Pharming Group N.V. Annual Report 2014

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FY2014 Annual Report · Pharming Group N.V.

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Enter

2014

ABOUT US

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, the Republic of Congo, the Democratic Republic
of Congo and Angola. It employs a strategy for building
shareholder value through a portfolio of oil and gas assets
by focusing on Recognising Opportunity, Capturing
Potential and Realising Value.

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IN THIS

REPORT

2
4

SOCO AT A GLANCE

STRATEGIC REPORT

Strategy and Business Model

Chairman and Chief
Executive’s Statement

Review of Operations

Financial Review

Risk Management Report

Corporate Social
Responsibility Report

GOVERNANCE

About the Board

Annual Report of the Directors

Corporate Governance Report

Audit and Risk
Committee Report

Directors’ Remuneration Report

FINANCIAL STATEMENTS

Independent Auditor’s Report

Consolidated Income Statement

Consolidated Statement of
Comprehensive Income

Balance Sheets

Statements of Changes in Equity

Cash Flow Statements

Notes to the Consolidated
Financial Statements

ADDITIONAL INFORMATION

Five Year Summary

Key Performance Indicators

Reserve Statistics

Company Information

Glossary of Terms

100

101

102

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ABOUT THE STRATEGIC REPORT

The Directors present their Strategic Report for the year
ended 31 December 2014 for the Group which comprises
pages 4 to 45 and includes:

Strategy and Business Model

Chairman and Chief Executive’s Statement

Review of Operations

Financial Review

Risk Management Report

Corporate Social Responsibility Report

Pages

4 – 5

6 – 11

15 – 23

24 – 28

29 – 33

34 – 45

This Strategic Report has been prepared for the Group
as a whole and therefore gives greater emphasis to those
matters which are significant to SOCO International plc and
its subsidiaries when viewed as a whole. The Directors, in
preparing the Strategic Report, have complied with s414C of
the Companies Act 2006.

CYNTHIA CAGLE

COMPANY SECRETARY
11 MARCH 2015

SOCO INTERNATIONAL PLC | Annual Report and Accounts 2014

2 AT A GLANCE

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PRODUCTION

BLOCK 9-2

SOCO interest

25%

SOCO Vietnam

Project details

LOCATION
Cuu Long Basin,
offshore Vietnam

OPERATIONAL PHASE
Field development/
production

OPERATOR
Hoan Vu Joint
Operating Company

Project partners

50%

PetroVietnam

25%

PTTEP

BLOCK 16-1

SOCO interest

30.5%

SOCO Vietnam
and OPECO Vietnam

Project details

LOCATION
Cuu Long Basin,
offshore Vietnam

OPERATIONAL PHASE
Field development/
production

OPERATOR
Hoang Long Joint
Operating Company

Project partners

41%

28.5%

PetroVietnam

PTTEP

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EXPLORATION
EXPLORATION

MARINE XI BLOCK

Project details

SOCO interest

Project partners

LOCATION
Congo Basin,
offshore Congo
(Brazzaville)

OPERATIONAL
PHASE
Exploration/
appraisal

OPERATOR
SOCO EPC

40.39%

SOCO EPC

23%

WNR

15%

SNPC

13.11%

8.5%

AOGC

PetroVietnam

MER PROFONDE SUD

Project details

SOCO interest

Project partners

LOCATION
Congo Basin,
offshore, Congo
(Brazzaville)

OPERATIONAL
PHASE
Block evaluation/
exploration

OPERATOR
SOCO Congo
BEX

60%

SOCO
Congo BEX

25%

PARC

15%

SNPC

CABINDA NORTH BLOCK

Project details

SOCO interest

Project partners

LOCATION
Congo Basin,
onshore Cabinda,
Angola

OPERATIONAL
PHASE
Exploration/
appraisal

OPERATOR
Sonangol P&P

17%

SOCO Cabinda

20%

Sonangol P&P

15%

ENI

17%

Teikoku Oil

11%

China
Sonangol

10%

Angola
Consulting
Resources

10%

Petropars

BLOCK V

LOCATION
Albertine Rift,
onshore eastern DRC

OPERATIONAL PHASE
Completion of block
evaluation/contractual
obligations. No further
operational involvement.

OPERATOR
SOCO E&P DRC

SOCO INTERNATIONAL PLC | Annual Report and Accounts 2014

A LONG TERM COMMITMENT

SOCO became a partner in projects in Vietnam
during 1999; these assets are today one of the
largest producers of hydrocarbons in Vietnam.
 Review of Operations on p15

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OUR PROVEN
BUSINESS MODEL

concept becomes too expensive.

£ build large positions early on, before the play

by applying its business model to:

S SOCO achieves its core strategic values
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£ increase portfolio value through the application
of managerial and technical expertise. The
SOCO corporate team, based in London, utilises
a pool of specialist proven geoscientists and
engineers enabling a highly efficient and focused
approach to the Company’s activities.

commercialise within realistic time frame
(5-10 years) and to avoid projects that lock
in capital for long periods of time.

with other oil and gas companies, SOCO
mitigates risks and optimises capital resources.

SOCO focuses on overlooked or under-
exploited opportunities in hydrocarbon
prone regions:

£ lay off risk (rather than take on risk). By partnering

£ lock in returns at the right time. Aim to

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£ brownfields versus greenfields to reduce risk.

£ hurdle rate for new country entry is 50 mmbbls

net to SOCO on initial opportunity.

£ oil rather than gas. A market is required before

a gas project is ever considered.

£ SOCO is committed to being a safe and positive
presence in the countries where we operate,
guided by a responsible approach to oil and gas
exploration and production.

STRATEGIC REPORT

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1

SOCO INTERNATIONAL PLC | Annual Report and Accounts 2014

RUI DE SOUSA

CHAIRMAN

ED STORY

PRESIDENT AND
CHIEF EXECUTIVE OFFICER

“The SOCO business model
– with a strong balance
sheet, low break even oil
prices (in the low $20s) and
capital discipline as part of
our DNA – is resilient in the
current environment.”

 More on p4

TOTAL CASH RETURNED
IN THE COMPANY’S
SHORT HISTORY OF
MAKING DISTRIBUTIONS

c.$333M

 Board biographies on p47

 Financial Statements on p73

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STRATEGIC REPORT

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ear shareholders

2014 PERFORMANCE

The dramatic fall in the oil price in the
latter part of 2014 after a long period of
stability introduced significant uncertainty
and challenging conditions for the industry,
bringing into focus the importance of
substantial financial flexibility and strong
capital discipline, and having a business
capable of sustaining itself and generating cash flow in
a low oil price environment.

The SOCO business model – with a strong balance
sheet, low break even oil prices (in the low $20s) and
capital discipline as part of our DNA – is resilient in this
environment. As SOCO is staffed and managed by people
who have extensive experience in this industry, we are also
accustomed to having to deal with the cyclical nature of it.
We have always been cost conscious and leanly resourced;
therefore, we do not employ a lot of people and selectively
use contractors, allowing us to scale our business up or
down quickly depending on the prevailing environment. In
response to the lower oil prices, we have deferred drilling the
MPS exploration well to 2016 and undertaken several actions
to reduce our general and administration costs, notably by
eliminating the separate new ventures office and reducing
general and administration costs in our regional offices
by approximately 25%; in Vietnam capital and operating
expenditure savings are expected to be in the region of 10%.

However resilient the business model may be, there
are negative consequences to business metrics as a
consequence of the downturn in the macro environment
as well as company-specific developments. Against the
background of lower oil prices and the resultant uncertainty
around the scope and timing of future development, we
have significantly revised last year’s 2P reserves estimates
associated with the TGT asset, with a portion of the
reserves being reclassified into Contingent Resources.
The re-classification has been done following on from an
exhaustive technical study performed by ERC Equipoise,
completed at the end of 2014. Further, due to drilling
difficulties on the CNV-7P well, we were not able to
complete the well thus leading to a write down of reserves
attributed to the asset. It is now our intention to commission
an independent reserve report covering all of our
producing assets.

With our significant financial flexibility, fully funded capex
programme and strict cost discipline, we can continue our
strategy of focusing on cash flow generation and delivering
to shareholders both value – through cash returns – and
growth, be it organic or inorganic. The short term priority is
to shape the business, which is already resilient in a downside
scenario of persisting low oil prices, and to put plans in place
for delivering sustainable growth as the oil price recovers.

2014 was a strong year for SOCO. The Company progressed
development of the TGT field with the H5 fault block
discovery remaining on a fast track for first production in
the third quarter of 2015, drilled a successful exploration
well offshore the Congo (Brazzaville), delivered the second
material cash return to shareholders and concluded an
independent study demonstrating TGT’s full potential.

Importantly, we were able to accomplish these excellent
results and to maintain our exemplary record from the health
and safety aspect.

The Group’s production during 2014 of c. 13.6 kboepd was
just below our guidance range at the beginning of last year,
down from c. 16.7 kboepd in 2013. The year-on-year drop
was mainly attributable to part of the capacity of the TGT
FPSO being contractually available to the neighbouring
third-party field from May 2013.

Group financial results delivered solid revenue of
$448.2 million, albeit down from the 2013 results, reflecting
both lower production and lower realised average oil price
of c. $103 per barrel (2013 – c. $113 per barrel). The Group is
reporting a post-tax profit for the year of $14.0 million (2013
– $104.1 million), which includes an exploration write-off of
$79.5 million associated with costs incurred on the Albertine
Graben Block V in eastern DRC and pre-licence costs of new
ventures, and a gross impairment charge on the CNV asset
of $60.5 million (net $38.2 million after tax impact). Before
accounting for the non-cash impact of the exploration
write-offs and impairments, post-tax profits were down
from $196.1 million in 2013 to $131.7 million in 2014.

Net cash generated from operations came in at
$251.2 million in 2014, down from $314.4 million in 2013,
reflecting lower sales volumes and lower realised oil prices.
Capital expenditures were up from $99.1 million in 2013 to
$162.5 million in 2014 predominantly due to the TGT H5
development and exploration activity in Africa.

SOCO made its second return of cash to shareholders during
2014 of c. $119 million, or 60% of the 2013 free cash flow of
c. $200 million, bringing the total returned in the Company’s
short history of making distributions to c. $333 million.

SOCO INTERNATIONAL PLC | Annual Report and Accounts 2014

8
CHAIRMAN AND CHIEF
EXECUTIVE’S STATEMENT
CONTINUED

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VIETNAM

The TGT field has been a great investment for SOCO and the
cash flow from the field has enabled the Company to initiate
cash returns to shareholders.

The TGT field has attractive economics and cost recovery
terms, low operating costs and benign operating and
geopolitical backdrop. But the field economics also mean that
the cash flow profile and returns are significantly geared to the
oil price.

The ERCE study of the TGT field has significantly advanced our
understanding of the field and by most indications improved
that of our partners. The dynamic model developed by ERCE,
a result of almost a year’s work of a multidisciplinary team,
incorporating all available geological and field performance
data, is the best tool available yet. The modelling study
demonstrates a broad range of interpretations and of potential
recovery scenarios depending on the level of development
drilling, infrastructure optimisation and upgrade, as well as the
most optimal reservoir performance management to optimise
field recovery.

Clearly, the scope of the development programme in the
updated full FDP will to a large extent depend on the oil
price outlook at the time and JOC partners’ alignment on a
development path and appetite to commit capital.

Consequently, a substantial amount of TGT 2P reserves has
been re-classified into 2C Contingent Resources, reflecting
the fact that currently only the original FDP and H5 FDP wells
are being drilled and that, at this stage, there is no agreement
among the JOC partners on the scope of development and
level of investment going forward. Therefore, we believe
that the prudent approach to 2P reserve booking against
this background, taking into account the level of reservoir
complexity and uncertainty, is to include only the P50
recoverable volumes based on existing and likely near term
wells, and optimal field management. Additionally, a portion
of the 2P reserves has been recognised as 3C Contingent
Resources reflecting a degree of geological uncertainty around
the range of oil-in-place estimates and partner alignment on
the level of future capital investment in the field.

For CNV, our previous commercial reserve estimates were
largely predicated on the successful drilling of the CNV-7P
well, which was targeting the previously untapped south west
area of the field and material increase in production, leading
to further development drilling. Disappointingly, due to
unexpected geological issues the well failed to reach the target
reservoir despite several attempts to sidetrack. Thus, we have
significantly reduced our estimates of the 2P reserves for CNV
and re-classified undrilled wells including the CNV-7P well into
Contingent Resources.

 Review of Operations on p15

 Reserve Statistics on p100

STRATEGIC REPORT

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AFRICA EXPLORATION

Marine XI
During 2014, we drilled, as operator, a very successful
exploration well on Marine XI Block offshore Congo
(Brazzaville), which suggests an extension into our Block
of the Litchendjili field on the Marine XII Block which is
scheduled to come on-stream this year. The Lidongo
X Marine 101 exploration well significantly exceeded
expectations, testing more than 5,000 barrels of oil per day.
The well results are being analysed in order to determine the
continuity of the productive reservoirs of the well with the
nearby discoveries in the Marine XII Block and to progress
towards potential unitisation with the Litchendjili field.

The reserves associated with the Viodo field in Marine XI
have been re-classified to Contingent Resources as there
are no plans for commercial standalone development.
However, we believe that there is potential in the near future
to recognise Contingent Resources on the Marine XI Block
as the Lidongo discovery is further evaluated and advanced
towards unitisation with the Litchendjili field and the
exploitation of the East Lideka field progresses.

Mer Profonde Sud
Following completion of our farm-in into the MPS Block
offshore Congo (Brazzaville), we have been working with our
partners on a detailed well location study. We remain very
optimistic about the exploration potential of the MPS Block,
however, given the prevailing market conditions in early 2015,
drilling of the well has been delayed until 2016.

Block V
After receiving all necessary regulatory approvals, a non-
invasive seismic survey was completed over a portion of
Lake Edward in an area of Block V in eastern DRC mid-2014.
The survey was successfully completed in six weeks with no
reported adverse impact on the environmental parameters
of the region. Processing of the seismic data has been
completed and data interpretation is currently underway
in the UK and should be completed by mid-2015. The
Company no longer has any personnel in Block V.

While we acknowledge that the DRC government is
anticipating discussions with UNESCO involving the future
of the Virunga National Park, we have no involvement in
these discussions. After providing the DRC government
with interpretation of the seismic results, SOCO will have
no further involvement in the Block. Consequently, all costs
incurred on Block V to date and any further costs anticipated
in the course of 2015 have been written off as exploration
expense in 2014. It is our intention to leave behind all the
humanitarian aid that SOCO has provided in medical, water
purification and communications facilities for the benefit of
the people.

THE OPERATIONAL
FOCUS FOR 2015
WILL BE ON BRINGING
TGT’S H5 FAULT BLOCK
PRODUCTION ON LINE

CORPORATE

Management
Executive refreshment and succession continue to be
important to the Company. In April, SOCO announced that
Anya Weaving joined the Company as Chief Financial Officer
with effect from 1 May 2014. Anya joined from Bank of America
Merrill Lynch where she was a Managing Director in Mergers
and Acquisitions with responsibility for the oil and gas sector.

Review of Allegations
In the summer of 2014, the Company engaged Clifford Chance
LLP to carry out an independent review to assess whether
there is evidence supporting allegations of wrong doing made
by various NGOs and media members of its activities in the
DRC. The law firm was also asked to advise as to whether,
in the materials reviewed, there was any evidence contradicting
the Company’s conclusion, based on its own internal review,
that neither SOCO nor its employees have been complicit in
any intimidation and/or human rights abuses.

Given the absence of a response from NGOs to SOCO’s
request for assistance in evidencing the allegations, the
exercise has been defined and focused by Clifford Chance
in terms of the evidence considered. The Company has
provided access to all the available personnel, processes and
documents requested by the law firm in order for them to
conduct a focused review and sufficient for them to advise
the Board as to the appropriate steps to be taken.

Upon the conclusion of the independent review, the Company
will take any necessary steps and advise its stakeholders.

SOCO INTERNATIONAL PLC | Annual Report and Accounts 2014

10
CHAIRMAN AND CHIEF
EXECUTIVE’S STATEMENT
CONTINUED

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The Board recognises
the need for an appropriate
balance of critical attributes,
including skills, experience, diversity,
independence and knowledge of the
Company. Accordingly, it continually
seeks, within an appropriate Board
size, to manage a balance between
each important element in
its composition, including
Executive representation,
independence, diversity, tenure
and refreshment.

 More on p55

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STRATEGIC REPORT

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OUTLOOK

We are committed to evaluating every alternative to
optimise our exposure to upside without jeopardising
our focus on sustainable cash flow generation. Whereas
exploration remains a cornerstone of our growth strategy,
we believe now is not the right time to commit any material
capital to this. Our exploration programme for 2015 is limited
to reprocessing existing seismic on the Marine XI Block to
define the lowest cost upside to the portfolio and doing
further work on a potential well location for drilling Mer
Profonde Sud in 2016.

Our production guidance range for 2015 remains at
10.5-12 kboepd, reflecting reduced scope of the 2015 TGT
drilling programme, largely due to the uncertain oil price
environment, and conservative estimates of initial flow rates
from TGT H5.

The operational focus for 2015 will be on bringing TGT’s
H5 fault Block production on line and working with the
TGT partners to submit the updated FDP for TGT in Q3.
Otherwise, it will be a year of prudent cost management
whilst taking proactive measures to ramp the TGT
development programme back up when conditions are
more conducive.

Current market conditions notwithstanding, our distribution
strategy of targeting cash returns of 50% of the previous
year’s free cash flow remains. Based on the results of 2014
and near term outlook, the Board has proposed a cash return
of 10 pence per share (representing c. $50 million), payable in
the form of a dividend, to be approved at the AGM on
10 June 2015.

As in the past, we remain value driven. We see the current
environment as an opportunity to plan for future growth
rather than a time for questioning the viability of the industry,
and we believe SOCO is well positioned to continue to
execute its strategy in this environment.

RUI DE SOUSA

CHAIRMAN

ED STORY

PRESIDENT AND
CHIEF EXECUTIVE OFFICER

$119M

CASH RETURNED TO
SHAREHOLDERS IN 2014

ADDITIONAL

$50M

DIVIDEND RECOMMENDED
TO BE PAID IN JUNE 2015

WE REMAIN
VALUE DRIVEN AND
SEE THE CURRENT
ENVIRONMENT AS
AN OPPORTUNITY
TO PLAN FOR
FUTURE GROWTH

SOCO INTERNATIONAL PLC | Annual Report and Accounts 2014

AFRICA – LIDONGO X MARINE 101 WELL

THE LXM-101 WELL

The LXM-101 well, 23km
north west of Pointe Noire
in approximately 45 metres
water depth, was drilled
to a total depth of 2,665
metres, encountering oil in
a clastics sequence in the
Djeno sand formation.

 More on p19

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STRATEGIC REPORT

VIETNAM – DONATING TO LOCAL GOOD CAUSES

 CYCLO 2014

Our JOCs are major
sponsors of the Saigon
Cyclo Challenge, an
annual sports event and
family outing run by
Saigon Children’s Charity
to raise much-needed
funds for disadvantaged
children.

CLEAN WATER
WELLS PROJECT

Our JOCs provided
funds to build wells in
the Phu Tan Commune,
Chau Thanh District.


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RURAL ROADS 

The JOCs donated
over VND196m to the
Rural Road Building
Project for the Huyen
Hoi Commune, Tra
Vinh Province.

SUPPORTING
EDUCATION 

During 2014,
our JOCs supported
the construction of
two Kindergartens in
the region. The Quang
Trung Kindergarten
in Nam Dinh Province
opened in September.

 More on p15

SOCO INTERNATIONAL PLC | Annual Report and Accounts 2014

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STRATEGIC REPORT

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ANTONY MARIS

CHIEF OPERATING OFFICER

perational focus for 2014 was
on the in-field development
drilling of TGT, completion of
the TGT dynamic model and
the development of the
TGT H5 fault Block. In Africa,
we successfully drilled and
tested an exploration well on
Marine XI and successfully

and safely completed a lake bed seismic survey
on Lake Edward.

Group production for 2014 averaged
13,605 boepd (2013 – 16,694 boepd) with
all production coming from the Company’s
interests in Vietnam.

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VIETNAM

Block 16-1 and Block 9-2 in Vietnam are located
in shallow water in the oil rich Cuu Long Basin,
near the Bach Ho field, the largest field in the
region which has produced more than one
billion barrels. The Blocks are operated by
JOCs in which each partner holds an interest
equivalent to its share in the respective
Petroleum Contract.

SOCO holds a 30.5% working interest in
Block 16-1 and a 25% working interest in
Block 9-2 through its wholly owned subsidiaries,
SOCO Vietnam Ltd and OPECO Vietnam
Limited. SOCO’s partners in both Blocks are
PetroVietnam, the national oil company of
Vietnam, and PTTEP, the national
oil company of Thailand.

OIL AND GAS PRODUCTION BY FIELD

TGT Production

Oil (bopd)

Gas (boepd)

CNV Production

Oil (bopd)

Gas (boepd)

Total Production

KPI

Oil (bopd)

Gas (boepd)

GROUP OIL AND GAS RESERVES

2P Reserves

2P Reserves +
2C Contingent Resources

2014

11,538

10,464

1,074

2,067

1,423

644

13,605

11,887

1,718

2014

40.8

79.7

2013

14,635

13,301

1,334

2,059

1,494

565

16,694

14,795

1,899

KPI

2013

130.1

KPI See Additional Information - Key Performance Indicators on page 99 and Reserve Statistics on page 100

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SOCO INTERNATIONAL PLC | Annual Report and Accounts 2014

16
REVIEW OF OPERATIONS
CONTINUED

BLOCK 9-2
Field development/
production

BLOCK 16-1
Field development/
production

BLOCK 16-1 – TGT FIELD
(30.5% INTEREST;
OPERATED BY HLJOC)

the H1 fault block, with injection now ongoing to
complement aquifer support and assist specific
sand water-flooding.

The TGT field is located in the north eastern part
of Block 16-1 offshore Vietnam and is operated
by the HLJOC. TGT is a simple structure, with
complex production intervals, extending over
16km and with hydrocarbons located in at
least five fault blocks. The producing reservoir
comprises a complex series of over 50 clastic
reservoir intervals of Miocene and Oligocene age.
Each reservoir interval requires individual reservoir
management to optimise field recovery. The field
has attractive economics and cost recovery terms,
low operating costs and a benign operating and
geopolitical backdrop.

2014 production net to SOCO averaged 11,538
boepd. TGT crude sold at an average $4.13/bbl
premium to Brent in 2014. In line with the lower
oil price environment, TGT crude sales in 2015
have averaged a premium of approximately $1.92
per barrel.

H5 Development
Following on from the successful H5 discovery
well, TGT-10XST1, in late 2013, the Company
and its partners focused on the fast track
development of H5, agreeing to develop it using
an unmanned wellhead platform, the H5-WHP,
with production tied-in to the FPSO via the
H1-WHP.

All parties agreed to commence construction
of the platform in advance of formal approvals.
The Hydrocarbons Initially In Place/Reserve
Assessment Report was approved in June 2014,
and the H5 FDP was approved in September
2014. The construction of the H5-WHP jacket and
drilling deck was installed in August/September
2014 allowing drilling to commence from mid-
September 2014.

The target date for first oil is September/October
2015 and we are on target to achieve this.

2014 Drilling Programme
Following the delay to the 2013 in-field drilling
programme from the extended testing on the H5
discovery well, TGT-10XST1, we drilled a total of
eight wells in 2014 both on the H5 development
and within the main part of the TGT field. A
further five wells are expected to be completed by
the end of the second quarter 2015, at which point
the rigs are to be released.

Drilling commenced on the H1-WHP with two
producer wells, TGT-17PST1 and TGT-18PST1,
both now on-stream and producing in line
with expectations. The third well, TGT-11X, an
exploration/appraisal well on the H2S fault block,
has been completed as a producer/injector.
This well was targeting primarily an Oligocene
oil column with a thin Lower Miocene column.
However, the pay sections in both horizons were
thinner than expected. The first targeted injection
well, TGT-19I, was drilled on the eastern flank of

In October 2014, the TGT-9X appraisal well was
drilled from the H4-WHP appraising the Miocene
and Oligocene sequences in the H3 fault Block.
Although the well found a thinner hydrocarbon
column than predicted, it was completed in
December 2014 as a producer. In January 2015 the
TGT-20P, an in-fill producer in the H4 fault Block
targeting the Oligocene was drilled. Following
this well, the rig will drill the H3N fault Block in-fill
producer, TGT-21P, and the H4 fault Block in-fill
producer, TGT-26P, both targeting the Miocene
and Oligocene sequences.

The first H5 development well, TGT-22P,
was drilled to establish the distribution of
hydrocarbons in the Upper Miocene. The TGT-
10XST1 well test produced gas during the final
test although it was not possible to identify from
which specific sand units. Fluid samples taken
from the multilayered Miocene have indicated
that gas is more limited than previously thought,
increasing oil in place.

The rig then batch-drilled and successfully
completed the TGT-23P and TGT-24P wells by early
January 2015. Following that, in January 2015, the
TGT-12X well, an appraisal well of the previously
undrilled H5N fault block was drilled. Unfortunately,
the well encountered only a minor oil column in
the target Miocene section. Having completed that
well, the rig is now drilling the final H5 development
well, TGT-25P, that will also appraise the deeper
Oligocene section. It remains our expectation to
drill the H5S fault block appraisal well following
completion of the TGT-25P well, provided there is
time ahead of the rig release in April 2015.

Floating, Production, Storage and
Offloading Vessel Capacity Testing
As the TGT field’s FPSO oil throughput remains
contractually limited to 40,000 bopd of the
55,000 bopd nameplate capacity,
FPSO de-bottlenecking to increase TGT
production remains a strategic priority. Delays to
the 2014 drilling programme required changes
to other operational plans, the main one being
to accelerate the testing of the total liquids (oil
and water) handling capacity of the FPSO ahead
of carrying out the second phase test of the oil
handling capacity.

In July 2014, the HLJOC successfully tested the
existing facilities on the FPSO beyond the current
total liquids nameplate capacity of 120,000
blpd to approximately 140,000 blpd. The test
confirmed that minor systems modifications could
increase total liquids handling capacity to in
excess of 160,000 blpd. The HLJOC has identified
minor investments to improve liquid handling
and is working with the vessel owner/operator
(BAB-VSP Alliance) to define the technical projects
and commercial terms to allow the vessel to be
re-certified at higher capacities.

STRATEGIC REPORTt
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SOCO INTERNATIONAL PLC | Annual Report and Accounts 2014

18
REVIEW OF OPERATIONS
CONTINUED

THE INDEPENDENT
STUDY OF TGT
COMMISIONED IN 2014
HAS SIGNIFICANTLY
ADVANCED OUR
UNDERSTANDING
OF THE FIELD

TGT Performance Evaluation and Prediction
In 2013, SOCO retained ERCE to build a Dynamic
Simulation Model of the TGT field. In 2014,
this engagement was expanded to include the
integration of a new Geological Model. The
Geological Model was integrated into a revised
Dynamic Simulation Model for a technical
evaluation of the TGT resources. On completion
of the history match and H5 area additions, the
model ran a series of forecasts to evaluate the
ultimate oil volume recoverable given various
levels of development drilling and pressure
maintenance under various FPSO and alternative
liquid handling options.

The ERCE study of TGT has significantly
advanced our understanding of the field. The
dynamic model encompassed almost a year’s
work of a multidisciplinary team, incorporating
all geological and field performance data, and
is the best tool available yet, but also highlights
significant complexity and technical uncertainty
of the field. The modelling study demonstrates
a significant range of potential development
scenarios depending on the level of development

drilling, infrastructure optimisation and upgrade,
as well as reservoir performance management to
optimise field recovery. We continue to refine and
update the model to focus on the development
programme choices required for the revised
full FDP.

Forward Plans
At this time, the HLJOC partners are preparing
an update to the TGT FDP for submission to the
relevant Vietnamese authorities. The updated
FDP will incorporate the development plans for
the TGT field beyond 2015. The conclusions of
the ERCE work were shared with the HLJOC
Partners as part of this process, as the work
suggests a substantial increase in oil recovery
can be achieved.

Clearly, the scope of the development programme
in the updated FDP will, to a large extent, depend
on the oil price outlook at the time and JOC
partners’ alignment on a development path and
appetite to commit capital.

In light of the current oil price, Group production
guidance for 2015, at 10,500-12,000 boepd,
is lower than 2014 production performance
reflecting the reduced scope of 2015 TGT drilling,
limited to wells approved under the original FDP
and the H5 FDP, as well as conservative estimates
of initial flow rates from H5. Production from TGT
could be increased from the existing well stock
by perforating additional horizons, optimising
reservoir management by shutting off higher
water-cut wells and through the early start‐up
of the H5 development. SOCO is discussing all
these initiatives with the HLJOC partners. It is our
expectation that, with these measures and by
having H5 coming on stream, the production
in the field could be increased.

BLOCK 9-2 – CNV FIELD
(25% INTEREST;
OPERATED BY HVJOC)

The CNV field is located in the western part of
Block 9-2, offshore Vietnam and is operated by
the HVJOC. SOCO’s working interest production
from CNV averaged 2,067 boepd in 2014 (2013:
2,059 boepd). In contrast to TGT, the CNV field
reservoir is a fractured granitic basement which
produces highly volatile oil with a high gas to
oil ratio and exploitation is dependent on the
fracture interconnectivity to deplete the reservoir
efficiently. Accordingly, traditional reservoir
properties and stoiip calculations are
not straightforward.

STRATEGIC REPORTMARINE XI BLOCK
Exploration/appraisal

REPUBLIC OF
CONGO

MER PROFONDE SUD
Block evaluation/
exploration

CABINDA
NORTH BLOCK
Exploration/appraisal

VINCENT DUIGNAN

GROUP EXPLORATION
MANAGER

T
R
O
P
E
R

C
I
G
E
T
A
R
T
S

E
C
N
A
N
R
E
V
O
G

S
T
N
E
M
E
T
A
T
S

L
A
I
C
N
A
N
I
F

DEMOCRATIC
REPUBLIC
OF CONGO

BLOCK V

N
O

I
T
A
M
R
O
F
N

L
A
N
O

I
T
I
D
D
A

ANGOLA

Hydrocarbons produced from CNV are
transported via subsea pipeline to the BHCPP
where wet gas is separated from oil and
transported via pipeline to an onshore gas
facility for further distribution. The crude oil is
stored on a FSO vessel prior to sale. On the
BHCPP, dedicated test separation and metering
facilities have been installed.

The CNV-7P well drilled in 2014 was designed
to target the thus far unpenetrated south west
area of the field to increase production. The well
encountered unexpected geological problems
not previously seen in the upper hole section
just above the reservoir, requiring the section
to be redrilled. The same problems persisted
during two attempted sidetracks preventing
successful completion.

The decision was made to suspend the well,
and review alternative plans and well paths to
enable successful completion. The decision
on timing to return to the well is expected in
mid-2015 following completion of detailed
drilling engineering and rock mechanic studies.
However in the current oil price environment
SOCO believes the redrill of this well has a
low likelihood.

REPUBLIC OF CONGO
(BRAZZAVILLE)

SOCO holds its interests in the Marine XI Block
in Congo (Brazzaville) through an 85% owned
subsidiary, SOCO EPC. SOCO EPC holds a
40.39% interest in the Marine XI Block located
offshore in the shallow water Lower Congo
Basin and is the designated operator of the
Block. SOCO holds a 60% working interest in
the Mer Profonde Sud Block, offshore Congo
(Brazzaville) through its wholly owned subsidiary,
SOCO Congo BEX Limited.

MARINE XI

Lidongo X Marine 101 Well
The LXM-101 well, 23 kilometres north west
of Pointe Noire in approximately 45 metres
water depth, was drilled to a total depth of
2,665 metres, encountering oil in a Clastics
sequence in the Djeno sand formation.

The test, over a perforated 20 metre section,
produced at a stable average post-frac flow
rate of 4,800 bopd and 3.5 mmscfd on a

SOCO INTERNATIONAL PLC | Annual Report and Accounts 2014

20
REVIEW OF OPERATIONS
CONTINUED

A
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STRATEGIC REPORT

T
R
O
P
E
R

C
I
G
E
T
A
R
T
S

E
C
N
A
N
R
E
V
O
G

S
T
N
E
M
E
T
A
T
S

L
A
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N
A
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N
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I
T
I
D
D
A

POST-FRAC
FLOW RATE AT
LXM-101 WELL

4,800BOPD

SERGE LESCAUT

GENERAL MANAGER,
AFRICA REGION

56/64” fixed choke with a flowing wellhead
pressure of 778 psi following the successful
execution of the stimulation frac. The oil was
32 degrees API.

DEMOCRATIC REPUBLIC OF
CONGO (KINSHASA)

The well results are being analysed to determine
continuity with the nearby discovery on
Marine XII and discussions with the authorities
are ongoing to submit the documentation
required to allow unitisation with that field.

SOCO holds its onshore interest in the
DRC though its 85% owned subsidiary,
SOCO E&P DRC. SOCO E&P DRC holds an
85% working interest and is the designated
operator in Block V, situated in the southern
Albertine Graben in eastern DRC.

NANGA II A

BLOCK V

Following the completion of the interpretation
of the reprocessed seismic data, the exploitation
licence expired in October 2014. We are no
longer undertaking work on Nanga II A but
have approached the Congolese Ministry
of Hydrocarbons to discuss a potential work
programme and commercial terms for a
possible Production Sharing Agreement for the
area. Discussions are ongoing at this time.

MER PROFONDE SUD

The Company’s farm-in to acquire a 60%
working interest in the offshore MPS Block
has been completed following government
approval of the commencement of the relevant
two year licence period from 1 June 2014.
We have been working with our partners on
a detailed well location study and are very
optimistic about the exploration potential of
the MPS Block. However, given the prevailing
market conditions in early 2015, drilling of the
well has been delayed until 2016.

After receiving all necessary regulatory
approvals, the lake bed seismic survey on Lake
Edward was completed in June 2014. Safety
of the crew was of primary importance. The
survey was successfully completed in six weeks
amid challenging conditions with no lost time
injuries. Processing of the seismic data has been
completed. Data interpretation is currently
underway in the UK and should be completed
by mid-2015. The Company no longer has any
personnel on Block V and after providing the
DRC government with interpretation of the
results of the seismic anticipates no further
involvement in the Block. It is our intention to
leave behind all the humanitarian aid that SOCO
has provided in medical, water purification and
communications facilities for the benefit of
the people.

ANGOLA

CABINDA NORTH

Following incorporation of the results from the
2013 drilling programme, the detailed plans
for operations in 2015 have been reviewed by
the partnership. The licence expires at the end
of March 2015, however a three year licence
extension for the continuation of exploration
activities has been requested effective from
1 April 2015 with a new contractor group
interested to continue their involvement.

SOCO INTERNATIONAL PLC | Annual Report and Accounts 2014

22
REVIEW OF OPERATIONS
CONTINUED

GROUP COMMERCIAL
RESERVES AND CONTINGENT
RESOURCES EVALUATION

Against the background of lower oil prices
and the resultant uncertainty around the scope
and timing of future development activities,
in particular due to partner reluctance to commit
to additional capital expenditures, we have
revised down the 2P reserves estimates for our
portfolio, with a portion being re-classified into
Contingent Resources.

TGT COMMERCIAL RESERVES
AND CONTINGENT RESOURCES

For TGT the re-classification of reserves into
Contingent Resources reflects the fact that there
is not yet agreement among JOC partners on
the scope of development activities and level
of investment following the current FDP and H5
FDP approved wells, all of which will be drilled
in 2015. SOCO has estimated reserves assuming
the drilling of only existing approved and a small

number of likely near term wells and optimal
field management. All volumes beyond this
scope of development activities are being
classified as contingent. The range of reserves
and Contingent Resources volumes continue
to capture management’s view of the full potential
of the TGT field. The estimates are grounded in
the results of the ERCE Dynamic Simulation
Model and the current field performance and
reflect the degree of uncertainty around the
oil-in-place estimates.

TGT FIELD OIL-IN-PLACE ESTIMATES

Stock Tank Oil Initially In Place

P90

498

P50

759

P10

1,052

 Reserve Statistics on p100

Figures in mmbbl

TGT FIELD GROSS

COMMERCIAL RESERVES + PRODUCTION
INCEPTION TO YEAR END 2014

Oil

Gas

Total

CONTINGENT RESOURCES

Oil

Gas

Total

TOTAL ULTIMATE RECOVERY

Oil

Gas

Total

SOCO WORKING INTEREST REMAINING RESERVES AND RESOURCES
AT 31 DECEMBER 2014

COMMERCIAL RESERVES

120.0

160.0

200.0

6.3

9.8

13.6

126.3

169.8

213.6

55.0

4.8

59.8

1P & 1C

175.0

80.0

8.0

88.0

2P & 2C

240.0

115.0

11.9

126.9

3P & 3C

315.0

11.1

17.8

25.5

Oil

Gas

Total

CONTINGENT RESOURCES

Oil

Gas

Total

SUM OF RESERVES AND
CONTINGENT RESOURCES

Oil

Gas

186.1

257.8

340.5

Total

22.2

1.0

23.2

16.8

1.5

18.3

34.4

2.1

36.5

24.4

2.4

26.8

46.6

3.3

49.9

35.1

3.6

38.7

1P & 1C

2P & 2C

3P & 3C

39.0

2.5

41.5

58.8

4.5

63.3

81.7

6.9

88.6

Figures in mmbbl/mmboe

STRATEGIC REPORT23

T
R
O
P
E
R

C
I
G
E
T
A
R
T
S

E
C
N
A
N
R
E
V
O
G

S
T
N
E
M
E
T
A
T
S

L
A
I
C
N
A
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N
O

I
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A
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R
O
F
N

L
A
N
O

I
T
I
D
D
A

CNV COMMERCIAL RESERVES AND CONTINGENT RESOURCES

Our previous CNV 2P reserves estimate was
predicated on the successful drilling of the
CNV-7P well, targeting the south west area of
the field and a material increase in production.
Disappointingly, due to unexpected geological
issues the well failed to reach the target
reservoir. The JOC partners have agreed to carry
out further drilling studies and have included

the cost of re-drilling the CNV-7P well in the
contingent budget for 2015. However, as SOCO
now believes there is a low likelihood of this well
being drilled in the current oil price environment
SOCO has reduced the CNV reserves estimate
and moved volumes associated with the CNV-7P
and future wells to Contingent Resources.

SOCO WORKING INTEREST REMAINING AT 31 DECEMBER 2014

COMMERCIAL RESERVES

Oil

Gas

Total

CONTINGENT RESOURCES

Oil

Gas

Total

Figures in mmbbl/mmboe

3.0

1.3

4.3

2.6

1.4

4.0

VIODO CONTINGENT RESOURCES

The reserves associated with the Viodo field in
the Marine XI Block have been re-classified as
Contingent Resources as there are no plans for
commercial standalone development at this
time. However, we believe that there is potential
in the future to recognise Contingent Resources

on the Marine XI Block from Lideka East and
from the Lidongo discovery as it is further
evaluated and progressed towards unitisation
with the nearby Litchendjili field which itself is
being developed in 2015.

FIELD GROSS IN PLACE

COMMERCIAL RESERVES

Oil

Gas

Total

SOCO WORKING INTEREST REMAINING AT 31 DECEMBER 2014

CONTINGENT RESOURCES

Oil

Gas

Total

Figures in mmbbl/mmboe

20.0

–

20.0

8.1

–

8.1

SOCO INTERNATIONAL PLC | Annual Report and Accounts 2014

I
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STRATEGIC REPORT

T
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C
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T
A
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E
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N
A
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administration costs in our regional offices by
approximately 25%.

Against the challenging environment of lower
oil prices, SOCO is in a relatively strong position
given its robust balance sheet, low operating
costs and attractive Vietnam production
economics with operating cash flow break-even
oil price per barrel in the low $20s. The cash
operating costs of our production portfolio were
approximately $9 per barrel of oil equivalent in
2014, estimated to move to just below $12 per
boe in 2015, reflecting the predominantly fixed
TGT cost base and lower production.

The Company has sufficient cash flow and cash
balances to meet its ongoing development
and exploration expenditure and has capacity
beyond that to take advantage of opportunities
that may arise in this market. The 2015 firm
capital expenditure budget is expected to be
in the region of $90 million, with c. $70 million
for Vietnam and around $20 million for Africa,
and a contingent capex budget of c. $25 million
pending approval of additional development
wells in Vietnam.

INCOME STATEMENT

OPERATING RESULTS

Revenue
Revenue from oil and gas production from the
Group’s south east Asia production assets in
Vietnam was $448.2 million compared with
$608.1 million in 2013. This decrease in revenue
is due to lower sales volumes and a lower
realised oil price. The Group’s working interest
share (which is equivalent to its entitlement
interest) of production during 2014 was
13,605 boepd, down from 16,694 boepd in 2013,
mainly due to part of the capacity of the TGT
FPSO being made available, from May 2013,
to the TLJOC which operates a contiguous field
to the north of TGT (also see the Review
of Operations on pages 15 to 23). During 2014,
the Group realised an average oil price of
$102.91 per barrel of oil sold compared with
$112.62 per barrel in 2013.

ANYA WEAVING

CHIEF FINANCIAL OFFICER

(2013 – $104.1 million), which includes an
exploration write-off of $79.5 million associated
with costs incurred on the Albertine Graben
Block V in eastern DRC and costs of new
ventures, and a gross impairment charge on
the CNV asset of $60.5 million (net $38.2 million
after tax impact). Before accounting for the
non-cash impact of the exploration write-offs and
impairments, post-tax profits were down from
$196.1 million in 2013 to $131.7 million in 2014.

Operating cash flow came in at $251.2 million
in 2014, down from $314.4 million in 2013,
reflecting lower sales volumes and lower
realised oil prices. Capital expenditures were
up from $99.1 million in 2013 to $162.5 million
in 2014 predominantly due to the TGT H5
development and exploration activity in Africa.
SOCO made its second return of cash to
shareholders during 2014 of c. $119 million,
bringing the total returned in the Company’s
short history of making distributions to
c. $333 million.

With cash, cash equivalents and liquid
investments of $166.4 million at 2014 year-end –
dropping only $43.6 million year-on-year despite
the significant capital programme, second
substantial return to shareholders and lower
operating cash inflows – SOCO has exited 2014
with substantial financial flexibility.

A significant drop in the oil price in the latter
part of 2014 brought a lot of uncertainty
and volatility to the industry highlighting the
importance of financial flexibility and strong cost
discipline. In response to the lower oil prices,
we have deferred drilling the MPS exploration
well to 2016 and undertaken several actions
to reduce our general and administration
costs, notably by eliminating the separate
new ventures office and reducing general and

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FINANCIAL REVIEW
CONTINUED

KEY FINANCIAL METRICS

Oil and gas revenues ($m)

Oil price realised ($/bbl)

Gross profit ($m)

Administrative expenses ($m)

Exploration costs written off ($m)

Impairment of property, plant and equipment ($m)

Operating profit ($m)

Operating profit before exploration write-off
and impairment ($m)

Profit for the year ($m)

Profit for the year before exploration write-off
and impairment ($m)

Operating cash flow before working capital,
interest and tax ($m)

Change in working capital ($m)

2014

2013

CHANGE

448.2

608.1

-26.3%

102.91

112.62

-8.6%

304.4

439.0

-30.7%

(11.8)

(79.5)

(60.5)

(13.2)

(92.0)

–

-10.6%

-13.6%

–

152.6

333.8

-54.3%

292.6

14.0

425.8

104.1

-31.3%

-86.6%

131.7

196.1

-32.8%

344.4

472.0

-27.0%

37.6

3.3

1039.4%

Net cash from operating activities ($m)

251.2

314.4

-20.1%

Capital expenditure ($m)

Payment to abandonment fund ($m)

Free cash flow ($m)

Cash, cash equivalents and liquid investments ($m)

Distributions to Shareholders ($m)

Distributions (pence per share)

(162.5)

(9.6)

41.01

166.4

119.2

(99.1)

(15.0)

200.32

210.0

213.3

64.0%

-36.0%

-79.5%

-20.8%

-44.1%

-45.0%

1 For 2014, free cash flow is calculated as operating cash flow before movements in working capital and after payments for income taxes, capital
expenditure and abandonment.
2 For 2013, free cash flow is calculated as net cash from operating activities and after payments for capital expenditure and abandonment.

Cost of Sales
Cost of sales in 2014 were $143.8 million versus
$169.1 million in 2013. This decrease is mainly
associated with the TGT field where cost of sales
was $125.7 million including an inventory credit,
recorded at market value, of $1.0 million (2013 –
$157.0 million including an inventory charge of
$5.3 million). Cost of sales associated with the
CNV field was $18.1 million, including an inventory
charge of $2.5 million (2013 – $12.1 million,
including an inventory credit of $1.7 million).

Production operating costs for TGT were
$38.2 million for 2014 down from $42.6 million
in 2013 mainly due to a full year’s allocation of
costs to the TLJOC via a tariff arrangement for
the use of the TGT FPSO which started in May
2013, and lower production. Production operating
costs associated with CNV were $5.0 million in
2014, similar to 2013.

Royalties on oil sales from TGT and CNV in
2014 totalled $34.3 million consistent with lower
revenue compared with $46.4 million in 2013.
Export duty arising on TGT oil sales amounted
to $7.6 million in 2014, down from $19.6 million
in 2013, due to lower oil sales revenues and

a proportion of cargoes being sold into the
domestic market which are not subject to export
duty. All CNV oil was sold into the domestic
market in both 2013 and 2014.

DD&A charges were $50.1 million during 2014
compared with $44.6 million in 2013 mainly
reflecting the cost basis of the TGT development
offset by lower production. Following the
revision to reserves estimates and associated
expenditures, as noted below, the carrying value
of CNV has been reduced to its fair value as at
31 December 2014. DD&A on both TGT and
CNV will reflect the revised production and future
capital expenditure profiles from 2015.

Operating costs in 2014 on a per barrel basis
(excluding DD&A, inventory movements and sales
related duties and royalties) were approximately
$9.00 per barrel compared with approximately
$8.10 per barrel in 2013. The primary cause of
the increase is related to the lower production
volumes on the TGT field which has dedicated
production and processing facilities on the FPSO,
the costs of which, net of TLJOC allocations, are
predominately fixed.

STRATEGIC REPORT

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On a per barrel basis, DD&A increased from
approximately $7.35 per barrel in 2013 to
approximately $10.10 per barrel in 2014
reflecting a higher estimated cost basis of
developing the TGT reserves, based on the
prevailing estimates during 2014.

Administrative Expenses
Administrative expenses decreased to
$11.8 million for the 12 months to December
2014 down from $13.2 million in 2013. This
decrease is primarily due to lower employee
costs in 2014 associated with the use of a
deferred share bonus scheme.

Exploration Costs
During 2014, exploration costs including costs
associated with the Albertine Graben Block V in
eastern DRC and costs associated with the early
stages of new ventures in the amount of $73.6
million, were written off in the income statement
in accordance with the Group’s accounting
policy on oil and gas exploration and evaluation
expenditure. In accordance with IAS 37,
a further $5.9 million has been accrued
in respect of anticipated future expenditure
to complete the current work programme
on Block V in the absence of plans to
continue thereafter. In 2013, the charge of
$92.0 million represents the costs incurred,
since its acquisition, on the relinquished
Nganzi licence, onshore DRC.

Impairment of Property, Plant
and Equipment
As discussed in the Review of Operations on pages
15 to 23 management’s estimates of the CNV
proved and probable oil and gas reserves have
reduced. Combined with lower oil prices this has
led to the estimated recoverable amount of the
CNV producing asset being less than the book
carrying value. Consequently, a pre-tax impairment
charge in the amount of $60.5 million has been
reflected in the income statement in accordance
with the Group’s accounting policy set out in Note
2(h). The associated tax credit of $22.3 million is
reflected in Note 11. As at 31 December 2014, the
fair value of the asset is estimated at $104.4 million
based on a discount rate of 10% and an oil price
reflecting the current three year forward curve and
$90 per barrel (plus 2.5% inflation) thereafter.

TAX

The tax expense decreased from $229.2 million in
2013 to $138.7 million in 2014 consistent with the
lower profit in the year and tax credit associated
with CNV impairment (see above). The effective
tax rate in Vietnam during 2014 and 2013
approximated the statutory rate of 50%.

PROFIT FOR THE YEAR

The Group’s profit after tax in 2014 was
$14.0 million, down from $104.1 million in 2013.
Basic and diluted earnings per share decreased
from 31.7 cents in 2013 to 4.3 cents in 2014 and
from 31.6 cents in 2013 to 4.2 cents in 2014,
respectively.

BALANCE SHEET

KEY DATA

Intangible assets decreased by $6.6 million since
year end 2013. The decrease caused by the
exploration write-off described above associated
with prior period costs was offset by continued
exploration activity in the Group’s Africa region,
including the successful LXM-101 exploration well
on MXI, offshore Congo (Brazzaville).

Property, plant and equipment decreased by
$11.3 million since 2013 year end due to pre-tax
impairment on the CNV asset (see above),
partially offset by costs associated with TGT field
development and appraisal activities and CNV
development drilling less DD&A charges.

Other non-current receivables of
$24.6 million (31 December 2013 – $15.0 million)
comprise abandonment security funds for
TGT and CNV which have been established
to ensure that sufficient funds exist to meet
future abandonment obligations. The funds
are operated by PetroVietnam and partners
retain the legal rights to the funds pending
commencement of abandonment operations.

Oil inventory was $6.1 million at 31 December
2014, down from $7.3 million at year end 2013.
Trade and other receivables at year end 2014
were $39.6 million, down from $68.9 million
at 31 December 2013. The movements in oil
inventory and trade receivables arise mainly
due to the timing of oil sale liftings and the
oil price realised.

SOCO’s cash, cash equivalents and liquid
investments decreased over the year from
$210.0 million to $166.4 million at 31 December
2014. During 2014, the Company returned
$119.2 million (2013 – $213.3 million) to
shareholders (see below), funded exploration
and development capital expenditure
as described above, and made further
contributions to two abandonment funds in
Vietnam (see above). Despite these significant
cash outflows cash generated from production
operations in Vietnam meant that cash, cash
equivalents and liquid investments decreased
by just $43.6 million over the year.

The Group’s trade and other payables increased
to $43.9 million at 31 December 2014 from
$36.1 million year end 2013 partly due to
provision, in accordance with IAS 37, for costs
expected to be incurred during 2015 in relation
to Albertine Graben Block V, where, once the
current work programme is complete, no further
activity is planned. Tax payables decreased from
$18.5 million last year end to $11.6 million this
year end consistent with timing and volumes
of liftings in Vietnam where tax is paid on each
cargo lifted.

Deferred tax liabilities increased to
$200.2 million at 31 December 2014 from
$184.2 million year end 2013, mainly due to
accelerated tax depreciation and other timing
differences associated with the Group’s south
east Asia segment, net of the tax credit

GROSS PROFIT

REALISED OIL
PRICE

5
.
0
6
4

0
.
9
3
4

4
.
4
0
3

118

113

103

$/MILLION
$/BARREL

PRODUCTION

OPERATING COST

4
9
6
,
6
1

7
5
7
,
4
1

5
0
6
,
3
1

9
8

BOEPD
$/BARREL

SOCO INTERNATIONAL PLC | Annual Report and Accounts 2014

28
FINANCIAL REVIEW
CONTINUED

associated with the impairment of CNV (see
above). Long term provisions related to the
Group’s decommissioning obligations in south
east Asia at $51.1 million were up from $42.9
million last year end mainly due to the installation
of additional TGT facilities and the drilling of TGT
development wells.

CASH FLOW

Net cash flows from operating activities in
2014 mainly comprise the Group’s continuing
Vietnam operations and amounted to
$251.2 million compared with $314.4 million in
2013. The decrease is mainly due to the lower
contribution of production from the TGT field
including the associated impact on working
capital movements, as described above.

Capital expenditure for the year ending
31 December 2014 was $162.5 million compared
with $99.1 million in 2013. The higher capital
spend in 2014 reflects a more active development
programme, including the TGT H5 development
and TGT and CNV drilling activity, compared to
the prior year.

DISTRIBUTION TO
SHAREHOLDERS

During the year, the Company announced
a second return of value to shareholders of
22 pence per Ordinary Share (2013 – 40 pence
per Ordinary Share) amounting to £73 million,
being $119.2 million (2013 – £133 million, being
$213.3 million), in cash by way of a B/C share
scheme, which gave shareholders (other than
certain overseas shareholders) a choice between
receiving cash in the form of income or in the
form of capital. The return of value, which was
approved by shareholders on 22 September 2014,
became effective on 30 September 2014. Despite
the current oil price environment, the Board has
proposed a dividend of 10 pence per Ordinary
Share subject to approval by Shareholders at the
AGM (see Note 33).

KEY PERFORMANCE INDICATORS

SOCO uses a number of financial and non-
financial KPIs against which it monitors its
performance. Detailed KPI targets for the next
year are set out in the annual budget. At each
Board meeting these expectations are reviewed
for progress against actual results and adjusted
to accommodate changes in the operating
environment including oil price fluctuations.

SOCO’s KPIs are set out and discussed in the
Review of Operations on pages 15 to 23, the
Financial Review herein and the CSR Report on
pages 34 to 45. They are also set out in full on
page 99 where they are defined.

OWN SHARES

The SOCO Employee Benefit Trust holds ordinary
shares of the Company (Shares) for the purpose
of satisfying long term incentive awards for senior
management. At the end of 2014, the Trust held
3,294,111 (2013 – 3,666,213) Shares, representing
0.97% (2013 – 1.08%) of the issued share capital
(see Note 25 to the Financial Statements).

In addition, as at 31 December 2014, the
Company held 9,122,268 (2013 – 9,122,268)
treasury Shares, representing 2.67% (2013 – 2.68%)
of the issued share capital (see Note 25 to the
Financial Statements).

GOING CONCERN

SOCO’s business activities, its financial position,
cash flows and liquidity position, together with
an outlook of factors likely to affect the Group’s
future development, performance and position
are discussed above and in the Strategic Report
on pages 4 to 45. The Group has a strong financial
position and based on future cash flow projections
should comfortably be able to continue in
operational existence for the foreseeable future.
Consequently, the Directors believe that the
Group is well placed to manage its financial and
operating risks successfully and have prepared the
accounts on a going concern basis as described in
the Annual Report of the Directors on page 50.

STRATEGIC REPORT29

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partnerships or farm-outs and by maintaining,
at a minimum, standard industry best practice
insurance. The Board of Directors does not
believe that it is practical or prudent to obtain
third-party insurance to cover all adverse
circumstances it may encounter as a result of
its oil and gas activities. However, the Board
believes that SOCO’s comprehensive property,
control of well, casualty, liability and other policy
cover conforms to industry best practice. As
such, it provides substantial protection against
typical industry operational risks. The Board
believes it has struck an appropriate balance
between exposure and coverage.

EMPOWERMENT RISK

Risk: The Group’s international portfolio
comprises oil and gas ventures in widespread,
often remote locations with government and
industry partners. Conduct of operations
requires the delegation of a degree of decision
making to partners, contractors and locally
based personnel.

Mitigation: As operator in a project, SOCO
can directly influence operations and decision
making. Where SOCO is a co-venturer it
seeks to maximise its influence through active
participation with management, including direct
secondments and application of internal control
best practice under a procedural framework.

RESERVES RISK

Risk: As discussed in Note 4 to the financial
statements, the Company uses standard
recognised evaluation techniques to estimate
its proven and probable oil and gas reserves.
However, such techniques have inherent
uncertainties in their application. As the
Company has projects with booked reserves in
the early stages of production, development or
non-conventional fracture basement reservoirs,
upward or downward revisions to reserve
estimates will be made when new and relevant
information becomes available. Such revisions
may impact the Group’s financial position and
results, in particular, in relation to DD&A costs
and impairment. Reserve estimation may also
be sensitive to oil price fluctuations which are
outside the Company’s control.

Mitigation: Reserve estimates are reviewed at
least twice a year and are regularly reviewed by
external consultants. Future development costs
are estimated taking into account the level of
development required to produce the reserves
by reference to operators, where applicable,
and internal engineers.

Risk: Portfolio management through
exploration, appraisal or acquisition may fail to
yield reserves in commercial quantities sufficient
to replace production.

ong term shareholder value is
dependent on the success of
the Group’s activities, which are
directed towards the search,
evaluation and development of
oil and gas resources. Exploration
for, and development of,
hydrocarbons is speculative and
involves a significant degree
of risk involving multiple factors. Critical to
ensuring the ongoing success of the Company
in applying its three core strategic objectives of
recognising opportunity, capturing potential and
realising value is the identification, assessment
and mitigation of the various risk factors.

Consequently, SOCO has a formal process in
place to identify and mitigate risks applicable to
an upstream oil and gas business. The Directors
have ultimate responsibility for risk management
with the Audit and Risk Committee providing
detailed oversight. The Board has designated the
Deputy Chief Executive Officer as the executive
responsible for the Company’s risk management
function. He is supported in this task by the Chief
Financial Officer, the Chief Operating Officer and
the Group Exploration Manager.

There is an ongoing process to identify, monitor
and mitigate risk throughout the year with any
new risks or changes to existing risks considered
at each Audit and Risk Committee meeting.
Annually, the Audit and Risk Committee
undertakes a rigorous and detailed risk
assessment wherein the Group’s risk profile,
including the mitigation measures in place to
reduce risk to acceptable levels, is considered.
This risk assessment is then presented to the
Directors for full Board approval.

Risk management and the principal risks and
uncertainties facing the Group are discussed in
Note 4 to the Financial Statements. The Group’s
risk management policies and procedures are
further discussed in the Corporate Governance
Report on page 57 and in the Audit and Risk
Committee Report on pages 60 to 62 where
the significant issues related to the 2014
Financial Statements are also reported. Below
is a summary of the key risks affecting SOCO
and how we mitigate those risks to enable the
Company to achieve its strategic objectives.

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OPERATIONAL RISK

Risk: There are inherent risks in conducting
exploration, drilling, and construction
operations in the upstream industry. The
level of risk is potentially impacted by harsh
geographical conditions and associated
resource availability and costs.

Mitigation: SOCO seeks to mitigate its
operational risks through the application of
industry best practice procedures throughout its
operations. Mitigation may also be achieved by
transferring risk, for example, by entering into

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30
RISK MANAGEMENT
REPORT
CONTINUED

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BOARD OF
DIRECTORS

AUDIT & RISK
COMMITTEE

EXECUTIVE
DIRECTORS

CHIEF
FINANCIAL
OFFICER

CHIEF
OPERATING
OFFICER

OPERATIONS
AND FINANCE

LOCAL
MANAGERS

HEADQUARTERS

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STRATEGIC REPORT

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Mitigation: The Group continues to evaluate
projects in existing and potentially new areas of
interest and will add exploration licences when
the appropriate opportunities arise.

HEALTH, SAFETY, ENVIRONMENT
AND SOCIAL RISKS

Risk: The Group operates in an industry sector
with inherent high risks associated with HSES.
Additionally, it operates in regions where
there is a greater risk of economic or social
instability and where local attitudes to risk differ
compared with nations with more established
or developed economies. Accordingly, the
Group may be exposed to specific risks in
relation to social (including human rights) and
environmental factors as well as health and
safety matters, including security.

Mitigation: SOCO aims to mitigate such risks
by actively engaging with local communities
and governments, using specialist consultants
and by maintaining appropriate HSES policies
and procedures. Further details of how SOCO
addresses these risks can be found in the CSR
Report on pages 34 to 45.

During 2014, SOCO further developed its
HSES Management Systems, which provides a
framework for managing HSES issues, to bring
its policies into line with the World Bank IFC
Performance Standards on Environment and
Social Sustainability published in 2012. This
is discussed further in the CSR section of the
Strategic Report on pages 4 to 45.

POLITICAL AND REGIONAL RISK

Risk: Many of the Group’s projects are in
developing countries or countries with
emerging free market systems where the
regulatory environment may not be as mature
as in more developed countries. There may be
a high level of risk in relation to compliance with
and interpretation of emerging hydrocarbon
law, taxation and other regulations.

Mitigation: SOCO seeks to minimise such risks
by using in-country professional advisors and by
engaging directly with the relevant authorities
where appropriate.

Risk: Some of the Group’s interests are
in regions identified as potentially more
susceptible to business interruptions due
to the consequences of possible unrest.

Mitigation: The Group assesses the risks of
operating in these areas before beginning
operations and has deemed these risks
commercially acceptable. SOCO does not
currently carry political risk insurance or
associated business interruption insurance
coverage to mitigate such risks. However, it
periodically assesses the cost and benefit of
both and future circumstances may lead the
Group to acquire such insurance cover.

Risk: Eastern DRC, where the Company has an
interest in Block V, has a history of conflict. The
risk of human rights violations by conflicting
parties is heightened in areas of conflict, which
may expose SOCO to the risk of accusation of
complicity or collusion with alleged perpetrators
or expose Company employees or associates to
direct abuse.

Mitigation: As discussed in the CSR Report
on page 38, SOCO has a policy of upholding
human rights in all areas in which we operate.
Consequently, SOCO has developed processes
to closely engage with the local communities
with which we work and procedures for
addressing concerns. SOCO examines the risk
that it may be associated, either directly or
indirectly, with a party accused of violations.
Where such an exposure, actual or perceived,
exists actions are taken to protect the Company
and its personnel from an inappropriate
association and reports any relevant findings to
the most appropriate authority.

Risk: The Company may be accused of
exploiting poor working conditions and
reinforcing discriminatory beliefs.

Mitigation: This is directly contrary to SOCO’s
policy of implementing international labour
standards and equal human rights. See the CSR
Report on pages 34 to 45 for further information.

BUSINESS CONDUCT
AND BRIBERY RISK

Risk: SOCO operates both in an industry sector
and in certain countries where the promotion
of transparent procurement and investment
policies is perceived as having a low priority and
where customary practice may fall short of the
standards expected by the UK Bribery Act.

Mitigation: The Group seeks to mitigate
these risks by ensuring that it has appropriate
procedures (including vendor due diligence)
in place to eliminate bribery and that all
employees, agents and other associated
persons are made fully aware of the Group’s
policies and procedures with regard to ethical
behaviour, business conduct and transparency.
Annual training and compliance certifications by
all associated persons refreshes and reinforces
SOCO’s Code of Business Conduct and Ethics.

Running in parallel with the Group’s general
risk management process, the Audit and Risk
Committee has established a detailed bribery
risk assessment and mitigation reporting
procedure. Bribery risks are monitored
throughout the year along with implementation
of procedures to mitigate any new risks
identified. The Company has arrangements
for “whistleblowing”, whereby staff may raise
concerns regarding improprieties in confidence,
which would be addressed with appropriate
follow-up action. To facilitate such reporting the
Company maintains an Ethics Hotline Service

SOCO INTERNATIONAL PLC | Annual Report and Accounts 2014

32
RISK MANAGEMENT
REPORT
CONTINUED

using an independent, confidential telephone
service that can be used by staff members and
other stakeholders to report a suspected breach
of SOCO’s Code of Business Conduct and Ethics.

STAKEHOLDER
AND REPUTATIONAL RISK

Risk: The Group operates in locations where
social and environmental matters may be highly
sensitive both on the ground and as perceived
globally. This can potentially lead to a reputational
risk which may influence various Group
stakeholders. Actions of international bodies
may harm the objectives of the Company and
its regional partners.

Mitigation: SOCO works closely with all of
its stakeholders including local communities,
governments and non-governmental
organisations to ensure that, during operations,
any disturbance is minimised and that on
completion of the Group’s activities the local
population and environment will be left in,
at least, as good a state as when SOCO first
arrived. See the CSR Report on pages 34 to 45
for further information.

Risk: Following the announcement of the
Company’s distribution policy, the nature of its
investors has become more income focused.
Shareholder relations may be impacted
negatively by a reduction in distributions,
reduced expectations of the fundamental
value of the Company and its share price.

Mitigation: The Company provides opportunities
for direct interfaces with shareholders and analysts
at least three times a year and maintains a website
to disseminate information widely and in a timely
fashion. In addition, the Chairman and Senior
Independent Director have participated in a
number of investor meetings.

COMMODITY PRICE RISK

Risk: Exposure to fluctuations in crude oil prices
may lead to reduced cash flows, impairment of
assets or locked in losses in long term contracts.
The recent rapid decline in the oil price has
significantly impacted the industry as a whole,
including SOCO. The Group does not currently
maintain any fixed price, long term marketing
contracts. Production is sold on “spot” or near
term contracts, with prices fixed at the time of a
transfer of custody or on the basis of an average
market price.

Mitigation: SOCO has responded to the current
price environment by undertaking a number
of initiatives including identifying capital and
operating expenditure savings both in its Vietnam
and Africa regions, taking stringent measures
to reduce general and administration costs,
especially in Africa and associated with new
venture activities, and an in depth review of its
portfolio of assets and carrying values.

The Board may give consideration in certain
circumstances to the appropriateness of entering
into fixed price, long term marketing contracts.
Although oil prices may fluctuate widely, it is the
Group’s policy not to hedge crude oil sales unless
hedging is required to mitigate financial risks
associated with debt financing of its assets or
to meet its commitments. Accordingly, no price
hedging mechanisms were in place during the
year. Over time, during periods when the Group
sees an opportunity to lock in attractive oil prices,
it may engage in limited price hedging.

FOREIGN CURRENCY RISK

Risk: Generally, it is the Company’s policy to
conduct and manage its business in US dollars.
Cash balances in Group subsidiaries are primarily
held in US dollars, but smaller amounts may be
held in GB pounds or local currencies to meet
immediate operating or administrative expenses,
or to comply with local currency regulations.
From time to time the Company may take short
term hedging positions to protect the value of any
cash balances it holds in non-US dollar currencies.

Mitigation: The Group seeks to minimise the
impact that debt financing has on its balance
sheet by negotiating borrowings in matching
currencies. The impact of a 10% movement in
foreign exchange rates on the Group’s net assets
as at 31 December 2014 would not have been
material (2013 – not material) and would not have
been material with respect to the Group’s profit
in 2014 (2013 – not material).

LIQUIDITY AND CREDIT RISK

Risk: The Group carried significant cash balances
throughout the year thereby decreasing its
exposure to liquidity risk and increasing its
exposure to credit risk.

Mitigation: To mitigate these risks and to protect
the Group’s financial position cash balances
are generally invested in short term, non-equity
instruments or liquidity funds, not exceeding three
months forward. On occasion the Company may
benefit from higher returns by investing surplus
cash into liquid investments not exceeding six
months. Investments are generally confined to
money market or fixed term deposits in major
financial institutions.

Risk: The Group’s maximum exposure to credit
risk as at 31 December 2014 was $274.5 million
(2013 – $333.0 million). The Group’s non-current
financial asset that is subject to credit risk
comprises a financial asset arising in respect of the
Group’s disposal of its Mongolia interest (see Note
17 to the financial statements) and a receivable
in respect of two accumulating abandonment
funds in Vietnam. The Group’s and Company’s
other financial assets comprise investments, trade
receivables and cash and cash equivalents.

STRATEGIC REPORT33

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CONTRACTUAL RISK

Risk: The Group enters into various contractual
arrangements in the ordinary course of its
business. Such contracts may rely on provisional
information that is subject to further negotiation
at a later date. This may give rise to uncertainty
regarding such information.

Mitigation: In considering any financial impact
on the Group’s financial statements, income,
expenses, assets and liabilities are recognised
in accordance with applicable IFRSs and IASs.

CAPITAL RISK MANAGEMENT

Risk: The Group manages its capital to ensure
that entities in the Group will be able to
continue as going concerns while maximising
the return to stakeholders through the
optimisation of the debt and equity balance.

Mitigation: The capital structure of the Group
consists of cash and cash equivalents and equity
attributable to equity holders of the parent,
comprising issued capital, reserves and retained
earnings as disclosed in Notes 24, 25 and 27 to
the Financial Statements and in the Statement
of Changes in Equity. The Company may
consider raising further debt or equity finance
at the appropriate time.

Mitigation: The Group seeks to minimise
credit risk by only maintaining balances
with creditworthy third parties including
major multinational oil companies subject to
contractual terms in respect of trade receivables.
The credit risk on liquid funds is limited as the
Board only selects institutions with high credit
ratings assigned by international credit rating
agencies and endeavours to spread cash
balances and liquid investments to multiple
institutions. The level of deposits held by
different institutions is regularly reviewed.

The Group’s cash requirements and balances
are projected for the Group as a whole and for
each country in which operations and capital
expenditures are conducted. In addition, the
Company plans sustainable annual distributions
to shareholders with returns targeting 50%
of the Company’s annual free cash flow. The
Group meets these requirements through
an appropriate mix of available funds, equity
instruments and, when required, debt financing.
The Group’s ability to pursue its operational
objectives is discussed in the Financial Review
on pages 24 to 28. The Group seeks to minimise
the impact that any debt financings have on
its balance sheet by negotiating borrowings in
matching currencies when required. The Group
further mitigates liquidity risk by entering into
arrangements with industry partners thereby
sharing costs and risks, and by maintaining an
insurance programme to minimise exposure to
insurable losses.

INTEREST RATE VOLATILITY RISK

Risk: The Group’s exposure to this risk is
currently considered to be low as it is debt
free. The Group earns interest on its cash, cash
equivalents and liquid investments at floating
and fixed rates. The fair value of the Group’s
non-current financial asset (see Note 17 to the
financial statements) is also dependent on the
discount rate used.

Mitigation: Management assesses the Group’s
sensitivity to changes in interest rates. If interest
rates had been 0.5% higher or lower and all
other variables held constant, the impact on
the Group’s profit for the year ended, and its
net assets at 31 December 2014 would not have
been material (2013 – not material).

SOCO INTERNATIONAL PLC | Annual Report and Accounts 2014

ANTONY MARIS

CHIEF OPERATING OFFICER

W herever we operate,

and respect for human rights are integral to
SOCO. These form the natural and necessary
foundation of our sustainable business model
and of our international operations.

sensitivity to
stakeholder interests,
zero tolerance for
corruption, the safety
and security of
employees, a positive
social impact, minimum
environmental footprint

The oil and gas industry has the ability to be
a positive and powerful force for economic
development and our goal is to contribute
towards meeting the world’s energy needs.
Through our portfolio of exploration and
development projects, we work responsibly
to create value whilst bringing long term social
and economic benefits to the countries and
communities in which we are present.

Our core values of honesty, trust, fairness, respect
and responsibility are embedded across our
activities and are integral to our CSR policies and
practices. Our approach seeks to protect not only
people, communities and the environment but
also our reputation in the host countries.

In our industry, the health, safety, security and
wellbeing of people and of the environment
are at the forefront of our thinking. That is why
we strive to ensure there are robust processes
and systems in place.

Our business aim is make a net positive
contribution through balancing the needs for
energy security; economic development; social
improvement; and protection of the environment.
This aim drives our CSR approach, set out in
our Code of Business Conduct in addition to
our Health, Safety, Environment and Social
(HSES) policies. As part of our commitment to
maintain the highest standards in our CSR efforts
and awareness, our HSES policies and HSES
Management System (HSES MS) were reviewed
in 2014 and aligned with the International Finance
Corporation (World Bank Group) Environmental
and Social Performance Standards. Our revised

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system has since been rolled out across our
Africa operations and all our SOCO direct hires
have been trained in its requirements. We are
working closely with our partners, contractors, and
suppliers to promote our high standards and align
their systems as far as possible with our approach.

We are proud of our industry-leading safety track
record and of the positive imprint that we have
achieved in our social investment programmes.
Supporting and sustaining the health of the
communities in which we operate is fundamental
to our purpose and success and we continue
to remain committed to sustained economic
development in our areas of activity. However,
as proud as we are of our achievements today,
we are not complacent and continue to listen to

OUR APPROACH
TO CSR
IS ABOUT
CREATING
VALUE
THROUGH
RESPONSIBLE
BUSINESS

our stakeholders on how we can continuously
improve our approaches and systems to ensure
a positive impact. Through 2015, our continued
CSR management, monitoring and reporting
will enable SOCO to continue to responsibly
develop, whilst learning from and improving
our HSES performance, creating competitive
advantage at the same time as delivering value
for all stakeholders.

ANTONY MARIS

CHIEF OPERATING OFFICER

STRATEGIC REPORT

RESPONSIBLE SUSTAINABLE DEVELOPMENT IS CRITICAL
TO HOW WE ACHIEVE A POSITIVE IMPRINT

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OUR CORPORATE SOCIAL RESPONSIBILITY OBJECTIVES
FOR SUSTAINABLE ECONOMIC DEVELOPMENT

Our CSR objectives for sustainable economic
development are translated into our HSES
policies which are accessible to all our
employees and contractors through our
HSES MS and made publicly available to our
stakeholders on our corporate website. Our CSR
objectives are implemented through our HSES
MS procedures which include the requirement
to monitor and measure the progress in
meeting these key criteria. The HSES MS plays
a critical role in meeting our commitment to
continuous improvement in the management of

our operational risks. The HSES MS is consistent
with the requirements of the internationally-
recognised standards ISO 14001 and OHSAS
18001 and going forward, we are reviewing the
procedures and processes to look to get our
business units certified to these standards.

Energy have been retained as SOCO HSES
advisors and in this role can provide both critical
review, and HSES support to ensure the HSES
MS meets the required standards and is being
implemented through all projects for which
SOCO is the designated Operator.

In 2014, the HSES polices and HSES MS were
reviewed and revised by RPS Energy to align
with IFC World Bank requirements such that they
now provide the framework for implementing
the IFC Performance Standards (2012). RPS

All SOCO staff have been trained in the new
requirements and the HSES MS has now also
been translated into French. In 2015, a review
of the HLHVJOCs’ HSES MS will examine the
potential to align with these requirements.

RESPONSIBLE SUSTAINABLE DEVELOPMENTOPERATING REVENUEHOST COUNTRY REVENUEEARLY ENTRY INTO REGIONSECONOMIC STIMULATIONRELATIONSHIP BUILDINGBUSINESS CONDUCT HSES POLICIESHEALTH, SAFETY, SECURITY & WELFAREENVIRONMENTAL PROTECTIONTAXES & FEESOPERATIONAL MANAGEMENTHSES POLICIESJOB CREATIONTRAINING & CAPACITY BUILDINGEMPLOYEES, CONTRACTORS & SUPPLY CHAINCOMMITMENT TO LOCAL ECONOMIESHSES POLICIESSOCIAL & COMMUNITY PROJECTSCAPITAL EXPENDITUREECONOMIC STIMULATIONHOST COUNTRY REVENUEACCESS TO INVESTMENT OPPORTUNITIESRECOGNISING OPPORTUNITY1CAPTURING POTENTIAL2REALISING VALUE3RESPONSIBLE SUSTAINABLE DEVELOPMENTOPERATING REVENUEHOST COUNTRY REVENUEEARLY ENTRY INTO REGIONSECONOMIC STIMULATIONRELATIONSHIP BUILDINGBUSINESS CONDUCT HSES POLICIESHEALTH, SAFETY, SECURITY & WELFAREENVIRONMENTAL PROTECTIONTAXES & FEESOPERATIONAL MANAGEMENTHSES POLICIESJOB CREATIONTRAINING & CAPACITY BUILDINGEMPLOYEES, CONTRACTORS & SUPPLY CHAINCOMMITMENT TO LOCAL ECONOMIESHSES POLICIESSOCIAL & COMMUNITY PROJECTSCAPITAL EXPENDITUREECONOMIC STIMULATIONHOST COUNTRY REVENUEACCESS TO INVESTMENT OPPORTUNITIESRECOGNISING OPPORTUNITY1CAPTURING POTENTIAL2REALISING VALUE3SOCO INTERNATIONAL PLC | Annual Report and Accounts 2014

36
CORPORATE SOCIAL
RESPONSIBILITY REPORT
CONTINUED

OUR BUSINESS – TO PROVIDE RESPONSIBLE AND SUSTAINABLE DEVELOPMENT

SOCO is an upstream, international oil and gas
exploration and production company. We are a
participating partner in six oil licence interests in
Vietnam, Congo (Brazzaville), DRC and Angola.
Our core business is to add shareholder value by
recognising opportunity, capturing potential and
realising value. We do this by:

taxes and governmental fees; generate revenues
from hydrocarbon production; and create returns
for our shareholders. From the initial decision
to invest, through to the management and
divestment of operations, we are guided by
an approach to bring economic rewards to our
stakeholders, safely and responsibly.

£ gaining access to investment opportunities
in projects or regions early on in the project
life cycle where there is potential to create
significant upside through our participation;

£ applying our managerial, technical and

commercial expertise to progress the project
through its formative stages or through
periods of difficulty; and

£ locking in the investment returns once our
capacity to add value begins to diminish.

Our aim is to ensure that all of our stakeholders
benefit from our operations and the wealth
that we create. We contribute to the economic
development of the countries where we operate,
and by doing so, build a reputation
as a reliable, fair and responsible company.

We apply our technical, managerial and
commercial expertise to create jobs in local
communities; provide training and technical
assistance; stimulate the local economy; enhance
the capacity of host governments; pay relevant

Our approach in both exploration and
development is to partner with other businesses
and host governments through their national
oil companies. This means that our portfolio
varies by our degree of ownership, operatorship
and influence. In light of this, our approach to
responsible and sustainable development is
tailored to the individual projects. Where we are
the Operator, our influence is high. Where we are
a minority owner and non-operator, we seek to
influence our partners to integrate responsible and
sustainable development aligned with our values
and objectives into the project. We assess the
capabilities of our contractors to meet technical
as well as HSES specifications for our activities and
we have procedures to capture, record and review
lessons learned from our operational activities.

Our licence to operate depends on transparent
relationships with host governments, local
communities, partners, employees, shareholders,
NGOs, contractors and the media. We maintain
an open dialogue with them as we strive to
balance their interests with ours.

Our relationships with our business partners,
host governments, local communities, contractors
and our employees are highly valued and our
success as an international business depends on
building and maintaining the support of the local
communities amongst whom we operate. We take
a long term approach to listening and responding
to the needs of our stakeholders, and contributing
to the development of communities through
targeted investments which meet our business
objectives as well as being material to our
stakeholders. We also work to ensure that our
stakeholders benefit from our operations and
the wealth that these operations generate,
and by doing so seek to build on our reputation
as a trusted, fair, environmentally-responsible
and sustainable business.

The Extractive Industries Transparency Initiative
was launched 12 years ago to promote transparent
reporting by governments of tax and royalty
revenues in the mineral resource extraction sector.
We support the principles of this initiative and are
committed to this effort in Congo (Brazzaville) and
the DRC. We also support the Reports on Payments
to Government Regulations 2014, effective from
1 January 2015 and consequently will publish
the details of tax and royalty payments made to
governments around the world by SOCO and our
subsidiaries in the next reporting cycle.

KEY BUSINESS RESPONSIBILITY OBJECTIVE DEVELOPMENTS FOR 2014 AND PLANS FOR 2015

OBJECTIVE: TO PROVIDE RESPONSIBLE AND SUSTAINABLE DEVELOPMENT

MEANING

IMPLEMENTATION

OUTCOME 2014

ONGOING PLANS 2015

We endeavour to
make a net positive
contribution through
balancing the needs
for energy security;
economic
development; social
improvement;
protection of the
environment and
shareholder returns.

Review of HSES policies
and procedures to align
with IFC (World Bank)
Performance Standards.

Review the Terms of
Reference of the Audit
and Risk Committee,
clarifying the
Committee’s
responsibility for
sustainability within
the business.

Alignment of HSES MS with IFC
(World Bank) Performance Standards
has been completed.

Revised 2014 HSES MS has been
rolled out across SOCO Africa region.

All staff received training on 2014
HSES MS.

Revised Terms of Reference of the
Audit and Risk Committee were
issued and published, clarify ing the
Committee’s responsibility for
sustainability within the business.

£ Continue to implement 2014 HSES MS across SOCO’s

operated projects.

£ Undertake review of HLHVJOCs’ HSES MS.

£ Become a formal sponsor of the Extractives Industries

Transparency Initiative.

£ Explore potential for membership of leading industry

sustainability initiatives, certification under quality assurance
standards and adoption of best practice reporting standards
(e.g. GRI Guidelines, UN Global Compact, ISO 14001 and
OHSAS 18001).

£ Report KPIs and targets for Group business data reporting in

line with industry best practices.

STRATEGIC REPORT37

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OUR ETHICS – TO CONDUCT OUR BUSINESS IN AN HONEST AND ETHICAL MANNER

We are committed to creating value for
shareholders while maintaining integrity and
high ethical standards in all our business
dealings. We comply with all locally applicable
legal, regulatory and licence requirements in
the countries where we do business and seek
to raise standards to international best practice
levels with our business partners. We co-
operate fully with governmental and regulatory
bodies, however, we do not engage in party
politics or make donations to political parties or
candidates. Our Code of Business Conduct and
Ethics (the Code), together with the Guidelines
for Implementation, are compliant with the
UK Bribery Act. Implementation of the Code,
training and associated internal compliance
tests, provides additional assurance to the
Company regarding our compliance.

The Audit and Risk Committee assists the
Board in monitoring ethical business conduct
and challenging that we as an organisation are
compliant with the effectiveness of the Code
and its supporting policies.

An intensive training platform focusing on the
prevention of bribery was introduced in 2014
following the introduction of an enhanced,
comprehensive whistleblowing policy and
procedures the previous year. The training,
which included testing, was rolled out across
the Group and has been completed by all staff,
including contractors. Going forward, staff are
to complete this training as part of their annual
review process. Operational staff are additionally
required to return a signed declaration
confirming that they have complied with the
Code throughout the year.

No reports were made to the Company’s
independent whistleblowing service. During
2014, the Company engaged Clifford Chance
LLP to carry out an independent review to
assess whether there is evidence supporting
the allegations of wrongdoing made by various
NGOs and media members of its activities in the
DRC (see p11).

KEY ETHICAL OBJECTIVE DEVELOPMENTS FOR 2014 AND PLANS FOR 2015

OBJECTIVE: TO CONDUCT OUR BUSINESS IN AN HONEST AND ETHICAL MANNER

MEANING

IMPLEMENTATION

OUTCOME 2014

ONGOING PLANS 2015

Employees conduct themselves
in an appropriate manner
avoiding conflicts of interest
and allegations of bribery or
compromise.

Comply with all applicable
laws in local countries
and conduct business in
an ethical way.

Review of contracts for
anti-bribery clauses.

Continued supply chain
due diligence.

Training, monitoring
and testing.

Staff Declaration statements.

Whistleblowing policy and
procedures refresher started.

Fulfilled contractual obligations
with host governments and
local stakeholders
with integrity.

Strengthened procedures for
transparency and accountability
with staff and contractors.

£ Conclude refresh of the

whistleblowing policy and
provide further training.

Training completed.

Work ongoing.

Honoured contracts and
obligations with host
governments and local
stakeholders with integrity.

£ Receive Self Declaration

Statements from operations
staff on an annual basis.

£ Continue anti-bribery training
and testing on, at a minimum,
an annual basis.

£ Group KPIs and targets for

group ethical data in line with
industry best practices.

SOCO INTERNATIONAL PLC | Annual Report and Accounts 2014

38
CORPORATE SOCIAL
RESPONSIBILITY REPORT
CONTINUED

OUR PEOPLE – TO ENSURE THE HEALTH, SAFETY, SECURITY AND WELFARE
OF OUR EMPLOYEES AND OF ALL THOSE WHO WORK WITH US

We are committed to operating safely and
responsibly at all times, and positively impacting
the wellbeing of our employees, our contractors
and the local communities in which we operate is
a priority. Our HSES MS includes procedures and
guidelines which support a planned approach for
identifying, analysing and managing occupational
risks and confirming that our personnel and our
contractors have the appropriate competency.
Contractors and suppliers are selected on the
basis of their HSES competency and performance,
alongside commercial, technical quality, business
conduct and other considerations. HSES
performance is monitored and any incidents
recorded and investigated, throughout all
operations on a continual basis. Our industry-
leading track record in terms of safety speaks
for itself, with no Lost Time Injury Frequency
(LTIF) recorded in 2014 for our Vietnamese or
Congolese activities. One Lost Time Injury (LTI)
was recorded in the DRC when a staff member of
a contract catering firm sustained a burn to her
hand and, as a consequence, had to miss work for
two days. Also in the DRC, nine near misses were
recorded involving driving incidents, highlighting
the importance of traffic management in the
industry. SOCO plans to enhance the driver
training for 2015.

Although we are a lean company in terms of total
number of corporate employees, our people and
their welfare is important to us. We are an equal
opportunities employer and embrace diversity.
SOCO promotes a workplace culture where each
person is treated with fairness and respect and we
are committed to providing a work environment
where our employees can grow both personally
and professionally. As an indication of the loyalty
that SOCO garners, our corporate employees have
an average tenure of eight years. The size of the
corporate organisation facilitates every day, direct
interaction and multi-disciplinary dialogue amongst
personnel and Executives. There were no reported
incidents of discrimination in 2014 and no use was
made of our internal grievance procedures.

GENDER ANALYSIS

Female

Directors

Male

Senior
Managers

Female

Male

Female

Employees

Male

2014

2013

2012

–

KEY PEOPLE OBJECTIVE DEVELOPMENTS FOR 2014 AND PLANS FOR 2015

OBJECTIVE: TO ENSURE THE HEALTH, SAFETY, SECURITY AND WELFARE OF OUR EMPLOYEES AND OF THOSE WITH WHOM WE WORK

MEANING

IMPLEMENTATION

OUTCOME 2014

ONGOING PLANS 2015

Effective health,
safety, security
and welfare
management.

HSES Policies and HSES
MS has been aligned
with IFC (World Bank)
performance Standards.

Working conditions
and welfare in terms
of human rights
management is
an imperative.

Development of
new procedures and
enhancement of
existing procedures.

Revised HSES MS has been rolled
out across SOCO Africa region.

£ Conduct HSE audits and inspections according to plan.

£ Ensure all contractors have access to a grievance mechanism.

Review of staff hand book and
delivery of a supply chain
management workshop.

HSE audits, and work place
inspections undertaken with
monthly reporting.

£ Enhance HSES training e.g. enhance driver training,

whistleblowing policy/procedure training.

£ Group KPIs and targets for Group HSE data in line with

industry best practices.

STRATEGIC REPORT39

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SOCIETY – TO ENHANCE THE WELLBEING OF OUR HOST COMMUNITIES

Fundamental to our CSR strategic objectives
is the commitment to support the welfare of
the local communities amongst whom we
operate in an effective and sustainable manner.
SOCO’s social impact therefore takes many
forms, notably capacity building through
developing new skills, creating jobs and
stimulating the local job market in developing
countries, often in some of the poorest parts
of the world. To achieve positive social impact,
we rely on meaningful engagement, being
respectful of local communities and their
interests as well as assisting host communities,
local companies and governments with
technical cooperation, knowledge sharing,
training with mentoring and supporting health
and educational programmes.

The process for our social investment project
selection is driven by our CSR strategic
objectives, the category of project and the
country of operation given the local regulatory
context and the degree of influence we have
in our projects. We have prioritised, where
applicable, the support of projects which meet
our objectives and this commitment lies across
all the countries in which we operate, namely
Vietnam, Congo (Brazzaville) and DRC.

In Congo (Brazzaville) and DRC, we have
greater influence over the projects, given
the ownership structure, and accordingly
are in a position to suggest to Government,
following consultation, what the structure of
projects could be to achieve positive impact
on our host communities in which we operate.
In Vietnam, our JOC Partners lead these
projects and we contribute according to the
stipulated requirements at the outset of the JV
relationship. In Vietnam, 50% of the total social
projects were additional voluntary contributions
and accounted for 10% of the total social
budget spent. In Africa, 14% of our social
projects were voluntary and accounted for
8% of the total social budget spent.

Our commitment to the fundamental principles
of human rights is embedded in our HSES

polices and throughout our business processes
touching our own workers and reaching out
into our supply chain, affected communities
and other stakeholders. We maintain the social
responsibility and security of our operations
within a framework that ensures respect for
human rights. We have adopted the Voluntary
Principles on Security and Human Rights
implemented through our social and security
policies and supporting procedures. There were
no reported violations of our social responsibility
and security policies as they relate to human
rights in 2014. However, there were allegations of
wrongdoing made by various NGOs and media
members (see below). Following stakeholder
engagement, our human rights policy approach
is in the process of being reviewed by an
independent expert after which time we expect
to produce a stand alone human rights policy.

SOCIAL INVESTMENT ($000s)

Vietnam

Africa

Total

CONTRACTUAL

VOLUNTARY

182.4

1,460.0

1,642.4

19.4

120.0

139.4

TOTAL

201.8

1,580.0

1,781.8

KEY SOCIETY OBJECTIVE DEVELOPMENTS FOR 2014 AND PLANS FOR 2015

OBJECTIVE: TO ENHANCE THE WELLBEING OF OUR HOST COMMUNITIES

MEANING

IMPLEMENTATION

OUTCOME 2014

Building local
capacity
during the
exploration or
development
phases of a
project to
ensure a
positive
imprint and
legacy.

Investing in
social projects
for the long
term benefit
of local
communities.

HSES Policies and HSES
MS has been aligned
with IFC (World Bank)
Standards.

Strengthened
stakeholder
engagement
procedures.

Strengthened social
reporting.

Regular voluntary
charitable donations.

Voluntary infrastructure
improvement projects.

Implemented social
programme
commitment.

Implemented various
voluntary social
projects.

Congo (Brazzaville): Training of local consultants in
stakeholder engagement requirements and processes.

Building extension project at Koufoli School.

Construction of Sibiti youth centre.

Supply of medical equipment and solar panels.

Restoration of CEG Tchicaya school.

DRC: Rehabilitation of the Ishasa-Nyakakoma road.

Provision of 20 water purification plants in
six villages around Lake Edward.

Provision of a communications antenna.

Provision of a mobile hospital.

Sponsorship of a disease mapping programme.

Vietnam: Extension of Lien Chau Commune
Kindergarten.

Construction of Quynh Giao Commune Kindergarten.

Green Summer Project – included rural road building,
supply of medical equipment, support of a children’s
charity, scholarship funding, tree planting, provision of
15 clean water wells in Tan Binh District, critical recovery
support, and support to Te Phan Orphanage with
necessities and medical treatment.

ONGOING PLANS 2015

£ Establish stand alone human

rights policy in line with industry
best practices.

£ Provide training to all staff on

human rights policy.

£ Revise corporate and project
level grievance mechanism
procedures.

£ Ensure that stakeholder

engagement is conducted
according to SOCO 2014 HSES
policies for each new ESIA.

£ Continue with community

projects in all regions we operate
to enhance education, health or
the environment.

£ Report KPIs and targets

for Group social data in line with
industry best practices.

SOCO INTERNATIONAL PLC | Annual Report and Accounts 2014

40
CORPORATE SOCIAL
RESPONSIBILITY REPORT
CONTINUED

ENVIRONMENT – TO PROTECT THE ENVIRONMENT
AND CONSERVE BIODIVERSITY

SOCO is committed to conducting all business
activities in a responsible manner to ensure the
protection of the environment. Relative to the industry
sector, our environmental impact is low, due to our
small scale of operations and corporate organisation.
Our objective is for the impact to remain low through
continuous monitoring and responsive action. SOCO
collects all environmental emissions data on
a monthly basis.

There were no environmental regulatory non-
compliances reported in the Africa region. There were
two small spills of under one litre reported in the DRC
which were cleaned up according to procedure. There
were no environmental regulatory non-compliances
reported and no oil spills reported in Vietnam.

SOCO monitors and reports Greenhouse Gas Emissions
for all its operations under the Carbon Disclosure
Project. In 2014, SOCO achieved 80% for this disclosure.

KEY ENVIRONMENTAL OBJECTIVE DEVELOPMENTS FOR 2014 AND PLANS FOR 2015

OBJECTIVE: TO PROTECT THE ENVIRONMENT AND CONSERVE BIODIVERSITY

MEANING

IMPLEMENTATION

OUTCOME 2014

ONGOING PLANS 2015

To protect the
environment and
minimise our
footprint, manage
natural resources
and protect
and enhance
biodiversity.

HSES Policies and HSES
MS has been aligned
with IFC (World Bank)
Performance Standards.

Development of new
procedures and
enhancement of
existing procedures.

Introduction of a
Biodiversity and
Conservation policy.

Environmental data
reported. HSE audits
completed. Emergency
response drills
completed.

Revised HSES MS rolled
out across SOCO Africa
region.

Implemented new
Biodiversity and
Conservation policy.

Training commenced and
changes communicated to
all stakeholders.

All environmental data
regularly reported via
HSES processes.

£ Ensure that an environmental
risk assessment is conducted
according to SOCO 2014 HSES
policies for each new ESIA.

£ Ensure that a biodiversity risk
assessment is conducted
according to SOCO 2014 HSES
policies for each new ESIA.

£ Report KPIs and targets for

Group environmental data in
line with industry best practices.

 SUPPORTING
COMMUNITIES 

In 2014,
our JOCs
financed the
construction of
the Son Binh
medical clinic in
Ha Tinh province.

SAFETY 

We are proud to
maintain an industry-
leading safety record
in Vietnam, with
zero LTIs in 2014.

STRATEGIC REPORT41

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JOINT OPERATING COMPANIES
– A LONG STANDING AND
TRUSTING RELATIONSHIP

e are
fortunate
in that we
have been
working
alongside our partners
for a number of years
and have a long standing
and trusting relationship.
Our HSES policies and
related requests, from
SOCO and its partners,

TONY ROCHE

HLHVJOC DEPUTY
GENERAL MANAGER

are considered and taken seriously, and as a result, we
have very safe and environmentally efficient operations
at our two offshore oilfields. Last year at a neighbouring
oilfield, sadly there was a fatality. Although unrelated
to the JOC or SOCO, this brought into stark focus for
us all our impeccable safety track record and its

importance. Extra checks were put in place

to mitigate any potential issues as part of
the lessons learnt from that accident.

IN VIETNAM SOCO
IS A JOC PARTNER IN
TWO ASSETS (THE TGT
AND CNV FIELDS) THAT
WHEN COMBINED
REPRESENT ONE OF
THE LARGEST NATIONAL
PRODUCERS OF OIL

For the operations here we recorded
a total of 2.8 million man-hours of
safely working without any lost
hours over all of the sites including
the JOC office, the supply base
at Vung Tau, the four drilling rigs,
the onshore fabrication sites, the
offshore production facilities as
well as the offshore installation and
modification units. All incidents are

 More on p8

investigated and followed up and
preventative actions are always taken.

The safety of our people is paramount.

There are other aspects that are also important for
us in contributing to the imprint that we leave. Our early
involvement in the Vietnamese projects started in 1999
and over the years we have invested in a wide range
of community projects from public health, education,
environmental, public facility, and community relations-
based programmes. In all of these, our involvement
has been not simply to provide investment funds or
donations, but to actively work with the community and
our partners; to build trust and ensure that both the
community’s needs and those of SOCO and the JOC
partners are considered when projects are planned. Every
year we ensure that our voluntary social contributions
go to those projects that we believe will address the
greatest needs as well as bring the most long term
benefit. For example, we assisted the Red Cross in
drilling and building 15 clean water wells for the poorest
families in the Soc Trang Province. We provided medical
equipment and supplies to the orphanage in Ho Chi
Minh City and participated in the annual tree planting
event, planting 235 trees on Environment Day in Ho Chi
Minh City. Further afield (and falling within our contractual
investments outlined as part of the Petroleum Contract)
we built a hard-top road in rural Tra Vinh Province to
alleviate the erosion problems posed by the floods
during the rainy season. This was an incredibly impactful
project for us to be involved in as the newly built road will
further promote local economic development, bringing
with it long term social benefits to the public including
transport, education and welfare. Larger scale contractual
social projects for us last year included the construction
of additional food, medical and classroom facilities at
nursery schools in the Vinh Phuc and Thai Binh provinces.

SOCO INTERNATIONAL PLC | Annual Report and Accounts 2014

42
CORPORATE SOCIAL
RESPONSIBILITY REPORT
CONTINUED

KEY PERFORMANCE INDICATORS

SOCO measures the KPIs it believes are useful
in assessing the Group’s performance against
strategic priorities, HSES polices, and business
plans. These metrics are kept under periodic
review and are regularly tested for relevance
against strategy and policy. In 2014, further KPIs
were added to better align performance to
strategy. SOCO tracks both financial and non-
financial metrics to facilitate better management
of long term performance and the delivery of
sustainable responsible business plans.

Reflecting the importance that operating safety
has in the priorities of the Company, as well as to
the industry as a whole, the Company measures
the number of lost time injuries per million
man-hours on all projects where the Company
is the designated operator or the joint operator.
To further reinforce this priority, a KPI has been
added which flags the frequency rate of fatal
accidents, with the firm ambition to maintain
this number at zero. The introduction of a new
KPI measuring the number of oil spills of over
100 litres acknowledges the serious impact that

such an incident would have upon a natural
habitat as well as upon the business. Other new
KPIs include the quantity of solid hazardous and
non-hazardous waste, as has become an industry
standard disclosure. Reporting the number of HSE
regulatory non-compliances with the target of
zero reflect the Company’s excellent HSE record
to date and the intention of the management to
maintain this high standard.

EXECUTIVE DIRECTOR
REMUNERATION

Executive Director Remuneration is directly
linked to SOCO’s performance. To help ensure
that the focus of the Board and management is
aligned with the interests of our shareholders,
certain of these measures are reflected in
the annual bonus element of executive
remuneration. Directors’ performance-related
pay is decided by a balanced scorecard of
financial and non-financial objectives.

 More on p64

NON-FINANCIAL KEY PERFORMANCE INDICATORS (SUSTAINABILITY)

Lost time injury frequency rate1

Fatal accident frequency rate2

Employee tenure (years)3

Employee turnover (%)4

Emissions (million tonnes of CO2 equivalent)
(based on equity share)5

Oil spills6

Solid non-hazardous waste (tonnes)7

Solid hazardous waste (tonnes)8

HSE regulatory non-compliances9

TARGET

–

N/A

–

Set per project

–

KPI

2014

0.3

–

0.11

–

498.4

401.3

–

1 The number of LTIs per million man-hours on projects operated by SOCO or jointly operated companies.
2 The number of fatal accidents per hundred million man-hours on projects operated by SOCO or jointly operated companies.
3 Average length of UK-based employee tenure.
4 Rate of UK-based employee resignations.
5 Scope One and Two emissions from the Group’s operated and joint operated projects on an equity share basis calculated pro-rata to its ownership interest.
6 Quantities greater than 100 litres.
7 Total non-hazardous waste requiring disposal, by gross project interest.
8 Total hazardous waste requiring disposal, by gross project interest.
9 HSE regulations and permit conditions applicable to country of operation.

KPI See Additional Information – Key Performance Indicators on page 99 for all KPIs reported and their definitions.

 2014 SEISMIC
SURVEY ON
LAKE EDWARD

We completed a seismic
survey on Lake Edward in
2014. After providing the
DRC Government with
interpretation of the two
seismic results, SOCO
will have no further
involvement in the Block.

STRATEGIC REPORT43

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BLOCK V, EASTERN
DRC – NO FURTHER
INVOLVEMENT

Following SOCO’s public commitment

announced jointly with WWF in June
2014, SOCO’s operations in eastern
DRC ceased inside Virunga National
Park on 22 July 2014 and elsewhere in
Block V on 11 August 2014. The Company no
longer has any personnel in Block V.

the lake. The survey lasted six weeks and
was completed on 13 June 2014.

£ geological studies on land. The studies

were carried out by three geologists using
small handheld tools. The objective was
to inspect rock formations on land and to
gather samples for laboratory study. Inside
Virunga National Park, the studies were
completed on 22 July 2014 and elsewhere
on 11 August 2014.

Processing of the seismic data has been
completed and data interpretation is currently
underway in the UK and should be completed
by mid-2015.

Prior to August 2014, the extent of SOCO’s
operational activities within Virunga National
Park had been:

£ a bathymetry survey on Lake Edward. The

objective of this survey was to map the depth
of the lake. The survey lasted one month and
was completed in November 2013.

£ a seismic survey on Lake Edward. The

objective of this survey was to gather data
about subsurface rock formations under

In the summer of 2014, the Company engaged
Clifford Chance to carry out an independent review
to assess whether there is evidence supporting
allegations of wrongdoing made by various
NGOs and media members of its activities in the
DRC. The law firm was also asked to advise as to
whether, in the materials reviewed, there was any
evidence contradicting the Company’s conclusion,
based on its own internal review, that neither
SOCO nor its employees have been complicit
in any intimidation and/or human rights abuses.
Given the absence of a response from NGOs to

SOCO’s request for assistance in evidencing
the allegations, the exercise has been defined
and focused by Clifford Chance in terms of
the evidence considered. The Company has
provided access to all the available personnel,
processes and documents requested by the
law firm in order for them to conduct a focused
review and sufficient for them to advise the
Board as to the appropriate steps to be taken.
Upon the conclusion of the independent review,
the Company will take any necessary steps and
advise its stakeholders.

While we acknowledge that the DRC
government is anticipating discussions with
UNESCO involving the future of the Virunga
National Park; we have no involvement in
these discussions. After providing the DRC
Government with interpretation of the seismic
results, SOCO will have no further involvement
in the Block. Consequently, all costs incurred
on Block V to date and any further costs
anticipated in the course of 2015 have been
written off as exploration expense in 2014.
It is our intention to leave behind all the
humanitarian aid that SOCO has provided in
water purification and communications facilities
for the benefit of the people.

SOCO INTERNATIONAL PLC | Annual Report and Accounts 2014

44
CORPORATE SOCIAL
RESPONSIBILITY REPORT
CONTINUED

GREENHOUSE GAS REPORTING

SOCO, as part of its annual HSES monitoring
programme, reports the emissions of GHGs on
an annual basis that have been generated as a
result of its exploration and production activities.
This has been undertaken to meet both the
requirement under the Companies Act 2006 for
UK-listed companies to carry out mandatory
carbon reporting; and the internal SOCO
requirement under its HSES MS to report
GHG emissions annually.

GHGs REPORTED

SOCO counts emissions of carbon dioxide
(CO2), methane (CH4) and nitrous oxide (N2O),
all of which are produced during combustion.
For simplicity, the results of all three have been
reported as a single parameter – carbon dioxide
equivalent (CO2e).

The other three greenhouse gases categorised
under Section 92 of the UK Climate Change Act,
hydrofluorocarbons (HFC), perfluorocarbons (PFC)
and sulphur hexafluoride (SF6), are not closely
associated with the petroleum industry. The total
emission of these gases is therefore expected to
be small and has not been calculated.

EMISSIONS SCOPE

Reported Scope One direct emissions comprise
direct GHG releases from combustion activities
(for example, gas flaring operations and fuel gas/
diesel use to generate power or for vehicle use).
Reported Scope Two indirect emissions comprise
those arising from generation of electricity
supplied by the national grid in the UK and
Congo. No Scope Three emissions are reported.

TONNES (T) OF CO2E FOR 2014 OPERATIONS

COUNTRY

REPORTED
OPERATIONS

Corporate office

Congo
(Brazzaville)

Marine XI

Nanga II A

Corporate

DRC

Block V

Corporate

Block 9-2
CNV field

Block 16-1
TGT field

Vietnam

Total

OPERATIONAL
PHASE

Administration
(electricity usage)

Exploration/Appraisal
(LXM-101 well)

Block evaluation

Administration

Evaluation
(seismic survey)

Administration

Field development/
production

Appraisal/field
development/production

NORMALISED EMISSION
CO2 E (T) PER T OIL PRODUCEDA

BASED ON
EQUITY SHAREB

OVERALL

n/a

CO2E (T)

BASED ON
EQUITY SHAREB

OVERALL

13,796

4,736

–

176

686

137

–

494

116

56,820

14,205

19.0 kg per bbl

297,625

90,776

21.5 kg per bbl

21.5 per kg bbl

369,267 t

110,415 t

21.1 kg of CO2e per bbl
of oil produced

a Normalised emission is calculated, per field, and at country level, based on equity share, and gross/net boepd produced in 2014.
b Under equity share, SOCO reports a share of the emissions from partnerships pro-rata its ownership interest.

STRATEGIC REPORT45

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Based on equity share, SOCO’s GHG emissions in
2014 were 110,415 tonnes of CO2e, representing a
39% increase from the 79,312 tonnes CO2e in 2013.
Overall GHG emissions during 2014 were 369,267
tonnes of CO2e, representing a 41% increase
compared with 262,357 tonnes overall CO2e in
2013. For producing assets, SOCO’s GHG emissions
intensity was 21.1 kg of CO2e per barrel of oil
produced in 2014, compared with 12.2 kg of CO2e
per barrel of oil produced in 2013.

COLLECTION AND VERIFICATION

Activity data pertaining to GHG emissions from
SOCO’s Africa projects were collected by SOCO
HSES managers, assisted by RPS Energy. In
Vietnam, data were collected and reported to
SOCO by the HLJOC and HVJOC. RPS Energy
assisted SOCO with activity data collation and
GHG emissions calculations.

Verification was undertaken by a different
division of RPS, RPS Planning & Development,
which has maintained appropriate independence
from both SOCO and RPS Energy during
verification using its established approach to
internal conflict management.

REPORTING BOUNDARY

SOCO reports GHG emissions from its operated
projects (Marine XI and Block V), joint-operated
projects (Block 9-2 and Block 16-1), and
associated corporate/administrative activities on
an overall and equity share basis. The former is
the total emissions generated by those projects.
The latter is calculated pro-rata to SOCO’s
ownership interest (equity share). No GHG
emissions are reported for SOCO’s non-operated
projects (Cabinda North Block and Nanga II A
Block) as there were no emissions-generating
activities during 2014.

BASE YEAR ADJUSTMENTS
AND 2014 RESULTS

2013 was the first year for which a full emissions
estimate was made and reported to the CDP in
2014. The verified emissions from 2013, reported
in 2014, therefore form the base year against
which emissions trends over time are reported.

Our GHG reporting in 2015 has provided a re-
calculation of base year emissions, which takes
into account updates to the approach taken
to set the organisation boundary, along with
improvements and updates to certain emissions
factors used to calculate GHG emissions from
activities in 2014. This recalculation of the
base year is in line with CDP guidance and
was undertaken to ensure that GHG reporting
reflects genuine emissions trends over time.
The 2013 base year recalculations have been
included in the verification process, during
which no material errors were identified.

2014 saw an increase in emissions produced,
reflecting an increase in the level of operational
activity during the year. Operation activity
during 2014 included field development
drilling campaigns on both the CNV and
TGT fields, offshore Vietnam, and an
exploration/appraisal drilling campaign
on Marine XI, offshore Congo (Brazzaville).

SOCO INTERNATIONAL PLC | Annual Report and Accounts 2014

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Membership

Committee chair

Committee member

Committee advisor

A R

A R N

R N

A R N

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A N

11.

12.

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GOVERNANCE

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1. RUI DE SOUSA

7. ROBERT CATHERY

Non-Executive Chairman, 59
Appointed: July 1999
Rui de Sousa has approximately 35 years’ experience in the energy sector.
He was formerly a director of Gazprombank-Invest (Lebanon) SAL, the
Chairman of Carbon Resource Management Ltd. and the President of
Quantic Mining. Rui is currently a director of Quantic Limited.

2. ED STORY

President and Chief Executive Officer, 71
Appointed: April 1997
Ed Story has over 45 years’ experience in the oil and gas industry,
beginning with Exxon Corporation, where he held various positions
including seven years resident in the Far East. He was formerly the
Vice President and Chief Financial Officer of Superior Oil Company,
a co-founder and Vice Chairman of Conquest Exploration Company
and a co-founder and President of Snyder Oil Corporation’s international
subsidiary. Ed was a non-executive director of Cairn Energy PLC until
2008 and is currently a non-executive director of Cairn India Limited.

3. ROGER CAGLE

Deputy Chief Executive Officer, 67
Appointed: April 1997
Roger Cagle has over 40 years of experience in the oil and gas industry
including succeeding positions of responsibility with Exxon Corporation
and senior management roles with Superior Oil Company. He was formerly
the Chief Financial Officer of Conquest Exploration Company and the
Chief Financial Officer of Snyder Oil Corporation’s international subsidiary.

4. CYNTHIA CAGLE

Executive Vice President and Company Secretary, 60
Appointed: December 2012
Cynthia Cagle has over 35 years’ experience in the oil and gas industry.
She was one of the founders of SOCO International plc and has been
an officer of the Group, and a Director of its significant subsidiaries,
since its inception in 1997. Prior to joining SOCO, Cynthia gained her
industry experience through senior accounting positions in Snyder Oil
Corporation’s international subsidiary, Conquest Exploration Company
and Superior Oil Company, and additional financial experience with Texas
Commerce Bancshares.

5. ROB GRAY

Non-Executive and Senior Independent Director, 61
Appointed: December 2013
Rob Gray has been an advisor to the natural resources sector for more
than 30 years. Rob qualified as a solicitor in 1981 at Allen & Overy and
then went on to help establish James Capel & Co. Petroleum Services,
a successful advisory and Mergers & Acquisitions practice. Rob’s
experience includes thirteen years at Deutsche Bank where he was latterly
a Senior Advisor having been Chairman of UK Investment Banking for five
years and formerly Global Head of Natural Resources. Rob was previously
a Director and Head of the Natural Resource Group at Robert Fleming
& Co. Ltd. for four years, a group which he established. Between 2000
and 2010, Rob was an Advisory Board Member for Heerema Marine
Contractors. Rob is also one of a number of industry advisors to Bluewater
Energy. Rob was a co-founder of RegEnersys, a natural resources
investment entity and is currently the principal of ReVysion LLP.

6. OLIVIER BARBAROUX

Non-Executive Director, 59
Appointed: July 1999
Olivier Barbaroux has over 25 years’ experience in the energy and utilities
sector. He was the Chairman and Chief Executive Officer of Dalkia and
a member of the Executive Committee of Veolia Environment until 2011.
Formerly, he was the Managing Director of Compagnie Générale des
Eaux, President and Chief Operating Officer of Vivendi Water S.A., the
Head of the Energy Sector of Paribas and the Chief Executive Officer
of the oil and gas production and exploration company
Coparex International.

Non-Executive Director, 70
Appointed: June 2001
Robert Cathery has over 45 years of City experience. He was formerly
the Managing Director and Head of Oil and Gas at Canaccord Capital
(Europe) Limited, Head of Corporate Sales at SG Securities (London) Ltd.,
director of Vickers da Costa and director of Schroders Securities. Robert
is also currently a non-executive director of Salamander Energy PLC and
Central Asia Metals Limited.

8. ETTORE CONTINI

Non-Executive Director, 40
Appointed: December 2001
Ettore Contini was formerly a director of Energia E Servize SpA and an
asset manager in the private banking division of Banca del Gottardo.
Ettore is currently also a director of Eurowatt-Commerce.

9. MARIANNE DARYABEGUI

Non-Executive Director, 50
Appointed: October 2013
Marianne Daryabegui is currently the Managing Director of the Corporate
Finance Oil and Gas Team at BNP Paribas in Paris, France. Marianne has
extensive experience in oil and gas corporate transactions, including
structured financing and reserve based lending facilities, and has advised
a wide number of oil companies across the sector. Prior to joining the Oil
and Gas Team in 2006, Marianne worked for eight years in BNP Paribas’
Energy Commodities Export Project Department where she headed
the Commodity Structure Finance team for the Middle East, North and
West Africa. Prior to joining BNP Paribas, Marianne spent eight years
at TOTAL, working amongst other activities on upstream acquisitions
and divestments in Europe and Africa. Marianne has a Masters degree
in Finance and Capital Markets from Sciences Po University, Paris and a
Masters in Tax and Corporate Law.

10. ANTÓNIO MONTEIRO

Non-Executive Director, 71
Appointed: June 2009
Ambassador António Monteiro has over 45 years of experience with
the Portuguese Ministry of Foreign Affairs, including as Foreign Minister
of Portugal, and with international organisations, including as UN High
Representative for Elections in Côte d’Ivoire and as a member of the UN
Secretary-General’s Panel on the Referenda in the Sudan. He was formerly
the Ambassador of Portugal to France and the Permanent Representative
of Portugal to the United Nations, where posts included being President
of the Security Council and of the Security Council’s Committee
established by Resolution 661 (1990). António is currently also Chairman
of the Board of Directors of the Portuguese Bank Millenium BCP (Banco
Comercial Português), a non-executive member of the Board of the
Angolan Bank BPA (Banco Privado Atlântico), a non-executive member
of the Board of the Spanish bank Sabadell, and Chairman of the Advisory
Council of Gulbenkian’s Foundation Program for Development Assistance.

11. JOHN NORTON

Non-Executive Director, 77
Appointed: April 1997
John Norton is a Chartered Accountant by profession and was a partner
at Arthur Andersen, heading the oil and gas practice in Europe, the
Middle East and Africa, until his retirement in 1995. John was formerly also
a member of the Oil Industry Accounting Committee and a director of the
Arab-British Chamber of Commerce.

12. MIKE WATTS

Non-Executive Director, 59
Appointed: August 2009
Dr Mike Watts has over 35 years’ experience in the oil and gas industry.
He was formerly the Deputy Chief Executive of Cairn Energy PLC and the
Chief Executive Officer and Managing Director of the Amsterdam listed
Holland Sea Search, which was acquired by Cairn Energy PLC in 1995,
and has held senior technical and management roles with Premier,
Burmah and Shell.

SOCO INTERNATIONAL PLC | Annual Report and Accounts 2014

CYNTHIA CAGLE

EXECUTIVE VICE
PRESIDENT AND
COMPANY SECRETARY

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he Directors present their annual
report, along with the audited
Financial Statements of the Group
for the year ended 31 December
2014. Information on pages 46 to 47
and 48 to 72 is incorporated herein
by reference and forms part of this
Directors’ report.

DEVELOPMENTS FOLLOWING
THE 2014 REPORTING PERIOD

An indication of the likely future developments
in the business of the Group is included in the
Strategic Report on pages 4 to 45.

RESULTS AND DIVIDENDS

The audited Financial Statements for the year
ended 31 December 2014 are set out on pages 77
to 97. During the year, the Company announced
a return of value to shareholders of 22 pence per
Ordinary Share amounting to approximately
£73 million ($119.2 million) in cash by way of a B/C
share scheme, which gave shareholders (other
than certain overseas shareholders) a choice
between receiving cash in the form of income or
in the form of capital. The return of value, which
was approved by shareholders on 22 September
2014, became effective on 30 September 2014.
The Board has recommended a final dividend of
10 pence per Ordinary Share, which amounts to
approximately $50 million, and which if approved
at the AGM will be paid on 19 June 2015 to
shareholders on the register at the close of
business on 29 May 2015.

DIRECTORS

The business of the Company is managed by
the Directors who may exercise all powers of the
Company subject to the Articles of Association
(Articles) and law. The Directors who held office
during the year, and the dates of their current
service contracts or letters of appointment,
which are available for inspection, are listed in
the table on page 51. All Directors held office
throughout the year except as noted in the table.
In accordance with the provisions of the 2012 UK
Corporate Governance Code, all Directors will
retire at the forthcoming AGM and, being eligible,
offer themselves for reappointment. Relevant
details of the Directors, which include their
Committee memberships, are set out on pages
46 and 47. SOCO provides liability insurance for
its Directors and officers. The annual cost of the
cover is not material to the Group. The Company’s
Articles allow it to provide an indemnity for the
benefit of its Directors, which is a qualifying
indemnity provision for the purpose of section 233
of the Companies Act 2006 (2006 Act).

CONTRIBUTIONS

The Group’s policies prohibit political donations.

SHARE CAPITAL

Details of changes to share capital in the period
are set out in Note 24 to the Financial Statements.

In October 2014, a return of value was made to
all shareholders amounting to approximately
£73 million in cash by way of a B/C share scheme.
Further information can be found above and in
Note 26 to the Financial Statements.

As part of this scheme, 107,078,451 B shares
and 224,876,192 C shares were issued. On
30 September 2014, all of the B shares were
redeemed at 22 pence per share and a dividend
of 22 pence per share was paid on the C shares.
The C shares were then automatically reclassified
as deferred shares.

The Company therefore, currently has two classes
of shares in issue, ordinary shares of £0.05 each,
and deferred shares of 0.0000001 pence each, all
of which are fully paid.

Each ordinary share in issue carries equal rights
including one vote per share on a poll at general
meetings of the Company, subject to the terms
of the Articles and law. Shares held in treasury
carry no such rights for so long as they are held in
treasury. Votes may be exercised by shareholders
attending or otherwise duly represented at
general meetings. Deadlines for the exercise
of voting rights by proxy on a poll at a general
meeting are detailed in the notice of meeting and
proxy cards issued in connection with the relevant
meeting. Voting rights relating to the ordinary
shares held by the SOCO Employee Benefit
Trust are not exercised. The Articles may only be
amended by a resolution of the shareholders.

Each deferred share carries no voting rights
and no rights to participate in the profits of the
Company. On a winding-up or other return of
capital, the holders of deferred shares have
extremely limited rights. A resolution will be
proposed at the 2015 AGM to approve a contract
to buy back all of the deferred shares for the
aggregate consideration of one pence and, in
accordance with the Articles, following such
buy back, the deferred shares will be cancelled.
Further information regarding this resolution is set
out in the circular to shareholders.

No shareholder, unless the Board decides
otherwise, is entitled to attend or to vote either
personally or by proxy at a general meeting or
to exercise any other right conferred by being
a shareholder if he or she or any person with an
interest in ordinary shares has been sent a notice
under section 793 of the 2006 Act (which confers
upon public companies the power to require
information with respect to interests in their
voting shares) and he or she or any interested
person failed to supply the Company with the
information requested within 14 days after delivery
of that notice. The Board may also decide that
no dividend is payable in respect of those default
shares and that no transfer of any default shares
shall be registered. These restrictions end seven

GOVERNANCE

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IN OCTOBER 2014,
THE COMPANY
RETURNED TO
SHAREHOLDERS
22 PENCE PER
ORDINARY SHARE,
APPROXIMATELY
£73 MILLION

as a Director, having made such enquiries of
fellow Directors and the auditors and taken such
other steps as are required under their duties
as a Director, to make themself aware of any
relevant audit information and to establish that
the auditors are aware of that information. This
confirmation is given and should be interpreted
in accordance with the provisions of section 418
of the 2006 Act.

SUBSTANTIAL SHAREHOLDINGS

As at 11 March 2015, the Company had been
notified, in accordance with Chapter 5 of the
Disclosure and Transparency Rules of the
interests in the shares of the Company as set
out in the table on page 51.

GREENHOUSE GAS
EMISSIONS REPORTING

Reporting on emission sources, as required
under the Large and Medium-Sized Companies
and Groups (Accounts and Reports) Regulations
2008 as amended in August 2013, is included in
the Corporate and Social Responsibility Report
on pages 34 to 45.

days after receipt by the Company of a notice
of an approved transfer of the shares or all the
information required by the relevant section
793 notice, whichever is earlier. The Directors
may refuse to register any transfer of any share
which is not a fully-paid share, although such
discretion may not be exercised in a way which
the Financial Conduct Authority regards as
preventing dealings in shares of that class from
taking place on an open or proper basis. The
Directors may likewise refuse any transfer of a
share in favour of more than four persons jointly.

The Company is not aware of any other
restrictions on the transfer of ordinary shares
in the Company other than certain restrictions
that may from time to time be imposed by laws
and regulations (for example, insider trading
laws); and pursuant to the Listing Rules of the
Financial Conduct Authority whereby certain
employees of the Company require approval of
the Company to deal in the Company’s shares.

The Company is not aware of any agreements
between shareholders that may result in
restrictions on the transfer of securities or voting
rights. Resolutions will be proposed at the
2015 AGM, as is customary, to authorise the
Directors to exercise all powers to allot shares
and approve a limited disapplication of pre-
emption rights. Further information regarding
these resolutions is set out in the circular to
shareholders. A resolution will also be proposed
at the 2015 AGM, as is also customary, to renew
the Directors’ existing authority to make market
purchases of the Company’s ordinary share
capital, and to limit such authority to purchases
of up to 34,107,691 ordinary shares of £0.05
each, representing approximately 10% of the
Company’s issued ordinary share capital at
11 March 2015. Shares purchased under this
authority may either be cancelled or held as
treasury shares.

AUDITORS

A resolution to reappoint Deloitte LLP as the
Company’s auditors will be proposed by the
Directors at the forthcoming AGM. Deloitte
also provide non-audit services to the Group,
which are set out in Note 9 to the Financial
Statements. All non-audit services are approved
by the Audit and Risk Committee. The Directors
are currently satisfied, and will continue to
ensure, that this range of services is delivered in
compliance with the relevant ethical guidance
of the accountancy profession and does not
impair the judgement or independence of the
auditors. Further details of the Group policy on
non-audit services are set out in the Audit and
Risk Committee Report on pages 60 to 62.

The Directors at the date of approval of this
report confirm that, so far as they are each
aware, there is no relevant audit information,
being information needed by the auditors in
connection with preparing their report, of which
the auditors are unaware. Each Director has
taken all steps that they ought to have taken

SOCO INTERNATIONAL PLC | Annual Report and Accounts 2014

50
ANNUAL REPORT
OF THE DIRECTORS
CONTINUED

REQUIREMENTS OF THE LISTING RULES

The table below provides references to where the information required by the listing rule 9.8.4R is disclosed:

LISTING RULE REQUIREMENT

A statement of the amount of interest capitalised by the group during the period under review with an
indication of the amount and treatment of any related tax relief.

Not applicable

Any information required by LR 9.2.18 R (Publication of unaudited financial information).

Not applicable

Details of any long term incentive schemes as required by LR 9.4.3 R.

Directors’ Remuneration Report page 65

Details of any arrangements under which a director of the company has waived or agreed to waive any
emoluments from the company or any subsidiary undertaking. Where a director has agreed to waive
future emoluments, details of such waiver together with those relating to emoluments which were
waived during the period under review.

No such waivers

Details required in the case of any allotment for cash of equity securities made during the period under
review otherwise than to the holders of the company’s equity shares in proportion to their holdings of
such equity shares and which has not been specifically authorised by the company’s shareholders.

No such share allotments

Where a listed company has listed shares in issue and is a subsidiary undertaking of another
company, details of the participation by the parent undertaking in any placing made during the
period under review.

Not applicable

Details of any contract of significance subsisting during the period under review:

Note 32 page 97

(a) to which the listed company, or one of its subsidiary undertakings, is a party and in which
a director of the listed company is or was materially interested; and

(b) between the listed company, or one of its subsidiary undertakings, and a controlling shareholder.

Details of contracts for the provision of services to the company or any of its subsidiary
undertakings by the controlling shareholder.

Details of any arrangement under which a shareholder has waived or agreed to waive any dividends,
where a shareholder has agreed to waive future dividends, details of such waiver together with those
relating to dividends which are payable during the period under review.

Not applicable

Note 25 page 93

Board statement in respect of relationship agreement with the controlling shareholder.

Not applicable

The Directors are responsible for the
maintenance and integrity of the corporate and
financial information included on the Company’s
website. Information published on the internet is
accessible in many countries with different legal
requirements. Legislation in the United Kingdom
governing the preparation and dissemination of
Financial Statements may differ from legislation in
other jurisdictions.

GOING CONCERN

It should be recognised that any consideration
of the foreseeable future involves making a
judgement, at a particular point in time, about
future events which are inherently uncertain.
Nevertheless, at the time of preparation of
these accounts and after making enquiries,
the Directors have a reasonable expectation
that the Group has adequate resources to
continue operating for the foreseeable future.
For this reason, and taking into consideration
the additional factors in the Financial Review on
pages 24 to 28, they continue to adopt the going
concern basis in preparing the accounts.

DIRECTORS’ RESPONSIBILITIES FOR
THE FINANCIAL STATEMENTS

The Directors are responsible for preparing the
annual report and the Financial Statements in
accordance with applicable United Kingdom law
and IFRS as adopted by the European Union
both for the Group and the Company.

The Directors are required to prepare Financial
Statements for each financial year that give a
true and fair view of the financial position of the
Company and of the Group and the financial
performance and cash flows of the Group for that
period. In preparing those accounts the Directors
are required to select suitable accounting policies
and then apply them consistently; present
information and accounting policies in a manner
that provides relevant, reliable and comparable
information; and state that the Company and the
Group have complied with applicable accounting
standards, subject to any material departures
disclosed and explained in the accounts.

The Directors are responsible for keeping
proper accounting records which disclose with
reasonable accuracy at any time the financial
position of the Company and the Group and
enable them to ensure that the accounts
comply with relevant legislation. They are also
responsible for safeguarding the assets of
the Company and the Group and hence for
taking reasonable steps for the prevention and
detection of fraud and other irregularities.

GOVERNANCESUBSTANTIAL SHAREHOLDINGS

NAME OF HOLDER

Blue Albacore Business Ltd

Globe Deals Ltd

Liquid Business Ltd1

Chemsa Ltd

Edward T Story2

NUMBER

27,444,382

27,444,381

23,600,000

13,191,131

ISSUED SHARES

% HELD

8.27

7.11

3.97

1 Liquid Business Ltd is a connected person to Mr E Contini, a Non-Executive Director of the Company. An additional 220,000 Shares are

held personally by Mr E Contini. For further information see the Directors’ Interest table on page 69.

2 11,516,131 Shares are held personally by Mr E Story, an Executive Director of the Company. 1,675,000 Shares are held through The Story

Family Trust, a connected person to Mr E Story. For further information see the Directors’ Interest table on page 69.

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RESPONSIBILITY STATEMENT

The Directors confirm that, to the best of each
person’s knowledge:

(a) the Financial Statements set out on pages 73
to 97, 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 profit of
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

(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.

By order of the Board
11 March 2015

DIRECTORS HOLDING
OFFICE DURING 2014

DIRECTOR

Rui C de Sousa

Chairman

Robert G Gray*

Senior Independent Director

Olivier M G Barbaroux*

Roger D Cagle

Cynthia B Cagle

Robert M Cathery*

Ettore P M Contini

Marianne Daryabegui*

António V Monteiro*

John C Norton*

Edward T Story

Michael J Watts*

DATE OF
CONTRACT

12.07.99

09.12.13

12.07.99

14.05.97

19.06.01

11.12.01

01.10.13

10.06.09

14.05.97

21.09.09

* Denotes those determined by the Board to be independent

Non-Executive Directors as described in the Corporate Governance
Report on pages 52 to 59.

Cynthia Cagle
Company Secretary

SOCO INTERNATIONAL PLC | Annual Report and Accounts 2014

52 GOVERNANCE
52

RUI DE SOUSA

CHAIRMAN

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ear Shareholders

How we fulfil our
commitment to the UK
Corporate Governance Code
I am pleased to present this
introduction to our 2014
Corporate Governance Report,
which describes how we have
implemented and applied the principles of the
2012 UK Corporate Governance Code throughout
the year. SOCO is committed to applying the
highest standards of corporate governance while
pursuing the creation of value for our shareholders.
We welcome the continued development of
corporate governance guidance, which continues
to evolve with the issuance of an updated Code in
September 2014 (2014 Code).

Board leadership and stakeholder engagement
Corporate governance matters have become
even more important in ensuring appropriate
stewardship in the current volatile oil price
environment facing the oil and gas sector.
As Chairman, I remain focused on leading the
Board in the effective delivery of our strategy for
the long term success of the Company. Key to
achieving that success is ensuring honest and
ethical conduct as well as protecting the health and
safety of our people and the environment in which
we work. Communicating these values as well as
our strategy by maintaining an open dialogue with
our stakeholders is an important part of my role as
Chairman. During 2014, opportunities to engage
with stakeholders included, in addition to being
available to shareholders and analysts at general
meetings and results presentations, a number of
meetings with institutional shareholders to facilitate
a fuller mutual understanding of the Group’s
activities and the priorities of those shareholders.

Independence
The Board has determined that it has seven
independent Non-Executive Directors out of a total
of 12 Directors. Of those seven Directors three have
served on the Board for over nine years. The Board
believes that the Company continues to benefit
from those long-serving Directors who are uniquely
qualified to lead the Board through their detailed
knowledge and proven competencies. Further, all
six of the independent Non-Executive Directors
who have served on the SOCO Board alongside
the long-tenured Directors consistently supported
and endorsed each independent Director’s
designation as independent.

Audit and Risk Committee
The name of this committee was recently
expanded to highlight that its responsibilities
extend beyond audit, and include the important
role of reviewing the effectiveness of the Group’s
overall risk management systems. Specifically,
the Committee’s terms of reference have been
amended to set out its responsibilities in respect
of environmental, social and governance risk. The
Committee is, on behalf of the Board, leading
a review of the Group’s risk management and
internal control systems in light of 2014 Code and
associated FRC guidance. The aim of this review is

not just to achieve compliance but to enhance
the effectiveness of Board’s business decision
making processes.

The Audit and Risk Committee is also leading
the Group’s implementation of the Reports on
Payments to Government Regulations 2014,
effective from 1 January 2015. The Company
already has adequate accounting records in
place to comply with the reporting requirements.
The Committee will oversee the collation and
reporting of the required information.

Diversity and succession
The Board identified gender diversity as a matter
for increased focus in recent externally facilitated
Board evaluations and continues to focus on
succession planning, aimed at improving Board
balance including independence. Since 2012, the
Board has appointed three directors, two of whom
are women thereby providing the benefit of gender
diversity while, in the case of Ms Cynthia Cagle,
additionally increasing Executive representation
with sector, finance and governance experience.
The appointment of Ms Marianne Daryabegui as
a Non-Executive Director, and Mr Rob Gray as the
Senior Independent Director, in 2013 also increased
Non-Executive representation and the proportion
of independent Directors, as well as providing
additional expertise in international finance,
banking, corporate finance and strategic thinking.

Throughout 2014 the Board had 17% female
representation, in line with the FTSE 250 average
in 2014. The Board will continue to manage its
composition in future recruiting, acknowledging
the government target of 25% women on boards as
well as independence, individual merit, experience
and complementary Board skills.

Effectiveness
The Directors place considerable emphasis on
the annual assessment of Board effectiveness and
attention to its results. For a fourth successive year
the Board has utilised an external facilitator to assist
in its evaluation, and believes this has contributed
to open and frank discussion in the interest of
improving the Board’s processes, leadership and
effectiveness. This year the external facilitator
increased scrutiny in strategy, corporate social
responsibility, Director independence, recruitment
and training. Results of the evaluation reveal a
Board in agreement over the Company’s policies
and procedures in these areas.

The following pages provide further detail of
how we fulfil our commitment to good corporate
governance, and in particular those principles
related to the role and effectiveness of the Board.

Rui de Sousa
Chairman

GOVERNANCE

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Director, have been identified on page 55 as
independent Non-Executive Directors, after
giving full consideration to those circumstances
that the Code states may appear relevant.
Notwithstanding this, the Board is satisfied that
each of the Company’s Directors strictly abides
by their legal and ethical duties owed to the
Company to act objectively and in the best
interests of the Company and its shareholders
as a whole.

Chairman and Chief Executive
The roles of the Chairman and Chief Executive
Officer are separated and their responsibilities
are clearly established, set out in writing and
agreed by the Board. The Chairman and the
Chief Executive collectively are responsible for
the leadership of the Company. The Chairman
is responsible for the leadership of the Board,
ensuring its effectiveness on all aspects of its
role and setting its agenda. The Chairman leads
the constructive challenge of the Executives’
strategy through open and probing discussion
and by ensuring the Non-Executive Directors
are fully appraised on all the aspects of the
business. The Chief Executive is responsible
for leading the Executives and ensuring their
effectiveness in the running of the Company’s
business and implementing strategy and policy.
Together the Chairman and Chief Executive are
responsible for promoting the highest standards
of integrity and probity.

Executive and Non-Executive Directors
Executive Directors are responsible for
implementing the Board’s agreed strategy
through the development of an appropriate

he Company is committed to
the principles contained in the
UK Corporate Governance Code
that was issued in 2012 by the
FRC and for which the Board is
accountable to shareholders.

The Company has applied
the principles set out in the
Code, including both the Main Principles
and supporting principles, by complying with
the Code as described within this report, the
Directors’ Remuneration Report and the Audit
and Risk Committee Report.

STATEMENT OF
COMPLIANCE WITH THE CODE

Throughout the year ended 31 December 2014,
the Company has complied with the provisions
set out in the Code.

A. BOARD OF DIRECTORS

The Board’s role is to provide entrepreneurial
leadership and develop strategy, values and
standards while maintaining prudent and
effective controls to assess and manage risk.
The Board is responsible for ensuring that the
Company meets its obligations to stakeholders
and has adequate resources to meet its strategic
objectives. The Board of Directors, whose
names and biographical details are set out on
pages 46 and 47, comprises eleven Directors in
addition to the Chairman. After an assessment
process set out in more detail below, seven of
these eleven, including the Senior Independent

CONTENTS

Board of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . p53

£ Chairman and Chief Executive

£ Executive and Non-Executive Directors

£ Senior Independent Director

£ Company Secretary

£ Board Balance and Diversity

£ Independence, Tenure and Refreshment

£ Succession and Appointments

£ Reappointment

Board Structure and Process . . . . . . . . . . . . . . p56

Conflicts of Interest . . . . . . . . . . . . . . . . . . . . . . . . . . p56

Accountability and Audit . . . . . . . . . . . . . . . . . . . p57

£ Directors’ and Auditors’ Responsibilities

£ Going Concern

£ Risk Management and Internal Control

£ Internal Audit Function

£ Relations with Shareholders

Committees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . p58

£ Audit and Risk Committee

£ Nominations Committee

£ Remuneration Committee

2014 MEETING ATTENDANCE BY DIRECTORS
(IN THEIR CAPACITY AS DIRECTORS)

BOARD
MEETING

AUDIT AND RISK
COMMITTEE
MEETING

REMUNERATION
COMMITTEE
MEETING

NOMINATIONS
COMMITTEE
MEETING

ANNUAL
GENERAL
MEETING

R de Sousa

O Barbaroux

R Cagle

C Cagle

R Cathery

E Contini

R Gray

M Daryabegui

A Monteiro

J Norton

E Story

M Watts

••••

• ••

••••

•••

••

• Denotes scheduled meeting attended

Denotes scheduled meeting not attended

••

•

SOCO INTERNATIONAL PLC | Annual Report and Accounts 2014

54
CORPORATE
GOVERNANCE REPORT
CONTINUED

business plan and for executing actions approved
by the Board in accordance with relevant
authorities. The division of responsibilities
between the Executive Directors is set by the
Board.

The Executive Directors provide the leadership
of the senior managers in the day-to-day running
of the Group’s business and manage the Group’s
risk programmes including the environmental,
health, safety and social performance of the
business. They must ensure the Company has
adequate financial and human resources to meet
its objectives. They are responsible for reporting
the performance and strategic direction of the
Group to the Board and for providing accurate,
timely and clear information to enable the Board
to make sound decisions.

Senior Independent Director
The Senior Independent Director provides an
independent leadership role to the Board. The
Senior Independent Director is available to
the Chairman to discuss and develop ideas to
maximise the Board’s effectiveness, and as an
intermediary to other Directors to ensure each
individual’s views are fully considered in reaching
unitary consensus on Board matters. The Senior
Independent Director meets at least annually
with other Non-Executive Directors, without the
Chairman present, to facilitate a full and open
discussion of matters including appraisal of
the Board’s effectiveness and the performance
of the Chairman. The Senior Independent
Director is made available to communicate with
shareholders, as described more fully under
Relations with Shareholders below.

The Non-Executive Directors, who undertake a
supervisory role, contribute to the development of
strategic proposals through constructive probing
based on review and analysis that brings to bear
the particular skills, experience and knowledge
each brings to the Board. The Non-Executive
Directors review management’s performance and
ensure that the systems in place provide adequate
and effective financial, operational and compliance
controls and risk management. They must be
satisfied that they have sufficient information
for the discharge of their duties, which may be
achieved through dialogue with management,
training where appropriate to update their
knowledge or skills and consultation with
independent professional advisors as required.

THE DIRECTORS
PLACE GREAT
EMPHASIS ON
THE ANNUAL
ASSESSMENT
OF BOARD
EFFECTIVENESS

Company Secretary
The Company Secretary, who is appointed by
the Board, is responsible for facilitating the
communications and processes of the Board,
both within the Board and its committees and
with management, in compliance with Board
procedures and governance guidelines. The
Secretary facilitates an induction programme for
new Directors on appointment, which is tailored
to the new Director’s individual qualifications
and experience. The Secretary provides advice
and service as may be required in the ongoing
discharge of the Directors’ duties, including
ensuring that the Company provides the
necessary resources for access to independent
advice and any individual professional training and
development needs agreed with each Director.
Additionally, briefing sessions are provided in the
course of regular Board meetings and Committee
meetings on relevant issues as deemed
appropriate, including in relation to corporate
governance and social responsibility as well
as new and evolving statutory and other
compliance matters.

Board Balance and Diversity
The Board recognises the need for an appropriate
balance of critical attributes, including skills,
experience, diversity, independence and
knowledge of the Company. The Company
has an ongoing process for assessing the
specific competencies required on the Board,
giving consideration to relevant factors
arising from Board and individual Director
evaluations, including effectiveness and time
commitment. Accordingly, it continually seeks,
within an appropriate Board size, to manage a
balance between the important elements in its
composition, including Executive representation,
independence, diversity, tenure and refreshment.

The Board recognises the benefits of diversity, and
gender diversity in particular. The Board identified
gender diversity as a matter for increased focus
in recent externally facilitated Board evaluations,
as discussed under the Nominations Committee
section on page 58 and in the Succession and
Appointment section opposite.

GOVERNANCEIndependence, Tenure and Refreshment
The Board embraces the underlying principles
of the Code provisions regarding tenure and
refreshing of the Board, and seeks to strike
an appropriate balance between continuity
of experience and succession. The findings
of the externally facilitated Board evaluations
conducted annually since 2011 (see the
Nominations Committee section on page
58) continue to confirm the Board’s position
concerning independence, which emphasises
that an individual’s independence cannot be
determined arbitrarily on the basis of a set
period of time or by a set period of concurrent
tenure with an Executive Director. Each of
the Non-Executive Directors’ tenure has run
concurrently with the Chief Executive and
Deputy Chief Executive, both of whom have
been in office from the Company’s initial listing.
The Company manages a portfolio of long
term, complex projects and considers a Non-
Executive Director’s most appropriate term of
office as generally longer than that envisioned
in Code guidelines. The Company benefits
from long-serving Directors who are uniquely
qualified to contribute leadership through
detailed knowledge of the Company’s business
and with the proven commitment, experience
and competence to effectively advise and
oversee the Company’s management on behalf
of the shareholders. The Company seeks to
ensure its Directors are focused on a long term
approach and, therefore, does not impose
fixed term limits as this would result in a loss
of experience and knowledge without assuring
increased independence. Accordingly, the
Board’s assessment of independence is
of prime importance to ensure that retention
of experience does not result in a failure
to retain a sufficient contingent of
independent Directors.

The independence of each Non-Executive
Director is assessed at least annually.
Independence is additionally identified as a
matter for increased scrutiny in the externally
facilitated Board evaluation, as described
more fully in the Nominations Committee
section of this report. To be identified as
independent a Director must be determined
to be independent both in character and in
judgement and free from any relationships or
circumstances which are likely to affect, or could
appear to affect, their judgement including in
particular those set out in the Code. Particular
scrutiny is applied in assessing the continued
independence of Directors having served over
nine years, with attention to ensuring that
interactions with Executive Directors have not
in any way eroded their independence and that
their allegiance remains clearly aligned with
shareholders. Board refreshment and tenure are
considered together, and weighed for relevant
benefit in the foreseeable circumstances, given
further that the Board should not be enlarged to
a size that is unwieldy.

In conducting its current assessment of
Non-Executive Director independence,

the Board referred to guidance setting out
criteria deemed relevant to determining
whether a Director continues to exhibit those
qualities and behaviours it considers essential
to be considered independent. A specific set of
focused criteria was applied to the assessment
of long-tenured Directors. Consideration was
also given to the results of individual evaluation
and continued satisfactory performance as well
as each Director’s ability to allocate sufficient
time to discharge their respective Board and
Committee responsibilities.

Following assessment, Mr Rob Gray,
Ms Marianne Daryabegui, Ambassador António
Monteiro and Dr Mike Watts were determined
to be independent. After particular scrutiny,
Mr John Norton, Mr Olivier Barbaroux and
Mr Robert Cathery, each having served on
the Board for more than nine years, were also
determined to be independent. Each of these
Directors continues to display an appropriate
independence from Executive Directors.
They each continue to express their individual
viewpoints, debate issues and objectively
scrutinise and challenge management. Each
seeks clarification and amplification as deemed
required, including through direct access to the
Group’s employees and external advisors. After
careful consideration of the relevant factors, the
Board has determined that the tenure of these
Directors has not affected their independence
or their ability to bring judgement to bear in
the discharge of their duties as Board and
Committee members. The Board considers
that the varied and relevant experience of its
independent Directors combined provide an
exceptional balance of skills and experience
required for the business.

Succession and Appointments
Board appointments are made in consideration
of objective criteria which are developed in
the assessment of Board competencies and
attributes. Appointments are made through
a formal process led by the Nominations
Committee, which is set out in more detail in
the Nominations Committee section on page
58. Following an appointment, the Company
Secretary facilitates a process of induction and
assimilation determined appropriate to the
appointee’s particular role and experience.

The Company’s programme for succession takes
full account of the principles for board balance,
diversity, independence, tenure and refreshment
set out in the sections above. The Board
continues to focus on succession planning,
aimed at improving Board balance in both
independence and diversity as demonstrated in
its recent appointments. Since 2012, the Board
has appointed three Directors, two of whom are
women thereby providing the benefit of gender
diversity while, in the case of Ms Cynthia Cagle,
additionally increasing Executive representation
with sector, finance and governance experience.
The appointment of Ms Marianne Daryabegui
as a Non-Executive Director, and Mr Rob Gray

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FEMALE BOARD
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17%

The level of female
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FTSE 250 average
in 2014

SOCO INTERNATIONAL PLC | Annual Report and Accounts 2014

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CORPORATE
GOVERNANCE REPORT
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as the Senior Independent Director, in 2013 also
increased Non-Executive representation and the
proportion of independent Directors, as well as
providing additional expertise in international
finance, banking, corporate finance and
strategic thinking.

Following these appointments, excluding the
Chairman, the Board includes two recently
appointed independent Non-Executive Directors,
who serve on the Board along with three long-
tenured Non-Executive Directors who have been
determined by the Board to be independent.
The Company considers it has achieved an
appropriate balance between the benefits of
continuity and refreshment.

Throughout 2014, the Board had 17% female
representation, in line with the FTSE 250 average
in 2014. The Board will continue to manage its
composition in future recruiting, acknowledging
the government target of 25% women on boards
as well as independence, individual merit,
experience and complementary Board skills.

After assessment of the competencies required,
the Board is satisfied that the current Non-
Executive Directors comprise an appropriate
balance of knowledge, skills, independence
and experience. The Company has additionally
sought to maximise the benefits of independence,
refreshment and continuity in constituting each
of its Committees. The Board will continue to
manage its composition in future recruiting,
including an appropriate focus on independence
and diversity in addition to continued attention to
individual merit, experience and complementary
Board skills.

Reappointment
In accordance with the Code, all Directors are
subject to annual election by shareholders.
Reappointment of each Director is recommended
in consideration of the results of individual
evaluation and demonstrated continued
satisfactory performance, commitment and
effectiveness. Consideration is given to the broad
capabilities represented on the Board and the
ability of these to meet the unique challenges
facing the Company. Consideration is additionally
given to the balance of the Board’s composition
and the need for diversity and refreshment. A
Non-Executive Director term exceeding six years
is subject to particularly rigorous review.

The process for considering reappointments
is described more fully in the Nominations
Committee section on page 58. Following
this process, the Board recommends the
reappointment of the retiring Directors, who have
each offered themselves for reappointment.
The Chairman, having given consideration to
the results of the Board’s formal evaluation
process and other relevant factors, is satisfied
that the Non-Executive Directors continue to
demonstrate the commitment level appropriate
and to be effective in fulfilment of the
responsibilities of the role.

B. BOARD STRUCTURE AND PROCESS

The Board typically has four scheduled meetings a
year and holds additional meetings as necessary.
During 2014, the Board held four scheduled
meetings as deemed required for the effective
discharge of its duties during the period. There
was full attendance of Directors at scheduled
Board meetings and full attendance of members
at the Audit and Risk, Remuneration and
Nominations Committees as set out in the table
on page 53, with the exception of Ms Cynthia
Cagle who was unable to attend one Board
meeting due to a family bereavement.

The Board determines the Company’s business
strategy and provides the entrepreneurial
leadership required to ensure its strategic
aims can be achieved. The Board operates
within a formal framework of decision making
designed to reserve matters of establishing the
strategy, business plan and nature or scope of
the Company’s business to the Board. Under
this framework, authority for implementing the
strategy and decisions taken by the Board is
largely delegated to the Executive Directors and
management within a system of internal controls
designed to enable the risks of the Group to be
managed effectively. Additionally, the Board has
established clear expectations for the Company’s
economic, social and environmental conduct to
promote the highest level of integrity and honesty
in meeting its obligations to its stakeholders.
SOCO’s Board membership comprises a broad
range of skills, knowledge and experience, which
is critical to the success of the Company. The
Board functions as a unitary body, within which
Directors assume certain roles to ensure the Board
as a whole fulfils its responsibilities. These roles,
including committee memberships, are designed
to maximise the effective contribution of each
of the Non-Executive Directors to the Board, its
committees and to the Executive Directors, while
ensuring an appropriate balance is maintained.
The composition of the Board and its committees
is in accordance with Code guidelines. At least
annually, the Non-Executive Directors meet
without the Executives present and, led by the
Senior Independent Director, meet without the
Chairman present. Such meetings are conducted
in the spirit of good governance and process, and
are intended to ensure a forum for open dialogue
without disruption of Board unity.

C. CONFLICTS OF INTEREST

Directors have power to authorise, where
appropriate, a situation where a Director
has, or can have, a direct or indirect interest
that conflicts, or possibly may conflict, with
the Company’s interests. Such authority is in
accordance with section 175 of the Companies
Act 2006. Procedures are in place for ensuring
that the Board’s powers of authorisation are
operated effectively. Directors are required to
notify the Company of any conflicts of interest
or potential conflicts of interest that may
arise, before they arise either in relation to the
Director concerned or their connected persons.

THE DIRECTORS
EXPRESS THEIR
INDIVIDUAL
VIEWPOINTS,
DEBATE
ISSUES AND
OBJECTIVELY
SCRUTINISE
AND CHALLENGE
MANAGEMENT

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The decision to authorise each situation
is considered separately on its particular
facts. Only Directors who have no interest
in the matter are able to take the relevant
decision and must act in a way they consider,
in good faith, will be most likely to promote
the Company’s success. The Directors will
impose such limits or conditions as they deem
appropriate when giving authorisation or when
an actual conflict arises. These may include
provisions relating to confidential information,
attendance at Board meetings and availability
of Board papers, along with other measures as
determined appropriate. The Board reviews its
conflict authorisations at least annually.

D. ACCOUNTABILITY AND AUDIT

Directors’ and Auditors’ Responsibilities
The responsibilities of the Directors and auditors
are set out in the Annual Report of the Directors
on pages 48 to 51 and in the Independent
Auditors’ Report on pages 74 to 76.

Going Concern
The Group’s Financial Statements have been
prepared on a going concern basis as described
in the Financial Review on page 28 and the
Annual Report of the Directors on page 50.

Risk Management and Internal Control
The Directors are responsible for establishing,
maintaining and reviewing the effectiveness
of a sound system of internal control which
is designed to provide reasonable assurance
regarding the reliability of financial information
and to safeguard the shareholders’ investment
and the assets of the Company and Group.
Given the inherent limitations in any system
of internal control, even a sound system can
only provide reasonable assurance, and not
absolute assurance, that the Company will not
be hindered in achieving its business objectives
or be protected against material misstatement
or loss. The Board has put in place formally
defined lines of responsibility and delegation
of authority and has delegated to executive
management the implementation of material
internal control systems. Documented policies
and procedures are in place for key systems and
processes and the authority of the Directors is
required for key matters.

A comprehensive budgeting process is in place
for all items of expenditure and an annual
budget is approved by the Board. Actual results
are reported against budget on a regular basis.
Revised forecasts for the year and longer term
financial projections are produced regularly
throughout the year.

C.2 of the Code, by establishing a continuous
process, which has been in place throughout
the year to the date of this report and which is
in accordance with revised guidance on internal
control published by the Financial Reporting
Council in 2005 (the Turnbull Guidance), for
identifying, evaluating and managing the
significant risks the Group faces.

The Board regularly reviews the process, which
is constantly evolving to meet the demands of a
dynamic environment.

In compliance with Provision C.2.1 of the Code,
the effectiveness of the Group’s system of
internal control, including financial, operational
and compliance controls and risk management,
including management of ESG risks, is regularly
reviewed by the Directors. The review is based
principally on discussions with management and
on reviewing reports provided by management
to consider whether significant risks are
identified, evaluated, managed and controlled,
but also may include independent interaction
with employees or third parties. Particular
scrutiny is applied to the review of controls
applicable to new or evolving areas of risks as
they are identified.

The Board considers whether appropriate
actions are taken promptly to correct any
significant weaknesses identified, and if more
extensive monitoring may be required. The
Board confirms that such actions as deemed
necessary and appropriate have been or are
being taken to remedy any significant failings or
weaknesses identified in its review. The Board
seeks to ensure that internal control and risk
management processes, including dealing
with any identified areas of improvement, are
embedded within the business.

The Board has performed a specific assessment
for the purpose of this Annual Report and
Accounts, which considers all significant aspects
of internal control arising during the period, and
is satisfied with the process employed and the
results thereof. The Audit and Risk Committee
spearheads the Board in discharging its review
responsibilities. Audit and Risk Committee
membership comprises highly experienced
professionals with complementary areas of
expertise in the oil and gas sector and each
Committee member makes an important
contribution to the assurance process. Each
member undertakes specific review processes in
their areas of financial and audit, technical and
operating, diplomatic and commercial expertise
and reports the results of their work to the full
Committee and to the Board.

The Board has the primary responsibility for
identifying the major business risks facing
the Company and Group and developing
appropriate policies to manage those risks.
The risk management approach is used to
focus attention on the Group’s most significant
areas of risk and to determine key control
objectives. The Board has applied Principle

Internal Audit Function
Although the Company does not currently have
a separate internal audit function, the Directors
review at least annually the need to establish
such a function. The Company’s current staff
size limits the ability to form an effective internal
audit function and, accordingly, the Company
outsources its internal audit requirements.

THE NON-
EXECUTIVES
COMPRISE AN
APPROPRIATE
BALANCE OF
KNOWLEDGE,
INDEPENDENCE,
SKILLS AND
EXPERIENCE

Relations with Shareholders
The Executive Directors are responsible for
ensuring effective communication is maintained
with key stakeholders and partners, including
establishing an appropriate level of contact with
major shareholders and ensuring that their views
are communicated to the Board. The Non-
Executive Directors are responsible for taking
sufficient steps to understand these views,
including any issues or concerns.

SOCO maintains an open and active dialogue
with shareholders. The Company maintains a
website wherein important information can be
posted and disseminated promptly to a wide
audience and through which shareholders
can electronically interface with executive
management. At a minimum, the Company
provides three personal communication forums
annually – the AGM, the presentation of Annual
Results and the presentation of Half Year Results
whereby shareholders can directly interface
with Company executive management. Notice
of the AGM is circulated to all shareholders at
least 20 working days prior to the meeting, and
resolutions are proposed for each substantially
separate issue. The result of proxy voting is
announced after votes are taken on a show of
hands. Directors including the Chairmen of the
Audit and Risk, Remuneration and Nominations
Committees are available to answer shareholder
questions and to respond to any specific queries.

SOCO INTERNATIONAL PLC | Annual Report and Accounts 2014

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The Company has assigned a senior executive
the responsibility for investor relations and has
employed an outside agency, both to provide
assistance in the dissemination of information
to shareholders and the general public and to
solicit actively feedback as to the effectiveness of
such efforts. Additionally, the Company maintains
an ongoing, active dialogue with institutional
shareholders, specifically and proactively seeking
opportunities for face-to-face meetings at
least twice a year, coincident with half-year and
full-year results, between fund managers and
Company executive management. In 2014, the
Company has continued to increase its dialogue
with shareholders and other stakeholders
regarding its corporate and social responsibility
policies and procedures.

Brokers’ reports are discussed at scheduled
Board meetings and public relations and
analysts’ reports are distributed to the full Board.
Non-Executive Directors are made available to
communicate with SOCO’s major institutional
shareholders, and particularly to be responsive
when additional communication from the
Chairman, Senior Independent Director or other
Non-Executive Directors has been requested. The
Chairman regularly interfaces with other principal
shareholders. The Board considers whether
additional communication may be appropriate
or desirable. In particular, the delegated role of
the Senior Independent Director includes being
available to shareholders if they have concerns
which cannot be fully or appropriately addressed
by the Chairman or the Executive Directors.

E. COMMITTEES

The Board has established three Committees,
as described below, each having formal TOR
approved by the Board which set out its
delegated role and authority. The TORs,
which are available on the Company’s website
(www.socointernational.com), are set in
consideration of the provisions of the Code and
are reviewed from time to time in the context of
evolving guidance. Committee memberships are
reviewed in order to ensure optimum utilisation
of competencies on the Board while maintaining
a balance between the benefits of refreshment
and continuity. Each Director’s specific Committee
memberships, including as Chairmen, are set
out on pages 46 to 47. Attendance at scheduled
committee meetings by all members serving
during the period is set out in the table on page
53. While only Committee members are entitled
to attend meetings and vote, Directors in advisory
roles are generally invited to attend and other
Directors may be invited to attend from time to
time to ensure the Committees’ responsibilities
are undertaken with access to the Board’s full
breadth of knowledge and experience. The
Company Secretary ensures that the Company
additionally provides such resources as the
Committees require in the discharge of
their duties.

Audit and Risk Committee
The Audit and Risk Committee is chaired by

Dr Mike Watts. Dr Watts, with extensive
exploration and technical expertise in the sector,
is a strong leader for the Committee’s oversight
of the Group’s business risks, and in particular
those which could have a significant impact
on the Financial Statements. The Committee
additionally comprises Mr Rob Gray, who is the
Senior Independent Non-Executive Director,
and independent Non-Executive Directors Ms
Marianne Daryabegui and Ambassador António
Monteiro. The qualifications of each of the
members are set out on page 47. The Board is
satisfied that the collective experience of the
members provides relevant financial and risk
management experience and the complement
of skills required for the effective discharge of
its functions. Mr Olivier Barbaroux and Mr John
Norton act as Advisors to the Committee. Mr
Norton has extensive experience as a Chartered
Accountant in the oil and gas sector, and is
supremely qualified to advise the Committee
in the oversight of the external audit. Although
Mr Norton is a long-standing Director, his
professional experience has fully prepared him
for maintaining independence and objectivity in
this circumstance and the Board is completely
satisfied that he has demonstrated continued
independence in performing his role.

The Audit and Risk Committee meets at least
three times a year. The Executive Directors, the
Chief Operating Officer, the Chief Financial Officer
and a representative of the external auditors
are normally invited to attend meetings. Other
Directors are invited to attend as determined
appropriate or beneficial. At least once a year
the Committee meets with the external auditors
without executive Board members present.

The Committee held three meetings in 2014 and
has conducted one meeting to date in 2015, all of
which were attended by executive management
and external auditors. A private session, without
the Executives present, was held during two of
these meetings. Additionally, a number of other
informal meetings and communications took
place between the Chairman, various Committee
members, external auditors and the Company’s
executives and employees.

As part of the externally facilitated Board Evaluation
process described on page 59, the Committee
considered its performance and continued
effectiveness. The Committee performed a review
of its TOR as part of this process which were
amended in the year to set out its responsibilities
in respect of environmental, social and governance
risk matters.

A separate Report of the Audit and Risk
Committee is set out on pages 60 to 62 and
provides details of the role and activities of
the Committee and its relationship with the
external auditors.

Nominations Committee
The Nominations Committee is chaired by Mr
Rui de Sousa, the Non-Executive Chairman of
the Company. Mr Ed Story, the Chief Executive

Officer, serves as a Committee member along
with independent Non-Executive Directors
Dr Mike Watts, Ambassador António Monteiro
and Ms Marianne Daryabegui. In addition,
Mr John Norton, Mr Olivier Barbaroux and
Mr Robert Cathery act as Advisors to the
Nominations Committee.

The Committee meets at least once a year.
Its primary responsibilities include making
recommendations to the Board regarding the
appointment and reappointment of Directors
and Committee memberships. It is responsible
for review and recommendations regarding
overall Board structure and composition,
succession planning and establishing an
ongoing process for evaluating the Board and
its members. Further details of the discharge
of these responsibilities are set out below in
addition to sections above regarding in particular
board balance, independence, diversity,
succession and appointments.

The Committee held two meetings in 2014
and has conducted one meeting to date in
2015. Other Non-Executive Directors were in
attendance at a portion of these meetings by
invitation. Certain Committee functions were
delegated to a subcommittee, which acted on
behalf of the Committee after an appropriate
dialogue among Committee members to
ensure a consensus of views. A number of
other informal meetings and communications
took place between the Chairman, various
Committee and Board members and the
Company’s executives and employees.
Additionally, the Chairman led discussions of
certain Committee matters in view of the full
Board to expedite unitary decision making.

During the year the Committee reviewed Board
structure, size and composition, including a
profile of the skills, knowledge, experience and
diversity represented on the Board, which was
utilised to facilitate the Board’s review of Director
independence, including tenure in particular.
The Committee made recommendations to the
Board concerning plans for succession reflecting
the need for induction and assimilation of recent
appointments and continued refreshment while
taking into account the skills, experience and
diversity needed on the Board to best meet the
specific challenges and opportunities facing
the Company. The results of these reviews were
in turn utilised in developing the Committee’s
recommendations regarding potential Board
appointments as well as for continuation in office
and reappointment of retiring Directors.

After giving consideration to Board structure and
composition, evaluations, time commitments,
length of service, individual contributions,
refreshment and the requirements of the Board,
the Committee recommended that each of the
retiring Directors be proposed for reappointment
by the Board at the forthcoming AGM.

Process for Board Appointments
The Board has a policy in place for succession

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THE BOARD HAS
THE PRIMARY
RESPONSIBILITY FOR
IDENTIFYING THE
MAJOR BUSINESS
RISKS FACING THE
COMPANY AND GROUP
AND DEVELOPING
APPROPRIATE
POLICIES TO MANAGE
THOSE RISKS

The process was undertaken to enhance
the quality of the Board and to improve its
procedures through identifying and addressing
strengths and weaknesses. The Chairman led
discussions with the Committee and the full
Board regarding the results, which included
a commitment by the Board to continue its
primary focus on corporate strategy and
corporate social responsibility. The Board
confirmed its commitment to a rigorous
process for the assessment of independence
and remains satisfied that it has led to an
appropriate designation of independent
Directors. The Board was satisfied with the
benefits of refreshment provided through the
measured achievement of its objectives to
increase Board balance in both independence
and diversity in late 2013, and maintains a
focus on succession planning. Management
committed to continue to develop its reporting
to the Board on governance and corporate
responsibility programmes, including detailed
and regular reporting to the Board on the
Company’s extensive stakeholder engagement.
Additionally, the evaluation results were utilised
to assess Director effectiveness, time
commitments of Non-Executive Directors
and training and development needs of each
Director, which were reviewed by the Chairman.
The Committee performed a review of its TOR
as part of this process.

Remuneration Committee
The Remuneration Committee is chaired by
Ambassador António Monteiro and additionally
comprises Mr Rob Gray, who is the Senior
Independent Director, and independent Non-
Executive Directors Ms Marianne Daryabegui
and Dr Mike Watts. In addition Mr Olivier
Barbaroux and Mr Robert Cathery act as
Advisors. The qualifications of each of the
members are set out on page 47.

planning, which addresses its approach to
maintaining a balanced Board, including the
benefits of diversity. The Committee has a
process in place for identifying and nominating
candidates to fill vacancies which may arise
from time to time, including ensuring Board
membership is sufficiently refreshed and retains
an appropriate balance of skills and experience.
The Committee develops an appropriate
description of the role, estimated time
commitment and the capabilities and attributes
which would complement the composition of
the Board and its Committees. The Company’s
succession planning has been aimed at
increasing Board balance in both independence
and diversity as a priority in recent and future
recruitment. Directors are encouraged to be
attentive to identifying candidates who meet
one or both of these objectives. The Committee
would expect to utilise an independent
external advisor to facilitate any search. In such
circumstances, a diverse list of candidates
would be compiled and a rigorous review
process undertaken, involving other Board
members as deemed appropriate. Committee
recommendations, which are to be made on

merit set against objective criteria and with due
regard for the benefits of diversity, would be
submitted for full Board approval. The Company
Secretary facilitates induction upon appointment.

Board Evaluation
Since 2011, the Committee’s annual Board
evaluations have been externally facilitated.
During 2014, the Committee led the Board
in evaluating its own performance and that
of its Committees and individual Directors
externally facilitated in confidence by Nautilus
Management Limited, an independent firm that
has provided secretariat and governance advice
to the Company. The evaluation entailed both
questionnaires and interviews. The external
facilitator sought evaluation of the Board and its
effectiveness as a whole, but with an emphasis
on the critical issues the Board will face in the
next three to five years and with increased
scrutiny in areas including strategy, corporate
social responsibility, Director independence,
recruitment and training. Directors were also
asked to comment on the operation and
performance of the Audit and Risk, Nominations
and Remuneration Committees.

The Committee held two meetings in 2014
and has held one meeting to date in 2015.
The Committee additionally held informal
meetings with management and advisors, in
particular regarding compliance with the revised
Accounting Regulations of the Companies
Act 2006 relating to the requirements for the
contents of the Directors’ Remuneration Report,
and implementation of the remuneration policies
approved by shareholders at the 2014 AGM.

As part of the externally facilitated Board
Evaluation process described above, the
Committee considered its performance and
continued effectiveness. The Committee
performed a review of its TOR as part
of this process.

The Committee is responsible for setting the
remuneration of the Chairman and the Executive
Directors, and is responsible for appointing
any consultants it may utilise in carrying out its
duties. Details of the Committee’s activities,
policies and objectives are set out in the
Directors’ Remuneration Report on
pages 63 to 72.

SOCO INTERNATIONAL PLC | Annual Report and Accounts 2014

60 GOVERNANCE
60

MIKE WATTS

AUDIT AND RISK
COMMITTEE CHAIRMAN

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RESPONSIBILITIES OF THE
AUDIT AND RISK COMMITTEE

The Audit and Risk Committee’s primary
responsibilities include reviewing the effectiveness
of the Company’s and the Group’s systems of
internal control, risk management, overseeing
the selection of and relationship with external
auditors and the review and monitoring of the
integrity of Financial Statements. The Committee
is responsible for review of the Group’s major
financial, operational and corporate responsibility
risk management processes, including ESG
risk. The effectiveness of these processes is
monitored on a continuous basis and a formal
assessment is conducted at least annually. The
Committee has been delegated the responsibility
for advising the full Board on compliance with
the 2012 UK Corporate Governance Code,
including its risk management and internal
control requirements, as well as compliance with
evolving guidance on corporate governance
issues generally. Additionally, the Committee
reports to the Board on whether, taken as a
whole, the annual report and accounts are fair,
balanced and understandable and provide
information necessary for shareholders to assess
the Company’s performance, business model and
strategy. The Committee’s activities undertaken in
the discharge of its duties are regularly reported
to the Board.

MATTERS REPORTED TO THE BOARD

External Auditors – Assurance Services
The Committee reviewed and approved the
terms and scope of the audit engagement, the
audit plan and the results of the audit with the
external auditors, including the scope of services
associated with audit-related regulatory reporting
services. An assessment of the effectiveness of
the audit process was made, giving consideration
to reports from the auditors on their internal
quality procedures. Additionally, auditor
independence and objectivity were assessed,
giving consideration to the auditors’ confirmation
that their independence is not impaired, the
overall extent of non-audit services provided by
the external auditors (as described below) and
the past service of the auditors who were first
appointed, following a tendering process, in 2002.
Fees payable to the auditors where reviewed and
approved by the Committee and are set out in
Note 9 to the Financial Statements.

The Code, the Competition and Markets Authority
and the European Commission are now aligned
in their requirements regarding external audit
tendering and rotation, wherein, for FTSE 350
companies, a competitive tender process is
required at least once every ten years. Under
transitional arrangements, SOCO will be required
to conduct a competitive tender process no later
than for the 2023 year end audit. The Committee
will consider the appropriate timeframe within
which to carry out such a tender process in light
of the regulatory requirements as well as auditor
performance and independence. The Committee
does not currently anticipate that this will be

earlier than the date of rotation of the incumbent
senior statutory auditor, after the 31 December
2015 year end.

There are no contractual obligations which restrict
the Committee’s choice of external auditor. The
Committee also considered the likelihood of a
withdrawal of the auditor from the market and
noted that there are no contractual obligations to
restrict the choice of external auditors. The Board
concurred with the Committee’s recommendation
for the reappointment of Deloitte LLP as the
Company’s auditors for 2015, which will be
proposed to shareholders at the forthcoming AGM.

External Auditors – Non-Audit Services
The external auditors are appointed primarily to
carry out the statutory audit and their continued
independence and objectivity is fundamental
to that role. In view of their knowledge of the
business, there may be occasions when the
external auditors are best placed to undertake
other services on behalf of the Group. The
Audit and Risk Committee has a policy which
sets out those non-audit services which the
external auditors may provide and those
which are prohibited. Within that policy, any
non-audit service must be approved by the
Committee. Before approving a non-audit service,
consideration is given to whether the nature of
the service, materiality of the fees, or the level of
reliance to be placed on it by SOCO would create,
or appear to create, a threat to independence.
If it is determined that such a threat might arise,
approval will not be granted unless the Audit
and Risk Committee is satisfied that appropriate
safeguards are applied to ensure independence
and objectivity are not impaired. The auditor is
prohibited from providing any services which
result in certain circumstances that have been
deemed to present such a threat, including
auditing their own work, taking management
decisions for the Group or creating either a
mutuality or conflict of interest. The Company
has taken steps to develop resources and
relationships in order to establish availability of
alternate advisors for financial and other matters.
Additionally, the Committee closely monitors the
terms on which the Remuneration Committee,
with approval of the Audit and Risk Committee,
has independently appointed the Company’s
auditors as advisors. The advisors’ terms of
reference restrict the provision of certain services
in order to maintain auditor independence and
the scope and value of services to the Group is
under continuous review.

The Committee approved the non-audit services
provided by the external auditors in 2014, having
concluded such services were compatible with
auditor independence and were consistent
with relevant ethical guidance. Details of
non-audit services are set out in Note 9 to
the Financial Statements.

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Risk Assessment
The Committee undertook a detailed risk
assessment whereby it reviewed existing risks
and identified new risks as appropriate. The
likelihood and significance of each risk was
considered along with associated mitigating
factors and was reported to the Board. Any new
risks or changes to existing risks were monitored
throughout the year and considered at each
Audit and Risk Committee meeting. As part
of this process, the Committee maintains a
detailed bribery risk assessment and mitigation
procedure designed to ensure that the
Company has appropriate procedures in place
to eliminate bribery and that all employees,
agents and other associated persons are
made fully aware of the Group’s policies and
procedures. The Committee has reviewed and
is satisfied with the Company’s arrangements
for “whistleblowing”, whereby staff may raise
concerns regarding improprieties in confidence,
which would be addressed with appropriate
follow-up action. To facilitate such reporting the
Company maintains an Ethics Hotline Service
using an independent, confidential telephone
service that can be used by staff members
and other stakeholders to report a suspected
breach of SOCO’s Code of Business Conduct
and Ethics. The Committee reviews these
arrangements annually.

Internal Controls and
Risk Management Systems
On behalf of the Board, the Committee has
reviewed the effectiveness of the Company’s
internal controls and risk management systems,
including consideration of an internal audit
function, which is more fully described in the
Risk Management and Internal Control section
of the Corporate Governance Report on
page 57. The Committee has reviewed and
approved the related compliance statements
set out therein. The Committee has additionally
reviewed and approved the statements
regarding compliance with the Code. The
Committee reviewed and discussed with
management and the auditors the Company’s
relevant financial information prior to
recommendation for Board approval.
This included, in particular, the financial
statements and other material information
presented in the annual and half year reports.
The Committee considered the significant
financial reporting issues, accounting policies
and judgements impacting the Financial
Statements, and the clarity of disclosures.
The Committee conducted a review of its
TOR for continued appropriateness.

Fair, Balanced and Understandable
The Committee advised the Board whether the
annual report and accounts taken as a whole is
fair, balanced and understandable and provides
the information necessary for shareholders to
assess the Group’s performance, business model
and strategy. The Directors have confirmed this
in their Responsibility Statement set out in the
Annual Report of the Directors on page 51.

Significant Issues Related to the
2014 Financial Statements
For the year ended 31 December 2014 the
Audit and Risk Committee identified the
significant issues that should be considered
in relation to the Financial Statements, being
areas which may be subject to heightened
risk of material misstatement.

Impairment of Exploration
and Evaluation Assets
The Committee considered the Group’s
intangible exploration and evaluation assets
individually for any indicators of impairment
including those indicators set out in IFRS 6
Exploration for and Evaluation of Mineral
Resources. During 2014, the Group’s intangible
exploration and evaluation assets comprised its
Africa licences as described in the Review
of Operations on pages 15 to 23.

After providing the DRC Government with
interpretation of the seismic results from Block
V, SOCO will have no further involvement in
the Block. Although minimal expenditure is
planned in 2015 to fulfill obligations to the
DRC Government, no substantive expenditure
is planned. Further, in light of the current
macro-environment, the likelihood that there
will be any measurable recoverable amount
associated with Block V expenditure is remote.
As a result, the capitalised inception to date
costs incurred have been expensed through
the income statement in 2014 (see Note 14 to
the Financial Statements). Costs expected to
be incurred during 2015 have been accrued, in
accordance with IAS 37, in 2014. This treatment
was discussed and agreed by the Committee
and the auditors.

The Committee also discussed the Nanga II A
Block, onshore Congo (Brazzaville). Although
the Company is pursuing negotiations with the
objective of securing a PSC, following the expiry
of the Prospection Authorisation Permit, costs
incurred to date on this new venture have been
expensed in accordance with IFRS 6. In addition,
a number of other costs associated with
searching for new acreage were written off in
accordance with the Group’s accounting policy
on oil and gas exploration and evaluation (see
Notes 2h and 14 to the Financial Statements).

The Group’s remaining exploration and
evaluation properties that continue to be
classified as intangible assets on the balance
sheet as at 31 December 2014 comprise its
Marine XI, MPS and Cabinda licences, all of
which have substantial expenditure planned.
The Committee discussed the Group’s
remaining exploration and evaluation assets
with both management and the auditors and
concur with the treatment adopted.

SOCO INTERNATIONAL PLC | Annual Report and Accounts 2014

62
REPORT OF THE AUDIT
AND RISK COMMITTEE
CONTINUED

Reserves estimates are inherently uncertain,
especially in the early stages of a field’s life, and
are routinely revised over the producing lives of
oil and gas fields as new information becomes
available and as economic conditions evolve. The
Committee acknowledges that such revisions
may impact the Group’s future financial position
and results, in particular, in relation to DD&A and
impairment testing of oil and gas property plant
and equipment (see below).

Impairment of Producing Assets Classified as
Property, Plant and Equipment
The Committee considered the Group’s oil and
gas producing assets that are classified as PP&E
on the balance sheet individually for impairment
with reference to indicators in IAS 36 Impairment
of Assets. During 2014, the Group’s PP&E oil and
gas assets comprised its two Vietnam licences,
the ongoing activities of which are described
in the Review of Operations on pages 15 to 23.
As discussed above, under Oil and Gas Reserves,
the Committee concurred with management’s
assessment to reduce proved and probable
reserves associated with both producing fields.
Consequently, and having given consideration to
the current oil price environment, management
determined that there were indicators of
impairment. Both assets were thoroughly tested
through economic modelling using a range of
assumptions. The TGT asset was determined to
have a fair value in excess of its book carrying
value, however the CNV asset fair value was found
to be less than its carrying value. Management
concluded, and the Committee agreed, that
CNV should be impaired to its fair value as at 31
December 2014. DD&A on both assets will reflect
the revised production and expenditure profiles
from 2015. The Committee has discussed the
Group’s PP&E assets and associated impairment
testing with both management and the auditors
and concur with the treatment adopted, further
details of which can be found in Note 15 to the
Financial Statements.

Oil and Gas Reserves
The Group’s estimates of oil and gas reserves
have a significant impact on the Financial
Statements, in particular in relation to DD&A and
impairment. Oil and gas reserves, as discussed
in the Risk Management Report, are calculated
using standard evaluation techniques which have
inherent uncertainties in their application.

The Committee has discussed with management
and the auditors the results to date of third party
(ERCE) reserve assessments which, during 2014
and to date in 2015, specifically focused on the
TGT field, and which are discussed further in
the Review of Operations on pages 15 to 23.
These assessments have been scrutinised by
management, taking into account the current
stage of the field’s development, to satisfy
itself that reserve estimates are appropriate,
that the related DD&A calculations are correct
and that appropriate impairment testing has
been conducted (see below). Management
also reviewed its estimate of future costs
(including decommissioning costs) associated
with producing the reserves. Consequently, a
substantial amount of TGT 2P reserves has been
re-classified into 2C Contingent Resources,
reflecting the fact that currently only the original
FDP and H5 FDP wells are being drilled and that,
at this stage, there is no agreement among the
JOC partners on the scope of development and
level of investment going forward. Therefore,
management believe that the prudent approach
to 2P reserve booking against this background,
taking into account the level of reservoir
complexity and uncertainty, is to include only
the P50 recoverable volumes based on existing
and likely near term wells, and optimal field
management. Additionally, a portion of the 2P
reserves has been recognised as 3C Contingent
Resources reflecting a degree of geological
uncertainty around the range of oil-in-place
estimates and partner alignment on the level of
future capital investment in the field.

Similarly, management have also discussed with
the Committee and the auditors the results to
date of reserves assessments, conducted in
collaboration with the JOC, on the CNV field
where previous commercial reserve estimates
were largely predicated on the successful
drilling of the CNV-7P well, which was targeting
the previously untapped south west area of
the field and material increase in production.
Disappointingly, due to unexpected geological
issues the well failed to reach the target reservoir
despite several attempts to side-track. Thus, we
have significantly reduced our estimates of the
2P reserves for CNV and re-classified undrilled
wells including the CNV-7P well into Contingent
Resources.

GOVERNANCEANTÓNIO MONTEIRO

£ The Directors’ Policy Table. The full policy report

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ANNUAL STATEMENT FROM THE
REMUNERATION COMMITTEE CHAIRMAN

ear Shareholders

On behalf of the Board, we are
pleased to present the Directors’
Remuneration Report for the financial
year ended 31 December 2014.
This report has been prepared in
accordance with section 421 of
Companies Act 2006 and Schedule

8 of the Large and Medium-sized Companies and
Groups (Accounts and Reports) Regulations 2008
(as amended) and is set out in two parts:

was approved by shareholders at the 2014 Annual
General Meeting and is set out in its entirety on the
Company’s website.

£ The Annual Report on Remuneration which
provides details on how Directors were paid in
2014 and the link between remuneration and
SOCO’s performance. This section of the report
also outlines how we intend to implement the
remuneration policy in 2015. This section of the
report will be subject to an advisory shareholder
vote at the 2015 AGM.

PERFORMANCE OF THE GROUP

As reported throughout the Strategic Report, the
downturn in the macro environment following the
dramatic fall in the oil price in the latter part of 2014,
and the resulting uncertainty in 2015 over partner
alignment on a development plan and appetite
to commit capital, has impacted the Company
including negative consequences to cash flows,
reserves classifications and asset values. However,
as also reported, 2014 was a strong year for SOCO.
In Vietnam, we delivered the TGT development
programme, got the H5 development underway
and on target for a fast track to first oil, and finalised
the ERC Equipoise study demonstrating TGT’s full
potential. A successful exploration well was drilled
on Marine XI which significantly exceeded pre-test
expectations and appears to suggest an extension of
a field discovered on a contiguous block. Although
commitments on Block V were fulfilled, since no value
for this project has been reflected in the share price,
the Committee determined to treat these objectives
as unfulfilled for the purpose of determining bonus
payouts. This resulted in a discretionary downwards
adjustment to bonus payouts. The strategy was
delivered with a second material cash return
to shareholders, representing 60% of free cash
flow thereby exceeding the targeted 50%, while
maintaining a strong balance sheet, ending the year
with no debt and over $166 million of cash, cash
equivalents and liquid investments. Our operations
results were accomplished while maintaining an
exemplary record from a health and safety aspect.

HOW THIS PERFORMANCE WAS
REFLECTED IN THE PAY OF OUR
EXECUTIVE DIRECTORS

£ Annual bonus – We are mindful of the challenging
macro environment and its impact on the sector
including the Company and its shareholders. We
have therefore decided that no cash bonus will be
awarded in 2014. However, based on the strong
performance during the year, the Committee’s
December 2014 assessment of performance
against the weighted performance measures set at
the beginning of the year resulted in a calculated
award level for Directors of 80% of maximum.
Accordingly, the Committee determined that
100% of any bonus should be deferred into SOCO
shares vesting after two years. This is greater than
the stated policy where any bonus over 100% of
salary will normally be deferred, and results in
the consequence that the bonus payout will be
impacted by share price movements during the
deferral period, in line with all other shareholders.
Factors arising in 2015 will be considered in the
assessment of 2015 performance.

£ Long Term Incentive Plan – 100% of the

potential maximum has vested in respect of LTIP
awards made in December 2011. This reflects
TSR performance against the comparator group
at the 88th percentile in the three-year period to
December 2014.

KEY DECISIONS AROUND
REMUNERATION FOR 2014

Given our review of the executive remuneration
framework last year, we are not proposing any
changes to our policy. We believe that it continues
to be well placed and aligns Executive Directors with
our overarching strategic objective of building and
recognising value for our shareholders.

In addition, no increases are being proposed to
Executive Directors’ salaries for 2015.

Further to the publication in 2014 of the updated UK
Corporate Governance Code, we are implementing
malus and clawback provisions on all variable pay
arrangements from 2015 onwards.

We take an active interest in shareholder views and
the voting on the Remuneration Report. Both our
remuneration policy and our Remuneration Report
received strong support from shareholders, with
over 98% of votes case in favour of the resolutions.
In response to feedback from shareholders, we have
sought to improve the level of detail and clarity in this
year’s disclosure of performance targets assessed for
annual bonus payouts. In addition, we will seek to
improve our shareholder communications in respect
of any future proposed policy changes.

We look forward to receiving your support at the
upcoming AGM.

Full details on incentive payments for performance
achieved to December 2014 are provided in the
Annual Report on Remuneration, however in summary
they are as follows:

António Monteiro
Remuneration Committee Chairman

REMUNERATION
COMMITTEE CHAIRMAN

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SOCO INTERNATIONAL PLC | Annual Report and Accounts 2014

64
DIRECTORS’
REMUNERATION REPORT
CONTINUED

POLICY TABLE (UNAUDITED)

The policy table below summarises the remuneration policy which is effective from 12 June
2014 following shareholder approval at the 2014 AGM. The whole policy report, which is
available on the Company’s website, is intended to apply for three years. However, the
Committee monitors the remuneration policy on a continuing basis including consideration
of evolving market practice and relevant guidance; shareholder views and results of
previous voting; policies applied to the wider employee base; and with due regard to the
current economic climate. Should the Committee resolve that the remuneration policy
should be revised; such revisions will be subject to a binding shareholder vote.

POLICY TABLE FOR EXECUTIVE DIRECTORS

FIXED PAY

BASE SALARY

Purpose and link to strategy: Core element of remuneration set at a sufficient level to attract and retain people of the

necessary calibre to shape and execute the Company’s strategy.

OPERATION

MAXIMUM

£ Although the Committee do not consider it appropriate to set a
maximum salary level, any salary adjustments will normally be in
line with those of the wider workforce.

£ The Committee retains discretion to award higher increases in

certain circumstances such as increased scope and responsibility
of the role, or in the case of new Executive Directors who are
positioned on a lower salary initially, as they gain experience
over time.

£ Contractual fixed cash amount paid monthly.
£ Particular care is given in fixing the appropriate salary level

considering that incentive pay is generally set at a fraction or
multiple of base salary.

£ The Committee takes into account a number of factors when

setting salaries, including (but not limited to):

• size and scope of individual’s responsibilities

• skills and experience of the individual

• performance of the Company and the individual

• appropriate market data

• pay and conditions elsewhere in SOCO.
£ Base salaries are normally reviewed annually.
£ Results of benchmarking exercises are monitored for indications

of potential unwarranted upward ratcheting.

BENEFITS

Purpose and link to strategy: To provide Executive Directors with market competitive benefits consistent with the role.

OPERATION

MAXIMUM

£ Executive Directors receive benefits which may include (but are
not limited to) medical care and insurance, permanent health
insurance, life assurance cover, critical illness cover, travel benefits,
expatriate benefits, car benefits and relocation expenses.

£ Although the Committee do not consider it appropriate to set a

maximum benefits level, benefits are positioned at an
appropriate market level for the nature and location of the role.

PENSION

Purpose and link to strategy:

To provide retirement benefits consistent with the role.

OPERATION

£ Pension benefits are delivered through contributions to
SOCO’s money purchase plan up to relevant plan limits
and/or a cash supplement.

MAXIMUM

£ 20% of base salary per annum.

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VARIABLE PAY

ANNUAL BONUS

Purpose and link to strategy:

Incentivises and rewards for the delivery of the strategic plan on an annual basis.

OPERATION

MAXIMUM

PERFORMANCE FRAMEWORK

£ Payments are based on performance in the relevant

£ 150% of base salary per

annum, including cash and
deferred components.

financial year.

£ At the beginning of the year, the Committee sets

objectives which it considers are critical to the delivery of
the business strategy.

£ Performance against these key strategic objectives is
assessed by the Committee at the end of the year.
£ The Committee retains the discretion to amend the
bonus payout (negatively or positively) to ensure it
reflects the performance of either the individual or
the Company.

£ Payments up to 100% of salary are normally made

in cash.

£ Any bonus above 100% of salary will normally be

deferred into awards of SOCO shares which vest after at
least two years.

LTIP

£ The annual bonus is based on individual and
corporate performance during the year.

£ Corporate goals are set annually and may include
monitored measures for particular projects;
portfolio objectives; corporate strategic goals;
safety, social and environmental measures; financial
measures and other measures as may be deemed
appropriate and relevant to the period for delivery
of the business strategy.

£ If the Committee determines that a minimum level
of performance has not been achieved, no bonus
will be payable. Thereafter, the bonus will begin
paying out, up to the maximum of 150% of salary.

£ The Committee determines the appropriate

weighting of the metrics each year.

Purpose and link to strategy:

Incentivises and rewards for the Company’s strategic plan of building shareholder value.

OPERATION

MAXIMUM

PERFORMANCE FRAMEWORK

£ Typically a contingent award of shares is made annually in

£ Usually 200% of base salary

£ Awards vest based on performance against

December, in the course of the annual review cycle.
£ Vesting of the awards is dependent on the achievement
of performance targets, which are typically measured
over a three-year performance period.

per annum.

£ In circumstances which the

Committee determines to be
exceptional, annual awards of
up to 400% of base salary per
annum may be made.
£ The maximum limit set out
above applies to the total
grants made each year under
both the LTIP and share
option plan per annum.

financial, operational and/or share price measures,
as set by the Committee, which are aligned with the
long term strategic objectives of SOCO.

£ No less than 50% of the award will be based on

share price measures. The remainder will be based
on financial, operational or share price measures.
£ If an event occurs which causes the Committee to
consider that a waiver of, or amendment to, the
performance conditions would be a fairer measure
of performance and there has been a sustained
improvement in financial performance, the
performance conditions may be waived
or amended.

£ For ‘threshold’ levels of performance, 25% of

the award vests. 100% of the award will vest for
maximum performance. Pro-rating applies between
these points and between ranking positions.

SHARE OPTION PLAN

Purpose and link to strategy:

Incentivises and rewards for the Company’s strategic plan of building shareholder value.

OPERATION

MAXIMUM

PERFORMANCE FRAMEWORK

£ Although Executive Directors are not currently granted
market value options under the plan, flexibility is being
maintained to do so if determined appropriate.
£ Operation of the plan for Executive Directors would

generally be consistent with the principles for operation
of the LTIP set out above.

£ Options may be exercised between three and ten years

following grant, subject to the satisfaction of the relevant
performance conditions.

£ If determined appropriate,
awards may be made in lieu
of awards under the LTIP.
£ The maximum limit set out
in the LTIP section above
applies to the total grants
made under both the
LTIP and share option
plan per annum.

£ Awards vest based on performance against
performance conditions as the Committee
determine to be appropriate at that time.

£ Taking into account the interests of shareholders,

the Committee may vary the performance
conditions in certain circumstances following the
grant of an award so as to achieve their original
purpose, but not to make their achievement any
more or less difficult to satisfy.

£ For ‘threshold’ levels of performance, 25% of the
award vests. 100% of the award will vest for
maximum performance.

OTHER POLICY

SHAREHOLDING GUIDELINES

Purpose and link to strategy: Further increases alignment between Executive Directors and shareholders.

OPERATION

£ The Board has a policy requiring Executive Directors to build a minimum shareholding in SOCO shares equivalent to 100% of salary.

SOCO INTERNATIONAL PLC | Annual Report and Accounts 2014

66
DIRECTORS’
REMUNERATION REPORT
CONTINUED

ANNUAL REPORT ON
REMUNERATION (AUDITED)

SINGLE TOTAL FIGURE OF REMUNERATION

The table below sets out the total remuneration in respect of qualifying services for both Executive and Non-Executive Directors for the financial year 2014.
It also provides comparative figures for 2013:

2014

2013

Benefits1
$000s

Cash Bonus
$000s

Deferred2
Bonus
$000s

LTIP3
$000s

Pension
$000s

Total
$000s

Benefits
$000s

Bonus
$000s

LTIP3
$000s

Pension
$000s

Total
$000s

Fees/
Salary
$000s

924

693

473

313

–

148

101

–

Executive

E Story

R Cagle

C Cagle4

Non-Executive5,6

R de Sousa

O Barbaroux

R Cathery

E Contini

M Daryabegui

R Gray

M Johns

A Monteiro

J Norton

M Watts

Total

Fees/
Salary
$000s

924

693

473

1,111

1,734

833

568

1,300

594

139

104

4,056

3,031

1,790

137

133

118

924

693

473

1,335

1,001

230

139

104

–

313

282

–

3,459

2,624

1,365

282

–

3,096

333

2,512

3,628

314

9,883

2,880

388

2,090

2,566

314

8,238

1 The benefits received by Executive Directors include private medical insurance, permanent health insurance, life assurance cover, critical illness cover, travel and expatriate benefits and car benefits.
2 The near term average exchange rate at date of award of 1.56 has been used to convert share price from GB pounds to US dollars.
3 The annual average exchange rate to 31 December 2014 of 1.65 has been used to convert share price from GB pounds to US dollars. The same exchange rate has been used for both 2014 and 2013 to ensure consistency between periods.
4 C Cagle was appointed to the Board on 5 December 2012. Therefore her remuneration in respect of qualifying services set out for LTIPs vesting in 2014 and 2013 reflects the period from the date of appointment to the end of the LTIP
performance period.
5 Non-Executive Directors’ fees are set in GB pounds and are reported in US dollars at the annual average exchange rate.
6 Fees paid to M Daryabegui, R Gray and M Johns in 2013 are in proportion to their dates of service.

GOVERNANCE

T
R
O
P
E
R

C
I
G
E
T
A
R
T
S

E
C
N
A
N
R
E
V
O
G

S
T
N
E
M
E
T
A
T
S

L
A
I
C
N
A
N
I
F

N
O

I
T
A
M
R
O
F
N

L
A
N
O

I
T
I
D
D
A

NOTES TO THE SINGLE TOTAL FIGURE TABLE

ANNUAL BONUS

As outlined in the Chairman’s letter, in light of the near term impact of the
recent challenging oil price environment on the Company’s shareholders,
the Committee determined that no cash bonus would be awarded for
2014. The Committee determined that 100% of any bonus should be
deferred into SOCO shares vesting after two years. In the 2013 Annual
Report, the Committee set out specific areas of emphasis in setting
stretching performance measures for 2014, noting each objective is ranked
against a scale of expectations. It was stated that the amount of bonus
paid out would consider the relative importance of the achievements and
the actual contribution of these towards furthering the Company’s

strategic plan. The Committee applied this process in its assessment
of 2014 performance to determine bonus awards on the weighted
performance measures, and a summary of the relative achievement
compared to the performance range is set out in the diagram below.

The weightings resulted in an award at 80% of maximum for each Director.
The Group’s safety performance in the year was excellent, and did not result
in a deduction to the above calculation. The Committee was satisfied with
the results of the assessment, on the basis of delivery entirely as mandatory
deferred shares under the terms of the deferred share bonus plan.

THRESHOLD
(0% payout)

TARGET
(50% payout)

MAXIMUM
(100% payout)

Vietnam Programme Objectives (70% weighting)

The TGT drilling programme remained on track with eight wells drilled in 2014. The H5 development received project sanctioning and all additional
approvals required to fast track the programme. Construction was completed and platform installation commenced ahead of schedule. Drilling
commenced and all related development works required to meet the first oil schedule remained on target or ahead of schedule. Testing of FPSO oil
throughput capacity was delayed. However, testing of the total liquids handling capacity was accelerated successfully with modifications identified to
increase capacity. An independent third-party completed an extensive study and analysis demonstrating TGT’s full potential. While less material, due to
unexpected geological problems a successful completion of an additional CNV well has been deferred.

Weighted Assessment: 56%

Portfolio Objectives (10% weighting)

A successful exploration well was drilled on Marine XI which significantly exceeded pre-test expectations and appears to suggest an extension of
a field discovered on a contiguous block. A non-invasive seismic survey was successively completed over a portion of Lake Edward in Block V with no
operational lost time injuries, and related commitments to conduct environmental studies and social projects were fulfilled. However, there is no value for
this project built into the share price, and the Committee determined to treat these objectives as unfulfilled for the purpose of determining bonus payout,
resulting in a discretionary downward adjustment. While exploration projects and other initiatives were progressed on target, adjustments to targets
were initiated to ensure they remain appropriate in the current oil price environment.

Weighted Assessment: 4%

Corporate Objectives (20% weighting)

Corporate initiatives have progressed on target. The strategy was delivered with a second material cash return to shareholders, representing 60% of
free cash flow thereby exceeding the targeted 50%, while maintaining a strong balance sheet ending the year with no debt and over $166 million of cash,
cash equivalents and liquid investments. The executive team was strengthened and refreshed through the recruitment of a Chief Financial Officer who
has excellent credentials and is well respected in the sector.

Weighted Assessment: 20%

SOCO INTERNATIONAL PLC | Annual Report and Accounts 2014

68
DIRECTORS’
REMUNERATION REPORT
CONTINUED

The table to the right sets out the annual bonuses awarded to Executive
Directors in respect of performance in 2014 following the assessment
process described on page 67.

Details of these DSBP awards in the form of conditional share awards made
during the year to Executive Directors are summarised in the table below.
These awards are normally subject to continued service over a two-year
vesting period, and will otherwise lapse in accordance with plan rules related
to cessation of employment. Further details are given in the outstanding
share awards table on page 70.

E Story

R Cagle

C Cagle

2014 Annual Bonus

Deferred Shares

$000s % of maximum

1,111

833

568

80%

Cash
$000s

–

E Story

R Cagle

C Cagle

Date of Grant Number of Shares Granted

Face Value1 (£000s)

Normal Vesting Date

15.12.14

286,500

215,000

146,500

712

534

364

15.12.16

1 Face value is calculated using the last closing share price of £2.485 preceding the date of grant. The near term average exchange rate of 1.56 preceding the date of grant has been used to convert share price from GB pound
to calculate US dollar face value and % of salary at date of award.

LTIP AWARDS VESTING IN RESPECT OF 2014

The LTIP value shown in the single total figure table relates to the LTIP award
granted in December 2011, which vested subject to SOCO’s relative TSR
performance for the three-year period ended 9 December 2014 against
a group of comparator companies set out in the TSR comparator group
table below.

The table below sets out an overview of SOCO’s relative TSR performance
over the relevant performance period and the level of vesting achieved in
2014 as a result:

Performance Against Comparator Group

Vesting schedule

25% vesting

Median (50th percentile)

100% vesting

Upper 16th (88th percentile)

Actual vesting

100%

86th percentile

LTIP AWARDS GRANTED IN 2014

LTIP awards in the form of conditional share awards made during the year to Executive Directors are summarised in the table below. Further details are given
in the outstanding share awards table on page 70.

E Story

R Cagle

C Cagle

Date of Grant

of Shares Granted Face Value1 (£000s)

Face Value1

Number

Threshold Vesting
(% of Face Value)

15.12.14

453,000

340,000

232,000

1,074

806

551

190%

25%

End of
Performance
Period

15.12.17

1 Face value is calculated using the last closing share price of £2.485 preceding the date of grant. The near term average exchange rate of 1.56 preceding the date of grant has been used to convert share price from GB pound to calculate US
dollar face value and % of salary at date of award.

These awards will be subject to SOCO’s relative TSR performance over a three-year period against a group of comparator companies set out in the table
below. 25% of the awards will vest for median performance, with full vesting for performance in the upper 16th percentile. Pro-rating applies between these
points and between ranking positions.

GOVERNANCE

TSR COMPARATOR GROUP

Afren

Bowleven

Enquest

JKX Petroleum

Niko Resources

Regal Petroleum

Sterling Energy

Gulfsands Petroleum

Lundin Petroleum

Oil Search

ROC Oil

Talisman Energy

Cairn Energy

Hardy Oil & Gas

Maurel & Prom

Ophir Energy

Salamander Energy

Tullow Oil

DNO International

Heritage Oil

Newfield Exploration

Premier Oil

Santos

2014 TSR Comparator Group

DIRECTORS’ INTERESTS AS AT 31 DECEMBER 2014

The Board has a policy requiring Executive Directors to build a minimum shareholding equivalent to their annual salary. This is intended to emphasise
a commitment to the alignment of Executive Directors with shareholders and a focus on long term stewardship. The current Executive Directors have
held, and continue to build, a meaningful shareholding since founding the Company in 1997. The table below sets out the Directors’ interests as at 31
December 2014:

T
R
O
P
E
R

C
I
G
E
T
A
R
T
S

E
C
N
A
N
R
E
V
O
G

S
T
N
E
M
E
T
A
T
S

L
A
I
C
N
A
N
I
F

N
O

I
T
A
M
R
O
F
N

Shareholding requirement

(% of salary)

Achieved (Yes/No)

100%

Yes

Executive

E Story1

R Cagle2,4

C Cagle3,4

Non-Executive

R de Sousa5

O Barbaroux

R Cathery6

E Contini7

M Daryabegui

R Gray

A Monteiro

J Norton8

M Watts

Beneficially
owned shares

Awards subject to
performance
conditions

Awards
vesting in respect
of 2014

Awards subject to
service conditions

L
A
N
O

I
T
I
D
D
A

1,098,014

814,024

562,288

401,090

300,817

205,028

286,500

215,000

146,500

13,191,131

5,083,299

2,914,962

9,158,820

88,000

450,000

27,664,381

5,849

–

460,000

98,431

1 11,516,131 Shares are held personally by Mr E Story. 1,675,000 Shares are held through The Story Family Trust, a connected person to Mr E Story.
2 162,714 Shares are held personally by Mr R Cagle. 4,920,585 Shares are held through C Minor Ltd, a connected person to Mr R Cagle.
3 110,923 Shares are held personally by Ms C Cagle. 2,804,039 Shares are held through C Major Ltd, a connected person to Ms C Cagle.
4 Mr R Cagle and Ms C Cagle are connected persons to each other, and are jointly interested in their combined total holdings. Additionally, as they both act as Directors of the Roger and Cynthia Cagle Family Foundation Limited (the
Charity), it is considered to be a connected person of Mr R Cagle and Ms C Cagle and they are deemed to have a non-beneficial interest in 1,148,129 (0.35%) Shares held by the Charity.
5 450,000 Shares are held personally by Mr R de Sousa. 8,708,820 Shares are held through Palamos Ltd, a company controlled by, and therefore a connected person of Mr R de Sousa. Additionally, Quantic Limited is considered to be a
connected person of Mr R de Sousa by virtue of it being an associated body corporate. Accordingly, Mr R de Sousa has an interest in 189,504 Shares held by Quantic Limited.
6 400,000 Shares are held personally by Mr R Cathery. 50,000 Shares are held though The Cathery Family Trust, a connected person to Mr R Cathery.
7 220,000 Shares are held personally by Mr E Contini. 27,444,381 Shares are held through Liquid Business Ltd, a connected person to Mr E Contini.
8 400,000 Shares are held personally by Mr J Norton. 60,000 Shares are held by his spouse.

While the Executive Directors, as potential beneficiaries, are technically deemed to have an interest in all ordinary shares held by the SOCO Employee
Benefit Trust, the table above only includes those ordinary shares held by the Trust which are potentially transferable to the Directors and their families
pursuant to Options which have been granted to them under the Company’s incentive schemes. Details of the Trust and its holdings are set out in
Note 25 to the Financial Statements.

There have been no changes to the Directors’ interests subsequent to 31 December 2014 other than as described in the notes to the table above.

SOCO INTERNATIONAL PLC | Annual Report and Accounts 2014

70
DIRECTORS’
REMUNERATION REPORT
CONTINUED

ANNUAL REPORT ON
REMUNERATION (UNAUDITED)

SHARE AWARDS OUTSTANDING AS AT 31 DECEMBER 2014

E Story

R Cagle

C Cagle

Type of
Award

As at
1 Jan 2014

Granted/
Awarded

Adjusted1

Exercised

Lapsed

LTIP

DSBP

LTIP

DSBP

LTIP

DSBP

379,282

336,943

273,000

–

453,000

286,500

284,461

252,707

205,000

–

340,000

215,000

194,051

172,330

140,000

–

232,000

146,500

21,808

19,374

15,697

–

16,356

14,530

11,787

–

11,157

9,908

8,050

–

401,090

–

300,817

–

205,208

–

As at
31 Dec 2014

Date
From Which
Exercisable2

–

356,317

288,697

453,000

286,500

5.12.15

6.12.16

15.12.17

15.12.16

–

267,237

216,787

340,000

215,000

5.12.15

6.12.16

15.12.17

15.12.16

–

182,238

148,050

232,000

146,500

5.12.15

6.12.16

15.12.17

15.12.16

Expiry Date

–

1 Outstanding awards under the Company’s share schemes were adjusted in accordance with plan rules to take account of a variation in share capital during the year (see Note 28 to the Financial Statements).
2 LTIP awards vest subject to SOCO’s relative TSR performance against a group of comparator companies as set out in the table above. DSBP awards vest subject to continued service over a two-year vesting period.

HISTORICAL TSR PERFORMANCE AND CEO OUTCOMES

HISTORICAL TSR PERFORMANCE

CEO OUTCOMES

The chart below illustrates SOCO’s six-year TSR performance against the
FTSE Oil & Gas Index being a broad market index which is sector specific.
Note that this does not represent either the comparator group or time
period against which performance is assessed under the LTIP.

The table below shows the total remuneration paid to the CEO over the same
six-year period. In addition, the annual bonus and LTIP payouts are set out in
respect of each year as a percentage of the maximum:

CEO single
figure of
remuneration
($000s)1

Annual bonus
payout (% of
maximum)

LTIP vesting
(% of maximum)

2009

2010

2011

2012

2013

2014

2,090

1,536

2,511

3,267

3,459

4,056

50%

25%

100%

80%

59%

34%

53%

71%

66% 100%

1 The current year annual average exchange rate has been applied to convert GB pounds to US dollars for all periods
to ensure consistency between periods.

Total Shareholder Return

KPI

SOCO Cumulative change
FTSE Oil & Gas Index Cumulative change

2008

2009

2010

2011
YEAR END

2012

2013

2014

KPI See Additional Information – Key Performance Indicators on page 99 for all KPIs reported and their definitions.

GOVERNANCE

T
R
O
P
E
R

C
I
G
E
T
A
R
T
S

E
C
N
A
N
R
E
V
O
G

S
T
N
E
M
E
T
A
T
S

L
A
I
C
N
A
N
I
F

N
O

I
T
A
M
R
O
F
N

L
A
N
O

I
T
I
D
D
A

PERCENTAGE CHANGE IN
REMUNERATION OF THE CEO

The table below illustrates the percentage change in salary, benefits and
annual bonus for the CEO and all other employees.

% Change in
Base Salary

% Change in
Benefits

% Change in
Annual Bonus

(2014/2013)

(2014/2013)1

(2014/2013)2

CEO

All other
employees

13%

26%

28%

1 There have been no changes to the Company’s benefits packages during the year. Variances reflect other
factors, including employee demographics and the level to which available allowances are taken up in
a given year.
2 The CEO’s bonus is awarded in respect of the calendar year. Bonuses awarded to all other employees include a
combination of awards in respect of the calendar year and in respect of the fiscal year ending 31 March 2014.

RELATIVE IMPORTANCE OF SPEND ON PAY

The chart below illustrates the year-on-year change in total remuneration
as per Note 10 to the Financial Statements compared to the change in
shareholder returns, which would include capital returns, dividends and
share buybacks.

SPEND ON PAY

$million

Total remuneration
Shareholder distributions

220

200

180

160

140

120

100

3
.
3
1
2

2
.
9
1
1

8
.
9

8
.
0
1

2014

2013

EXTERNAL APPOINTMENTS

With prior approval of the Board, Executive Directors are allowed to
accept non-executive appointments on other boards and to retain the
associated directors’ fees. Under this policy Mr Ed Story serves on the
board of Cairn India Limited for which he retained associated fees for
2014 in the amount of $92,000 (2013 – $79,000).

IMPLEMENTATION FOR 2015

BASE SALARY

Executive Directors’ salaries have not been increased for 2015.

2015
Base Salary

2014
Base Salary

$000s

% Increase
from 2014

924

693

473

924

693

473

E Story

R Cagle

C Cagle

BENEFITS

For 2015, benefits available to Executive Directors will be consistent with
those set out in the policy and provided in 2014 as described above.

ANNUAL BONUS

It is intended that annual bonus awards will be considered for Executive
Directors in December 2015. In accordance with the policy, the
maximum total bonus opportunity is 150% of salary, including cash and
deferred components. To provide alignment with best practice and the
performance of SOCO over the longer term, any bonus earned over
100% of salary will be deferred into SOCO shares to be held for two
years. Normally, delivering these shares will be contingent on continued
employment. Annual bonus payments will continue to be dependent
on individual and corporate targets linked to SOCO’s strategic plan.
Due to commercial sensitivity, we are not disclosing details of bonus
targets prospectively, but in line with our current practice, we will provide
retrospective disclosure on achievement against measures following year
end. However we can broadly indicate that performance measures for
2015 will emphasise goals associated with production targets, progressing
the Vietnam development and appraisal programmes with our partners,
advancing an independent reserves report, progressing the portfolio,
delivering the corporate strategy, ESG goals and stewardship of the
Company’s resources in this challenging economic environment.

The Committee retains discretion over the amount of bonus paid out to
ensure that appropriate consideration is given to the relative importance
of the achievements in the year and the actual contribution of these
towards furthering the Company’s strategic plan.

LTIP

It is intended that grants will be made to Executive Directors in December
2015 in line with the policy set out above. The Committee’s selection of
performance criteria is kept under review to ensure the long term measures
used remain appropriate to SOCO’s circumstances and strategy, and most
effectively support the delivery of value creation over time. For awards to be
made in 2015, not less than 50% of the award will be dependent on a share
price based measure, with the remainder dependent on either a share price
based or financial measure.

SOCO INTERNATIONAL PLC | Annual Report and Accounts 2014

72
DIRECTORS’
REMUNERATION REPORT
CONTINUED

MALUS AND CLAWBACK PROVISIONS

In compliance with the updated UK Corporate Governance Code issued in
2014, all variable pay arrangements will be subject to provisions which will
enable the Committee to reduce vesting, or recover value delivered if certain
circumstances occur. These circumstances include where an individual has
engaged in an activity amounting to serious misconduct, fraud or leading
to a misstatement of the Company’s financial results (as determined by
the Committee).

PENSION

For 2015, a pension benefit at 15% of salary will be provided through
contributions to SOCO’s money purchase plan up to plan limits and
a cash supplement.

NON-EXECUTIVE DIRECTOR REMUNERATION

Non-Executive Director fees have not been increased for 2015.

Chairman of the Company

Non-Executive Director

Additional fee: for Senior Independent
Director

Additional fee: Chairman of Audit and
Risk Committee

Additional fee: Chairman of
Remuneration Committee

Fee
from 1 January
2015

Fee
from 1 January
2014

£190,000

£50,000

£190,000

£50,000

£10,000

£5,000

in Note 9 to the Financial Statements. The advisors’ terms of reference restrict
the provision of certain services in order to maintain auditor independence. The
scope and value of services to the Group is under continuous review to ensure it
is not material to the assessment of independence. Advice is developed with use
of established methodologies and the advisors are not involved in the decision
making process. Advisory partners and staff have no involvement in audit, and
are not involved in the preparation of audited information. The Committee is
satisfied that the remuneration advice it receives from Deloitte is independent.
Total fees for advice provided to the Committee during the year were £11,500.

When setting the policy for Executive Directors’ remuneration, the
Committee takes into account pay conditions elsewhere in the Company
and, as appropriate, any external market reference points.

The Committee reviews all aspects of remuneration on an annual basis and with
respect to individual and corporate performance during the year. Benchmarking
is generally conducted on at least a three-year cycle or upon an indication of a
change in market ranges. During this exercise, the Group’s size and complexity
and relative positioning within those ranges are taken into account in the context
of the Executive Directors’ critical value to the Company and demonstrated
performance over time. Results of benchmarking exercises are monitored for
indications of potential unwarranted upward ratcheting. The last benchmarking
exercise was undertaken in 2013.

SHAREHOLDER VOTING

At the last AGM held on 13 June 2014, the remuneration policy and
the Directors’ Remuneration Report received the following votes
from shareholders:

The fees have been set within the aggregate limits set out in the Company’s
Articles of Association and approved by shareholders. Non-Executive
Directors are not eligible for participation in the Company’s incentive or
pension schemes.

Votes in
favour

Votes
against

CONSIDERATION BY COMMITTEE OF
MATTERS RELATING TO EXECUTIVE
DIRECTORS’ REMUNERATION

The Directors who were members of the Remuneration Committee when
matters relating to Directors’ remuneration for the year were being considered
included Ambassador António Monteiro, Ms Marianne Daryabegui, Mr Rob
Gray and Dr Mike Watts.

The Committee received assistance from Mr Ed Story (CEO) and Ms Cynthia
Cagle (Company Secretary), except when matters relating to their own
remuneration were being discussed.

Deloitte, who has voluntarily signed up to the Remuneration Consultants’
Code of Conduct, were originally retained independently by the Committee
as advisors following a tender process. In the year, they provided advice on
current market practice and developments in best practice, implementation of
the deferred share bonus plan and testing and setting of performance criteria
for incentive plans. Deloitte also provide audit services to the Group, as set out

Remuneration Report

Remuneration Policy

Votes

174,258,046

98.7%

156,162,798

98.4%

Total Votes

176,511,965

2,253,919

1.3%

100%

2,497,723

1.6%

158,660,521

100%

Votes
Withheld

4,948,616

–

22,800,060

–

SHAREHOLDER DILUTION

SOCO monitors the number of shares issued under employee share plans
and their impact on dilution limits. These will not exceed the limits set by
The Investment Association in respect of all share plans (10% in any rolling
ten-year period) and executive share plans (5% in any rolling ten-year period).

Cynthia Cagle
Company Secretary

GOVERNANCE

T
T
R
R
O
O
P
P
E
E
R
R

C
C
I
I
G
G
E
E
T
T
A
A
R
R
T
T
S
S

E
E
C
C
N
N
A
A
N
N
R
R
E
E
V
V
O
O
G
G

S
S
T
T
N
N
E
E
M
M
E
E
T
T
A
A
T
T
S
S

L
L
A
A
I
I
C
C
N
N
A
A
N
N
I
I
F
F

N
O

I
T
A
M
R
O
F
N

L
A
N
O

I
T
I
D
D
A

ROBERT HARRIS

NEIL GIBSON

CORPORATE FINANCIAL
CONTROLLER

MANAGER – GROUP
REPORTING, TAXATION
& TREASURY

S
T
N
E
M
E
T
A
T
S

L
A
C
N
A
N
I
F

he Group’s financial results delivered solid revenue of
$448.2 million, albeit down from the 2013 results, reflecting
both lower production and lower realised average oil price
of c. $103 per barrel (2013 – c. $113 per barrel). The Group is
reporting a post-tax profit for the year of $14.0 million (2013 –
$104.1 million), which includes an exploration write-off of
$79.5 million associated with costs incurred on the Albertine
Graben Block V in eastern DRC and costs of new ventures, and
a gross impairment charge on the CNV asset of $60.5 million
(net $38.2 million after tax impact). Before accounting for the

non-cash impact of the exploration write-offs and impairments, post-tax
profits were down from $196.1 million in 2013 to $131.7 million in 2014.

Operating cash flow came in at $251.2 million in 2014, down from
$314.4 million in 2013, reflecting lower sales volumes and lower realised
oil prices. Capital expenditures were up from $99.1 million in 2013 to
$162.5 million in 2014 predominantly due to the TGT H5 development
and exploration activity in Africa. SOCO made its second return of
cash to shareholders during 2014 of c. $119 million, bringing the total
returned in the Company’s short history of making distributions to
c. $333 million.

With cash, cash equivalents and liquid investments of $166.4 million at
2014 year-end – dropping only $43.6 million year-on-year despite the
significant capital programme, second substantial return to shareholders
and lower operating cash inflows – SOCO has exited 2014 with
substantial financial flexibility.

SOCO INTERNATIONAL PLC | Annual Report and Accounts 2014

74
INDEPENDENT AUDITOR’S REPORT TO THE
MEMBERS OF SOCO INTERNATIONAL PLC

OPINION ON FINANCIAL STATEMENTS
OF SOCO INTERNATIONAL PLC

IN OUR OPINION:

~ the financial statements give a true and fair view of the state of the Group’s
and of the parent Company’s affairs as at 31 December 2014 and of the
Group’s profit for the year then ended;

~ the Group financial statements have been properly prepared in accordance
with International Financial Reporting Standards (IFRSs) as adopted by the
European Union;

IMPAIRMENT OF INTANGIBLE EXPLORATION
AND EVALUATION ASSETS

In accordance with relevant accounting standards, E&E costs are assessed for
impairment at least annually. This is considered a key risk due to the significant
judgments and estimates that are required to be assessed, and the highly
material nature of the related balances in the financial statements.

How the scope of our audit responded to the risk
We evaluated and challenged management’s assessment of whether there
were any indicators of impairment for the Group’s material E&E assets, taking
into consideration the impairment indicators outlined in IFRS 6 “Exploration for
and Evaluation of Mineral Resources” such as:

~ the parent Company financial statements have been properly prepared in

~ expiry or relinquishment of exploration and evaluation licences;

accordance with IFRSs as adopted by the European Union and as applied in
accordance with the provisions of the Companies Act 2006; and

~ the financial statements have been prepared in accordance with the

requirements of the Companies Act 2006 and, as regards the Group financial
statements, Article 4 of the IAS Regulation.

The financial statements comprise the Consolidated Income Statement, the
Consolidated Statement of Comprehensive Income, the Group and Company
Balance Sheets, the Group and Company Statement of Changes in Equity,
the Group and Company Cash Flow Statements and the related notes 1 to 33.
The financial reporting framework that has been applied in their preparation
is applicable law and IFRSs as adopted by the European Union and, as regards
the parent Company financial statements, as applied in accordance with the
provisions of the Companies Act 2006.

GOING CONCERN

As required by the Listing Rules we have reviewed the Directors’ statement on
page 50 that the Group is a going concern. We confirm that:

~ we have concluded that the Directors’ use of the going concern basis of

accounting in the preparation of the financial statements is appropriate; and

~ we have not identified any material uncertainties that may cast significant

doubt on the Group’s ability to continue as a going concern.

However, because not all future events or conditions can be predicted,
this statement is not a guarantee as to the Group’s ability to continue as a
going concern.

OUR ASSESSMENT OF RISKS OF
MATERIAL MISSTATEMENT

The assessed risks of material misstatement described below are those that
had the greatest effect on our audit strategy, the allocation of resources in
the audit and directing the efforts of the engagement team. We assessed the
design and implementation of key controls regarding the risks below. These
risks are the same as those discussed in 2013 with the addition of impairment
relating to producing assets on the grounds that there has been a significant
drop in the oil price.

~ no expenditure for further exploration and evaluation in the specific area is

planned or budgeted for;

~ whether exploration and evaluation activities have not led to the discovery
of commercially viable quantities of mineral resources and the entity has
decided to discontinue activities in the area; or

~ whether data exists to suggest that the carrying amount of the exploration
and evaluation asset is unlikely to be recovered in full from successful
development or by sale.

Our procedures included interviews with key operational and finance staff
in London to understand the current status and future intention for each
asset, confirming that all assets which remain capitalised are included in
future budgets and plans, and identifying any fields where the Group’s right
to explore is either at, or close to, expiry. We corroborated material facts, for
example by agreement to approved internal or operator budgets and work
programmes or contractual agreements. In the current year, particular focus
was given to the Group’s interests in the Albertine Graben, Cabinda and
Nanga IIA due to the facts and circumstances surrounding these projects
including those matters described in the review of operations on page 15 to
23. Where an asset has been impaired, we have obtained evidence about the
events that led to the impairment.

Details of the Group’s policy on exploration and evaluation assets is given
in note 2 of the financial statements and note 14 of the financial statements
includes details of the Group’s exploration assets and the impairments of
$73.6 million which arose during the year.

OIL AND GAS RESERVES ESTIMATES

This was considered to be a key risk due to the subjective nature of reserves
estimates and their impact on the financial statements through impairment
and DD&A calculations, and because the TGT field, which contributes the
substantial majority of SOCO’s estimated reserves and DD&A, is particularly
complex and in a relatively early stage of production with uncertainty over its
further development.

Management has engaged third party consultants to develop a simulation
model of the TGT field and to prepare an estimate of reserves as at the year
end using standard industry reserve estimation methods and definitions. For
CNV, management prepared its own revised estimate of reserves with the
assistance of an internal expert.

FINANCIAL STATEMENTS75

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How the scope of our audit responded to the risk
We compared the oil and gas reserves figures used in the DD&A
calculations and in management’s impairment calculations with the
estimates produced by the third-party for Block 16-1 (TGT) and by
management for Block 9-2 (CNV).

For TGT we have read the third party consultant’s report on their reservoir
modelling work and their subsequent report to management on year end
reserves estimates. Assisted in our challenge by our own internal experts,
we met with the third party consultants to discuss and assess their scope
of work, expertise and objectivity. We reviewed their terms of engagement
and assessed whether the approach they had applied in their reserves
estimation advice was appropriate and in line with our expectations, and
considered whether there were any indications of bias.

For CNV we read the paper prepared by management’s internal expert and
discussed the paper with management, assisted in our challenge by our
own internal experts. We assessed whether the approach they had applied
in their reserves estimation advice was appropriate and in line with our
expectations, and considered whether there were any indications of bias.

Management’s reserves estimates are included on page 100 to the annual
report. In addition, management has explained the scope of work of the
third party and their findings on page 18 in the review of operations, as
well as highlighting oil and gas reserves as a key source of estimation
uncertainty in note 4 to the financial statements. We assessed whether
these disclosures are consistent with the amounts used in management’s
DD&A and accounting calculations and fairly describe the impact of the
estimation uncertainty.

ACCOUNTING FOR DEPLETION, DEPRECIATION
AND AMORTISATION OF PRODUCING OIL AND GAS ASSETS

This is considered a key risk due to the calculation including judgmental
estimates of the remaining commercial oil & gas reserves, the estimation
of future capital works and related expenditure required to extract those
reserves and the date of application relating to any revisions to estimates.

How the scope of our audit responded to the risk
As well as the work performed on the reserves quantities included in the
DD&A calculation, as above, we compared the estimates of future capital
expenditure to plans and budgets. We checked that the development
scenarios from which capital expenditure estimates are derived are
consistent with the scenario on which reserves estimates are based. We
considered the timing of adoption of the revised reserves and future
capital expenditure estimates for the purposes of calculating DD&A in
light of the timing of events and circumstances that led to the revision to
estimates. We re-performed the DD&A calculation to check for mechanical
accuracy. Note 2 to the financial statements provides details on the Group’s
policy on DD&A.

Impairment of producing oil and gas assets
This is considered as a key risk due to the significant judgments and
estimates that need to be made in assessing whether any impairments have
arisen in the year and quantifying any such impairments. This is a particular
area of focus for 2014 given the significant fall in oil price during the year and
the interrelated downward revision to reserves estimates.

Management reviewed each of its two producing fields for indicators of
impairment, identifying in each case that indicators of impairment were
present. Management has estimated the fair values less costs of disposal
of each field and compared these to the carrying amount of each field
on the balance sheet. Management’s fair value estimate is based on key
assumptions which include:

~ oil price;

~ gas price;

~ discount rate;

~ reserve estimates and production profiles;

~ future operating and capital expenditure; and

~ other significant assumptions used to generate the fair value amounts

associated with the Group’s producing assets.

During the year with regards to CNV, an impairment charge of $60.5 million
was recognised.

How the scope of our audit responded to the risk
As well as our work on reserves above, we have assessed and challenged
these assumptions by reference to publicly available information, third party
information, our knowledge of the Group and industry and also budgeted
and forecast performance. We have performed stress tests for a range
of reasonably possible scenarios (including oil price) on management’s
impairment model and tested the calculations for mechanical accuracy. We
specifically considered whether the incremental fair value attributed to the
CNV contingent resources was appropriate, and whether the additional
discounts applied by management in measuring this incremental fair value
were reasonable.

Where an impairment charge was identified, we assessed whether
an appropriate provision has been recorded, and that appropriate
disclosures had been made. Further details are provided in note 15 to the
financial statements.

The description of risks above should be read in conjunction with
the significant issues considered by the Audit and Risk Committee
discussed on pages 61 to 62.

Our audit procedures relating to these matters were designed in the context
of our audit of the financial statements as a whole, and not to express an
opinion on individual accounts or disclosures. Our opinion on the financial
statements is not modified with respect to any of the risks described above,
and we do not express an opinion on these individual matters.

OUR APPLICATION OF MATERIALITY

We define materiality as the magnitude of misstatement in the financial
statements that makes it probable that the economic decisions of a
reasonably knowledgeable person would be changed or influenced. We use
materiality both in planning the scope of our audit work and in evaluating
the results of our work.

When setting materiality, among other factors we considered the Group’s
profit before tax in the current period as well as that in recent periods;
the occurrence of any non-recurring or volatile gains and losses (such
as impairments and exploration write offs) and the level of consolidated
shareholders equity. We determined materiality for the Group to be
$19.0 million (2013: $27.0 million) which is 12.4% (2013: 8.1%) of profit before
tax, 6.5% (2013: 6.3%) of profit before tax adjusted for impairments and
exploration write offs and 1.9% (2013: 2.5%) of equity.

Materiality for each of the reporting components was set at between
$9.5 million and $13.3 million, depending on the relative size of
the component.

We agreed with the Audit and Risk Committee that we would report to
the Committee all audit differences in excess of $380,000 (2013: $595,000)
as well as differences below that threshold that, in our view, warranted
reporting on qualitative grounds. We also report to the Audit and Risk
Committee on disclosure matters that we identified when assessing the
overall presentation of the financial statements.

AN OVERVIEW OF THE SCOPE OF OUR AUDIT

Our group audit was scoped by obtaining an understanding of the Group
and its environment, including group-wide controls, and assessing the risks
of material misstatement at the group level. Based on that assessment, we
focused primarily on the Group’s two key business units, being Vietnam
(which is accounted for in Vietnam and in London) and Africa (which is
accounted for in Africa and London), together with the head office function

SOCO INTERNATIONAL PLC | Annual Report and Accounts 2014

76
INDEPENDENT
AUDITOR’S REPORT
CONTINUED

in London. As with the prior year, these locations account for all of the Group’s
net assets, revenue and profit before tax. All of these locations were subject to
a full scope audit.

The Group audit team assesses each year how best to be appropriately
involved in the audit work undertaken in Vietnam. In the current year, in
addition to regular interaction and review through correspondence, telephone
and other electronic media, a senior member of the audit team visited the
Vietnam component during the audit planning phase.

OPINION ON OTHER MATTERS PRESCRIBED
BY THE COMPANIES ACT 2006

In our opinion:

~ the part of the Directors’ Remuneration Report to be audited has been
properly prepared in accordance with the Companies Act 2006; and

~ the information given in the Strategic Report and the Directors’ Report for the
financial year for which the financial statements are prepared is consistent with
the financial statements.

MATTERS ON WHICH WE ARE REQUIRED
TO REPORT BY EXCEPTION

Adequacy of explanations received and accounting records
Under the Companies Act 2006 we are required to report to you if,
in our opinion:

~ we have not received all the information and explanations we require for our

audit; or

~ adequate accounting records have not been kept by the parent Company,

or returns adequate for our audit have not been received from branches not
visited by us; or

~ the parent Company financial statements are not in agreement with the

accounting records and returns.

We have nothing to report in respect of these matters.

Directors’ remuneration
Under the Companies Act 2006 we are also required to report if in our opinion
certain disclosures of Directors’ remuneration have not been made or the part
of the Directors’ Remuneration Report to be audited is not in agreement with
the accounting records and returns. We have nothing to report arising from
these matters.

Corporate Governance Statement
Under the Listing Rules we are also required to review the part of the Corporate
Governance Statement relating to the Company’s compliance with ten
provisions of the UK Corporate Governance Code. We have nothing to report
arising from our review.

Our duty to read other information in the Annual Report
Under International Standards on Auditing (UK and Ireland), we are required to
report to you if, in our opinion, information in the annual report is:

~ materially inconsistent with the information in the audited financial

statements; or

~ apparently materially incorrect based on, or materially inconsistent with, our
knowledge of the Group acquired in the course of performing our audit; or

~ otherwise misleading.

In particular, we are required to consider whether we have identified any
inconsistencies between our knowledge acquired during the audit and the

Directors’ statement that they consider the annual report is fair, balanced and
understandable and whether the annual report appropriately discloses those
matters that we communicated to the Audit and Risk Committee which we
consider should have been disclosed. We confirm that we have not identified
any such inconsistencies or misleading statements.

RESPECTIVE RESPONSIBILITIES OF
DIRECTORS AND AUDITOR

As explained more fully in the Directors’ Responsibilities Statement, the
Directors are responsible for the preparation of the financial statements and
for being satisfied that they give a true and fair view. Our responsibility is to
audit and express an opinion on the financial statements in accordance with
applicable law and International Standards on Auditing (UK and Ireland). Those
standards require us to comply with the Auditing Practices Board’s Ethical
Standards for Auditors. We also comply with International Standard on Quality
Control 1 (UK and Ireland). Our audit methodology and tools aim to ensure
that our quality control procedures are effective, understood and applied. Our
quality controls and systems include our dedicated professional standards
review team, strategically focused second partner reviews and independent
partner reviews.

This report is made solely to the Company’s members, as a body, in
accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit
work has been undertaken so that we might state to the Company’s members
those matters we are required to state to them in an auditor’s report and for
no other purpose. To the fullest extent permitted by law, we do not accept or
assume responsibility to anyone other than the Company and the Company’s
members as a body, for our audit work, for this report, or for the opinions
we have formed.

SCOPE OF THE AUDIT OF
THE FINANCIAL STATEMENTS

An audit involves obtaining evidence about the amounts and disclosures in the
financial statements sufficient to give reasonable assurance that the financial
statements are free from material misstatement, whether caused by fraud
or error. This includes an assessment of: whether the accounting policies are
appropriate to the Group’s and the parent Company’s circumstances and
have been consistently applied and adequately disclosed; the reasonableness
of significant accounting estimates made by the Directors; and the overall
presentation of the financial statements. In addition, we read all the financial
and non-financial information in the annual report to identify material
inconsistencies with the audited financial statements and to identify any
information that is apparently materially incorrect based on, or materially
inconsistent with, the knowledge acquired by us in the course of performing
the audit. If we become aware of any apparent material misstatements or
inconsistencies we consider the implications for our report.

Bevan Whitehead ACA (Senior statutory auditor)

for and on behalf of Deloitte LLP
Chartered Accountants and Statutory Auditor
London, United Kingdom
11 March 2015

FINANCIAL STATEMENTS77

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CONSOLIDATED INCOME STATEMENT FOR
THE YEAR TO 31 DECEMBER 2014

Revenue

Cost of sales

Gross profit

Administrative expenses

Exploration costs written off

Impairment of property, plant and equipment

Operating profit

Investment revenue

Other gains and losses

Finance costs

Profit before tax

Tax

Profit for the year

Earnings per share (cents)

Basic

Diluted

CONSOLIDATED STATEMENT OF
COMPREHENSIVE INCOME FOR THE
YEAR TO 31 DECEMBER 2014

Profit for the year

Items that may be subsequently reclassified to profit or loss:

Unrealised currency translation differences

Total comprehensive income for the year

Notes

5,6

6,11

2014
$ million

2013
$ million

448.2

(143.8)

304.4

(11.8)

(79.5)

(60.5)

608.1

(169.1)

439.0

(13.2)

(92.0)

–

152.6

333.8

0.7

1.6

(2.2)

152.7

(138.7)

14.0

1.0

1.3

(2.8)

333.3

(229.2)

104.1

4.3

4.2

31.7

31.6

Note

2014
$ million

2013
$ million

14.0

104.1

(1.8)

12.2

9.3

113.4

SOCO INTERNATIONAL PLC | Annual Report and Accounts 2014

78
BALANCE SHEETS AS AT
31 DECEMBER 2014

Non-current assets

Intangible assets

Property, plant and equipment

Investments

Financial asset

Other receivables

Current assets

Inventories

Trade and other receivables

Tax receivables

Liquid investments

Cash and cash equivalents

Total assets

Current liabilities

Trade and other payables

Tax payable

Net current assets (liabilities)

Non-current liabilities

Deferred tax liabilities

Long term provisions

Total liabilities

Net assets

Equity

Share capital

Share premium account

Other reserves

Retained earnings

Total equity

Notes

2014
$ million

Group

2013
$ million

215.7

801.3

–

43.4

15.0

2014
$ million

Company

2013
$ million

–

1.0

–

0.9

689.4

884.6

–

209.1

790.0

–

45.0

24.6

1,068.7

1,075.4

690.4

885.5

6.1

39.6

1.1

40.2

126.2

213.2

7.3

68.9

0.9

80.1

129.9

287.1

–

0.6

0.5

–

0.2

1.3

–

0.8

0.4

–

0.3

1.5

1,281.9

1,362.5

691.7

887.0

(43.9)

(11.6)

(55.5)

(36.1)

(18.5)

(54.6)

157.7

232.5

(200.2)

(51.1)

(251.3)

(306.8)

(184.2)

(42.9)

(227.1)

(281.7)

(2.2)

(0.2)

(2.4)

(1.1)

–

(1.7)

(0.1)

(1.8)

(0.3)

–

(2.4)

(1.8)

975.1

1,080.8

689.3

885.2

27.6

–

239.5

708.0

27.6

11.1

226.5

815.6

975.1

1,080.8

27.6

–

195.0

466.7

689.3

27.6

11.1

183.1

663.4

885.2

The financial statements were approved by the Board of Directors on 11 March 2015 and signed on its behalf by:

Rui de Sousa
Chairman

Roger Cagle
Director

FINANCIAL STATEMENTS

STATEMENTS OF CHANGES
IN EQUITY FOR THE YEAR
TO 31 DECEMBER 2014

As at 1 January 2013

Distributions

Issue and redemption of B shares

Share-based payments

Transfer relating to share-based payments

Transfer relating to share-based payments in prior years

Transfer relating to convertible bonds

Unrealised currency translation differences

Retained profit for the year

As at 1 January 2014

Distributions

New shares issued

Issue and redemption of B shares

Share-based payments

Transfer relating to share-based payments

Unrealised currency translation differences

Retained profit for the year

As at 31 December 2014

As at 1 January 2013

Distributions

Issue and redemption of B shares

Share-based payments

Transfer relating to share-based payments

Transfers relating to share-based payments in prior years

Unrealised currency translation differences

Retained profit for the year

As at 1 January 2014

Distributions

New shares issued

Issue and redemption of B shares

Share-based payments

Transfer relating to share-based payments

Unrealised currency translation differences

Retained profit for the year

As at 31 December 2014

Called up
share capital
$ million

Share premium
account
$ million

Other reserves
(see Note 25)
$ million

Notes

27.6

73.0

105.5

–

(61.9)

–

61.9

1.4

(0.7)

58.3

(0.2)

0.3

–

Retained
earnings
(see Note 27)
$ million

Group

Total
$ million

970.5

(210.9)

1,176.6

(210.9)

–

0.7

(58.3)

0.2

9.3

–

1.4

–

9.6

104.1

26, 27

24, 25

25, 27

27.6

11.1

226.5

815.6

1,080.8

–

27.6

–

0.1

(11.2)

–

11.2

0.4

1.7

(0.3)

–

(118.1)

–

(1.7)

(1.8)

14.0

0.1

–

0.4

–

(2.1)

14.0

239.5

708.0

975.1

T
R
O
P
E
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C
I
G
E
T
A
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S

E
C
N
A
N
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V
O
G

S
T
N
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M
E
T
A
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S

L
A
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N
A
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I
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N
O

I
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A
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O
F
N

L
A
N
O

I
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I
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D
A

Called up
share capital
$ million

Share premium
account
$ million

Other reserves
(see Note 25)
$ million

Notes

Retained
earnings
(see Note 27)
$ million

27.6

73.0

–

(61.9)

–

60.8

–

61.9

1.4

(0.7)

59.7

–

27.6

11.1

183.1

26, 27

24, 25

25, 27

–

27.6

–

0.1

(11.2)

–

11.2

0.4

0.6

(0.3)

–

646.7

(213.3)

–

0.7

(54.3)

27.8

255.8

663.4

(119.2)

–

(1.7)

(53.9)

(21.9)

Company

Total
$ million

808.1

(213.3)

–

1.4

–

5.4

27.8

255.8

885.2

(119.2)

0.1

–

0.4

(1.1)

(54.2)

(21.9)

195.0

466.7

689.3

SOCO INTERNATIONAL PLC | Annual Report and Accounts 2014

80
CASH FLOW STATEMENTS
FOR THE YEAR
TO 31 DECEMBER 2014

Net cash from (used in) operating activities

251.2

314.4

(6.8)

(13.7)

Notes

2014
$ million

Group
2013
$ million

2014
$ million

Company

2013
$ million

Investing activities

Purchase of intangible assets

Purchase of property, plant and equipment

Decrease (increase) in liquid investments1

Payment to abandonment fund

Investment in subsidiary undertakings

Dividends received from subsidiary undertakings

Net cash (used in) from investing activities

Financing activities

Share-based payments

Repayment/repurchase of convertible bonds

Distributions

Proceeds on issue of ordinary share capital

Net cash used in financing activities

Net (decrease) increase in cash and cash equivalents

Cash and cash equivalents at beginning of year

Effect of foreign exchange rate changes

Cash and cash equivalents at end of year1

(77.0)

(85.5)

39.9

(9.6)

–

(63.1)

(36.0)

(30.1)

(15.0)

–

(132.2)

(144.2)

(1.2)

–

(118.1)

0.1

(119.2)

(0.2)

129.9

(3.5)

–

(47.8)

(210.9)

–

(258.7)

(88.5)

208.5

9.9

126.2

129.9

–

(0.2)

–

0.9

130.0

130.7

(1.2)

–

(0.1)

–

(90.7)

309.7

218.9

–

(119.2)

(213.3)

0.1

–

(120.3)

(213.3)

3.6

0.3

(3.7)

0.2

(8.1)

0.2

8.2

0.3

1 Liquid investments comprise short term liquid investments of between three to six months maturity while cash and cash equivalents comprise cash at bank
and other short term highly liquid investments of less than three months maturity. The combined cash and cash equivalents and liquid investments balance
at 31 December 2014 was $166.4 million (2013 – $210.0 million).

FINANCIAL STATEMENTS

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NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS

01 GENERAL INFORMATION

SOCO International plc is a company incorporated in the United Kingdom under the Companies Act. The address of the registered office is given on
inside back cover. The nature of the Group’s operations and its principal activities are set out in Note 6 and in the Review of Operations and Financial
Review on pages 14 to 23 and 24 to 28, respectively.

02 SIGNIFICANT ACCOUNTING POLICIES

(a) Basis of preparation
The financial statements have been prepared in accordance with, and comply with, IFRS adopted for use in the European Union and therefore comply
with Article 4 of the EU IAS Regulation and with those parts of the Companies Act 2006 applicable to companies reporting under IFRS. The financial
statements have also been prepared on a going concern basis of accounting for the reasons set out in the Annual Report of the Directors on page
50 and in the Financial Review on page 28. The financial statements have been prepared under the historical cost basis, except for the valuation of
hydrocarbon inventory and the revaluation of certain financial instruments. The financial statements are presented in US dollars as it is the functional
currency of each of the Company’s subsidiary undertakings and is generally accepted practice in the oil and gas sector. The functional currency of the
Company remains GB pounds although its financial statements are presented in US dollars to be consistent with the Group. The principal accounting
policies adopted are set out below.

(b) Adoption of new and revised accounting standards
At the date of authorisation of these financial statements, the following IFRS, IAS, which have not been applied in these financial statements, were in
issue but not yet effective (and in some cases had not yet been adopted by the EU):

~ IFRS 2, 3, 8 – Amendments resulting from Annual Improvements 2010-2012 Cycle

~ IFRS 1, 3, 13 – Amendments resulting from Annual Improvements 2011-2013 Cycle (scope exception for joint ventures)

~ IFRS 5, 7 – Amendments resulting from Annual Improvements 2012-2014 Cycle

~ IFRS 9 Financial Instruments

~ IFRS 10 (amended) Consolidated Financial Statements

~ IFRS 11 (amended) Joint Arrangements

~ IFRS 15 Revenue from Contracts with Customers

~ IAS 16, 38 (amended) Property, Plant and Equipment

~ IAS 16, 24, 38 – Amendments resulting from Annual Improvements 2010-2012 Cycle

~ IAS 19, 34 – Amendments resulting from Annual Improvements 2012-2014 Cycle

~ IAS 19 (amended) Employee Benefits

~ IAS 27 (amended) Separate Financial Statements

~ IAS 28 (amended) Investments in Associates

~ IAS 40 – Amendments resulting from Annual Improvements 2011-2013 Cycle (scope exception for joint ventures)

The Directors do not expect that the adoption of the standards listed above will have a material impact on the financial statements of the Group
in future periods, except potentially as follows:

~ IFRS 9 will impact both the measurement and disclosures of financial instruments

Beyond the information above, it is not practicable to provide a reasonable estimate of the effect of these standards until a detailed review has
been completed.

(c) Basis of consolidation
The Group financial statements consolidate the accounts of SOCO International plc and entities controlled by the Company (its subsidiary
undertakings) drawn up to the balance sheet date. Control is achieved where the Company has the power to govern the financial and operating
policies of an investee entity so as to obtain benefits from its activities. The results of subsidiaries acquired or sold are consolidated for the periods
from or to the date on which control passed. Acquisitions are accounted for under the acquisition method whereby the assets, liabilities and
contingent liabilities acquired and the consideration given are recognised in the Group accounts at their fair values as at the date of the acquisition.

(d) Investments
Non-current investments in subsidiaries of the Company are shown at cost less provision for impairment. Liquid investments comprise short term
liquid investments of between three to six months maturity.

SOCO INTERNATIONAL PLC | Annual Report and Accounts 2014

82
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
CONTINUED

02 SIGNIFICANT ACCOUNTING POLICIES CONTINUED

(e) Interests in joint ventures
A joint arrangement (or ‘joint venture’) is an arrangement where two or more parties have joint control. Joint control is the contractually
agreed sharing of control of an arrangement, which exists only when decisions about the relevant activities require the unanimous consent
of the parties sharing control. Joint arrangements where the Group has the rights to assets, and obligations for liabilities of the arrangement
are classified as joint operations and are accounted for by recognising the Group’s share of assets, liabilities, income and expenses. Joint
arrangements where the Group has the rights to the net assets of the arrangement are classified as joint ventures and are accounted for using
the equity method of accounting.

(f) Non-current assets held for sale
Non-current assets classified as held for sale are measured at the lower of carrying amount and fair value less costs to sell and no depreciation is
charged from the point of reclassification. Liabilities associated with such assets are also classified separately, within current liabilities.

(g) Revenue
Revenue represents the fair value of the Group’s share of oil and gas sold during the year on an entitlement basis and is recognised when the
risks and rewards of ownership have been transfered to the buyer. To the extent revenue arises from test production during an evaluation
programme, an amount is charged from evaluation costs to cost of sales so as to reflect a zero net margin.

Investment revenue is accrued on a time basis, by reference to the principal outstanding and at the effective interest rate applicable.

(h) Tangible and intangible non-current assets
Oil and gas exploration, evaluation and development expenditure
All expenditures incurred in connection with the acquisition, exploration, evaluation and development of oil and gas assets, including directly
attributable overheads, interest payable and certain exchange differences if directly related to financing development projects, are capitalised
in separate geographical cost pools.

Cost pools are established on the basis of geographical area having regard to the operational and financial organisation of the Group.
Intangible acquisition, exploration and evaluation costs incurred in a geographical area where the Group has no established cost pool are
initially capitalised as intangible non-current assets except where they fall outside the scope of IFRS 6 Exploration for and Evaluation of Mineral
Resources whereby they are expensed as incurred subject to other guidance under IFRS. Tangible non-current assets used in acquisition,
exploration and evaluation are classified with tangible non-current assets as property, plant and equipment. To the extent that such tangible
assets are consumed in exploration and evaluation the amount reflecting that consumption is recorded as part of the cost of the intangible
asset. Upon successful conclusion of the appraisal programme and determination that commercial reserves exist, such costs are transferred to
tangible non-current assets as property, plant and equipment. Exploration and evaluation costs carried forward are assessed for impairment as
described below.

Proceeds from the disposal of oil and gas assets are credited against the relevant cost centre. Any overall surplus arising in a cost centre is
credited to the income statement.

Depreciation and depletion
Depletion is provided on oil and gas assets in production using the unit of production method, based on proven and probable reserves,
applied to the sum of the total capitalised exploration, evaluation and development costs, together with estimated future development costs at
current prices. Oil and gas assets which have a similar economic life are aggregated for depreciation purposes.

Impairment of value
Where there has been a change in economic conditions or in the expected use of a tangible non-current asset that indicates a possible
impairment in an asset, management tests the recoverability of the net book value of the asset by comparison with the estimated discounted
future net cash flows based on management’s expectations of future oil prices and future costs. Any identified impairment is charged to the
income statement.

Intangible non-current assets are considered for impairment at least annually by reference to the indicators in IFRS 6. Where there is an
indication of impairment of an exploration and evaluation asset which is within a geographic pool where the Group has tangible oil and gas
assets with commercial reserves, the exploration asset is assessed for impairment together with all other cash generating units and related
tangible and intangible assets in that geographic pool and any balance remaining after impairment is amortised over the proven and probable
reserves of the pool. Where the exploration asset is in an area where the Group has no established pool, the exploration asset is tested for
impairment separately and, where determined to be impaired, is written off.

Other tangible non-current assets
Other tangible non-current assets are stated at historical cost less accumulated depreciation. Depreciation is provided on a straight line basis at
rates calculated to write off the cost of those assets, less residual value, over their expected useful lives of three to seven years.

Decommissioning
The decommissioning provision is calculated as the net present value of the Group’s share of the expenditure which is expected to be incurred
at the end of the producing life of each field in the removal and decommissioning of the production, storage and transportation facilities
currently in place. The cost of recognising the decommissioning provision is included as part of the cost of the relevant property, plant and
equipment and is thus charged to the income statement on a unit of production basis in accordance with the Group’s policy for depletion and
depreciation of tangible non-current assets. Period charges for changes in the net present value of the decommissioning provision arising from
discounting are included in finance costs.

FINANCIAL STATEMENTS83

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NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
CONTINUED

02 SIGNIFICANT ACCOUNTING POLICIES CONTINUED

(i) Changes in estimates
The effects of changes in estimates on the unit of production calculations are accounted for prospectively, from the date of adoption of the revised
estimates, over the estimated remaining proven and probable reserves.

(j) Inventories
Inventories, except for inventories of hydrocarbons, are valued at the lower of cost and net realisable value.

Physical inventories of hydrocarbons are valued at net realisable value in line with well established industry practice. Underlifts and overlifts are valued
at market value and are included in prepayments and accrued income and accruals and deferred income, respectively. Changes in hydrocarbon
inventories, underlifts and overlifts are adjusted through cost of sales.

(k) Leases
Rentals payable under operating leases are charged to the income statement on a straight line basis over the term of the lease. Benefits received and
receivable as an incentive to enter into an operating lease are also spread on a straight line basis over the lease term.

(l) Share-based payments
Equity-settled awards under share-based incentive plans are measured at fair value at the date of grant and expensed on a straight line basis over the
performance period along with a corresponding increase in equity. Fair value is measured using an option pricing model taking into consideration
management’s best estimate of the expected life of the option and the estimated number of shares that will eventually vest.

(m) Taxation
The tax expense represents the sum of the tax currently payable and deferred tax.

The tax currently payable is based on taxable profit for the year. The Group’s liability for current tax is calculated using tax rates that have been
enacted or substantively enacted by the balance sheet date.

Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in the financial
statements and the corresponding tax bases, and is accounted for using the balance sheet liability method. Deferred tax liabilities are generally
recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that sufficient taxable profits
will be available to recover the asset. Deferred tax is not recognised where an asset or liability is acquired in a transaction which is not a business
combination for an amount which differs from its tax value.

Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries and associates, and interests in joint
ventures, except where the Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not
reverse in the foreseeable future.

Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is realised based on tax rates
that have been enacted or substantively enacted by the balance sheet date. Deferred tax is charged or credited in the income statement, except
when it relates to items charged or credited directly to equity, in which case the deferred tax is also dealt with in equity.

(n) Financial instruments
Financial assets and financial liabilities are recognised on the Group’s balance sheet when the Group becomes a party to the contractual provisions of
the instrument. The Group does not currently utilise derivative financial instruments.

There are no material financial assets and liabilities for which differences between carrying amounts and fair values are required to be disclosed.
The classification of financial instruments as required by IFRS 7 is disclosed in Notes 17, 21 and 22.

Financial asset at fair value through profit or loss
Where a financial instrument is classified as a financial asset at fair value through profit or loss it is initially recognised at fair value. At each balance
sheet date the fair value is reviewed and any gain or loss arising is recognised in the income statement. Changes in the net present value of the
financial asset arising from discounting are included in other gains and losses.

Trade receivables
Trade receivables are generally stated at their nominal value as reduced by appropriate allowances for estimated irrecoverable amounts.

Trade payables
Trade payables are generally stated at their nominal value.

Equity instruments
Equity instruments issued by the Company are recorded at the proceeds received, net of direct issue costs. Equity instruments repurchased are
deducted from equity at cost.

(o) Foreign currencies
The individual financial statements of each Group company are stated in the currency of the primary economic environment in which it operates
(its functional currency). Transactions in currencies other than the entity’s functional currency (foreign currency) are recorded at the rate of exchange at the
date of the transaction. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are recorded at the rates of exchange
prevailing at that date, or if appropriate, at the forward contract rate. Any resulting gains and losses are included in net profit or loss for the period.

SOCO INTERNATIONAL PLC | Annual Report and Accounts 2014

84
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
CONTINUED

02 SIGNIFICANT ACCOUNTING POLICIES CONTINUED

(o) Foreign currencies continued
For the purpose of presenting consolidated financial statements the results of entities denominated in currencies other than US dollars are
translated at the average rate of exchange during the period and their balance sheets at the rates ruling at the balance sheet date. Exchange
differences arising on retranslation at the closing rate of the opening net assets and results of entities denominated in currencies other than US
dollars are dealt with through equity and transferred to the Group’s retained earnings reserve.

(p) Pension costs
The contributions payable in the year in respect of pension costs for defined contribution schemes and other post-retirement benefits are
charged to the income statement. Differences between contributions payable in the year and contributions actually paid are shown either as
accruals or prepayments in the balance sheet.

03 FINANCIAL RISK MANAGEMENT

The Board reviews and agrees policies for managing financial risks that may affect the Group. In certain cases the Board delegates responsibility
for such reviews and policy setting to the Audit and Risk Committee. The main financial risks affecting the Group are discussed in the Risk
Management Report on pages 29 to 33.

04 CRITICAL JUDGEMENTS AND ACCOUNTING ESTIMATES

(a) Critical judgements in applying the Group’s accounting policies
In the process of applying the Group’s accounting policies described in Note 2, management has made judgements that may have a significant
effect on the amounts recognised in the financial statements. These are discussed below:

Oil and gas assets
Note 2(h) describes the judgements necessary to implement the Group’s policy with respect to the carrying value of intangible exploration and
evaluation assets. Management considers these assets for impairment at least annually with reference to indicators in IFRS 6. Note 14 discloses
the carrying value of intangible exploration and evaluation assets. Further, Note 2(h) describes the Group’s policy regarding re-classification of
intangible assets to tangible assets. Management considers the appropriateness of asset classification at least annually.

(b) Key sources of estimation uncertainty
The key assumptions concerning the future, and other key sources of estimation uncertainty at the balance sheet date, other than those
mentioned above, that may have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities are
discussed below:

Oil and gas reserves and DD&A
Note 2(h) sets out the Group’s accounting policy on DD&A. Proven and probable reserves are estimated using standard recognised evaluation
techniques and are disclosed on page 100. The estimate is reviewed at least twice a year and is regularly reviewed by external consultants.
Future development costs are estimated taking into account the level of development required to produce the reserves by reference
to operators, where applicable, and internal engineers. As discussed in the Review of Operations on page 15, the TGT and CNV proved
and probable reserves estimates have been revised based on ongoing work of ERCE in respect of TGT and by internal experts working
collaboratively with the JOC in respect of CNV. DD&A on both assets will increase on a per barrel basis to reflect the revised production and
expenditure profiles from 2015. Reserves estimates are inherently uncertain, especially in the early stages of a field’s life, and are routinely
revised over the producing lives of oil and gas fields as new information becomes available and as economic conditions evolve. Such revisions
may impact the Group’s future financial position and results, in particular, in relation to DD&A and impairment testing of oil and gas property
plant and equipment.

Impairment of producing oil and gas assets
If impairment indicators are identified in relation to a producing oil and gas field, management is required to compare the net carrying value
of the assets and liabilities which represent the field cash generating unit with the estimated recoverable amount of the field. Management
generally determines the recoverable amount of the field by estimating its fair value less costs of disposal, using a discounted cash flow method.
Calculating the net present value of the discounted cash flows involves key assumptions which include oil and gas prices, reserves estimates
and production profiles, future operating and capital expenditures, discount rates and other assumptions. Further information relating to the
specific assumptions and uncertainties relevant to impairment tests performed in the year are discussed in Note 15.

Financial asset
Note 2(n) describes the accounting policy with respect to financial assets at fair value through profit or loss. The key estimates that are used in
calculating the fair value of the Group’s financial asset arising on the disposal of its Mongolia interest are described in Note 17 and are reviewed
at least annually. The only market risk assumption that has a significant impact on the fair value of this asset is the discount rate, as described in
the Risk Management Report on page 33.

Decommissioning provision
The accounting policy for decommissioning is discussed in Note 2(h). The cost of decommissioning is estimated by reference to operators,
where applicable, and internal engineers. Further details are provided in Note 23.

FINANCIAL STATEMENTSNOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
CONTINUED

05 TOTAL REVENUE

An analysis of the Group’s revenue is as follows:

Oil and gas sales (see Note 6)

Investment revenue

06 SEGMENT INFORMATION

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2014
$ million

448.2

0.7

2013
$ million

608.1

1.0

448.9

609.1

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The Group has one principal business activity being oil and gas exploration and production. The Group’s operations are located in South East
Asia and Africa (the Group’s operating segments) and form the basis on which the Group reports its segment information. There are no inter-
segment sales.

Oil and gas sales (see Note 5)

Depletion and depreciation

Impairment of property, plant and equipment (see Note 15)

Profit (loss) before tax1

Tax charge (see Note 11)

Oil and gas sales

Depletion and depreciation

Impairment of property, plant and equipment

Profit (loss) before tax1

Tax charge

SE Asia
$ million

448.2

50.1

60.5

241.5

138.1

SE Asia
$ million

608.1

44.6

–

437.7

229.0

Africa2
$ million

Unallocated
$ million

2014

Group
$ million

–

448.2

–

(79.2)

–

0.1

–

(9.6)

0.6

Africa2
$ million

Unallocated
$ million

–

(92.0)

–

0.2

–

(12.4)

0.2

50.2

60.5

152.7

138.7

2013

Group
$ million

608.1

44.8

–

333.3

229.2

1 Unallocated amounts included in profit before tax comprise corporate costs not attributable to an operating segment, investment revenue, other gains and losses

and finance costs.

2 Costs associated with the Africa segment are capitalised in accordance with the Group’s accounting policy to the extent they are recoverable.

The accounting policies of the reportable segments are the same as the Group’s accounting policies as described in Note 2.

Included in revenues arising from South East Asia are revenues of $234.5 million and $194.4 million (2013 – South East Asia $240.3 million,
$102.2 million, $64.9 million) which arose from the Group’s largest individual customers who have contributed 10% or more to the Group’s revenue.

Geographical information
Group revenue and non-current assets (excluding the financial asset and other receivables) by geographical location are separately detailed below
where they exceed 10% of total revenue or non-current assets, respectively.

Revenue
All of the Group’s revenue is derived from foreign countries. The Group’s revenue by geographical location is determined by reference to the final
destination of oil or gas sold.

Vietnam

China

Australia

Malaysia

Other

2014
$ million

240.0

97.8

48.1

35.5

26.8

448.2

2013
$ million

74.7

86.0

137.5

146.9

163.0

608.1

SOCO INTERNATIONAL PLC | Annual Report and Accounts 2014

86
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
CONTINUED

06 SEGMENT INFORMATION CONTINUED

Non-current assets

United Kingdom

Vietnam

Congo

Other – Africa

07 OTHER GAINS AND LOSSES

Change in fair value of financial asset (see Note 17)

Currency exchange loss

08 FINANCE COSTS

Interest payable in respect of convertible bonds

Other interest payable and similar fees

Unwinding of discount on provisions (see Note 23)

2014
$ million

1.0

789.0

147.1

62.0

2013
$ million

0.9

800.6

116.7

98.8

999.1

1,017.0

2014
$ million

2013
$ million

1.7

(0.1)

1.6

1.3

–

1.3

2014
$ million

2013
$ million

–

0.1

2.1

2.2

1.4

0.1

1.3

2.8

On 16 May 2013 the remaining convertible bonds, with par value of $47.8 million, were purchased at par value and cancelled. Interest of 4.5% per
annum was paid semi-annually up to that date.

09 AUDITOR’S REMUNERATION

The analysis of the auditor’s remuneration is as follows:

Fees payable to the Company’s auditor and their associates for the audit of the Company’s annual accounts

Audit related assurance services – half year review

Other assurance services

Total non-audit fees

2014
$ million

0.2

2013
$ million

0.2

0.1

0.2

0.1

0.2

Other assurance services include advice to the Remuneration Committee, agreed upon procedures relating to the Group’s Africa and South East
Asia regions, as well as regulatory and other advice to management.

Details of the Company’s policy on the use of auditors for non-audit services are set out in the Audit and Risk Committee Report on pages 60 to 62.

Fees payable to Deloitte for non-audit services to the Company are not required to be disclosed separately because the consolidated financial
statements disclose such fees on a consolidated basis.

FINANCIAL STATEMENTSNOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
CONTINUED

10 STAFF COSTS

The average monthly number of employees of the Group including Executive Directors was 17 (2013 – 16), of which 13 (2013 – 12) were administrative
personnel and 4 (2013 – 4) were operations personnel. Their aggregate remuneration comprised:

Wages and salaries

Social security costs

Share-based payment expense (see Note 28)

Other pension costs under money purchase schemes

Other benefits

2014
$ million

6.3

0.6

1.6

0.6

0.7

9.8

Group

2013
$ million

7.9

0.3

1.4

0.6

10.8

In accordance with the Group’s accounting policy $2.5 million of the Group’s staff costs above have been capitalised (2013 – $3.8 million).

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Current tax

Deferred tax (see Note 19)

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2014
$ million

122.7

16.0

138.7

2013
$ million

158.3

70.9

229.2

The Group’s corporation tax is calculated at 50% (2013 – 50%) of the estimated assessable profit for the year in Vietnam. During 2014 and 2013 both
current and deferred taxation have arisen in overseas jurisdictions only.

The charge for the year can be reconciled to the profit per the income statement as follows:

Profit before tax

Profit before tax at 50% (2013 – 50%)

Effects of:

Non-taxable income and non-deductible expenses

Tax losses not recognised

Non-deductible exploration costs written off

Adjustments to tax charge in respect of previous years

Tax charge for the year

2014
$ million

152.7

76.4

2013
$ million

333.3

166.7

18.1

3.9

39.7

0.6

11.0

5.6

46.0

(0.1)

138.7

229.2

The prevailing tax rate in the jurisdictions in which the Group produces oil and gas is 50%. The tax charge in future periods may also be affected by
the factors in the reconciliation above.

12 PROFIT ATTRIBUTABLE TO SOCO INTERNATIONAL PLC

The loss for the financial year dealt with in the accounts of the Company was $21.9 million after an impairment of Group investments of $141.1 million
and inclusive of dividends from subsidiary undertakings (2013 – profit of $255.8 million). As provided by section 408 of the Companies Act 2006, no
income statement or statement of comprehensive income is presented in respect of the Company.

SOCO INTERNATIONAL PLC | Annual Report and Accounts 2014

88
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
CONTINUED

13 EARNINGS PER SHARE

The calculation of the basic and diluted earnings per share is based on the following data:

Earnings for the purposes of basic and diluted earnings per share

Weighted average number of ordinary shares for the purpose of basic earnings per share

Effect of dilutive potential ordinary shares – Share awards and options

Weighted average number of ordinary shares for the purpose of diluted earnings per share

14 INTANGIBLE ASSETS

Exploration and evaluation expenditure

As at 1 January

Additions

Transfer from assets held for sale

Exploration costs written off

As at 31 December

2014
$ million

14.0

2013
$ million

104.1

Number of shares (million)

2014

328.6

1.3

329.9

2013

328.2

0.8

329.0

2014
$ million

215.7

67.0

–

(73.6)

209.1

Group

2013
$ million

199.7

71.7

36.3

(92.0)

215.7

Intangible assets comprise the Group’s exploration and evaluation projects which are pending determination.

During 2014, exploration and evaluation costs including costs associated with the Albertine Graben Block V in eastern DRC and costs associated
with the early stages of new ventures in the amount of $73.6 million, were written off in the income statement in accordance with the Group’s
accounting policy on oil and gas exploration and evaluation expenditure. In accordance with IAS 37, a further $5.9 million has been accrued in respect
of anticipated future expenditure to complete the current work programme on Block V in the absence of plans to continue thereafter. In 2013, the
charge of $92.0 million represents the costs incurred, since its acquisition, on the relinquished Nganzi licence, onshore DRC.

FINANCIAL STATEMENTS
89

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T
I
D
D
A

NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
CONTINUED

15 PROPERTY, PLANT AND EQUIPMENT

Cost

As at 1 January 2013

Additions

As at 1 January 2014

Additions

Currency exchange

As at 31 December 2014

Depreciation

As at 1 January 2013

Charge for the year

As at 1 January 2014

Charge for the year

Impairment

Currency exchange

As at 31 December 2014

Carrying amount

As at 31 December 2014

As at 31 December 2013

Oil and gas
properties
$ million

902.9

29.4

932.3

99.2

–

1,031.5

87.3

44.6

131.9

50.1

60.5

–

242.5

789.0

800.4

Group

Company

Other
$ million

Total
$ million

Other
$ million

2.1

0.1

2.2

0.2

(0.1)

2.3

1.1

0.2

1.3

0.1

–

(0.1)

1.3

1.0

0.9

905.0

29.5

934.5

99.4

(0.1)

1,033.8

88.4

44.8

133.2

50.2

60.5

(0.1)

243.8

790.0

801.3

1.7

0.1

1.8

0.2

(0.1)

1.9

0.7

0.2

0.9

0.1

–

(0.1)

0.9

1.0

0.9

As discussed in the Review of Operations on pages 15 to 23 management’s estimate of the CNV proved and probable oil and gas reserves has
been reduced. Combined with lower oil prices this has led to the estimated recoverable amount of the CNV producing asset being less than the
book carrying value. The recoverable amount of the CNV producing asset has been determined using the fair value less costs of disposal method
which constitutes a level 3 valuation within the fair value hierarchy. The majority of the fair value is derived from a discounted cash flow valuation of
the 2P production profile, with a minor portion derived from the incremental value of 2C contingent resources, significantly risk adjusted. The key
assumptions to which the fair value measurement is most sensitive are oil price, reserves and the risked value ascribed to contingent resources.
Consequently a pre-tax impairment charge in the amount of $60.5 million has been reflected in the income statement in accordance with the Group’s
accounting policy set out in Note 2(h). The associated tax credit of $22.3 million is reflected in Note 19. As at 31 December 2014, the fair value of the
asset is estimated at $104.4 million based on a discount rate of 10% and an oil price reflecting the current three-year forward curve and $90 per barrel
plus inflation of 2.5% thereafter.

Other fixed assets comprise plant and machinery, computer equipment and fixtures and fittings.

16 FIXED ASSET INVESTMENTS

Principal Group investments
The Company and the Group had investments in the following subsidiary undertakings as at 31 December 2014 which principally affected the profits
or net assets of the Group, all of which are indirectly held.

Country of incorporation

Country of operation

Principal activity

Percentage holding

OPECO Vietnam Limited

Cook Islands

Vietnam

Oil and gas exploration and production

SOCO Congo Limited1

Cayman Islands

Congo (Brazzaville)

Investment holding

SOCO Vietnam Ltd

Cayman Islands

Vietnam

Oil and gas exploration and production

100

1 SOCO Congo owns 100% of SOCO EPC which holds the Group’s working interest in its Congo (Brazzaville) asset. The Group funds 100% of SOCO Congo and is

entitled to receive 100% of the distributions made by SOCO Congo until it has recovered such funding including a rate of return. The 15% non-controlling interest
is held by Quantic Upstream Congo SAL (Holding) (see Note 32).

The Company’s investments in subsidiary undertakings include contributions to the Trust (see Note 25) and are otherwise held in the form of
share capital.

SOCO INTERNATIONAL PLC | Annual Report and Accounts 2014

90
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
CONTINUED

17 FINANCIAL ASSET

In 2005, the Group disposed of its Mongolia interest to Daqing Oilfield Limited Company. Under the terms of the transaction the Group will receive
a subsequent payment amount of up to $52.7 million, once cumulative production reaches 27.8 million barrels of oil, at the rate of 20% of the average
monthly posted marker price for Daqing crude multiplied by the aggregate production for that month. The subsequent payment amount is included
in non-current assets as a financial asset at fair value through profit or loss. The timescale for the production of crude oil in excess of 27.8 million
barrels is expected to be between one to two years from the date of this report, however the price of Daqing marker crude oil cannot accurately be
predicted. Based upon the Directors’ current estimates of proven and probable reserves from the Mongolia interests and the development scenarios
as discussed with the buyer, the Directors believe that the full subsequent payment amount will be payable. The fair value of the subsequent payment
amount was determined using a valuation technique as there is no active market against which direct comparisons can be made (Level 3 as defined
in IFRS 7). Assumptions made in calculating the fair value include the factors mentioned above, risked as appropriate, with the resultant cash flows
discounted at a commercial risk free interest rate. The fair value of the financial asset at the date of completion of the sale was $31.5 million. As
at 31 December 2014 the fair value was $45.0 million (2013 – $43.4 million) after accounting for the change in fair value (see Note 7).

18 OTHER RECEIVABLES

Other receivables comprise the Group`s share of contributions made into two abandonment security funds which were established to ensure
that sufficient funds exist to meet future abandonment obligations on the TGT and CNV fields. The funds are operated by PetroVietnam and
JOC partners retain the legal rights to the funds pending commencement of abandonment operations. As at 31 December 2014 the Group had
contributed $24.6 million (2013 – $15.0 million) to the funds.

19 DEFERRED TAX

The following are the major deferred tax liabilities recognised by the Group and movements thereon during the current and prior reporting period:

As at 1 January 2013

Charge to income

As at 1 January 2014

Charge to income (see Note 11)

As at 31 December 2014

Accelerated
tax
depreciation
$ million

Other
temporary
differences
$ million

95.1

67.1

162.2

12.9

175.1

18.2

3.8

22.0

3.1

25.1

Group
$ million

113.3

70.9

184.2

16.0

200.2

The charge to income is net of a deferred tax credit of $22.3 million that arises from the pre-tax impairment of the CNV producing asset of
$60.5 million as discussed in Note 15.

There are no unprovided deferred taxation balances at either balance sheet date except in relation to gross losses that are not expected to be
utilised in the amount of $108.5 million (2013 – $99.3 million).

20 INVENTORIES

Inventories comprise crude oil and condensate.

FINANCIAL STATEMENTSNOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
CONTINUED

21 OTHER FINANCIAL ASSETS

Amounts falling due within one year

Trade receivables

Other receivables

Prepayments and accrued income

T
R
O
P
E
R

C
I
G
E
T
A
R
T
S

E
C
N
A
N
R
E
V
O
G

S
T
N
E
M
E
T
A
T
S

L
A
I
C
N
A
N
I
F

2014
$ million

26.9

10.4

2.3

39.6

Group

2013
$ million

57.3

6.4

5.2

68.9

2014
$ million

Company

2013
$ million

–

0.1

0.5

0.6

–

0.2

0.6

0.8

There are no amounts overdue or allowances for doubtful debts in respect of trade or other receivables. There is no material difference between the
carrying amount of trade and other receivables and their fair value. The above financial assets are held at amortised cost.

22 OTHER FINANCIAL LIABILITIES

Trade payables

Other payables

Accruals and deferred income

N
O

I
T
A
M
R
O
F
N

2014
$ million

8.5

15.2

20.2

43.9

Group

2013
$ million

9.9

8.6

17.6

36.1

2014
$ million

–

1.0

1.2

2.2

Company

2013
$ million

–

0.1

1.6

1.7

L
A
N
O

I
T
I
D
D
A

There is no material difference between the carrying value of trade payables and their fair value. The above financial liabilities are held at amortised
cost and are not discounted as the impact would not be material.

23 LONG TERM PROVISIONS

Decommissioning

As at 1 January

New provisions and changes in estimates

Unwinding of discount (see Note 8)

As at 31 December

2014
$ million

42.9

6.1

2.1

51.1

Group

2013
$ million

42.7

(1.1)

1.3

42.9

The provision for decommissioning is based on the net present value of the Group’s share of the expenditure which may be incurred at the end of the
producing life of each field (currently estimated to be 15-16 years) in the removal and decommissioning of the facilities currently in place.

24 SHARE CAPITAL

Ordinary Shares of £0.05 each

Issued and fully paid

2014
Shares

2013
Shares

341,076,911

340,954,315

2014
$ million

27.6

2013
$ million

27.6

As at 31 December 2014, authorised share capital comprised 500 million (2013 – 500 million) ordinary shares of £0.05 each with a total nominal value
of £25 million (2013 – £25 million). The Company issued 122,596 new ordinary shares during 2014 (2013 – nil) upon the exercise of certain share options
(see Note 28).

SOCO INTERNATIONAL PLC | Annual Report and Accounts 2014

92
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
CONTINUED

24 SHARE CAPITAL CONTINUED

B Shares of £0.22 each

As at 1 January

Issue of B shares

Redemption of B shares

As at 31 December

2014
Shares

–

107,078,451

(107,078,451)

–

2013
Shares

2014
$ million

2013
$ million

–

38.4

(38.4)

–

In September 2014, 107,078,451 redeemable B shares were issued, with a par value of £0.22 each resulting in a total of $38.4 million being credited to
the B share capital account with $11.2 million charged to the share premium account and $27.2 million charged to merger reserve. The B shares had
no voting rights and no right to participate in either the profits of the Company nor its surplus assets on winding-up.

On 10 October 2014, all of the B shares were redeemed at par value and cancelled, an amount of $38.4 million being deducted from the B share
capital account.

B Shares of £0.40 each

As at 1 January

Issue of B shares

Redemption of B shares

As at 31 December

2014
Shares

–

2013
Shares

–

94,984,376

(94,984,376)

–

2014
$ million

2013
$ million

–

61.9

(61.9)

–

In October 2013, 94,984,376 redeemable B shares were issued, with a par value of £0.40 each resulting in a total of $61.9 million being credited to the B
share capital account and charged to the share premium account. The B shares had no voting rights and no right to participate in either the profits of
the Company nor its surplus assets on winding-up.

On 3 October 2013, all of the B shares were redeemed at par value and cancelled, an amount of $61.9 million being deducted from the B share
capital account.

C Shares of 0.0000001 pence each

As at 1 January

Issue of C shares

Reclassification to deferred shares

As at 31 December

2014
Shares

–

2013
Shares

–

224,876,192

236,847,671

(224,876,192)

(236,847,671)

–

2014
$ million

2013
$ million

–

In September 2014, 224,876,192 non-redeemable C shares were issued (2013 – 236,847,671), with a par value of 0.0000001 pence each. The C
shares had no voting rights and no right to participate in either the profits of the Company nor its surplus assets on winding-up.

On 10 October 2014 a dividend of £0.22 per C share (2013 – £0.40 per C share) was paid and all of the C shares automatically reclassified
as deferred shares.

Deferred shares of 0.0000001 pence each

As at 1 January

Re-classification of C shares to deferred shares

Deferred shares cancelled

As at 31 December

2014
Shares

236,847,671

2013
Shares

–

224,876,192

236,847,671

(236,847,671)

–

224,876,192

236,847,671

2014
$ million

2013
$ million

–

On 10 October 2014, 224,876,192 C shares (2013 – 236,847,671 C shares) were reclassified to non-redeemable deferred shares, with a par value of
0.0000001 pence each. The deferred shares have no voting rights and no right to participate in the profits of the Company. On winding-up or other
return of capital, the holders of deferred shares have extremely limited rights.

On 30 June 2014, 236,847,671 C shares were cancelled.

FINANCIAL STATEMENTSNOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
CONTINUED

25 OTHER RESERVES

As at 1 January 2013

Issue and redemption of B shares

Share-based payments

Transfer relating to share-based payments

Transfer relating to share-based payments in prior years

Transfer relating to convertible bonds

Currency exchange translation differences

As at 1 January 2014

Issue and redemption of B shares

Share-based payments

Transfer relating to share-based payments (see Note 27)

Currency exchange translation differences

As at 31 December 2014

As at 1 January 2013

Issue and redemption of B shares

Share-based payments

Transfer relating to share-based payments

Transfers relating to share-based payments in prior years

As at 1 January 2014

Issue and redemption of B shares

Share-based payments

Transfer relating to share-based payments

Currency exchange translation differences

As at 31 December 2014

T
R
O
P
E
R

C
I
G
E
T
A
R
T
S

E
C
N
A
N
R
E
V
O
G

S
T
N
E
M
E
T
A
T
S

L
A
I
C
N
A
N
I
F

N
O

I
T
A
M
R
O
F
N

L
A
N
O

I
T
I
D
D
A

Group

Total
$ million

105.5

61.9

1.4

(0.7)

58.3

(0.2)

0.3

226.5

11.2

0.4

1.7

(0.3)

239.5

Company

Total
$ million

60.8

61.9

1.4

(0.7)

59.7

183.1

11.2

0.4

0.6

(0.3)

195.0

Merger
reserve
$ million

215.9

Own shares
$ million

Share based
payments
$ million

Convertible
bonds
$ million

(53.8)

(56.8)

0.2

Capital
redemption
reserve
$ million

–

61.9

–

61.9

38.4

215.9

(27.2)

–

100.3

188.7

(52.7)

–

1.4

(0.7)

58.3

–

0.3

2.5

–

0.4

0.6

(0.3)

3.2

–

(0.2)

–

Capital
redemption
reserve
$ million

–

61.9

–

Merger
reserve
$ million

159.0

Own shares
$ million

Share based
payments
$ million

(40.3)

(57.9)

–

(40.3)

–

61.9

38.4

159.0

(27.2)

–

100.3

131.8

(40.3)

–

1.4

(0.7)

59.7

2.5

–

0.4

0.6

(0.3)

3.2

–

(53.8)

–

1.1

–

The Group’s other reserves comprise reserves arising in respect of merger relief, upon the purchase of the Company’s own Shares held in treasury
and held by the Trust.

The number of treasury Shares held by the Group and the number of Shares held by the Trust at 31 December 2014 was 9,122,268 (2013 – 9,122,268)
and 3,294,111 (2013 – 3,666,213), respectively. The market price of the Shares at 31 December 2014 was £3.034 (2013 – £3.952). The Trust, a discretionary
trust, holds Shares for the purpose of satisfying employee share schemes, details of which are set out in Note 28 and in the Directors’ Remuneration
Report on pages 63 to 72. The trustees purchase Shares in the open market which are recognised by the Company within investments and classified
as other reserves by the Group as described above. When award conditions are met, an unconditional transfer of Shares is made out of the Trust to
plan participants. The Group has an obligation to make regular contributions to the Trust to enable it to meet its financing costs. Rights to dividends
on the Shares held by the Trust have been waived by the trustees.

SOCO INTERNATIONAL PLC | Annual Report and Accounts 2014

94
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
CONTINUED

26 DISTRIBUTION TO SHAREHOLDERS

In October 2014, a return of value was made to all shareholders of the Company amounting to $119.2 million (£0.22 per share) in cash by way of
a B/C share scheme (2013 – $213.3 million (£0.40 per share)), which gave shareholders (other than certain overseas shareholders) a choice between
receiving cash in the form of income or in the form of capital. As part of the B/C share scheme, 107,078,451 B shares, with a par value of £0.22 per share
(2013 – 94,984,376 B shares, with a par value of £0.40 per share), were allotted and subsequently redeemed at par value. A further 224,876,192 C shares,
with a par value of £0.0000001 per share, were allotted on which a dividend of £0.22 per share was paid (2013 – 236,847,671 C shares alloted on which
a £0.40 dividend per share was paid), the C shares were then automatically reclassified as deferred shares.

The B shares were issued charging $11.2 million to the share premium account and $27.2 million to merger reserve (2013 – $61.9 million to share
premium account), the redemption of the B shares resulting in a transfer of $38.4 million (2013 – $61.9 million) to the capital redemption reserve. The C
shares were issued out of merger reserve.

The Trust, which is consolidated within the Group, was allotted 3,294,111 B shares which were subsequently redeemed for $1.1 million (2013 – 3,666,213
B shares redeemed for $2.4 million).

27 RETAINED EARNINGS

As at 1 January 2013

Profit for the year

Distributions

Transfer relating to share-based payments

Transfer relating to share-based payments in prior years

Transfer relating to convertible bonds

Unrealised currency translation differences

As at 1 January 2014

Profit for the year

Distributions (see Note 26)

Transfer relating to share-based payments

Unrealised currency translation differences

As at 31 December 2014

As at 1 January 2013

Profit for the year

Distributions

Transfer relating to share-based payments

Transfers relating to share-based payments in prior years

Unrealised currency translation differences

As at 1 January 2014

Loss for the year (see Note 12)

Distributions (see Note 26)

Transfer relating to share-based payments

Unrealised currency translation differences

As at 31 December 2014

Unrealised
currency
translation
differences
$ million

(3.8)

–

9.3

5.5

–

(1.8)

3.7

Unrealised
currency
translation
differences
$ million

(85.0)

–

27.8

(57.2)

–

(53.9)

Retained
profit
$ million

974.3

104.1

(210.9)

0.7

(58.3)

0.2

–

810.1

14.0

(118.1)

(1.7)

–

704.3

Retained
profit
$ million

731.7

255.8

(213.3)

0.7

(54.3)

–

720.6

(21.9)

(119.2)

(1.7)

–

Group

Total
$ million

970.5

104.1

(210.9)

0.7

(58.3)

0.2

9.3

815.6

14.0

(118.1)

(1.7)

(1.8)

708.0

Company

Total
$ million

646.7

255.8

(213.3)

0.7

(54.3)

27.8

663.4

(21.9)

(119.2)

(1.7)

(53.9)

577.8

(111.1)

466.7

FINANCIAL STATEMENTS

T
R
O
P
E
R

C
I
G
E
T
A
R
T
S

E
C
N
A
N
R
E
V
O
G

S
T
N
E
M
E
T
A
T
S

L
A
I
C
N
A
N
I
F

N
O

I
T
A
M
R
O
F
N

L
A
N
O

I
T
I
D
D
A

NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
CONTINUED

28 INCENTIVE PLANS

Details of the Group’s employee incentive schemes are set out below. Additional information regarding the schemes is included in the Directors’
Remuneration Report on pages 63 to 72. The Group recognised total expenses of $1.6 million (2013 – $1.4 million) in respect of the schemes during
the year, a proportion of which was capitalised in accordance with the Group’s accounting policies.

During 2014 and 2013, the Company made distributions to shareholders by utilising a B/C share scheme (see Note 26). As a result of those
distributions, adjustments to the number of Ordinary Shares under option or award and the exercise price of those options have been made in
accordance with the rules of the relevant share plan applicable to variations in share capital, and are reflected in the tables below.

Long Term Incentive Plan
The Company operates a LTIP for senior employees of the Group. Awards vest over a period of three years, subject to performance criteria which
have been set with reference to the Company’s TSR relative to a range of comparator companies. Consideration may also be given to assessment as
to whether the TSR performance is consistent with underlying performance. Awards are normally forfeited if the employee leaves the Group before
the award vests. Awards normally expire at the end of 10 years following the date of grant, subject to the requirement to exercise certain awards prior
to 15 March of the year following vesting.

Awards would normally be equity-settled through a transfer at nil consideration of the Company’s ordinary shares (Shares). Awards exercised
during 2014 over 456,844 Shares were partially satisfied by transferring 372,102 Shares held by the Trust. The remaining 84,742 awards exercised in
2014, being the number of Shares that might otherwise be sold in the market, were satisfied by cash settlement of the participants’ tax liabilities of
$0.6 million. The Board decided in that instance it was in the best interest of the Company to agree this settlement method with the participants.
The Company has no legal or constructive obligation to repurchase or settle awards in cash. No awards were exercised in 2013. Details of awards
outstanding during the year are as follows:

As at 1 January

Adjustment on variation of share capital

Granted

Exercised

Lapsed

As at 31 December

Exercisable as at 31 December

2014
No. of share
awards

2013
No. of share
awards

2,694,618

2,096,900

128,667

215,062

1,025,000

618,000

(456,844)

–

(235,344)

3,391,441

2,694,618

907,115

456,844

Awards outstanding at the end of the year have a weighted average remaining contractual life of 1.7 (2013 – 1.9) years. The weighted average market
price and estimated fair value of the 2014 grants (at grant date) were £2.49 and £0.72, respectively.

The fair value of awards at date of grant has been estimated using a binomial option pricing model, based on the market price at date of grant set
out above and a nil exercise price. The future vesting proportion of 29% was estimated by calculating the expected probability of the Company’s TSR
ranking relative to its comparators based on modelling each company’s projected future share price growth.

Other Share Schemes
The Company operates a Discretionary Share Option Scheme for employees of the Group. Awards vest over a three year period, and are normally
forfeited if the employee leaves the Group before the option vests. Vested options are exercisable at a price equal to the average quoted market
price of the Company’s Shares on the date of grant and are expected to be equity-settled. The Company has no legal or constructive obligation to
repurchase or settle options in cash. Unexercised options expire at the end of a 10-year period. Options outstanding include vested options granted
under a predecessor plan that expired in April 2007 without prejudice to the subsisting rights of participants.

Other than to Directors, the Company can also grant options with a zero exercise price or with an exercise price which is set below the market price
of the Company’s shares on the date of grant. Such options, which are included in the table below, are granted by reference to the rules of the
discretionary share option scheme and are expected to be equity-settled.

The Company can additonally grant awards under the Deferred Share Bonus Plan with a zero exercise price or with an exercise price which is set
below the market price of the Company’s shares on the date of grant. Awards vest over a two-year period, and are normally forfeited if the employee
leaves the Group before the option vests. Such awards, which are also included in the table below, are expected to be equity-settled.

SOCO INTERNATIONAL PLC | Annual Report and Accounts 2014

96
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
CONTINUED

28 INCENTIVE PLANS CONTINUED

As at 1 January

Adjustment on variation of share capital

Granted

Exercised

As at 31 December

2014

Weighted
average
exercise price
£

No. of share
awards

1,070,582

1.20

63,664

905,300

(220,512)

1,819,034

–

0.66

2.55

2013

Weighted
average
exercise price
£

2.71

–

2.41

–

2.45

No. of share
awards

748,500

99,582

222,500

–

1,070,582

Exercisable as at 31 December

233,191

3.09

441,024

2.17

The weighted average market price at the date of exercise during 2014 was £4.13. Awards outstanding at the end of the year have a weighted average
remaining contractual life of 5.2 (2013 – 5.9) years.

29 RECONCILIATION OF OPERATING PROFIT TO OPERATING CASH FLOWS

Operating profit (loss)

Share-based payments

Depletion and depreciation

Impairment of property, plant and equipment (see Note 15)

Exploration write-off (see Note 14)

Operating cash flows before movements in working capital

Decrease in inventories

Decrease (increase) in receivables

Increase (decrease) in payables

Cash generated by (used in) operations

Interest received

Interest paid

Income taxes paid

Net cash from (used in) operating activities

Cash is generated from continuing operating activities only.

2014
$ million

Group

2013
$ million

152.6

333.8

1.6

50.2

60.5

79.5

344.4

1.2

32.1

4.3

1.4

44.8

–

92.0

472.0

3.8

8.6

(9.1)

382.0

475.3

0.7

(0.2)

(131.3)

251.2

1.1

(1.2)

(160.8)

314.4

2014
$ million

(10.9)

1.6

0.1

–

(9.2)

–

(0.1)

2.4

(6.9)

0.1

–

Company

2013
$ million

(11.4)

1.4

0.2

–

(9.8)

–

(0.2)

(3.8)

(13.8)

0.1

–

(6.8)

(13.7)

Cash and cash equivalents (which are presented as a single class of asset on the balance sheet) comprise cash at bank and other short term highly
liquid investments that are readily convertible to a known amount of cash and which are subject to an insignificant risk of change in value.

30 OPERATING LEASE ARRANGEMENTS

Minimum lease payments under operating leases recognised in income for the year

2014
$ million

2013
$ million

29.6

30.6

FINANCIAL STATEMENTSNOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
CONTINUED

30 OPERATING LEASE ARRANGEMENTS CONTINUED

At the balance sheet date, the Group had outstanding commitments for future minimum lease payments under non-cancellable operating leases,
which fall due as follows:

Within one year

In two to five years

2014
$ million

29.2

79.2

108.4

2013
$ million

29.6

106.5

136.1

Operating lease payments mainly represent rentals payable by the Group for FPSO facilities and for certain of its office properties. The FPSO lease is
for a term of seven years with an option to extend for a further seven years.

31 CAPITAL COMMITMENTS

At 31 December 2014 the Group had exploration licence commitments not accrued of approximately $47.4 million (2013 – $32.5 million).

T
R
O
P
E
R

C
I
G
E
T
A
R
T
S

E
C
N
A
N
R
E
V
O
G

S
T
N
E
M
E
T
A
T
S

L
A
I
C
N
A
N
I
F

N
O

I
T
A
M
R
O
F
N

32 RELATED PARTY TRANSACTIONS

During the year, the Company recorded a net credit of $1.4 million (2013 – net cost of $0.8 million) in respect of services rendered between Group
companies. There were no balances outstanding with Group undertakings as at 31 December 2014 (2013 – nil). Transactions between the Company
and its subsidiaries have been eliminated on consolidation.

Remuneration of key management personnel
The 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 63 to 72.

L
A
N
O

I
T
I
D
D
A

Short term employee benefits

Post-employment benefits

Share-based payments

2014
$ million

2013
$ million

3.6

0.3

1.6

5.5

5.9

0.3

1.4

7.6

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 strategic Investor Group, including Quantic in which
Mr Rui de Sousa has a notifiable share interest, jointly participate in certain regions in which the Investor Group utilises 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 have been modelled after the SOCO Vietnam arrangement which was
negotiated with third parties. Quantic’s non-controlling holdings 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 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.

33 EVENTS AFTER THE BALANCE SHEET DATE

On 11 March 2015, the Board proposed a final dividend of 10 pence per ordinary share subject to approval by Shareholders at the Annual General
Meeting to be held on 10 June 2015. This dividend has not been recognised as a liability for the 2014 financial year end.

SOCO INTERNATIONAL PLC | Annual Report and Accounts 2014

98 ADDITIONAL INFORMATION
FIVE YEAR SUMMARY
(UNAUDITED)

Continuing operations only

Consolidated income statement

Oil and gas revenues

Gross profit

Operating profit

Profit for the year

Consolidated balance sheet

Non-current assets

Net current assets

Non-current liabilities

Net assets

Share capital

Share premium

Other reserves

Retained earnings

Total equity

Consolidated cash flow statement

Net cash from operating activities

Capital expenditure

Year to
31 Dec 2014
$ million

Year to
31 Dec 2013
$ million

Year to
31 Dec 2012
$ million

Year to
31 Dec 2011
$ million

Year to
31 Dec 2010
$ million

448.2

304.4

152.6

14.0

608.1

439.0

333.8

104.1

621.6

460.5

448.2

207.0

234.1

166.3

156.9

88.6

48.4

35.6

29.1

101.4

2014
$ million

2013
$ million

2012
$ million

2011
$ million

2010
$ million

1,068.7

1,075.4

1,058.4

1,027.3

157.7

(251.3)

232.5

(227.1)

274.2

(156.0)

187.6

(116.8)

874.7

253.6

(115.1)

975.1

1,080.8

1,176.6

1,098.1

1,013.2

27.6

–

239.5

708.0

975.1

27.6

11.1

226.5

815.6

27.6

73.0

105.5

970.5

27.5

72.7

140.8

857.1

27.5

72.6

149.2

763.9

1,080.8

1,176.6

1,098.1

1,013.2

Year to
31 Dec 2014
$ million

Year to
31 Dec 2013
$ million

Year to
31 Dec 2012
$ million

Year to
31 Dec 2011
$ million

Year to
31 Dec 2010
$ million

251.2

162.5

314.4

99.1

334.8

109.9

90.2

152.2

36.7

151.9

Distributions

119.2

213.3

–

T
R
O
P
E
R

C
I
G
E
T
A
R
T
S

E
C
N
A
N
R
E
V
O
G

S
T
N
E
M
E
T
A
T
S

L
A
I
C
N
A
N
I
F

N
O

I
T
A
M
R
O
F
N

L
A
N
O

I
T
I
D
D
A

ADDITIONAL INFORMATION

KEY PERFORMANCE INDICATORS
(UNAUDITED)

SOCO uses a number of financial and non-financial KPIs against which it monitors its performance. Detailed KPI targets for the next year are set out
in the annual budget. At each Board meeting these expectations are reviewed for progress against actual results and adjusted to accommodate
changes in the operating environment including oil price fluctuations.

SOCO’s KPIs are set out and discussed in the Chairman and Chief Executive’s Statement on pages 6 to 11, the Review of Operations on
pages 15 to 23, the Financial Review on pages 24 to 28 and the Corporate Social Responsibility Report on pages 34 to 45.

Year ended
31 Dec 2014

Year ended
31 Dec 2013

Year ended
31 Dec 2012

Financial key performance indicators

Oil price realised ($/bbl)1

Oil and gas revenues ($ million)

Operating cost per barrel ($)2

DD&A per barrel ($)3

Gross profit ($ million)

Profit for the year ($ million)

Basic earnings per share (cents)

Cash, cash equivalents and liquid investments ($ million)

Net assets ($ million)

Net cash from operating activities ($ million)

Capital expenditure ($ million)

Distributions (pence per share)

Non-financial key performance indicators

Total shareholder return (%)4

Production (barrels of oil equivalent per day)5

2P Reserves (see page 100)

2P Reserves + 2C Contingent Resources (see page 100)

Employee tenure (years)6

Employee turnover (%)7

Lost time injuries frequency rate8

Fatal accidents frequency rate9, 15
Emissions (million tonnes of CO2 equivalent) (based on equity share)10
Oil spills11, 15

Solid non-hazardous waste (tonnes)12, 15

Solid hazardous waste (tonnes)13, 15

HSE regulatory non-compliance14, 15

117.76

621.6

8.83

7.94

460.5

207.0

62.7

258.5

1,176.6

334.8

109.9

–

22.3

14,757

128.5

–

102.91

448.2

9.04

10.12

304.4

14.0

4.3

166.4

975.1

251.2

162.5

22.0

112.62

608.1

8.06

7.33

439.0

104.1

31.7

210.0

1,080.8

314.4

99.1

40.0

(18.8)

21.7

13,605

16,694

40.8

79.7

–

0.3

–

0.11

–

498.4

401.3

–

130.1

–

0.08 Negligible

–

1 The realised oil price per barrel is the average proceeds received for each barrel of oil sold in the period.
2 Operating cost per barrel is the average cost incurred to produce a barrel of oil which excludes lifting imbalances and inventory effects.
3 DD&A per barrel includes DD&A costs for the period calculated over barrels of oil produced.
4 The total shareholder return is the percentage annual return to the Company’s shareholders resulting from the share price movement and cash returned to

shareholders.

5 Average barrels of oil equivalent produced per day net to the Group’s working interest.
6 Average length of UK-based employee tenure.
7 Rate of UK-based employee resignations.
8 Number of LTIs per million man-hours on projects operated by SOCO or jointly operated companies.
9 Number of fatal accidents per hundred million man-hours on projects operated by SOCO or jointly operated companies.
10 Scope One and Two emissions from the Group`s operated and joint-operated projects on an equity share basis calculated pro-rata to its ownership interest.
11 Quantities greater than 100 litres.
12 Total non-hazardous waste requiring disposal, by gross project interest.
13 Total hazardous waste requiring disposal, by gross product interest.
14 HSE regulations and permit conditions applicable to country of operation.
15 New KPI introduced in 2014 and reported for 2014 only.

SOCO INTERNATIONAL PLC | Annual Report and Accounts 2014

100ADDITIONAL INFORMATION
RESERVE STATISTICS
(UNAUDITED)

Net working interest, mmboe

Oil and Gas 2P Commercial Reserves1, 2, 3

As at 1 January 2014

Production

2P Commercial Reserves as at 31 December 2014
(pre revision and re-classification)

Transfer to 2C Contingent Resources

Revision

2P Commercial Reserves as at 31 December 2014

Oil and Gas 2C Contingent Resources1, 2, 3

1 January 2014

Transfer from Commercial Reserves

2C Contingent Resources as at 31 December 2014

TGT

CNV

Vietnam

Congo4

Group

87.5

(4.2)

29.8

(0.8)

117.3

(5.0)

83.3

29.0

112.3

(26.8)

(20.0)5

36.5

–

26.8

(4.0)

(20.7)

4.3

–

4.0

(30.8)

(40.7)

40.8

–

30.8

12.8

–

12.8

(8.1)

(4.7)

–

8.1

130.1

(5.0)

125.1

(38.9)

(45.4)

40.8

–

38.9

79.7

Total of 2P Reserves and 2C Contingent Resources
as at 31 December 2014

63.3

8.3

71.6

1 Commercial Reserves and Contingent Resources are categorised in line with 2007 SPE/WPC/AAPG/SPEE Petroleum Resource Management System (SPE PRMS).
2 Commercial Reserves and Contingent Resources are internal management estimates based on operator data and the ERCE study of TGT field resources including

the Geological and revised Dynamic Simulation model.
3 Assumes oil equivalent conversion factor of 6000 scf/boe.
4 Congo volumes are associated with the Viodo discovery. Reserves are shown before deductions for non-controlling interests which are funded by the Group. The

Group is entitled to receive 100% of the cash flows until it has recovered its funding of the non-controlling interest including a rate of return from the non-
controlling interest’s pro rata portion of those cash flows.

5 Based on the assessment of the range of STOIIP and the recovery factors in the Dynamic Simulation Model prepared by ERCE, additional volumes are being

recognised as 3C Contingent Resources. This is described in detail in the Review of Operations.

Risks associated with reserve evaluation and estimation uncertainty are discussed in Note 4(b) to the Financial Statements.