, give a true and fair view of the assets, liabilities, financial position and loss of the Company and the Group taken as a whole;
(b) this Directors' Report along with the Strategic Report, including each of the management reports forming part of these reports, includes a fair review of the development and performance of the business and the position of the Company and the Group taken as a whole, together with a description of the principal risks and uncertainties that they face and how these are being managed and mitigated as set out in the Risk Management Report on pages 36 to 43; and
(c) the annual report and the Financial Statements, taken as a whole, are fair, balanced and understandable and provide the information necessary for the shareholders to assess the Group's performance, business model and strategy.
Approved by the Board and signed on its behalf.
Jann Brown
Managing Director and Chief Financial Officer
5 March 2019
2) The following description of the principal risks and uncertainties is extracted from the Risk Management Report (pages 36 to 43) of the Annual Report and Accounts 2018 at www.socointernational.com
Principal Risks and Uncertainties
A summary of the key risks affecting SOCO and how these risks are mitigated to enable the Company to achieve its strategic objectives is as follows.
Key to change in likelihood: á Increase ßà No Change â Decrease N New Risk
Strategic
N | 1 Lack of AcquisitionsInability to complete further acquisitions in line with growth strategy | |
| Causes | Risk mitigation |
| · Social Issues (relationships) · Lack of opportunities (sector downturns) · Fluctuating oil prices/economic conditions · Target governance · Industry competition (higher for "good" assets) · Issues exposed by due diligence including technical risks/uncertainties, disputes · Resourcing limitations · Political risks · Inability to access suitable funding | · Regular review of funding options · Proactive dialogue with banks and other lenders · Quality and number of advisors · Intensify Opportunity Screening · Implement focused due diligence processes · Build on relationships/industry intelligence · Effective project management and resourcing |
N | 2 Our proposed transaction to acquire Merlon does not complete Delay in progress of SOCO growth strategy Funds allocated to this acquisition will be released to allow further deals | |
| Causes | Risk mitigation |
| · Egyptian regulatory approvals not received in a timely manner | · Clear plan agreed with Egyptian authorities · Frequent in country visits by senior personnel to monitor progress and remove roadblocks |
á | 3 Health, Safety, Environmental and Social Risk Reputational Operational outages leading to lower production | |
| Causes | Risk mitigation |
| · Face oil and gas high risk operating conditions and HSES risks · Regional risks of economic and social instability · Non-alignment of new acquisitions HSES practices with SOCO Corporate standards · Adverse weather conditions | · Implement SOCO HSES Management System on all SOCO ventures · Promote and facilitate best practice international standards · Ongoing personnel training, including running numerous Emergency Response Drills and HSE training sessions · Integrate the Egyptian acquisition of Merlon Petroleum El Fayum Company and update and align with SOCO HSES MS · Effective Contractor Management system in place · Business Interruption ("BI") insurance in place |
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| 4 Climate change risk Reputational Increased operating costs | |
| Causes | Risk mitigation |
| · Global transition to a lower carbon intensity economy · Increased climate regulation · Increase in carbon taxes · Investors driving business transition to tackle climate change | · Continuous monitoring and application of the most current and evolving information on trends and factors which may impact on current, future projects · Evaluate "strategic fit" of climate change decisions on key business operations / directions · Transparent reporting and participation in Carbon Disclosure Project ("CDP") · Continuous improvement of GHG emissions management and trigger initiatives to help emissions reduction |
Financial
á | 5 Commodity price risk Uncertainty on planning Inability to fund work programme / dividend | |
| Causes | Risk mitigation |
| · Geo-political factors · Supply and demand imbalances · Market speculations and trading in futures | · Hedging · Close monitoring of business activities, financial position cash flows · Stress test scenarios and sensitivities via principal compound risks analysis to ensure a level of robustness to downside price scenarios · Capital discipline with focus on controlling and managing costs |
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| 6 Financial discipline and governance risk Insufficient funds to finance growth plans and maintain dividends | |
| Causes | Risk mitigation |
| · Restrictions imposed in RBL covenants limit flexibility · Equity and/or debt markets no longer investing in oil and gas activities · Financial fraud | · Strong financial discipline · Robust systems processes and Delegation of Authority · Discretionary spend actively managed · Continued engagement with lenders |
Operational
â | 7 Reserves risk Future cash flows and value depend on producing our reserves | |
| Causes | Risk mitigation |
| · Earlier impairment triggers due to low commodity price and / or capital constraints jeopardise planned exploration / development initiatives · Inherent uncertainties in the evaluation techniques to estimate the 2P reserves · Increased DD&A costs | · Ongoing evaluation of projects in existing and potential new areas of interest and pursue development opportunities · Regular reviews of reserves estimates by independent consultants · Ensure continuing adherence to industry best practice regarding technical estimates and judgements · Ensuring peer and independent verification of future production profiles and reserve recovery · RBL compliance - Vietnam reserves are audited independently by reserves consultants approved by lenders |
N | 8 Partner alignment risk Misalignment at JV/JOC level can delay investment Adverse impact on production and cash flow | |
| Causes | Risk mitigation |
| · Co-venturers divergent views on drilling and upgrade programme 2019/20 · FPSO Tie-In Agreement ("TIA") from other Operator | · Active Participation in JOC management · Direct secondment · Agree on more equitable alignment of interest with Thang Long JOC regarding the FPSO TIA · Application of internal control best practice under a procedural framework · 2019 TGT work programme agreed in principle and preliminary preparation of bid packages |
á | 9 Cyber risk Major cyber security breach may result in loss of key confidential data | |
| Causes | Risk mitigation |
| · Sophistication and frequency of cyber attacks increasing · Disruption to critical business systems | · Offsite installation of back-up system and Business Recovery Plan in place · Prevention & detection of cyber threats via a programme of effective continuous monitoring · Plan for staged integration (new acquisition) and upgrade of IT systems |
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| 10 Human resource risk Good skilled people are essential to ensure success | |
| Causes | Risk mitigation |
| · Failure to recruit and retain high calibre personnel to deliver on and implement strategy · Challenges in the recruitment and integration of additional technical expertise for the new acquisition | · Remuneration Committee retains independent advisors to test the competitiveness of compensation packages · Ongoing succession planning · Maintain a competitive remuneration mix regarding bonus, long-term incentive and share option plans |
Reputational
á | 11 Stakeholder risk Adverse reaction from current / future stakeholders | |
| Causes | Risk mitigation |
| · Extractive industry image can be easily tarnished with adverse "flash events" · Operations in foreign countries / locations where social and environmental matters may be highly sensitive | · Operated joint ventures - SOCO always conforms to international best practice regarding health, safety, environmental and social policies · Non-operated ventures - SOCO always seeks to maximize its influence to promote best practice · Garners the views of its stakeholders through direct and indirect engagement · Active commitment to Corporate Responsibility reporting · Carry out extensive risk screening and due diligence assessments prior to new country entry |
á | 12 Political and regional risk Energy sector exposed to a wide range of political developments which may impact adversely on operating costs, compliance and taxation | |
| Causes | Risk mitigation |
| · Operations in challenging regulatory and political environments · Fiscal regimes can be subject to sudden change · Approval processes can be protracted causing delays · No deal Brexit | · Canvass support in risk management by using both international and in-country professional advisors · Engage directly with the relevant authorities on a regular basis · Thoroughly assess the risks of operating in specific areas and the commercial acceptability · Ongoing consideration of taking political risk insurance · All our operations are located outside of the EU and USD is the main currency of our business |
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| 13 Business conduct and bribery Reputational damage and exposure to criminal charges | |
| Causes | Risk mitigation |
| · Present in countries with below average score on the Transparency International Corruption Index · Lack of transparent procurement and investment policies · Compliance with Criminal Crime Offences ("CCO") and UK Bribery Act | · Ensure adequate due diligence prior to on-boarding with a risk based approach, including independent "Red flags" checks · Annual training and compliance certifications by all associated persons · Increase awareness of SOCO's anti-bribery and corruption policies for all employees and associated persons · Whistleblowing facility in place · CCO risk assessment and on-going implementation of adequate procedures to prevent facilitation of tax evasion across all operations · Active commitment to the principles of the Extractive Industries Transparency Initiative |
3) The following is extracted from Note 33 to the Financial Statements (page 132) of the Annual Report and Accounts 2018 at www.socointernational.com
RELATED PARTY TRANSACTIONS
During the year, the Company recorded a net cost of $0.6m (2017: net cost of $1.0m) in respect of services rendered between Group companies.
Remuneration of key management personnelThe remuneration of the Directors of the Company, who are considered to be its key management personnel, is set out below in aggregate for each of the categories specified in IAS 24 Related Party Disclosures. Further information about the remuneration of individual Directors is provided in the audited part of the Directors' Remuneration Report on pages 82 to 96.
| 2018 $ million | 2017 $ million |
Short term employee benefits | 5.9 | 6.1 |
Post-employment benefits | 0.3 | 0.3 |
Share-based payments | 1.5 | 1.7 |
| 7.7 | 8.1 |
Directors' transactions
Pursuant to a lease dated 20 April 1997, Comfort Storyville (a company wholly owned by Mr Ed Story) has leased to the Group, office and storage space in Comfort, Texas, USA. The lease, which was negotiated on an arm's length basis, has a fixed monthly rent of $1,000.
Under the terms of an acquisition approved by shareholders in 1999, the Company and its Investor Group, including Quantic group of companies, of which Mr Rui de Sousa is a 50% beneficial interest holder, jointly participated in certain regions in which the Investor Group utilised its long established industry and government relationships to negotiate and secure commercial rights in oil and gas projects. In the 2004 Annual Report and Accounts the form of participation to be utilised was set out to be through equity shareholdings in which the Investor Group holds a non-controlling interest in special purpose entities created to hold such projects. The shareholding terms were modelled after the SOCO Vietnam arrangement which was negotiated with third parties. The non-controlling holdings by Quantic group of companies in the subsidiary undertakings, which principally affected the profits or net assets of the Group, are shown in Note 16. The Group has entered into a consulting agreement, which is terminable by either party on 30 days' written notice, wherein Quantic Limited, which is part of the Quantic group companies, is entitled to a consulting fee in the amount of $50,000 per month in respect of such services as are required to review, assess and progress the realisation of oil and gas exploration and production opportunities in certain areas. As of February 2019, the consulting agreement with SOCO and Quantic has been terminated and no further consulting fees will be paid.
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