Shares in Soco International lost a third of their value yesterday as the oil explorer and producer reported that annual operating profits had more than halved, mainly thanks to the slide in the price of crude.
Soco’s investors took fright after the group said that it had been forced to reclassify just under 90 million barrels of oil from proven into contingent reserves, suggesting that there was less below ground than it had thought.
The decision related to a Soco joint-venture project off the coast of Vietnam, due to begin production this year, involving PetroVietnam, PTTEP of Thailand and Opeco of the US which, although costly, has been viewed as a big oil producer.
Despite Soco’s claim that the reclassification related to its appetite for investing in oil production at the current low level, investors marked the shares down by almost 35 per cent yesterday, wiping more than £230 million off the company’s market value.
Soco said that it was in a strong position to grow and would break even with oil priced in the low $20s a barrel.
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However, it admitted that the drop in the price on world markets since June had introduced “significant uncertainty and challenging conditions for the industry”. Profits were also hit by a $79.5 million write-off related to the cost of the Vietnam project and oil drilling offshore of the Republic of Congo.
Ed Story, Soco’s president and chief executive, said that the reclassification was a technical exercise based on how the oil price would affect the timing of when to invest capital in production from the Vietnam field.
“The earth has not changed. The field is what it is. The field will be developed when we get agreement between the various parties on the level of expenditure and the development plan,” Mr Story said. “Oil production itself is actually quite profitable.”
However, Soco reported sales of $448.2 million for the year to the end of December, more than 26 per cent lower than the figure for the previous year.
It sold its oil at an average price of $102.91 per barrel last year, 8.6 per cent lower than in 2013. That was the main driver of a 54.3 per cent drop in annual operating profits from $333.8 million to $152.6 million.
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Soco prides itself on being a business that aims to return as much of the capital it generates as possible to its shareholders.
It has traditionally not paid conventional semi-annual and annual dividends but instead made special payments, of which there have been two in the past two years.
Despite the low oil price, Soco declared a further 10p a share payment. Mr Story said this meant that the overall payout was higher than in 2013.
Mr Story said that Soco has made $330 million in dividend payments over the past two years, which increases to $380 million once the latest payment is included.
Shares in the company closed 83½p lower at 158½p.