Drill results sock SOCO

SOCO International has embarked on an exploration drilling programme that could transform its prospects. The worry is that results to date, from both SOCO and neighbouring operators, have been disappointing, so there look to be better exploration plays elsewhere.

SOCO's most significant setback has been the failure of the Nganga-1 exploration well in the Congo Basin, off the coast of the Democratic Republic of Congo (DRC), which had been targeting 200m barrels of resources.

The interpretation of two-dimensional (2D) seismic data acquired in 2008 resulted in the identification of four large structures on the 800 square km block, which lies 50km off the DRC's tiny west African coastline. The Nganga-1 well started drilling in mid-July but, following various mechanical and software issues, the target reservoir was found to be full of water. The predicted seal was not present, which meant any oil that might have been present would have escaped from the reservoir.

Oil and gas explorers use seismic surveys to map the depths and contours of various prospective rock strata by timing the reflections of sound waves created on the surface or down a borehole. 2D seismic surverys measure depth from reflections along a line. Three-dimensional (3D) surveys take simultaneous recordings parallel to a line and gives more accurate measurements.

The quality of seismic data is vital to the chances of a successful exploration programme, particularly in lightly explored regions, as has been demonstrated in other oil and gas frontiers, such as the North Falkland basin. With SOCO basing its drilling on 2D seismic data over its DRC block, Nganga-1's failure wasn't a complete surprise.

SOCO can take some positives from the fact that the Nganga-1 well encountered decent reservoir characteristics, which means that any subsequent discovery would have a greater chance of flowing at commercial rates. For example, it encountered 500m of source rock - where oil and gas forms - and traces of oil and gas.

Besides, the findings of the Nganga-1 should improve the odds on the second well, Kinganga Nyanya, which is expected to start drilling soon. However, less favourable is the read across to a third well, which now looks more vulnerable to failure.

SOCO also recently drilled an appraisal well at TGD in Vietnam, targeting reserves of around 100m barrels of oil. The company's first well was beset with operational difficulties in the high-pressure, high-temperature environment. So management has postponed testing for two weeks to allow modifications to equipment. One worry is that management may not have fully mastered the challenging conditions of TGD. A further concern is that SOCO must know whether the TGD well is a commercial prospect by the end of the year when its interest over the block expires.

In July, the company sold its Thailand asset, comprising a 40 per cent interest in the Bualuang field, to Salamander Energy for $105m (£67m). The deal takes effect from next January and will substantially reduce SOCO's production and profits (see table). SOCO's working interest production from Bualuang in the first half of 2010 was 2,991 barrels per day out of total production of 5,191 barrels, which was already down from the same period a year earlier. SOCO's remaining production comes from its interest in the CNV field in Vietnam, output from which resumed in early February after a two-month suspension due to a mechanical problem.

SOCO now looks for production growth from its TGT field in Vietnam, which is targeted to be in production in mid-2011, with first-phase daily output estimated at 50,000 barrels. The first of the appraisal wells started drilling in August and should mark the start of a continuous drilling programme.

The company has issued tenders for several long-term projects and conversion of a floating production and storage vessel has started in Singapore. Construction of an unmanned well-head platform is also ongoing.