TIDMDES
RNS Number : 5472A
Desire Petroleum PLC
02 April 2012
For Immediate Release 2 April 2012
Desire Petroleum
('Desire', 'The Group' or 'The Company')
Preliminary Results
Desire Petroleum plc (AIM: DES) the exploration company wholly
focused on the North Falkland Basin, is pleased to announce its
Preliminary Results for the year ended 31 December 2011.
Operational Highlights:
-- Desire farmed out areas PL004b and PL004c to Rockhopper Exploration Ltd (Rockhopper).
-- Oil and gas discovered on successful 14/15-4a farmout well
operated by Rockhopper (Desire 40%)
-- Competent Persons Report (CPR) published in October 2011 and
currently being updated to incorporate 14/15-4a well data.
-- Graeme Thomson joined Desire as the senior independent
non-executive director and chairman of the audit committee.
Financial Highlights:
-- The Group changed its oil and gas accounting policy from a
full cost policy to a successful efforts policy.
-- Loss for the period was $42.5 million (2010 restated loss: $113.9 million).
-- Cash resources at the end of the year amounted to $10.6
million, plus an additional $24.5 million held as restricted cash
in escrow accounts with Diamond Offshore Drilling and AGR to meet
demobilisation liabilities.
-- Sufficiently funded to continue in operational existence for the foreseeable future.
Stephen Phipps, Chairman of Desire Petroleum commented:
"The last twelve months have again been active ones for Desire,
culminating with the discovery of oil in the 14/15-4a farmout well.
As a result of successfully fast tracking and interpreting key
areas of 3D seismic data shot in the first half of the year we were
able to farm out areas PL004b and PL004c to Rockhopper which
enabled us to participate in the highly successful 14/15-4a farmout
well, at no cost to Desire. The Sea Lion discovery plus the
associated discoveries in the farmout well reaffirm our belief that
there will be further successes in the North Falkland Basin and
that a significant oil and gas province is emerging."
Desire Petroleum plc 020 7436 0423
Stephen Phipps, Chairman
Dr Ian Duncan, Chief Executive Officer
Seymour Pierce Limited 020 7107 8000
Jonathan Wright/Stewart Dickson, Corporate
Finance
Richard Redmayne / Paul Jewell, Corporate
Broking
Buchanan 020 7466 5000
Ben Romney
Tim Thompson
Chairman's Statement
Dear Shareholder,
The last twelve months have again been active ones for Desire,
culminating, I am delighted to report, with the discovery of oil in
the 14/15-4a farmout well, drilled and operated by Rockhopper
Exploration Ltd (Rockhopper) in December 2011, in which Desire have
a 40% economic interest. This was the undoubted highlight of the
year in which we also drilled the Ninky well which ultimately
proved to be disappointing. To put our North Falkland drilling
campaign into context, the Ninky well was the sixth and final well
in our originally planned six well drilling campaign utilising the
Ocean Guardian drilling rig, for which we raised capital in 2009
and 2010. However, as a result of successfully fast tracking and
interpreting key areas of 3D seismic data shot in the first half of
the year we were able to farm out areas PL004b and PL004c to
Rockhopper. This enabled us to participate in one further well, the
successful 14/15-4a farmout well, at no cost to Desire.
The 14/15-4a farmout well encountered hydrocarbons in the
southern extension of the Sea Lion Field, and in the Casper,
Beverley and Casper South (Shona) reservoirs. These prospects had
been identified from the new 3D seismic data shot and processed
earlier in the year. A pre-drill description of these prospects was
provided in an independent Competent Persons Report (CPR) published
in October 2011 and an update to this CPR is currently being
prepared, incorporating the 14/15-4a well data. The updated CPR
will be published in the near future.
The Sea Lion discovery plus the associated discoveries in the
farmout well reaffirm our belief that there will be further
successes in the North Falkland Basin and that a significant oil
and gas province is emerging. Within this scenario it is important
that Desire has a full understanding of all the prospects on its
licences. It was with this in mind that we undertook a joint 3D
seismic survey with Rockhopper utilising the Polarcus Nadia. The
survey, which was completed in May 2011, shot 1416km(2) of new data
for Desire. The fast track data processed so far, in addition to
leading to the success of the farmout well, has significantly
enhanced the prospectivity on the East Flank of the basin. The
remainder of the 3D data which has recently been received will
extend our prospect inventory still further. Full interpretation of
all the 3D data is expected to be complete during the second half
of 2012.
The demobilisation of the Ocean Guardian drilling rig and
associated vessels and equipment in January of this year is likely
to lead to at least 12 months without a rig present in the North
Falkland Basin. In the meantime we believe that the North Falkland
Basin will continue to develop positively. Rockhopper has begun
actively to look for partners in the development of the main Sea
Lion Complex and the discoveries and exploration potential of our
adjacent acreage is likely to be of interest to any potential
partners. We retain an open mind as to future development of our
acreage position, be it through farmouts or by the contracting of a
drilling rig. Although at this time we do not have sufficient funds
to restart a drilling campaign on our own, our current cash
balances, post demobilisation, of over US$10 million are more than
sufficient for the foreseeable future.
On a more pragmatic note the Group has, after much consultation,
changed a key accounting policy. The catalyst for this change was
the conclusion of the recent drilling campaign, and the 14/15-4a
discovery, and has left us with a useful cut off point. Previously
we had worked on a full cost policy under which all exploration
costs, whether successful or not, were capitalised on the balance
sheet. We have in these results moved to a successful efforts
policy whereby any unsuccessful exploration costs are expensed to
the income statement. The associated adjustments to the balance
sheet and income statement have no bearing on our cash balances or
our ability to continue to fund operations. Now that the results of
the drilling campaign are known, we believe that publishing our
accounts on a successful efforts basis gives shareholders more
reliable and relevant information going forward. For those of you
more interested in the mechanics of this change I encourage you to
look at the financial review in the following statement under
'change in accounting policy.'
I am pleased to report that Graeme Thomson has joined us as our
senior independent non-executive director. Graeme has a wealth of
experience in the oil and gas industry over the last 30 years. He
is chairman of the Audit Committee and, along with Eddie
Wisniewski, our Finance Director, has been instrumental in
effecting the change of accounting policy to the successful efforts
basis. Finally, it remains for me to thank my colleagues for their
hard work during the year and especially to our three main
contractors, AGR Petroleum Services who run our drilling
operations, Senergy (GB) Ltd who provide us with our geosciences
and Diamond Offshore Drilling (UK) Ltd who operate the Ocean
Guardian.
Yours sincerely,
Stephen Phipps
Financial Review
Change in accounting policy
During the year the Group changed its oil and gas accounting
policy from a full cost policy (under which all exploration costs
are capitalised irrespective of the success or failure of specific
parts of the overall exploration activity) to a successful efforts
policy (under which unsuccessful exploration costs are expensed to
the income statement in the period in which it is determined that
the exploration has failed to locate commercially recoverable
hydrocarbons). Having completed the current phase of drilling
activity, the Board is of the view that the cost of unsuccessful
exploration should not be added to the costs attributable to the
development of commercial reserves as it distorts the reporting of
the future underlying performance of those assets.
The change in accounting policy requires a restatement of prior
period results. The impact of the change in policy, together with
the accounting policy in full, can be found in Note 1 of the
financial statements, towards the end of this literature under
'Notes to the Financial Statements (continued).'
Income Statement
The loss for the period decreased from $113.9 million (restated)
in the previous period to $42.5 million in the current period. The
reduced loss is mainly due to a decrease in exploration and
evaluation expense. The 2011 exploration and evaluation expense of
$41.7 million largely consisted of Ninky well costs and 3D seismic
expenditure incurred in the year. In 2010 the expense of $110.4
million (restated) included expenditures and provisions on the Liz,
Rachel, Rachel North and Dawn wells.
Administrative expenses for the period increased from $892,000
to $1,537,000. This was mainly due to an increase in the number of
executive directors in the year, from one to three, one of whom had
been a non-executive director, and the appointment of a
non-executive director during the year.
There was also an increase in office and admin expenses
associated with the implementation of new IT and accounting systems
across the Group.
The exchange movement for the period showed a gain of $648,000
compared with a loss of $2,757,000 in the previous period, and
arises primarily on the Group's Sterling cash and restricted cash
balances. The Group continues to match its cash and restricted cash
holdings with the currency of anticipated future expenditures and
so the presentation currency result will be exposed to
sterling-dollar currency fluctuations.
Although the period end exchange rate of $1.554/GBP was little
changed from the rate at the start of the year ($1.566/GBP) the
average rate for the year reached $1.60/GBP meaning that for much
of the year the Group's Sterling balances were more valuable in US
dollar terms.
Investment revenues of $105,000 in the year were lower than 2010
levels due to a reducing cash balance during the period.
Balance Sheet
The Group capitalised $38 million of exploration and evaluation
expenditure in the year, mainly on the Ninky well, and on
concluding the 3D seismic survey that commenced in 2010. As a
result of the accounting policy change to successful efforts, the
only oil and gas intangible costs carried forward at the balance
sheet date are those in respect of the farm in area PL004b, where
the Group believes that contingent hydrocarbon resources exist, and
where the process for determination of commercial reserves is not
yet complete. All other intangible oil and gas costs have been
expensed in the Income Statement. The costs carried forward in
respect of PL004b of $73,000 are currently very low, as the Group's
share of the drilling cost of the 14/15-4a discovery well,
estimated at a gross $31.5 million, was fully carried by Rockhopper
Exploration.
Gross provisions at the period end of $26.4 million relate to
anticipated commitments for the demobilisation of drilling rig and
equipment at the conclusion of the drilling campaign. The cash for
these anticipated liabilities is largely set aside in escrow
accounts.
The Group's cash resources at the year end amounted to $10.6
million, plus an additional $24.5 million held as restricted cash
in escrow accounts with Diamond Offshore Drilling and AGR to meet
demobilisation liabilities of drilling rig and equipment
respectively.
There was no fundraising undertaken during the year. No share
options were exercised in the period, although a number of share
options lapsed in May 2011. Consequently, there was no increase in
share capital or share premium in 2011.
Financial outlook
The Group's available cash and restricted cash resources at the
year end are sufficient to meet the Group's demobilisation
commitments, and to continue in operational existence for the
foreseeable future. The cash resources are not sufficient to drill
further wells, and the Board will continue to review all financing
options such that the Group is positioned to act when that
opportunity arises.
Eddie Wisniewski
Finance Director
Technical Review
1. Introduction
This has been a very active and successful year for Desire, with
participation in a first oil discovery, completion of our operated
drilling campaign and a major 3D seismic survey. We are pleased to
have completed a further farm-out of part of our PL004 licence,
which allowed us to participate in the 14/15-4a well, without
incurring any costs. As a result of this successful well, Desire
now has an interest in several oil and gas discoveries in the Sea
Lion area; the Sea Lion Main Complex (SLMC) reservoir, Casper,
Casper South (Shona) and Beverley. The operator is pursuing an
active programme to develop the SLMC reservoir, while the other
discoveries are under evaluation and are likely to be considered
for satellite development to the main Sea Lion project. These
discoveries provide encouragement that the North Falkland Basin is
emerging as a significant oil and gas province, and that further
success can be expected from our growing prospect inventory.
2. Drilling Results
During 2011, Desire operated one exploration well on the Ninky
prospect and participated in one exploration/appraisal well on the
Sea Lion Extension, Beverley and Casper South (Shona)
prospects.
a) 14/15-3 (Ninky)
The 14/15-3 well was drilled to a total depth of 2620m, within
the Barremian F sequence. The well was targeting a combined
structural/stratigraphic trap updip of 14/15-2, with potential
reservoirs in the Barremian source rock sequence. Reservoir quality
was found to be disappointing with only 5.6m of net sandstone
encountered within a gross thickness of 35m for the two targets. A
thin interval of oil pay was indicated on wireline logs but no
valid reservoir pressures were obtained, indicating that the
reservoir is low permeability at this location.
b) 14/15-4a (Sea Lion Extension/Beverley/Casper South
(Shona)/Casper)
The farm-out well 14/15-4a was operated by Rockhopper
Exploration and reached a total depth of 2575m. The well was
located to the north of Ninky and was targeted at multiple
reservoirs within the Barremian source rock sequence, including a
possible extension to the Sea Lion discovery. The well was very
successful and encountered 56m of net oil and gas pay within a
gross reservoir interval of 89m. Hydrocarbons were encountered in
the southern extension of the Sea Lion Field, Casper, Beverley and
Casper South (Shona) reservoirs. These prospects had been
identified from the new 3D seismic data on the basis of a
fast-track volume processed in Q2 2011. A pre-drill description of
these prospects was provided in an independent Competent Persons
Report (CPR) published in October 2011. Following the success of
the 14/15-4a well, the CPR over the discovery area will be updated
with the well results and the final version of the 2011 3D seismic
data. These results are expected to be available during the first
half of 2012.
3. 3D Seismic Update
A joint 3D seismic programme with Rockhopper Exploration,
utilising the Polarcus Nadia, was completed in May. Overall, an
additional 1416 km2 of data were acquired within Desire licences
and adjacent open areas. The new seismic data are being integrated
with reprocessing of the 2004 3D survey to provide a contiguous,
merged volume over PL003, PL004 and most of PL005. Fast-track
volumes were processed over the Sea Lion areas and Ann/Orca Ridge
area during 2011, the results of which were published in our
October CPR. The final processed 3D merge volume was delivered in
early February 2012 and this will be the basis for a re-assessment
of our prospect inventory. Results for this work are expected to be
available later in 2012.
4. Prospect Inventory
The prospect inventory was updated in October following
interpretation of the fast-track seismic data. Several of the
mapped prospects were tested successfully by the 14/15-4a well. The
remaining prospects from the fast-track area are on the Eastern
Flank of the basin (Jayne, Casper/Shona East) and overlying the
Orca Ridge (Ann/Orca South). These prospects have combined mean
prospective resources of 319 MMstb of which 207 MMstb is net to
Desire, with a chance of success typically around 31%. These are
attractive prospects which we expect to target in a future drilling
campaign. The full prospect inventory, incorporating all of the new
3D seismic data, is expected to yield additional prospects (not yet
identified) and will allow us to evaluate fully other prospects
previously identified from 2D seismic (eg Pam, Helen). The success
of the recent drilling campaign demonstrates the potential of the
North Falkland basin and underpins our belief that further
discoveries will be made in the area. Desire holds extensive
licences in the basin and this provides a firm basis for our
continued success.
5. Licence Update
Our current licence commitments in PL003, PL004 and PL006 have
been fully met and we expect to take these licences into the next
phase of exploration/appraisal. Relinquishment obligations are
under discussion with the regulatory authority, as are the
outstanding drilling obligations on PL005 (Tranche F) and PL007
(Tranche L). We expect to resolve these licence issues before the
end of 2012. Denholm Oil and Gas Ltd, the operator of PL034, has
submitted a notice to the Department of Mineral Resources in the
Falkland Islands that it intends to relinquish the licence in its
entirety at the end of the first licence term in August 2012.
6. Licence Details
PL003 PL004a PL004b PL004c PL005 PL006 PL007 PL034
Tranche C D D D F I L -
Operator Desire Desire Rockhopper Desire Desire Desire Desire Denholm
% holding 92.5% 92.5% 40% 75% 100% 100% 100% 20%
536 619 534 794 1,312 594
Area km(2) km(2) 103 km(2) 81 km(2) km(2) km(2) km(2) km(2)
Currently in
phase 2 2 2 2 2 2 2 1
Conclusion May May May May Nov Nov Nov Aug
of 2013 2013 2013 2013 2012 2012 2012 2012
current phase
Well commitments
outstanding - - - - 1 - 1 1
Relinquishment
at end
of current
phase 50% 50% 50% 50% 50% 50% 50% 50%
On PL003 Denholm will earn a 35% interest in the Ann sub-area
after fulfilling the terms of a farmout agreement.
Report of the Directors
The Directors present their report and audited financial
statements of the Group for the year ended 31 December 2011.
Principal activity
The principal activity of the Group for the year continued to be
that of oil and gas exploration.
Business review
The Company is required by the Companies Act to set out in this
report a fair review of the business of the Group during the
financial year ended 31 December 2011 and the position of the Group
at the end of the year, and a description of the principal risks
and uncertainties facing the Group. The information that fulfils
the requirements of the business review can be found within the
Chairman's Statement, the Financial Review and the Technical Review
shown on the Desire website. These include details of the expected
future developments in the business of the Group. The Directors do
not believe that there are any significant key performance
indicators that are relevant to the Group at present.
Dividends
The Directors do not recommend payment of a dividend
(2010:$Nil)
Share capital
There were no changes to share capital during the year.
Directors and their interests
The Directors, all of whom, with the exception of Mr K Black and
Mr G Thomson, served throughout the year are shown in the table
underneath 'Directors' contracts.'. Mr K Black was appointed on 30
March 2011. Mr G Thomson was appointed on 15 July 2011.
The interests of the Directors who served during the year in the
ordinary shares of the Company are shown in the Report of the
Remuneration and Nomination Committees.
Dr I Duncan and Mr E Wisniewski will retire by rotation at the
Annual General Meeting and, being eligible, offer themselves for
re-election. In addition, Mr G Thomson, who was appointed since the
last Annual General Meeting, retires and offers himself for
election.
Details of the Directors' interests in contracts with the Group
are set out in note 26 to the accounts.
Special business - Annual General Meeting resolutions
Items 6 and 7 of the Notice of the forthcoming Annual General
Meeting contain resolutions which renew and extend existing
authorisations for a further year. The Directors believe that they
should have the authorities proposed under items 6 and 7 in order
to take advantage of business opportunities as they arise, thus
maintaining a desirable degree of flexibility.
Item 6
Under the Companies Act 2006, the Directors are prohibited from
allotting securities of the Company without prior authorisation
from shareholders to do so. The effect of this resolution is to
give the Directors authority until the 2013 Annual General Meeting
to allot relevant securities up to an aggregate nominal amount of
GBP342,285.
Item 7
The Companies Act 2006 also provides that, unless shareholders
otherwise consent, all new equity securities to be offered for cash
must first be offered to existing shareholders in proportion to
their individual holdings. The effect of this resolution is to give
the Directors authority, until the 2013 Annual General Meeting, to
allot equity securities for cash, other than to existing
shareholders, up to a limited aggregate nominal amount of
GBP171,142.
Substantial shareholdings
As at 22 March 2012 the Company had been notified of the
following holdings of 3% or more of its issued share capital:
Number of ordinary %
shares
TD Direct Investing Nominees
(Europe) Limited 37,912,898 11.08
Phipps & Company Limited 33,532,633 9.80
Barclayshare Nominees Limited 29,761,964 8.70
HSDL Nominees Limited 18,330,540 5.36
James Capel (Nominees) Limited 17,657,083 5.16
LR Nominees Limited 13,209,480 3.86
Investor Nominees Limited 12,568,043 3.67
Corporate governance
The UK Corporate Governance Code is not mandatory for companies
traded on the Alternative Investment Market of the London Stock
Exchange. However, the Directors are committed to applying the
requirements of the Code where they are considered appropriate.
This statement explains how the Group has applied the principles of
the Code throughout the year. The Board meets regularly throughout
the year and is responsible for the overall Group strategy,
acquisition and divestment policy, approval of major capital
expenditure and consideration of significant financing matters. It
reviews the strategic direction of individual group companies,
their annual budgets, their progress toward achievement of these
budgets and their capital expenditure programmes.
Status of non-executive directors
Mr G Thomson is the senior independent non-executive director.
With the exception of Mr G Thomson, none of the non-executive
directors would be deemed independent under the Code. However, the
non-executive directors have considerable experience in the Oil and
Gas sector which the Company draws upon on a regular basis. In
addition, the non-executive directors are sufficiently independent
of management so as to be able to exercise independent judgement
and bring an objective viewpoint and, thereby, protect and promote
the interests of shareholders.
Going concern
At the balance sheet date the Group had available cash and
restricted cash resources of $35 million, which it considers
adequate to meet its anticipated liabilities and continue for the
foreseeable future.The financial statements have been prepared on a
going concern basis as the Directors are optimistic that the Group
will be able to raise funds when required in order to fund further
exploration activities.The Directors have a reasonable expectation
that the Company and the Group have adequate resources to continue
in operational existence for the foreseeable future, being twelve
months from the date of the approval of the financial statements.
For this reason, the Board continues to adopt the going concern
basis in the preparation of the financial statements.
Qualifying third party indemnity provisions
The Company's articles of association contain qualifying
indemnity provisions under which each Director shall be entitled to
be indemnified by the Company in respect of certain liabilities
which may attach to him or her in their capacity as a Director of
the Company. These provisions were in force throughout the year and
remain in force at the date of this report.
Audit Committee
The Audit Committee was chaired by Mr S L Phipps until 15 July
2011 and by Mr G Thomson from that date, and included Mr A G
Windham and Mr R Lyons as members throughout the year. The
Committee convenes at least twice a year and its terms of reference
include the review of the Annual and Interim Accounts, accounting
policies of the Company and its subsidiaries, internal management
and financial controls, and the planning, scope and results of the
Auditor's programme of work. UHY Hacker Young Manchester LLP attend
the meetings at the invitation of the Committee.
Remuneration Committee and Nomination Committee
Both Committees comprise at least two non-executive directors
and meet as required during the year.
The Remuneration Committee is chaired by Mr A G Windham and
included Mr R Lyons as a member throughout the year, and Mr G
Thomson from 15 July 2011.
The Nomination Committee is chaired by Mr R Lyons and included
Mr A G Windham as a member throughout the year, and Mr G Thomson
from 15 July 2011.
The Committees' responsibilities include the consideration and
approval of the terms of service, nomination, remuneration and
benefits of the Company's Directors.
The Board, as a whole, determines the remuneration of the
non-executive directors (with Directors absenting themselves from
discussions regarding their own remuneration as appropriate).
Internal control
The Board, which presently comprises the Chairman, the Chief
Executive, the Finance Director, the Exploration Director and
non-executive directors, meets formally on a regular basis. The
Directors are responsible for ensuring that the Group maintains
adequate internal control over the business and its assets. There
is an agreed schedule of matters requiring referral to the Board.
These matters include the Group's corporate strategy, acquisitions
and disposals, approval of major capital expenditure, treasury
policy and risk management policies. Procedures have been
formalised where the Directors may need to take independent
professional advice. The Audit Committee has reviewed the necessity
for the establishment of an internal audit function, but considers
that, due to the nature and size of the Group at present, it would
not be appropriate for the Group to have its own internal audit
department.
On the wider aspects of internal control, relating to
operational and compliance controls and risk management, as
included in provision E2.2 of the Code, the Board, in setting the
control environment, identifies, reviews, and reports on the key
areas of business risk facing the Group. These procedures have been
in place throughout the current financial year.
There is close day-to-day involvement by the Directors in all of
the Group's activities. This includes the comprehensive review of
both management and technical reports, the monitoring of foreign
exchange and interest-rate fluctuations, commitment to the Health,
Safety and the Environment Management System, government and
fiscal-policy issues, employment and information technology
requirements and cash control procedures. Attendance at joint
venture meetings and site visits are made whenever appropriate. In
this way, the key risk areas can be monitored effectively and
specialist expertise applied in a timely and productive manner.
Any system of internal control can provide only reasonable, and
not absolute assurance that the risk of failure to achieve business
objectives is eliminated. The Directors having reviewed the
effectiveness of the system of internal controls and risk
management, consider that the system of internal control operated
effectively throughout the financial year and up to the date the
financial statements were signed.
Performance evaluation
A formal performance evaluation of the Board, its Committees and
its Directors was not undertaken during the year due to the nature
and size of the Group at present.
The Board is satisfied that the Board and its Committees are
operating in an effective and constructive manner.
Relations with shareholders
The Group is active in communicating with both its institutional
and private investors. The Annual General Meeting, at which
Directors are introduced and available for questions, provides
further opportunities for dialogue.
Creditor payment policy
It is the policy of the Group to ensure that all of its
suppliers of goods and services are paid promptly and in accordance
with contractual and legal obligations. At 31 December 2011 there
were 4 days (2010 - 55 days) purchases remaining unpaid.
Political contributions and charitable donations
The Group made no political or charitable donations during the
year (2010 - $Nil).
Auditors
Each of the persons who is a Director at the date of approval of
this annual report confirms that:
A so far as the Director is aware, there is no relevant audit information
of which the Company's Auditors are unaware, and
B the Director has taken all steps that they ought to have taken as a
Director in order to make themselves aware of any relevant
audit
information and to establish that the Company's auditors are
aware
of that information.
This confirmation is given and should be interpreted in
accordance with the provisions of s418 of the Companies Act
2006.
UHY Hacker Young Manchester LLP have expressed their willingness
to continue in office as auditors and a resolution to reappoint
them will be proposed at the forthcoming Annual General
Meeting.
This report was approved by the Board on 1 April 2012 and signed
on its behalf by
Mrs A R Neve BA Secretary
Report of the Remuneration and Nomination Committees
Remuneration Committee and Nomination Committee
The Committees met as required during the year.
The Chairman and other Directors may also attend meetings but
are not involved in any matter relating to themselves.
The Group considers that it has, to the extent appropriate given
the Company's particular circumstances, applied the UK Corporate
Governance Code throughout the year regarding remuneration
committees. In formulating remuneration policy the Committees give
due consideration to the best practice provisions section of the
Code.
Remuneration policy
The remit of the Committees is to advise on all aspects of the
remuneration packages of Directors.
The policy of the Committees is to ensure that the remuneration
packages offered are competitive and designed to attract, retain
and motivate Directors of a high calibre, with a significant
proportion of the remuneration package linked to performance.
The Directors' emoluments are not pensionable.
Details of Directors' emoluments are set out in note 6 to the
financial statements.
Directors' contracts
The Directors' Service contracts are for an indefinite period
but can be terminated with six months notice by either party.
Details of the Directors' contracts are summarised as
follows:
Date of current contract
Mr S L Phipps* 7 April 1998
Dr I G Duncan 1 October 2010
Mr A G Windham 1 May 2005
Mr E Wisniewski 1 January 2011
Mr R Lyons* 14 January 2008
Mrs A R Neve* 15 July 2008
Mr K Black 30 March 2011
Mr G Thomson 15 July 2011
* Fees of non-executive directors are included in related party
transactions in note 26.
Directors' interests
The interests (all of which are beneficial) of the Directors in
office at the end of the year in the ordinary shares of the Company
are shown below, together with their share options under the Desire
Petroleum Plc Unapproved Share Option Scheme and their share
appreciation rights.
1 April 2012 31 December 2011
1p ordinary 1p ordinary shares 1 January 2011
shares
1p ordinary shares
Dr I G Duncan 485,369 485,369 485,369
Mr S L Phipps 36,702,633 36,702,633 36,702,633
Mr E Wisniewski 30,000 30,000 -
Mr A G Windham 37,555 37,555 8,155
Mr R Lyons 75,000 75,000 -
Mrs A R Neve 36,482,633 36,482,633 36,482,633
Mr K Black 75,000 75,000 -
Mr S L Phipps' and Mrs A R Neve's interests in 33,532,633 (31
December 2011 and 2010 - 33,532,633) shares are through their
shareholding in Phipps & Company Limited.
Mr S L Phipps and Mrs A R Neve have an interest in 2,840,000 (31
December 2011 and 2010 - 2,840,000) shares through their interest
in the Phipps & Company Retirement Benefit Scheme.
The interest of Dr I G Duncan includes 107,143 (31 December 2011
and 2010 - 107,143) shares held by Chase Energy Limited of which he
is a director and shareholder. His interest also includes 92,571
(31 December 2011 and 2010 - 92,571) shares held by Hargreave Hale
Nominees Limited.
Mr G Thomson, who was appointed a Director on 15 July 2011, held
no shares as of 1 April 2012 or during the year.
Share options
Share options held by the Directors in office at the end of the
year, are shown in the table below.
At 1 January Lapsed in At 31 Exercise Exercise
2011 the year December price period
2011
43.33p up to 1 June
Dr I G Duncan 138,731 - - 138,731 48.02p 2012
up to 21
2,080,968 2,080,968 July 2012
up to 7 May
Mr S L Phipps 465,224 (465,224) - 35.21p 2011
up to 1 June
138,731 - 138,731 43.33p 2012
up to 7 May
Mrs A R Neve 186,394 (186,394) - 35.21p 2011
up to 1 June
69,366 - 69,366 43.33p 2012
up to 1 June
Mr A G Windham 138,731 - 138,731 43.33p 2012
up to 13
Mr E Wisniewski 138,731 - 138,731 47.47p June 2012
from 12 September
2013
to 12 September
Mr K Black 500,000 - 500,000 98.75p 2017
Share Appreciation Rights ('SARs')
In 2005, the Company introduced a new incentive plan that would
permit the grant of awards over up to 5% of the issued share
capital of the Company. The Remuneration Committee sought advice
from external independent remuneration consultants as to its design
and implementation, and in 2006 the Company adopted the new Desire
Incentive Plan 2006 (the "Plan").
The Plan will operate for the potential benefit of both
executive and non-executive Directors. The Committee is aware that,
under normal circumstances, it would be unusual for non-executive
directors to participate in share-based incentive arrangements.
However, the Committee believes that offering participation in such
arrangements to non-executive directors should be continued. This
approach reflects the specific roles and responsibilities of the
non-executive directors which are wider than is typically the case
at other companies, an approach that keeps head office full-time
staff levels and costs to a minimum. It also ensures that each
member of the Board is fully aligned with both their colleagues'
interests and with the interests of all other shareholders.
The awards under the Plan are structured as "Share Appreciation
Rights" ("SARs"). SARs are designed to deliver a net gain equal to
the increase in the price of a share between grant and exercise.
The number of shares actually issued following exercise will
therefore be less than the number of shares to which the grant
relates as referred to below.
SARs have been granted to the Directors, as shown in the table
below.
SARs at Base price Date of award Exercise period
1 January 2011
and at 31 December
2011 (over number
of shares)
26 January up to 23 January
Mr S L Phipps 903,807 33.07p 2006 2016
26 January up to 23 January
Dr I G Duncan 2,485,469 33.07p 2006 2016
26 January up to 23 January
Mr A G Windham 903,807 33.07p 2006 2016
26 January up to 23 January
Mr E Wisniewski 903,807 33.07p 2006 2016
26 January up to 23 January
Mrs A R Neve 451,903 33.07p 2006 2016
26 February up to 26 February
Mr R Lyons 927,057 45.57p 2008 2018
As described above upon exercise of the SARs, the relevant
Awardee will be issued with shares with a market value at the date
of exercise equivalent to the notional gain that the Awardee would
have made, being the amount by which the aggregate market value on
exercise of the number of shares in respect of which the SAR is
exercised, exceeds the aggregate base price of that number of
shares. The base price of a SAR will be the middle-market quotation
of a share on the dealing day immediately preceding the date of
grant.
SARs can be satisfied by either the issue of new shares, the
transfer of existing shares or the cash equivalent.
No further awards of SARs will be made to the listed Awardees.
No consideration is payable on the grant of a SAR.
On 16 January 2012, SARs over approximately 0.117% of the issued
shares of the Company, representing 400,000 shares, were awarded to
Mr K Black at a base price of 22.5p (being the closing mid market
price of an Ordinary Share on the dealing day immediately preceding
the date of grant). The SARs will become exercisible on 16 January
2015.
The market price of the shares on 31 December 2011 was 21.5p and
the range during the year was 11.75p to 46.75p
Other than shown above, no Director had any interest in the
shares of the Company or its subsidiary at 31 December 2011.
Approval
This Report was approved by the Board on 1 April 2012
Mr A G Windham
Chairman of the Remuneration Committee
Mr R Lyons
Chairman of the Nomination Committee
STATEMENT OF DIRECTORS' RESPONSIBILITIES IN RESPECT OF THE
ACCOUNTS
The Directors are responsible for preparing the Annual Report
and the financial statements in accordance with applicable laws and
regulations.
Company law requires the Directors to prepare such financial
statements for each financial year. Under the law the Directors are
required to prepare Group financial statements in accordance with
International Financial Reporting Standards (IFRS) as adopted by
the European Union and have also chosen to prepare the Parent
Company financial statements under IFRS as adopted by the European
Union. Under company law the Directors must not approve the
accounts unless they are satisfied that they give a true and fair
view of the state of affairs of the Company and of the profit or
loss of the Company for that period. In preparing these financial
statements, the Directors are required to:
-- properly select and apply accounting policies;
-- present information, including accounting policies, in a
manner that provide relevant, reliable, comparable and
understandable information;
-- provide additional disclosures when compliance with the
specific requirements in IFRS are insufficient to enable users to
understand the impact of particular transactions, other events and
conditions on the entity's financial position and financial
performance; and
-- make an assessment of the Company's ability to continue as a going concern.
The Directors are responsible for keeping proper accounting
records that are sufficient to show and explain the company's
transactions and disclose with reasonable accuracy at any time the
financial position of the Company and enable them to ensure that
the financial statements comply with the Companies Act 2006. They
are also responsible for safeguarding the assets of the Company and
hence for taking reasonable steps for the prevention and detection
of fraud and other irregularities.
The Directors are responsible for the maintenance and integrity
of the corporate and financial information included on the
Company's website. Legislation in the United Kingdom governing the
preparation and dissemination of financial statements may differ
from legislation in other jurisdictions.
Directors' responsibility statement
We confirm to the best of our knowledge:
-- the financial statements, prepared in accordance with
International Financial Reporting Standards as adopted by the EU,
give a true and fair view of the assets, liabilities, financial
position and profit or loss of the Company and the undertakings
included in the consolidation taken as a whole; and
-- the review, which is incorporated into the directors' report,
includes a fair review of the development and performance of the
business and the position of the Company and the undertakings
included in the consolidation taken as a whole, together with a
description of the principal risks and uncertainties that they
face.
By order of the Board
S Phipps
Chairman
INDEPENDENT REPORT OF THE AUDITORS
Registered Auditor
UHY Hacker Young Manchester LLP
St. James Building
79 Oxford Street
Manchester M1 6HT
1 April 2012
To the shareholders of Desire Petroleum Plc
We have audited the financial statements of Desire Petroleum Plc
for the year ended 31 December 2011 which comprise the Consolidated
Income Statement, the Consolidated Statement of Comprehensive
Income, Balance Sheets, Consolidated and Company Statement of
Changes in Equity, the Consolidated and Company Cash Flow Statement
and the related notes 1 to 27. The financial reporting framework
that has been applied in their preparation is applicable law and
International Financial Reporting Standards (IFRS) as adopted by
the European Union.
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 auditors' 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.
Respective responsibilities of Directors and Auditors
As explained more fully in the Directors' Responsibilities
Statement, the Directors are responsible for the preparation of the
financial statements and for being satis ed 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
(APB's) Ethical Standards for Auditors.
Scope of the audit of the financial statements
An audit involves obtaining evidence about the amounts and
disclosures in the nancial statements suf cient to give reasonable
assurance that the nancial 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 signi cant 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. If we become aware of any apparent material
misstatements or inconsistencies we consider the implications for
our report.
Opinion on financial statements
In our opinion:
-- the nancial 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 2011 and of the
Group's and the Parent Company's loss for the year then ended;
-- the nancial statements have been properly prepared in
accordance with IFRS as adopted by the European Union; and
-- the nancial statements have been prepared in accordance with
the requirements of the Companies Act 2006.
Opinion on other matter prescribed by the Companies Act 2006
In our opinion the information given in the Directors' Report
for the nancial year for which the nancial statements are prepared
is consistent with the nancial statements.
Matters on which we are required to report by exception
We have nothing to report in respect of the following matters
where the Companies Act 2006 requires us to report to you if, in
our opinion:
-- 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 nancial statements are not in agreement
with the accounting records and returns; or
-- certain disclosures of Directors' remuneration speci ed by law are not made; or
-- we have not received all the information and explanations we require for our audit.
Mark Robertson(Senior Statutory Auditor)
For and on behalf of
UHY Hacker Young Manchester LLP
Chartered Accountants and Statutory Auditors
Manchester
Consolidated Income Statement
For the year ended 31 December 2010 2011
2011 Note Restated
$000 $000
Exploration and evaluation expense (110,362) (41,673)
Administrative expenses (892) (1,537)
Share-based payment expense 4 (68) (43)
Foreign exchange profit/(loss) 5 (2,757) 648
------------------------------------ ------ ------------------------------- -------------------
Operating loss (114,079) (42,605)
Investment revenues 8 218 105
------------------------------------ ------ ------------------------------- -------------------
Loss before tax (113,861) (42,500)
Tax 9 - -
------------------------------------ ------ ------------------------------- -------------------
Loss for the period (attributable
to owners of the Company) 22 (113,861) (42,500)
------------------------------------ ------ ------------------------------- -------------------
Loss per share
Loss per share (cents): Basic 10 (34.66) (12.42)
Loss per share (cents): Diluted 10 n/a n/a
------------------------------------ ------ ------------------------------- -------------------
Movements on reserves are shown in note 22 to these
Accounts.
There is no difference between the results as disclosed above
and the results on an historical cost basis.
All operating income and operating gains and losses relate to
continuing activities.
Consolidated Statement of Comprehensive Income
For the year ended 31 December 2011 2010 2011
Restated
$000 $000
Loss for the financial period (113,861) (42,500)
Other comprehensive income for the period - -
-------------------------------------------- ------------------ --------------
Total comprehensive income for the period
(attributable to owners of the Company) (113,861) (42,500)
-------------------------------------------- ------------------ --------------
Balance Sheets
The Group The Company
At 31 December 2009 2010 2011 2009 2010 2011
2011 Note Restated Restated Restated Restated
$000 $000 $000 $000 $000 $000
Non-current
assets
Intangible
assets
12 1,283 2,829 155 1,283 2,829 155
Property, plant
& equipment 13 4,557 3,609 2,367 4,557 3,609 2,367
----------------- ------ ------------- --------------- ----------- --------------- ---------------- -----------
5,840 6,438 2,522 5,840 6,438 2,522
----------------- ------ ------------- --------------- ----------- --------------- ---------------- -----------
Current assets
Trade and other
receivables 15 349 15,399 16,911 349 15,399 16,911
Restricted cash
16 24,748 42,992 24,518 24,748 42,992 24,518
Cash and cash
equivalents 17 87,568 57,578 10,616 87,568 57,578 10,616
----------------- ------ ------------- --------------- ----------- --------------- ---------------- -----------
112,665 115,969 52,045 112,665 115,969 52,045
----------------- ------ ------------- --------------- ----------- --------------- ---------------- -----------
Total assets 118,505 122,407 54,567 118,505 122,407 54,567
----------------- ------ ------------- --------------- ----------- --------------- ---------------- -----------
Current
liabilities
Trade and other
payables 18 (18,240) (37,625) (13,658) (18,240) (37,625) (13,658)
Provisions 19 - (27,769) (26,353) - (27,769) (26,353)
----------------- ------ ------------- --------------- ----------- --------------- ---------------- -----------
Total
liabilities (18,240) (65,394) (40,011) (18,240) (65,394) (40,011)
----------------- ------ ------------- --------------- ----------- --------------- ---------------- -----------
Net assets 100,265 57,013 14,556 100,265 57,013 14,556
----------------- ------ ------------- --------------- ----------- --------------- ---------------- -----------
Equity
Share capital
Share premium 21 5,569 6,406 6,406 5,569 6,406 6,406
account
22 159,235 228,939 228,939 159,235 228,939 228,939
Retained
earnings 22 (64,539) (178,332) (220,789) (64,539) (178,332) (220,789)
----------------- ------ ------------- --------------- ----------- --------------- ---------------- -----------
Total equity 100,265 57,013 14,556 100,265 57,013 14,556
----------------- ------ ------------- --------------- ----------- --------------- ---------------- -----------
These Accounts were approved by the Board of Directors and
authorised for issue on 1 April 2012.
They were signed on its behalf by:
S Phipps
Chairman
Company Registration No: 3168611
Consolidated and Company Statement of Changes in Equity
Equity attributable to equity holders of the Company
Share Share Retained Total
capital premium earnings equity
$000 $000 $000 $000
Balance as at 1 January 2010
(as previously stated) 5,569 159,235 (39,770) 125,034
Adjustment due to change in
accounting policy - - (24,769) (24,769)
----------------------------------- --------------- --------------- ----------- ---------------
Balance as at 1 January 2010
(restated) 5,569 159,235 (64,539) 100,265
Loss for the period
- - (113,861) (113,861)
Issue of share capital
837 69,704 - 70,541
Credit to equity for share-based
payments - - 68 68
----------------------------------- --------------- --------------- ----------- ---------------
Balance as at 31 December
2010 (restated) 6,406 228,939 (178,332) 57,013
----------------------------------- --------------- --------------- ----------- ---------------
Balance as at 1 January 2011
(restated) 6,406 228,939 (178,332) 57,013
Loss for the period
- - (42,500) (42,500)
Credit to equity for share-based
payments - - 43 43
----------------------------------- --------------- --------------- ----------- ---------------
Balance as at 31 December
2011 6,406 228,939 (220,789) 14,556
----------------------------------- --------------- --------------- ----------- ---------------
Consolidated and Company Cash Flow Statement
For the year ended 31 December 2010 2011
2011 Note
$000 $000
Net cash from operating activities 24 (2,350) (728)
--------------------------------------- ------ --------------- --------------
Investing activities
Interest received
Purchase of tangible and intangible 137 43
assets
(10,038) (28,911)
Transfers into restricted cash
(113,463) (29,923)
Partner contributions to exploration
activities 25,278 11,729
--------------------------------------- ------ --------------- --------------
Net cash invested in investing
activities (98,086) (47,062)
--------------------------------------- ------ --------------- --------------
Financing activities
Proceeds on issue of shares 70,919 -
(net of costs)
--------------------------------------- ------ --------------- --------------
Net cash from financing activities 70,919 -
--------------------------------------- ------ --------------- --------------
Net decrease in cash and cash
equivalents
Cash and cash equivalents at (29,517) (47,790)
the beginning of the period
87,568 57,578
Effect of foreign-exchange rate
changes (473) 828
--------------------------------------- ------ --------------- --------------
Cash and cash equivalents at
the end of the period 25 57,578 10,616
--------------------------------------- ------ --------------- --------------
Material non-cash transactions
As restricted cash is excluded from cash and cash equivalents,
then payments for oil expenditure costs from restricted cash are
treated as non-cash transactions. In addition to the purchase of
tangible and intangible assets stated above, there was $44,449,000
(2010 - $103,868,000) paid from restricted cash.
Notes to the Financial Statements
1 Accounting policies
The Accounts are based on the following significant accounting
policies which have been consistently applied:
Basis of preparation
The results for the year ended 31 December 2011 have been
prepared in accordance with IFRS as adopted by the EU.
Change in accounting policy
Oil and gas assets
In the year, the Group has changed its oil and gas assets
accounting policy from a full cost policy to a successful efforts
policy.
During the year the Directors undertook a review of the Group's
accounting policies and have determined that, having completed the
current phase of drilling activity, the cost of unsuccessful
exploration should not be added to the costs attributable to the
development of commercial reserves as it distorts the reporting of
the future underlying performance of those assets. Accordingly, the
Group has adopted the successful efforts method of accounting in
these financial statements, which provides more reliable and
relevant information on the underlying performance of the Group
than the full cost method of accounting that was previously
applied.
Under the full cost method of accounting, all costs associated
with exploring for and developing oil and gas reserves are
capitalised, irrespective of the success or failure of specific
parts of the overall exploration activity. Under the successful
efforts method of accounting, pre-licence costs are expensed
immediately to the income statement, and the costs of unsuccessful
exploration and evaluation (E&E) expenditure are expensed to
the income statement in the period in which it is determined that
the exploration has failed to locate commercially recoverable
hydrocarbons.
In accordance with IAS8 (Accounting Policies, Changes in
Accounting Estimates and Errors) the change has been made
retrospectively and the comparatives have been restated
accordingly.
The tables below show the impact of the change in accounting
policy:
Consolidated Income Statement
Loss before tax 2010
$000
Loss before change in accounting policy (3,499)
Exploration and evaluation expense written
off (110,362)
-------------------------------------------- -------------------------------
Loss after change in accounting policy (113,861)
-------------------------------------------- -------------------------------
Loss per share (cents): Basic 2010
cents
Loss per share before change in accounting
policy (1.07)
Adjustment due to change in accounting policy (33.59)
----------------------------------------------- -------------------------------
Loss per share after change in accounting
policy (34.66)
----------------------------------------------- -------------------------------
Notes to the Financial Statements (continued)
Consolidated Balance Sheet
Exploration and evaluation assets 2009 2010
$000 $000
Exploration and evaluation assets before
change in accounting policy 26,046 129,920
Adjustment due to change in accounting
policy (8,103) (102,336)
Cumulative effect from prior years (16,666) (24,769)
------------------------------------------ ------------------ ------------------
Exploration and evaluation assets after
change in accounting policy 1,277 2,815
------------------------------------------ ------------------ ------------------
Provisions 2009 2010
$000 $000
Total provisions before change in accounting
policy - 19,743
Adjustment due to change in accounting
policy - 8,026
Total provisions after change in accounting
policy - 27,769
---------------------------------------------- -------------------- ------------------
Total equity 2009 2010
$000 $000
Total equity before change in accounting
policy 125,034 192,144
Adjustment due to change in accounting
policy (8,103) (110,362)
Cumulative effect from prior years (16,666) (24,769)
------------------------------------------ ------------------ ------------------
Total equity after change in accounting
policy 100,265 57,013
------------------------------------------ ------------------ ------------------
Basis of consolidation
The Group accounts consolidate the accounts of the Parent
Company and its subsidiary undertaking, all of which were made up
to 31 December 2011.
Going concern
The Directors have, at the time of approving the financial
statements, a reasonable expectation that the Company and the Group
have adequate resources to continue in operational existence for
the foreseeable future. Thus they continue to adopt the going
concern basis of accounting in preparing the financial statements.
Further detail is contained in the business review.
Goodwill and intangible assets
a) Goodwill
When the fair value of the consideration for an acquired
undertaking exceeds the fair value of its separable net assets, the
difference is treated as purchased goodwill and is capitalised.
When the fair value of the consideration for the acquired
undertaking is less than the fair value of its separable net
assets, the difference is taken directly to the income statement.
Goodwill is not amortised but is reviewed at least annually for
impairment.
b) Acquired intangibles
Intangible assets, which are capable of being recognised
separately and measured reliably on acquisition of a business, are
capitalised at fair value on acquisition. Where these assets have a
finite life, they are amortised over the period that they are
expected to generate benefits, but generally not exceeding ten
years.
Notes to the Financial Statements (continued)
c) Computer software
Computer software costs are amortised over their expected useful
lives, as follows:
Computer software 33% straight line basis
d) Exploration and evaluation assets
The Group applies the successful efforts method of accounting,
as set out in the Statement of Recommended Practice "Accounting for
Oil and Gas Exploration, Development, Production and
Decommissioning Activities" and as permitted by IFRS 6 "Exploration
for and Evaluation of Mineral Resources".
Intangible exploration and evaluation assets
Under the successful efforts method of accounting, all licence
acquisition, exploration and appraisal costs are initially
capitalised in well, field or general exploration cost centres as
appropriate, pending determination. Expenditure incurred during the
various exploration and appraisal phases is then written off unless
commercial reserves have been established or the determination
process has not been completed.
Pre-licence costs
Costs incurred prior to having obtained the legal rights to
explore an area are expensed directly to the income statement as
they are incurred.
Exploration and evaluation ('E&E') costs
Costs of E&E are initially capitalised as E&E assets.
Payments to acquire the legal right to explore, costs of technical
services and studies, seismic acquisition, exploratory drilling and
testing are capitalised as intangible E&E assets.
Such intangible costs include directly attributable overhead,
including the depreciation of property, plant and equipment
utilised in E&E activities, together with the cost of other
materials consumed during the exploration and evaluation
phases.
Tangible assets used in E&E activities are classified as
property, plant and equipment. However, to the extent that such a
tangible asset is consumed in developing an intangible E&E
asset, the amount reflecting that consumption is recorded as part
of the cost of the intangible asset.
E&E costs are not amortised prior to the conclusion of
appraisal activities.
Treatment of E&E assets at conclusion of appraisal
activities
Intangible E&E assets related to each cost centre are
carried forward, until the existence, or otherwise, of commercial
reserves has been determined subject to certain limitations
including review for indications of impairment. If commercial
reserves have been discovered, the carrying value, after any
impairment loss, of the relevant E&E assets, is then
reclassified as development and production assets within property,
plant and equipment. If, however, commercial reserves have not been
found, the capitalised costs are charged to expense.
Impairment
In accordance with IFRS 6, E&E assets are reviewed regularly
for indicators of impairment and costs written off where
circumstances indicate that the carrying value of the asset exceeds
the recoverable amount.
Where there has been a charge for impairment in an earlier
period, that charge will be reversed when there has been a change
in circumstances to the extent that the discounted future net cash
flows are higher than the net book value at the time. In reversing
impairment losses, the carrying amount of the asset will be
increased to the carrying value that would have been determined had
no impairment loss been recognised in prior periods.
Notes to the Financial Statements (continued)
Development and production assets
Development and production assets, classified within property,
plant and equipment, are accumulated on a field-by-field basis and
represent the costs of developing the commercial reserves
discovered and bringing them into production, together with the
E&E expenditures transferred from intangible E&E
assets.
Depreciation of producing assets
The net book values of producing assets are depreciated on a
field-by-field basis using the unit-of-production method by
reference to the ratio of production in the year and the related
proven and probable reserves of the field, taking into account the
future development expenditure necessary to bring those reserves
into production.
e. Consortia and farm out agreements
In addition to holding licences on its own account, the Group is
a member of consortia (a joint arrangement). The Group's
proportionate share of the consortia costs are included in
intangible assets or PPE, as appropriate. During the year, the
Group continued with farm out agreements with third parties in
respect of certain licences. The Group's proportionate share of the
costs is included in intangible assets and PPE as appropriate.
Where the Group acts as operator to a joint arrangement and has
a direct legal liability to third party creditors or a similar
entitlement in respect of debtors then the gross liabilities and
receivables (including amounts due to or from non-operating
partners) are included in the Group balance sheet.
Where the Group acts as a non-operating participant to a joint
arrangement, the entitlement or liability in respect of its share
of working capital balance relating to the joint arrangement is
analysed across the underlying elements of working capital such as
stocks, debtors, cash and creditors.
f. Decommissioning costs
Provision for the future cost of decommissioning an installation
is recognised as part of the total investment to gain access to
future economic benefit. The asset is established and included as
part of the overall cost pool. Provision is made when the Group has
an obligation to dismantle and remove a facility or an item of
plant and to restore the site on which it is located, and when a
reasonable estimate of that liability can be made.
The decommissioning asset is recognised and capitalised as the
related facilities are installed, simultaneously with the
recognition of the provision. The incremental amount capitalised on
each phase of installation should equal the incremental amount
provided in respect of each phase.
Property, plant and equipment (PPE)
a. Exploration and Evaluation expenditure
Tangible assets acquired as exploration and evaluation assets
are capitalised as such and, to the extent that the asset is
consumed in developing an intangible asset, the amount reflecting
the consumption is capitalised as the cost of an intangible
asset.
b. Other
Property plant and equipment are stated at cost or valuation
less depreciation. Depreciation is provided at rates calculated to
write off the cost or valuation, less estimated residual value of
each asset, over its expected useful life, as follows:
Equipment and fixtures 33% straight line basis
Investments
Investments in subsidiary undertakings are shown at cost less
provisions for estimated impairments in value.
Notes to the Financial Statements (continued)
Foreign currencies
a. Functional and presentation currency
Items included in the financial statements of the Group's
entities are measured using the currency of the primary economic
environment in which the entity operates ('the functional
currency'). The functional and presentation currency is US dollars,
and the 2011 Annual Report is presented in US dollars as this
reflects the primary economic environment in which the Group
operates.
b. Transactions and balances
Transactions denominated in foreign currencies are translated
into the functional currency at the exchange rate prevailing at the
dates of the transactions. Monetary assets and liabilities
denominated in foreign currencies are translated into the
functional currency at the exchange
rates ruling at the year-end. Foreign exchange gains and losses
resulting from the settlement of such transactions, and from the
translation at year-end exchange rates of monetary assets
and liabilities denominated in foreign currencies are recognised
in the income statement, except when deferred in equity as
qualifying cash flow hedges and qualifying investment
hedges. Exchange differences arising from the translation of the
balance sheets and income statements of foreign operations into US
dollars are recognised as a separate component of equity on
consolidation. When a foreign operation is sold, such exchange
differences are recognised in the income statement as part of the
gain or loss on sale.
Revenue Recognition
a) Interest revenue
Interest income is recognised when it is probable that economic
benefits will flow to the Group and the amount of revenue can be
measured reliably. Interest income is accrued on a time basis.
Taxation
a) Current income tax
Current tax, including UK corporation tax, is provided on
amounts expected to be paid or recovered using the tax rates and
laws that have been enacted or substantially enacted by the balance
sheet date.
b) Deferred income tax
Deferred income tax is provided in full, using the liability
method, on temporary differences arising between the tax bases of
assets and liabilities and their carrying amounts in the
consolidated financial statements. Deferred income tax is
determined using tax rates and laws that have been enacted or
substantially enacted by the balance sheet date and are expected to
apply when the related deferred income tax asset is realised or the
deferred income tax liability is settled. Deferred income tax
assets are recognised to the extent that it is probable that future
taxable profits will be available against which the temporary
differences can be utilised. Deferred income tax is provided on
temporary differences arising on investments in subsidiaries,
except where the timing of the reversal of the temporary
differences are controlled by the Group, and it is probable that
the temporary differences will not reverse in the foreseeable
future.
Cash and cash equivalents
Cash and cash equivalents includes cash in hand, deposits held
at call with banks and bank overdrafts. Bank overdrafts are shown
within current liabilities on the balance sheet.
Restricted cash
Where cash is deposited with financial institutions, securing
various guarantees and performance bonds associated with the
Group's operating activities, it is treated as a financial asset of
the Group and released on maturity of the guarantee or performance
bond. Where cash balances are not under the exclusive control of
the Company, such amounts are disclosed as restricted cash.
Notes to the Financial Statements (continued)
Share based payments
The Group operates equity-settled, share based compensation
plans. The economic cost of awarding shares and share options is
recognised as an expense in the income statement equivalent to the
fair value of the benefit awarded. The fair value is determined by
reference to option pricing models. The charge is recognised in the
income statement over the vesting period of the award.
Financial instruments
The Group uses certain financial instruments in its operating
and investing activities that are appropriate to its strategy and
circumstances.
Financial instruments currently comprise cash and short-term
receivables and payables. The Group regularly reviews the funding
opportunities available to it in order to finance its operations,
including considering the use of borrowings, as well as equity, to
fund short-term cash requirements.
The main risks arising from the Group's present use of financial
instruments are currently foreign exchange movements relating to
the Group's non-US dollar cash resources. The addition of any
borrowings to the Group's portfolio of financial instruments will
introduce interest rate risk.
Operating segments
The Group considers itself to have a single purpose, the
exploration and exploitation of its licences in the North Falkland
Basin, and therefore concludes that it has only one business
segment and only one geographic segment.
Adoption of new and revised Standards
In the current year, the following significant new and revised
Standards and Interpretations have been adopted none of which have
affected the amounts reported in these financial statements.
IAS 24 Related Party Disclosures
IAS 32 Financial Instruments: Presentation
The following amendments were made as part of Annual
Improvements to IFRS (May 2010).
IFRS 1 First-time Adoption of International Financial Reporting Standards
IFRS 3 Business Combinations
IFRS 7 Financial Instruments: Disclosures
IAS 1 Presentation of financial statements
IAS 27 Consolidated and separate financial statements
IAS 34 Interim financial reporting
Notes to the Financial Statements (continued)
At the date of authorisation of these financial statements, the
following significant Standards and Interpretations which have not
been applied in these financial statements were in issue but not
yet effective:
IFRS 1 First-time Adoption of International Financial Reporting Standards
IFRS 7 Financial Instruments: Disclosures
IFRS 9 Financial Instruments
IFRS 10 Consolidated Financial Statements
IFRS 11 Joint Arrangements
IFRS 12 Disclosure of Interest in Other Entities
IFRS 13 Fair Value Measurement
IAS 1 Presentation of Financial Statements
IAS 12 Income Taxes
IAS 19 Employee Benefits
IAS 27 Consolidated and Separate Financial Statements
IAS 28 Investments in Associates
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.
2 Estimates, assumptions and judgements
In the application of the Group's accounting policies, described
in note 1, the Directors are required to make judgements, estimates
and assumptions about assets, liabilities and disclosures that are
not readily available from other sources. The estimates and
associated
assumptions are based on experience and other factors that are
considered to be relevant. These may include expectations of future
events that are believed to be reasonable under the circumstances.
Actual results may differ from these estimates and the estimates
and underlying assumptions are regularly reviewed.
The most significant areas relate to the amount of and timing of
drilling rig and equipment demobilisation costs, which is based on
contractual terms and forecasts, and the writing off,
to the income statement, of exploration costs, which is based on
management assessment of the likelihood of commercial reserves (as
disclosed in note 12).
3 Production costs incurred
Pre-production costs incurred, or provided, in oil and gas
exploration activities were as follows:
Falkland Islands
2010 2011
Restated
$000 $000
Acquisition of unproved properties
License acquisition costs capitalised
184 184
Pre-license exploration costs
787 782
Exploration and appraisal costs
capitalised 109,972 36,734
---------------------------------------- ---------- --------
Total costs 110,943 37,700
---------------------------------------- ---------- --------
4 Exploration and evaluation expense Falkland Islands
2010 2011
$000 $000
Pre-license exploration costs 787 782
Exploration expense 109,575 40,891
-------------------------------- --------- --------
110,362 41,673
-------------------------------- --------- --------
Notes to the Financial Statements (continued)
5 Administrative expenses
2010 2011
$000 $000
Auditors' remuneration - audit fees
- other services
45 42
a) Taxation
b) Consultancy and review of Interim
Accounts 15 24
Employment costs (excluding share-based 20 13
payment expense)
482 1,134
Legal and professional fees
675 693
Management fees
462 484
Other expenses
200 280
Depreciation
12 43
Operating leases - land and buildings
28 67
Reallocation to exploration and evaluation
activities (1,047) (1,243)
--------------------------------------------- --------- ---------
892 1,537
--------------------------------------------- --------- ---------
6 Directors remuneration
2010 2011
Fees Fees
$000 $000
The remuneration of the Directors
for the period was as follows:
Mr S L Phipps* 23 24
Dr I G Duncan 261 362
Mr A G Windham 23 28
Mr E Wisniewski 23 258
Mr R Lyons* 23 28
Mrs A R Neve* 23 24
Mr K Black - 194
Mr G Thomson - 33
----------------------------------- ------ ------
376 951
----------------------------------- ------ ------
* Fees of non-executive directors are included in related party
transactions in note 26.
Further information on the remuneration of Directors and their
share awards can be found in the Remuneration and Nomination
Committee's report.
The total remuneration of the highest paid Director was $362,000
(2010: $853,000) comprised of $362,000 (2010: $261,000) annual
salary plus gain on exercise of share options of $Nil (2010:
$592,000). The aggregate gain on the exercise of share options by
all Directors was $Nil (2010: $592,000).
Information on related-party transactions is disclosed in note
26 to these Accounts.
Notes to the Financial Statements (continued)
7 Employment costs
2010 2011
$000 $000
Wages and salaries (including directors
remuneration) 441 1,015
Social security costs 41 119
Share-based payment expense 68 43
------------------------------------------- -------- --------
550 1,177
------------------------------------------- -------- --------
The average monthly number of employees, 2010 2011
including Directors, during the year Number Number
was as follows:
6 7
Directors
1 1
Administration
------------------------------------------- -------- --------
7 8
------------------------------------------- -------- --------
The Group does not operate a bonus scheme, a pension scheme, or
a Long Term Incentive Scheme (LTIS).
8 Investment revenues
2010 2011
$000 $000
Interest on bank deposits 218 105
---------------------------- ------ ------
9 Taxation
a) Analysis of charge in the period 2010 2011
Restated
$000 $000
Current tax:
Current tax in the period - -
----------------------------------------------- ----------- ----------
b) Reconciliation of the total tax charge
2010 2011
Restated
$000 $000
The tax assessed for the period is different
from the standard rate of corporation
tax in the UK of 26%/28% (2010 - 28%)
Accounting loss before tax (113,861) (42,500)
----------------------------------------------- ----------- ----------
Tax at the standard rate of corporation
tax in the UK of 26%/28% (2010-28%) (31,881) (11,262)
Effects of:
Share-based payments 23 11
Expenses carried forward 31,858 11,251
----------------------------------------------- ----------- ----------
- -
----------------------------------------------- ----------- ----------
Notes to the Financial Statements (continued)
c) Factors that may affect future tax charges
The Company is carrying forward an amount of tax-deductible
expenditure under the assumption that it will have income from oil
exploration in the future.
The amount currently available for offset against future revenue
is estimated at $190 million.
No deferred tax is provided on this expenditure as it is not
reasonably certain that the income from this source will
materialise.
10 Loss per share
The calculation of basic loss per ordinary share is based on a
loss of $42,500,000 (2010: restated loss $113,861,000) and on
342,285,172 (2010: 328,527,337) ordinary shares, being the
weighted-average number of ordinary shares in issue during the
year.
As the Group reports a loss for the current and comparative
year, then in accordance with IAS 33, the share options and Share
Appreciation Rights in issue are not considered dilutive. Details
of such instruments that could potentially dilute basic earnings
per share in the future are included in note 21.
11 Loss for the financial period
Desire Petroleum Plc has not presented its own income statement,
as permitted by section 408 of the Companies Act 2006. The loss for
the financial period dealt with in the accounts of the holding
company amounts to $42,500,000 (2010: restated loss of
$113,861,000).
12 Intangible fixed assets
The Group and Company Exploration Computer Total
and evaluation software
assets
$000 $000 2011
$000
Cost
At 1 January 2011 (restated) 2,815 19 2,834
Additions 38,149 104 38,253
Exploration and evaluation expense (40,891) - (40,891)
------------------------------------- -------------------- ---------- ------------
At 31 December 2011 73 123 196
------------------------------------- -------------------- ---------- ------------
Amortisation/impairment
At 1 January 2010 - 5 5
Charge for the period - 36 36
------------------------------------- -------------------- ---------- ------------
At 31 December 2011 - 41 41
------------------------------------- -------------------- ---------- ------------
Net Book Value at 31 December
2011 73 82 155
------------------------------------- -------------------- ---------- ------------
Notes to the Financial Statements (continued)
The Group and Company - restated Exploration Computer Total
and evaluation
assets
$000 software 2010
$000 $000
Cost
At 1 January 2010 1,277 6 1,283
Additions 111,113 19 111,132
Disposals - (6) (6)
Exploration and evaluation expense (109,575) - (109,575)
------------------------------------- ------------------------ ------------ ------------
At 31 December 2010 2,815 19 2,834
------------------------------------- ------------------------ ------------ ------------
Amortisation/impairment
At 1 January 2010 - 5 5
Disposals - (5) (5)
Charge for the period - 5 5
------------------------------------- ------------------------ ------------ ------------
At 31 December 2010 - 5 5
------------------------------------- ------------------------ ------------ ------------
Net Book Value at 31 December
2010 2,815 14 2,829
------------------------------------- ------------------------ ------------ ------------
At the balance sheet data, the $73,000 carried forward as
exploration and evaluation assets, relates to costs incurred on
license PL004b, where a successful farm in well was drilled.
The Group carries contingent oil and gas resources on this
license, pending determination of commercial reserves.
In all other cost centres, the Group currently has no firm plans
to return to the prospects, so all other costs have been written
off in accordance with the accounting policy.
The Group's exploration and evaluation assets all relate to the
Falkland Islands
Notes to the Financial Statements (continued)
13 Property, plant and equipment
The Group and Company Exploration Other Total
and evaluation
assets
$000 equipment 2011
$000 $000
Cost
At 1 January 2011 3,595 30 3,625
Additions 163 (2) 161
Consumed (1,394) - (1,394)
Disposals - (16) (16)
-------------------------------- ---------------- ------------------ ------------
At 31 December 2011 2,364 12 2,376
-------------------------------- ---------------- ------------------ ------------
Depreciation
At 1 January 2011 - 16 16
Charge for the period - 7 7
Disposals - (14) (14)
-------------------------------- ---------------- ------------------ ------------
At 31 December 2011 - 9 9
-------------------------------- ---------------- ------------------ ------------
Net Book Value at 31 December
2011 2,364 3 2,367
-------------------------------- ---------------- ------------------ ------------
The Group and Company Exploration Other Total
and evaluation
assets $000
equipment 2010
$000 $000
Cost
At 1 January 2010 4,552 27 4,579
Additions 1,795 16 1,811
Consumed (2,752) - (2,752)
Disposals - (13) (13)
-------------------------------- ---------------- ------------------ ------------
At 31 December 2010 3,595 30 3,625
-------------------------------- ---------------- ------------------ ------------
Depreciation
At 1 January 2010 - 22 22
Charge for the period - 7 7
Disposals - (13) (13)
-------------------------------- ---------------- ------------------ ------------
At 31 December 2010 - 16 16
-------------------------------- ---------------- ------------------ ------------
Net Book Value at 31 December
2010 3,595 14 3,609
-------------------------------- ---------------- ------------------ ------------
The Group and Company's exploration and evaluation assets all
relate to the Falkland Islands.
Notes to the Financial Statements (continued)
14 Investments
The Company 2011
$000
Cost at 1 January 2011 and at 31 December
2011
2,166
Provision at 1 January 2011 and at
31 December 2011 (2,166)
------------------------------------------------------ ------------
At 1 January 2011 and at 31 December -
2011
------------------------------------------------------ ------------
At 31 December 2011 the Company held 100% of the ordinary shares
of Gaelic Resources Plc, a dormant company incorporated in the
Republic of Ireland.
15 Trade and other receivables
The Group The Company
2010 2011 2010 2011
$000 $000 $000 $000
Other receivables
15,369 16,871 15,369 16,871
Prepayments and accrued
income 30 40 30 40
------------------------------- -------- -------- -------- --------
15,399 16,911 15,399 16,911
------------------------------ -------- -------- -------- --------
The Directors consider that the carrying amount of receivables
approximates to their fair value. Included within other receivables
is an amount of $16,621,000 (2010: $13,162,000) which relates to
partner contributions toward the demobilisation provision.
16 Restricted cash
The Group The Company
2010 2011 2010 2011
$000 $000 $000 $000
Restricted cash 42,992 24,518 42,992 24,518
----------------------- -------- -------- -------- --------
The amount is treated as restricted cash as the balance of cash
is not under the exclusive control of the group.
17 Cash and cash equivalents
The Group The Company
2010 2011 2010 2011
$000 $000 $000 $000
Cash at bank and short
term deposits 57,578 10,616 57,578 10,616
------------------------------ -------- -------- -------- --------
Notes to the Financial Statements (continued)
18 Trade and other payables
The Group The Company
2010 2011 2010 2011
$000 $000 $000 $000
Payments received in
advance
11,323 12,875 11,323 12,875
Other tax and social-security
creditors 22 40 22 40
Other creditors 19,293 631 19,293 631
Accruals 6,987 112 6,987 112
------------------------------------- -------- -------- -------- --------
37,625 13,658 37,625 13,658
------------------------------------ -------- -------- -------- --------
The Directors consider that the carrying amount of payables
approximates to their fair value.
19 Provisions
The Group and Company Demobilisation Other Total
$000 $000 $000
At 1 January 2011 (restated) 19,743 8,026 27,769
Utilisation of provision (2,599) (8,026) (10,625)
Additional provision 9,237 - 9,237
Exchange movements (28) - (28)
------------------------------- --------------------------- ------------- -----------
At 31 December 2011 26,353 - 26,353
------------------------------- --------------------------- ------------- -----------
During the period the Group made an additional provision for the
estimated demobilisation cost of drilling rig and equipment.
The other provision relates to a provision made at the previous
year end to write off the additional costs of the Dawn well that
had not been incurred at that year end.
20 Financial Instruments
The Group's policies as regards to financial instruments are set
out in the accounting policies. The Group does not trade in
financial instruments. The risks and uncertainties facing the Group
include, but are not limited to:
Credit risk and counter-party risk
The Group's principal financial assets are cash at bank and
other receivables. The Group's credit risk is primarily
attributable to amounts included in other receivables. The maximum
credit-risk exposure relating to financial assets is represented by
the carrying values as at the Balance Sheet date. The Group manages
its counter-party risk by holding its cash with a range of
recognised banks and institutions.
Notes to the Financial Statements (continued)
Currency rate risk
The Group currency risk is primarily attributable to GBP cash
deposits held at the bank. These deposits are held in GBP as the
Group incurs expenditure in this currency. Foreign exchange
movements on monetary assets and liabilities are taken to the
income statement and the potential exposure is set out in the table
below.
As at 31 December 2011 US$ GBGBP FIGBP Total
$000 $000 $000 $000
Non-monetary assets
2,522 - - 2,522
Cash and short term
deposits 5,955 4,564 97 10,616
Other monetary assets 30,928 10,501 - 41,429
Monetary liabilities (29,165) (10,846) - (40,011)
----------------------------- ---------------- ---------------- ------ --------------
10,240 4,219 97 14,556
---------------------------- ---------------- ---------------- ------ --------------
As as 31 December 2010 US$ GBGBP FIGBP Total
(restated)
$000 $000 $000 $000
Non-monetary assets
6,438 - - 6,438
Cash and short term
deposits 30,992 26,491 95 57,578
Other monetary assets 35,549 22,842 - 58,391
Monetary liabilities (36,423) (28,971) - (65,394)
----------------------------- ---------------- ---------------- ------ --------------
36,556 20,362 95 57,013
---------------------------- ---------------- ---------------- ------ --------------
Capital risk management
The Group manages its capital to ensure that the Group will be
able to continue as a going concern while maximising the return to
shareholders through the use of equity. The overall strategy
remains unchanged from 2010.
The capital structure consists of cash and cash equivalents and
equity. The Group is not subject to any externally imposed capital
requirements.
Liquidity risk
The Group manages liquidity risk via maintaining adequate cash
reserves, and by continuously monitoring forecast and actual cash
flows relating to oil exploration and administrative costs.
Notes to the Financial Statements (continued)
21 Share capital
Ordinary GBP0.01
Allotted, called-up and fully-paid shares
Number
At 1 January 2011
342,285,172
Issued in year
-
------------------------------------- -----------------
At 31 December 2011 342,285,172
------------------------------------- -----------------
Ordinary GBP0.01
shares
$000
At 1 January 2011
6,406
Issued in year
-
---------------------- -----------------
At 31 December 2011 6,406
---------------------- -----------------
The Company has one class of ordinary shares which carry no
rights to fixed income.
Share options
Date of At 1 Lapsed At 31 Exercise Exercise
grants January in year December price period
2011 2011
up to 7 May
2011
27 May 2004
up to 1 June
1 June 2005 2012
13 June up to 13 June
2005 2012
1,482,123 (1,482,123) - 35.21p
21 July up to 21 July
2005 485,559 - 485,559 43.33p 2012
1 January 138,731 - 138,731 47.47p up to 1 January
2006 2013
2,080,968 - 2,080,968 48.02p
15 August up to 15 August
2008 34,683 - 34,683 43.33p 2015
12 September
13 138,731 - 138,731 77.03p 2013 to
September 12 September
2010 500,000 - 500,000 98.75p 2017
No share options have been awarded since the year end.
Share Appreciation Rights ("SARs')
Details relating to the SARs in which Directors are interested
can be found in the Report of the Remuneration and Nomination
Committees.
In addition to the SARs in which the Directors are interested,
the following SARs were in issue at the start and end of the
year.
SARs at 1 January 2011 Base price Date of award Exercise period
and at
31 December 2011
(over number of shares)
26 January up to 23 January
2,485,469 33.07p 2006 2016
------------------------- ----------- -------------- ------------------
On 16 January 2012, 400,000 SARs were awarded to Mr K Black at a
base price of 22.5p. The SARs will become exercisable on 16 January
2015.
Notes to the Financial Statements (continued)
22 Reserves
The Group and Company Share Retained
premium earnings
reserve
$000 $000
At 1 January 2011 (as originally stated)
228,939 (43,201)
Adjustment due to change in accounting
policy - (135,131)
------------------------------------------- --------- -----------
At 1 January 2011 (restated) 228,939 (178,332)
Loss for the period - (42,500)
Share-based payment charge - 43
------------------------------------------- --------- -----------
At 31 December 2011 228,939 (220,789)
------------------------------------------- --------- -----------
Share premium
The balance classified as share premium is the premium on the
issue of the Group's equity share capital, comprising GBP0.01
Pounds Sterling ordinary shares less any costs of issuing the
shares.
23 Commitments
Operating leases 2010 2011
Land Land
and buildings and buildings
$000 $000
At the Balance Sheet date, the Group
and Company had outstanding commitments
for future minimum lease payments
under non-cancellable operating leases,
which fall due as follows:
Expiring:
Within 1 year 279 298
------------------------------------------ --------------- ---------------
Operating lease payments represent rentals payable by the Group
for its office properties and oil exploration licences.
Notes to the Financial Statements (continued)
24 Net cash flows from operating activities
Reconciliation of operating loss to 2010 2011
net cash Restated
from operating activities $000 $000
Operating loss for the financial year
(114,079) (42,605)
Exploration and evaluation expense
110,362 41,673
Foreign exchange
2,757 (648)
Depreciation on property, plant and
equipment 12 43
Loss on disposal of fixed assets - 2
Share-based payment expense 68 43
---------------------------------------- ------------------ -----------
Operating cash flows before movement
in working capital (880) (1,492)
Decrease/(increase) in receivables (1,628) 930
(Decrease)/Increase in payables 158 (166)
---------------------------------------- ------------------ -----------
Net cash from operating activities (2,350) (728)
---------------------------------------- ------------------ -----------
25 Cash and cash equivalents
At 31 Exchange At 31
December movement December
2010 2011
$000 Cash $000
flows $000
$000
Cash at bank and in hand 57,578 (47,790) 828 10,616
--------------------------- ---------- ---------- ---------- ----------
Notes to the Financial Statements (continued)
26 Related party transactions
The Group entered into transactions with the following parties
in which certain of the Directors were materially interested:
Party Related Party Services Provided
Phipps & Company Limited Mr S L Phipps and Infrastructure and
Copernicus Consultancy Mrs A R Neve Management
Limited Mr E Wisniewski Financial
Ardoyne Consultants Mr R Lyons Drilling Operations
Limited Mr A G Windham Legal
Mr A G Windham
The services provided by Phipps & Company Limited include
the provision of a Chairman, Director & Company Secretary,
London office rental and services, registered office, and other
overheads.
The transactions with the Total Services Other Total
Group during the year were as a Director services
as follows:
2010 (note 6) 2011
$000 $000
$000 $000
Ardoyne Consultants Limited 456 28 311 339
Phipps & Company Limited 508 48 484 532
Copernicus Consultancy Limited 223 - - -
Mr A G Windham 33 28 7 35
--------------------------------- ------ --------------- ---------- ------
At 31 December the following
amounts were included in trade
and other payables: 2010 2011
$000 $000
Mr A G Windham
Ardoyne Consultants Limited - 9
Copernicus Consultancy Limited 48 43
17 -
--------------------------------- ------ --------------- ---------- ------
In addition, the Company paid $18,849 (2010 - $18,093) to Phipps
& Company Limited for the rent of offices at Mathon Court.
27 Future commitments
At the year end, the Group has potential drilling commitments,
as part of the lease agreement with the Falkland Islands
Government, for oil exploration before November 2012 on Tranches F
and L and before August 2012 on PL034.
Full licence details are included in the Technical Review.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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