RNS Number:9388C
Equator Exploration Limited
15 May 2006



Immediate Release                                                    15 May 2006


                          EQUATOR EXPLORATION LIMITED

                          ("Equator" or "the Company")


                 Final Results for year ended 31 December 2005


Highlights during 2005


   *Appointments of Baroness Chalker of Wallasey as Non-executive Director,
    Philip Dimmock as Chief Operating Officer, Sir Sam Jonah as Executive
    Chairman and Jean-Luc Vermeulen as an advisor to the Board
   *Success drilling of B-D1X well in OML 122 license offshore Nigeria with
    Peak Petroleum
   *$60m private placement for aggressive 2006 drilling program and possible
    acquisition of further exploration acreage
   *Year-end cash balances of over $135m


Highlights post 2005


   *Commercial Discovery of 130 million barrels oil in place and 900 bscf of
    gas in place (tested flow rate of over 7,000 bopd and 26 mm scfpd)
    discovery- well B-D1X
   *US$250 million institutional placing
   *30% interest in blocks OPL 323 and OPL 321 awarded- offshore Nigeria,
    consortium including The Korean National Oil Corporation (60% interest and
    operatorship of the blocks) and local Nigerian companies (10%)
   *15% interest in Block 2 of the Joint Development Zone ("JDZ") to a
    consortium comprising Equator and ONGC Videsh awarded by Nigeria-Sao Tome
    and Principe Joint Development Authority ("JDA"). Net 6% interest
    subsequently increased to 9%
   *Spudding of the Owanare AX1 well, Equator and Peak Petroleum's second
    well in the OML 122 license area, offshore Nigeria.


Commenting on the progress made in 2005 and 2006 Wade Cherwayko, Chief
Executive, said:


"Equator has discovered significant volumes of oil and gas on OML122 project and
we shall be working towards first production early 2007. In addition to pursuing
first production Equator has built a portfolio of diverse oil & gas assets in
one of the most prolific hydrocarbon regions of the world. We shall continue to
build shareholder value through an aggressive 2006 drilling program and
monetizing gas reserves.



For further information, contact:

Equator Exploration Limited                                        020 7235 2555
Wade Cherwayko, Chief Executive Officer

Conduit PR                                                         020 7429 6666
Laurence Read / Angus Prentice                                     07979 955 923

www.equatorexploration.com



Annual Report and Avccounts

The Annual Report and Accounts for the year ended 31 December 2005 has today
been posted to shareholders. Copies of the Annual Report are available from
www.equatorexploration.com and the offices of Nabarro Wells & Co. Limited,
Saddlers House, Gutter Lane, London EC2V 6HS for a period of one month.


Attached:

Chairman's statement

Consolidated income statement

Consolidated balance sheet

Consolidated statement of changes in equity

Consolidated cash flow statement

Notes to the financial statements







Chairman's Statement


Principal activity and review of the business


Equator Exploration Limited is a company incorporated in the British Virgin
Islands.

Equator Exploration Limited engages in the exploration and development of oil
and gas projects in the prospective waters in West Africa. The company's
objective is to build a diversified portfolio of exploration, appraisal and
production assets in this region.

2005 was a year of consolidation for Equator. We undertook several initiatives
to increase our interests in our geographical area of focus, namely the Gulf of
Guinea. As is the case in this area the negotiation of interest takes time and
it was only towards the end of 2005 that the work put in by the company began to
come to fruition.

In November 2005, Equator commenced drilling its first well on OML 122 offshore
Nigeria with Peak Petroleum Industries Nigeria Ltd. Equator is paying 100% of
the costs in return for a 40% economic interest. In February 2006 the company
confirmed the discovery of a major gas reservoir and approximately 130 million
barrels of oil in place as a result of its first appraisal well. Together with
our partner we are now planning a fast track development project using floating
production, storage and off take technology to begin production in 2007. Equator
and its partner are planning a further four wells during 2006 in this block in
order both to prove additional reserves and for further field development.

During 2005 Equator made two appointments to the Board of Directors. Baroness
Chalker of Wallasey was appointed as a non-executive director on 9th June 2005
and Philip Dimmock was appointed Director and Chief Operating Officer on 11th
August 2005. In addition Jean-Luc Vermeulen was appointed as an advisor to the
Board in a non-executive capacity on 18th September 2005, Sir Sam Jonah became
executive Chairman and Philip Rand was appointed Vice President Finance on 27th
October 2005. These appointments considerably strengthen the Board of Directors
and the company's management thereby providing Equator with the necessary skills
to guide the company forward.

As at 31 December 2005 there were 131,417,190 Ordinary Shares issued and at 31st
March 2006 there were 174,951,926 Ordinary Shares in issue.

As at 31 December 2005 there were 11,269,000 outstanding share options and
11,395,000 outstanding warrants all of which are exchangeable into Ordinary
Shares at prices ranging from US$1.00 per share to #2.068 per share.

Equator also continues to pursue exploration opportunities in the region.

Results and dividend


The group made a loss of US$3.85 million in the year, an increase of US$2.07
million over the 2004 loss of US$1.78million. However the operational activities
of the group increased significantly during the year with the founding of
offices in Lagos and Port Harcourt together with a large amount of groundwork to
set up the opportunities realized in 2005 and early 2006.


The group's Balance Sheet was further strengthened, following the listing on
London's Alternative Investment Market in 2004. In December 2005, the company
raised US$60million at a share price of #2.068 per share and in February 2006
completed an additional US$250million at #3.50 per share. Both of these capital
raising exercises were completed in very short time by private placement
subscribed by institutional investors.


The company has not paid a dividend during the year (2004: $Nil).





Future prospects


West Africa is one of the most prolific offshore deepwater exploration and
production regions. Discoveries in the region include the Akpo field (Nigeria)
with estimated reserves of 800 million barrels, the Agbami field (Nigeria) with
estimated reserves of 710 million barrels, and the Zafiro field (Equatorial
Guinea) with estimated reserves of 1 billion barrels. Despite the exploration
successes to date, the bulk of the deepwater acreage is still virgin territory.


Post closure events

In March 2006 the Production Sharing Agreements for two exploration blocks in
Nigerian waters and one block in the joint Sao Tome/Nigerian waters were signed.

1.       Blocks 321 and 323, where Equator has a 30% working interest in each,
are in Nigerian waters and are operated by The Korean National Oil Company.

2.       Block 2 in the Joint Development Zone, where Equator has a 9%working
interest is operated by Sinopec.

The award of these licenses was the culmination of a significant amount of hard
work and places Equator as a mainstream oil and gas explorer in the region. All
three blocks are prospective with large hydrocarbon-bearing source rock
identified. Drilling will take place over the next 24 months to confirm the
presence of hydrocarbons.

The directors wish to acknowledge the commitment and determination of staff to
build shareholder value.

Also, the directors wish to recognize the support of stakeholders, suppliers and
business partners, without whose resolve the satisfactory progress made in the
year to 31 December 2005 may not have been possible.


Mr S E Jonah, KBE

Director - Executive Chairman






Consolidated income statement for the year ended 31 December 2005

                                                             2005         2004
                                                  Note      $'000        $'000
Continuing operations
Revenue                                              2        102          431
Cost of sales                                                 (51)         (36)
                                                          ---------     --------
Gross profit                                                   51          395
Administrative expenses                                    (6,997)      (2,220)
Loss from operations                                 3     (6,946)      (1,825)
Income from investments                              6      3,233           46
                                                          ---------     --------
Loss for the period from continuing operations             (3,713)      (1,779)
                                                          =========     ========
Loss per share                                       7
Basic                                                       ($0.03)      ($0.54)
                                                          =========     ========
Diluted                                                     ($0.03)      ($0.54)
                                                          =========     ========







Consolidated balance sheet as at 31 December 2005

                                                               2005       2004
                                                    Notes     $'000      $'000
Assets
Non-current assets
Goodwill                                               8      1,373      1,373
Exploration and evaluation assets                      9     50,334      2,249
Multi-client library                                  10      2,598      2,152
Fixtures and equipment                                11        739         41
                                                            ---------   --------
                                                             55,044      5,815
                                                            ---------   --------
Current assets
Trade and other receivables                           14      3,945        268
Cash and cash equivalents                             15    135,972    131,037
                                                            ---------   --------
                                                            139,917    131,305
                                                            ---------   --------
Total assets                                                194,961    137,120
                                                            =========   ========

Equity and liabilities
Equity attributable to equity holders of the
Company
Share capital                                         16          -          -
Capital reserves                                            203,342    142,159
Accumulated losses                                           (8,797)    (5,084)
                                                            ---------   --------
                                                            194,545    137,075
                                                            ---------   --------
Current liabilities
Trade and other liabilities                           18        416         45
                                                            ---------   --------
Total equity and liabilities                                194,961    137,120
                                                            =========   ========





Company balance sheet as at 31 December 2005

                                                               2005       2004
                                                    Notes     $'000      $'000
Assets
Non-current assets

Exploration and evaluation assets                      9     13,898        249
Multi-client library                                  10      2,598      2,152
Fixtures and equipment                                11        109         41
Amount owed by subsidiary undertakings                12     37,710          -
Investments                                           13      3,198      3,198
                                                            ---------   --------
                                                             57,514      5,640
                                                            ---------   --------
Current assets
Trade and other receivables                           14      1,824        268
Cash and cash equivalents                             15    135,613    131,037
                                                            137,437    131,305
                                                            ---------   --------
Total assets                                                194,951    136,945
                                                            =========   ========

Equity and liabilities
Equity attributable to equity holders of the
Company
Share capital                                         16          -          -
Capital reserves                                            203,342    142,159
Accumulated losses                                           (8,693)    (5,259)
                                                            ---------   --------
                                                            194,649    136,900
                                                            ---------   --------
Current liabilities
Trade and other liabilities                           18        302         45
                                                            ---------   --------
Total equity and liabilities                                194,951    136,945
                                                            =========   ========







Consolidated statement of changes in equity for the year ended
31 December 2005

                                        Share    Capital  Accumulated
                                      capital   reserves       losses    Total
                                      $'000      $'000        $'000      $'000

Balance at 31 December 2003               -      6,319       (3,305)     3,014
                                   ----------   --------   ----------   --------

Changes in equity for 2004

Loss for the year                         -          -       (1,779)    (1,779)
                                   ----------   --------   ----------   --------

Total recognised expense for the          -          -       (1,779)    (1,779)
year

Issue of share capital                    -    144,030            -    144,030

Share based transactions                  -      2,879            -      2,879

Cost associated with issue of
share capital
Cost of options issued                    -     (2,755)           -     (2,755)
Cash costs                                -     (8,314)           -     (8,314)
                                   ----------   --------   ----------   --------
Balance at 31 December 2004               -    142,159       (5,084)   137,075

Changes in equity for 2005

Loss for the year                         -          -       (3,713)    (3,713)
                                   ----------   --------   ----------   --------

Total recognised expense for the          -          -       (3,713)    (3,713)
year

Shares issued                             -     61,070            -     61,070
Cost of shares issued                     -     (1,777)           -     (1,777)
Share based transactions                  -      1,890            -      1,890
                                   ----------   --------   ----------   --------
Balance at 31 December 2005               -    203,342       (8,797)   194,545
                                   ==========   ========   ==========   ========

Included in capital reserves as at 31 December 2005 are amounts attributable to
share based transactions of $4,784,000 (2004: $2,894,000).




Company statement of changes in equity for the year ended
31 December 2005

                                        Share    Capital  Accumulated
                                      capital   reserves       losses    Total
                                      $'000      $'000        $'000      $'000

Balance at 31 December 2003               -      6,319       (2,953)     3,366
                                   ----------   --------   ----------   --------

Changes in equity for 2004

Loss for the year                         -          -       (2,306)    (2,306)
                                   ----------   --------   ----------   --------

Total recognised expense for the          -          -       (2,306)    (2,306)
year

Issue of share capital                    -    144,030            -    144,030

Share based transactions                  -      2,879            -      2,879

Cost associated with issue of
share capital
Cost of options issued                    -     (2,755)           -     (2,755)
Cash costs                                -     (8,314)           -     (8,314)
                                   ----------   --------   ----------   --------

Balance at 31 December 2004               -    142,159       (5,259)   136,900

Changes in equity for 2005

Loss for the year                         -          -       (3,434)    (3,434)
                                   ----------   --------   ----------   --------

Total recognised expense for the          -          -       (3,434)    (3,434)
year

Shares issued                             -     61,070            -     61,070
Cost of shares issued                     -     (1,777)           -     (1,777)
Share based transactions                  -      1,890            -      1,890
                                   ----------   --------   ----------   --------

Balance at 31 December 2005               -    203,342       (8,693)   194,649
                                   ==========   ========   ==========   ========



Included in capital reserves as at 31 December 2005 are amounts attributable to
share based transactions of $4,784,000 (2004: $2,894,000).



Consolidated cash flow statement for the year ended 31 December 2005

                                                    2005                  2004
                                        $'000      $'000      $'000      $'000
Cash flows from operating activities

Loss from operations                   (6,946)               (1,825)

Adjustments for:
Amortisation of multi-client library      606                   324
Share based transactions                1,890                   124
Depreciation on fixtures and              135                     2
equipment                             ---------             ---------

Operating cash flows before movement
in working capital                     (4,315)               (1,375)

(Increase)/decrease in receivables     (3,668)                  128
Increase/(decrease) in payables           371                  (698)
                                      ---------             ---------

Net cash used in operating                        (7,621)               (1,945)
activities

Cash flows from investing activities
Interest received                       3,233                    46
Acquisition of subsidiary                   -                (1,198)
Acquisition of multi-client library    (1,052)               (1,357)
Acquisition of exploration and
evaluation                            (48,085)                 (249)
assets
Acquisition of fixtures and              (833)                  (43)
equipment                             ---------             ---------

Net cash used in investment                      (46,737)               (2,801)
activities

Cash flows from financing activities
Share capital issued (net of costs)    59,293               135,716
                                      ---------             ---------

Net cash from financing activities                59,293               135,716
                                                 ---------             ---------

Net increase in cash and cash                      4,935               130,970
equivalents

Cash and cash equivalents at
beginning of period                              131,037                    67
                                                 ---------             ---------

Cash and cash equivalents at end of              135,972               131,037
period                                           =========             =========




Company cash flow statement for the year ended 31 December 2005

                                              2005                  2004
                                        $'000      $'000      $'000      $'000
Cash flows from operating activities

Loss from operations                   (6,668)               (2,352)

Adjustments for:
Amortisation of multi-client library      606                   324
Share based transactions                1,890                   124
Depreciation on fixtures and               41                     2
equipment                             ---------             ---------

Operating cash flows before movement
in working capital                     (4,131)               (1,902)


(Increase)/decrease in receivables     (1,555)                   93
Increase/(decrease) in payables           257                  (136)
                                      ---------             ---------

Net cash used in operating                        (5,429)               (1,945)
activities

Cash flows from investing activities
Interest received                       3,232                    46
Acquisition of subsidiary                   -                (1,198)
Acquisition of multi-client library    (1,052)               (1,357)
Acquisition of exploration and
evaluation assets                     (13,649)                 (249)
Acquisition of fixtures and              (109)                  (43)
equipment
Loans to subsidiary undertakings      (37,710)                    -
                                      ---------             ---------

Net cash used in investment                      (49,288)               (2,801)
activities

Cash flows from financing activities
Share capital issued (net of costs)    59,293               135,716
                                      ---------             ---------

Net cash from financing activities                59,293               135,716
                                                 ---------             ---------

Net increase in cash and cash                      4,576               130,970
equivalents

Cash and cash equivalents at
beginning of period                              131,037                    67
                                                 ---------             ---------

Cash and cash equivalents at end of              135,613               131,037
period                                           =========             =========






Notes to the financial statements

For the year ended 31 December 2005


1. Presentation of financial statements


The Group and Company financial statements have been prepared in accordance with
International Financial Reporting Standards. The Group and Company has adopted
IFRS 6 "Exploration for and Evaluation of Mineral Resources" for the year ended
31 December 2005. The Group and Company has adjusted its accounting policies
from the previous policy disclosed for the year ended 31 December 2004. The
adoption has had no material impact on the financial statements of the Group and
Company.


The financial statements are presented in US dollars since this is the currency
in which the majority of the Group's transactions are denominated.


At the date of authorisation of these financial statements, there were Standards
and Interpretations which have not been applied in these financial statements,
that were in issue but not yet effective. The Directors anticipate that the
adoption of these Standards and Interpretations in future periods will have no
material impact on the financial statement of the Group and Company except for
additional disclosures when the relevant standards come into effect.


2. Summary of significant accounting policies


The financial statements have been prepared on the historical cost basis. The
principal accounting policies adopted are set out below.

Basis of consolidation

The consolidated financial statements incorporate the financial statements of
the Company and enterprises controlled by the Company (its subsidiaries) made up
to 31 December each year. Control is achieved where the Company has the power to
govern the financial and operating policies of an investee entity so as to
obtain benefits from its activities.


The results of subsidiaries acquired or disposed of during the period are
included in the consolidated income statement from the effective date of
acquisition or up to the effective date of disposal, as appropriate.


All intra-group transactions, balances, income and expenses are eliminated on
consolidation.


Business combinations

The acquisition of subsidiaries is accounted for using the purchase method. The
cost of the acquisition is measured at the aggregate of the fair values, at the
date of exchange, of assets given, liabilities incurred or assumed, and equity
instruments issued by the Group in exchange for control of the acquiree, plus
any costs directly attributable to the business combination. The acquiree's
identifiable assets, liabilities and contingent liabilities that meet the
conditions for recognition under IFRS 3 are recognised at their fair value at
the acquisition date, except for non-current assets (or disposal groups) that
are classified as held for resale in accordance with IFRS 5 "Non Current Assets
Held for Sale and Discontinued Operations", which are recognised and measured at
fair value less costs to sell.


Goodwill arising on acquisition is recognised as an asset and initially measured
at cost, being the excess of the cost of the business combination over the
Group's interest in the net fair value of the identifiable assets, liabilities
and contingent liabilities recognised. If, after reassessment, the Group's
interest in the fair value of the acquiree's identifiable assets, liabilities
and contingent liabilities exceeds the cost of the business combination, the
excess is recognised immediately in profit or loss.



Notes to the financial statements
For the year ended 31 December 2005


2. Summary of significant accounting policies


Interest in joint ventures

A joint venture is a contractual arrangement whereby the Company and other
parties undertake an economic activity, which is subject to joint control.


Joint venture arrangements which involve the establishment of a separate entity
in which each venturer has an interest are referred to as jointly-controlled
entities. The Company reports its interest in jointly-controlled entities using
proportionate consolidation - the Company's share of the assets, liabilities,
income and expenses of jointly-controlled entities are combined with the
equivalent items in the consolidated financial statements on a line-by-line
basis.


Where the Company transacts with its jointly-controlled entities, unrealised
profits and losses are eliminated to the extent of the Company's interest in the
joint venture, except where unrealised losses provide evidence of an impairment
of the asset.


Revenue recognition

Revenue is measured at fair value of the consideration received or receivable
and represents amounts receivable for goods and services provided in the normal
course of business, net of discounts and sales related taxes.


Revenue from sales of multi-client library data is recognised when the majority
owner of the seismic surveys has received the revenue from the customer as
agreed under the joint agreement.


Interest income is accrued on a time basis, by reference to the principal
outstanding and the interest rate applicable.


Employee services settled in equity instruments

The Group issues equity-settled share-based payments to certain employees. These
are measured at fair value (excluding the effect of non market-based vesting
conditions) at the date of grant. The fair value determined at the grant date is
expensed on a straight line basis over the vesting period, based on the Group's
estimate of shares that will eventually vest and adjusted for the effect of non
market-based vesting conditions.


Fair value is measured by use of a binomial model. The expected life used in the
model has been adjusted, based on management's best estimate, for the effects of
non-transferability, exercise restrictions and behavioural considerations.


Other goods or services settled in equity instruments

Goods or services (other than employee services) received in exchange for
equity-settled share-based payments are measured directly at their current fair
value at each balance sheet date. The proceeds received on exercise of the
options, net of any directly attributable transaction costs, are credited to
share capital (nominal value) and share premium when the options are exercised.


Foreign currencies

Transactions in currencies other than US dollars are recorded at the rates of
exchange prevailing on the dates of the transactions. Monetary assets and
liabilities denominated in such currencies are retranslated at the rates
prevailing on the balance sheet date. Profits and losses arising on exchange are
included in the income statement for the period.








Notes to the financial statements
For the year ended 31 December 2005


2. Summary of significant accounting policies


Goodwill

Goodwill arising on consolidation represents the excess of the cost of
acquisition over the Company's interest in the fair value of the identifiable
assets, liabilities and contingent liabilities of a subsidiary, associate or
jointly controlled entity at the date of acquisition. Goodwill is recognised as
an asset and is tested for impairment annually, or on such occasions that events
or changes in circumstances indicate that its value might be impaired in
accordance with IAS 36.


Goodwill arising on the acquisition of associates is included within the
carrying value of the associates. Goodwill arising on the acquisition of
subsidiaries and jointly controlled entities is presented separately in the
balance sheet.


Negative goodwill arising on acquisition of a subsidiary and jointly controlled
entities is set against a reassessment of the identifiable assets, liabilities
and contingent liabilities and the measurement of the cost of the consideration
if applicable and then recognised in the income statement.


On disposal of a subsidiary, associate or jointly controlled entity, the
attributable amount of unamortised goodwill, which has not been subject to
impairment, is included in the determination of the profit or loss on disposal.


Exploration and evaluation assets

The Group has capitalised at cost expenditure which is directly associated with
the acquisition, exploration and appraisal of their oil and gas interests.


The exploration and evaluation assets are reviewed for impairment at least at
each balance sheet date and when fact and circumstances suggest that the
carrying amount exceeds the recoverable amount. Any impairment loss is
calculated and recognised as an expense in accordance with IAS 36.


Fixtures and equipment

Fixtures and equipment are stated at cost less accumulated depreciation and any
impairment losses. Depreciation is charged so as to write off the costs over
their estimated useful lives, using the straight-line method commencing in the
month following the purchase, on the following basis:

Fixtures and equipment                                      3 years
Motor Vehicles                                              3 years

The gain or loss arising on the disposal of an asset is determined as the
difference between the sales proceeds and the carrying amount of the asset and
is recognised in income.


Investment in multi-client library

This investment represents the Group's participating interest in seismic surveys
that are licensed to customers on a non-exclusive basis. All costs directly or
indirectly incurred in acquiring, processing and otherwise completing seismic
surveys are capitalised in the multi-client library.


Group policy is to amortise the survey costs over five years from the point that
the survey has been completed.




Notes to the financial statements
For the year ended 31 December 2005


2. Summary of significant accounting policies


Impairment

At each balance sheet date, the Group reviews the carrying amount of its
tangible and intangible assets with finite lives to determine whether there is
any indication that those assets have suffered an impairment loss. If any such
indication exists, the recoverable amount of the asset is estimated in order to
determine the extent of the impairment loss (if any). Where it is not possible
to estimate the recoverable amount of an individual asset, the Group estimates
the recoverable amount of the cash-generating unit to which the asset belongs.


Goodwill arising on acquisitions is allocated to cash-generating units. The
recoverable amount of the cash-generating unit to which goodwill is allocated is
tested for impairment annually, or on such other occasions that events or
changes in circumstances indicate that it might be impaired.


If the recoverable amount of an asset (or cash-generating unit) is estimated to
be less than its carrying amount, the carrying amount of the asset (or
cash-generating unit) is reduced to its recoverable amount. Impairment losses
are recognised as an expense immediately, unless the relevant asset is land or
buildings at a revalued amount, in which case the impairment loss is treated as
a revaluation decrease.


Where an impairment loss subsequently reverses, the carrying amount of the asset
(or cash-generating unit) is increased to the revised estimate of its
recoverable amount, but so that the increased carrying amount does not exceed
the carrying amount that would have been determined had no impairment loss been
recognised for the asset (or cash-generating unit) in prior periods. A reversal
of an impairment loss is recognised as income immediately, unless the relevant
asset is carried at a revalued amount, in which case the reversal of the
impairment loss is treated as a revaluation increase. However, impairment losses
relating to goodwill may not be reversed.


Financial instruments

Financial assets and financial liabilities are recognised in the Group's and
Company's balance sheets when the Group or Company has become a party to the
contractual provisions of the instrument.


Trade receivables

Trade receivables are stated at their nominal value as reduced by appropriate
provisions for estimated irrecoverable amounts. Appropriate provisions for
estimated irrecoverable amounts are recognised on profit or loss when there is
objective evidence that the assets is impaired.


Cash and cash equivalents

Cash and cash equivalents comprise cash on hand and demand deposits, and other
short-term highly liquid investments that are readily convertible to a known
amount of cash and are subject to an insignificant risk of changes in value.


Financial liabilities and equity

Financial liabilities and equity instruments are classified according to the
substance of the contractual arrangements entered into. An equity instrument is
any contract that evidence a residual interest in the asset of the Group after
deducting all of its liabilities


Trade payables

Trade payables are stated at their nominal value less any discount or rebate
received.


Provisions

Provisions are recognised when the Group has a present obligation as a result of
a past event, which it is likely that an outflow of economic benefits will occur
and can be reasonably quantified.


Equity instruments

Equity issued by the Company is recorded at the proceeds received, net of direct
issue costs.


Notes to the financial statements

For the year ended 31 December 2005

 3.  Loss from operations                                      2005       2004
                                                              $'000      $'000
     Loss from operations has been arrived at after charging
     /(crediting):

     Net foreign exchange loss/(gain)                            67       (135)
     Share based transactions                                 1,890        124
     Amortisation of multi-client library                       606        324
     Depreciation on fixtures and equipment                     135          2
     Auditors' fees                                              30         18
     Directors' remuneration                                    722        249
     Staff costs                                                324        249
                                                               ======  =========

     The audit fee for the parent company was $25,000 (2004:$14,000)

 4.  Staff costs                                               2005       2004
                                                                No.        No.

     The average monthly number of employees (including           6          3
     executive directors) was:                                 ======  =========

     Their aggregate remuneration comprised (excluding
     executive directors):
                                                               2005       2004
                                                              $'000      $'000

     Wages and salaries                                         290          -
     Social security costs                                       22          -
     Other pension costs                                         12          -
                                                               ------  ---------
                                                                324          -
                                                               ======  =========
     The Group contributes to individual personal pension
     plans.

 5.  Directors' remuneration

     Remuneration paid to directors during the period was as
     follows:
                                                               2005       2004
                                                              $'000      $'000

     Salaries                                                   210         17
     Fees                                                       422        232
     Pensions                                                    90          -
                                                               ------  ---------
                                                                722        249
                                                               ======  =========

     The remuneration of directors and key executives is decided by the
     remuneration committee having regard to comparable market statistics.

 6.  Income from investments                                   2005       2004
                                                              $'000      $'000

     Interest on bank deposits                                3,233         46
                                                               ======  =========



Notes to the financial statements
For the year ended 31 December 2005

 7.  Loss per share

     The calculations of the basic and diluted loss
     per share is based on the following data:
                                                            2005          2004
                                                           $'000         $'000
     Loss
     Loss for the purpose of basic loss per share         (3,713)       (1,779)
     (net loss for the year)

     Effect of dilutive options and warrants                   -             -
                                                          --------     ---------
     Loss for the purposes of diluted loss per            (3,713)       (1,779)
     share                                                ========     =========

     Number of shares

     Weighted average number of common shares in     113,710,957    32,757,808
     issue during the year

     Effect of dilutive options and warrants           9,111,563             -
                                                         =========     =========

     Weighted average number of common shares in     122,822,520    32,757,808
     issue during the year for the purpose of            =========     =========
     diluted loss per share




The options and warrants in existence at the end of the year ended 31 December
2004 did not have a dilutive effect as the exercise price exceeded the average
market price of the common shares

    8.  Goodwill
                                                                         $'000
        Cost
        At 1 January 2004 and 31 December 2005                           1,762
                                                                          ------

        Impairment provision
        At 1 January 2004 and 31 December 2005                             389
                                                                          ------

        Carrying amount
        At 31 December 2005                                              1,373
                                                                          ======

        At 31 December 2004                                              1,373
                                                                          ======

    9.  Exploration and evaluation assets
                                                                            West
        Group                                                             Africa
                                                                         $'000
        Cost
        At 1 January 2004                                                    -
        Additions                                                        2,249
                                                                          ------

        At 1 January 2005                                                2,249
        Additions                                                       48,085
                                                                          ------

        At 31 December 2005                                             50,334
                                                                          ======



Notes to the financial statements
For the year ended 31 December 2005

      9.  Exploration and evaluation assets
                                                                            West
          Company                                                         Africa
                                                                         $'000
          Cost
          At 1 January 2004                                                  -
          Additions                                                        249
                                                                          ------

          At 1 January 2005                                                249
          Addition                                                      13,649
                                                                          ------

          At 31 December 2005                                           13,898
                                                                          ======

     10.  Investment in multi-client library
          Group and Company                                              $'000

          Cost
          At 1 January 2004                                              1,626
          Additions                                                      1,357
                                                                          ------

          At 1 January 2005                                              2,983
          Additions                                                      1,052
                                                                          ------

          At 31 December 2005                                            4,035
                                                                          ------

          Accumulated amortisation
          At 1 January 2004                                                507
          Charge for year                                                  324
                                                                          ------

          At 1 January 2005                                                831
          Charge for year                                                  606
                                                                          ------

          At 31 December 2005                                            1,437
                                                                          ------

          Carrying amount
          At 31 December 2005                                            2,598
                                                                          ======

          At 31 December 2004                                            2,152
                                                                          ======



Notes to the financial statements

For the year ended 31 December 2005



 11.  Fixtures and equipment
      Group                            Fixtures                 Motor
                                   and fittings  Equipment   vehicles    Total
      Cost                              $'000      $'000      $'000      $'000
      At 1 January 2004                     -          -          -          -
      Additions                             -         43          -         43
                                      ---------  ---------  ---------  ---------

      At 1 January 2005                     -         43          -         43
      Additions                           251        219        363        833
                                      ---------  ---------  ---------  ---------

      At 31 December 2005                 251        262        363        876
                                      ---------  ---------  ---------  ---------

      Accumulated depreciation
      At 1 January 2004                     -          -          -          -
      Charge for year                       -          2          -          2
                                      ---------  ---------  ---------  ---------

      At 1 January 2005                     -          2          -          2
      Charge for the year                  36         57         42        135
                                      ---------  ---------  ---------  ---------

      At 31 December 2005                  36         59         42        137
                                      ---------  ---------  ---------  ---------

      Carrying amount
      At 31 December 2005                 215        203        321        739
                                      ---------  ---------  ---------  ---------

      At 31 December 2004                   -         41          -         41
                                      ---------  ---------  ---------  ---------

      Company
                                                                       Equipment
      Cost                                                               $'000
      At 1 January 2004                                                      -
      Additions                                                             43
                                                                       ---------

      At 1 January 2005                                                     43
      Additions                                                            109
                                                                       ---------

      At 31 December 2005                                                  152
                                                                       ---------

      Accumulated depreciation
      At 1 January 2004                                                      -
      Charge for year                                                        2
                                                                       ---------

      At 1 January 2005                                                      2
      Charge for the year                                                   41
                                                                       ---------

      At 31 December 2005                                                   43
                                                                       ---------

      Carrying amount
      At 31 December 2005                                                  109
                                                                       ---------

                                                                            41
                                                                       ---------




Notes to the financial statements
For the year ended 31 December 2005


12.    Amount owed by subsidiary undertakings

                                             Equator           Equator
                                         Exploration       Exploration
                                           (OML 122)   Nigeria Limited   Total
                                             Limited
                                             $'000             $'000     $'000
At 1 January 2004 and 1 January 2005             -                 -         -
Funds provided                              34,183             3,527    37,710
                                        ------------     -------------  --------

At 31 December 2005                         34,183             3,527    37,710
                                        ------------     -------------  --------



The loans have been provided to both subsidiaries to provide funds for
investment in the Group's principal activity. There are no set repayment dates
and no interest is charged on the outstanding amounts.


13. Investments

                                                                   Investment in
                                                                      subsidiary
                                                                    undertakings


                                                                         $'000
At 1 January 2004                                                        2,000
Additions                                                                1,198
                                                                     -----------

At 1 January 2005                                                        3,198
Additions                                                                    -
                                                                     -----------

At 31 December 2005                                                      3,198
                                                                     -----------



The subsidiary undertakings of the company are as follows:

                                                      Percentage      Country of
Name                                                       owned    registration

Aqua Exploration Limited                                   100%          Bahamas
Equator Exploration Nigeria Limited                        100%          Nigeria
Equator Exploration (OML 122) Limited (note 1)             100%              BVI
Equator Exploration (Congo) Limited (note 2)               100%              BVI
Equator JDZ Nigeria Block 2 Limited (note 3)               100%          Nigeria

Note 1: The company was formed on 31 March 2005

Note 2: The company was formed on 19 July 2005

Note 3: The company was formed on 14 December 2005


The principal activity of the above companies is the exploration and development
of oil and gas projects


14.    Trade and other receivables

Group                                                 2005                2004
                                                     $'000               $'000

Trade receivables                                      157                  55
Other receivables                                    1,594                  12
Short term loans                                       900                   -
Prepayments and accrued income                       1,294                 201
                                                  ----------        ------------

                                                     3,945                 268
                                                  ==========        ============



Notes to the financial statements
For the year ended 31 December 2005


14.    Trade and other receivables

Company                                              2005                 2005
                                                    $'000                $'000
                                         
                                         
Trade receivables                                     157                   55
Other receivables                                     765                   12
Short term loans                                      900                    -
Prepayments and accrued income                          2                  201
                                                   --------         ------------
                                        
                                                    1,824                  268
                                                   ========         ============
                                         



The short term loan was repayable by 31 January 2006 but has since been extended
until 31 March 2006 and is secured on personal assets. Interest is charged at 5%
payable on repayment of the capital amount.


The directors consider that the carrying amount of trade and other receivables
approximates to their fair value. There have been no allowances for doubtful
receivables due to the Group's managements' prior experience.

Credit risk

The Group's principal financial assets are bank balances and cash, trade
receivables, other receivable and short term loans.


The Group's credit risk is primarily attributable to its trade receivables,
other receivable and short term loans. An allowance is provided for doubtful
receivables where there is an identified loss event, which, based on previous
experience, is evidence of a reduction in the recoverability of the cash flows.


The credit risk on liquid funds is limited because the counterparties are banks
with high credit ratings assigned by international credit-rating agencies.


15. Cash and cash equivalents


Cash and cash equivalents comprise cash held by the Group and Company and
short-term deposits with an original maturity of three months or less. The
carrying amount of these assets approximate their fair value


16. Share capital

                                                     2005                 2004
                                                        No.                  No.
Issued and fully paid
Common shares with no par value               131,417,190          113,400,124
                                               ============        =============



On 8 July 2005, the Company issued 305,500 common shares for $1.31 per share on
exercise of warrants


On 11 July 2005, the Company issued 15,000 common shares for $1.31 per share on
exercise of warrants


On 12 July 2005, the Company issued 205,500 common shares for $1.31 per share on
exercise of warrants.


On 14 July 2005, the Company issued 200,000 common shares for $1.25 per share on
exercise of share options.


On 3 October 2005, the Company issued 100,000 common shares for $1.31 per share
on exercise of warrants.


On 8 December 2005, the Company issued 17,291,066 for $3.47 per share.







Notes to the financial statements
For the year ended 31 December 2005


16. Share capital


Warrant & option issues


As at 31 December 2005, there were 11,395,000 (2004: 12,021,000) warrants
outstanding exercisable up to three years from date of issuance at an exercise
price of $1.3125 per share, with each warrant being convertible into one common
share.


17. Share based payments


During the year ended 31 December 2005, the Company had the following share
options in issue:

                                                                       Number of
Option 1                                                                 options

Outstanding at 1 January 2005                                          600,000
Exercised during year                                                 (200,000)
                                                                       ---------

Outstanding at 31 December 2005                                        400,000
                                                                       =========




The 400,000 options outstanding as at 31 December 2005 were granted on 21 August
2003 with an exercise price of $5.00 per share. Due to the split of shares on a
four to one basis on 26 October 2004, the exercise price was reduced to $1.25
per share. The options are exercisable until 21 August 2008 with each option
convertible into one common share.


                                                                       Number of
Option 2                                                                 options

Outstanding at 1 January 2005 and 31 December 2005                   3,360,000
                                                                       =========


The Company granted 3,360,000 options to officers, directors, employees and
consultants on 23 November 2004. The options had an exercise price of #1 and
expire on 23 November 2014. The options vest on a pro-rata basis over 24 months.
Management has estimated the fair value of these options, once vested, to be
$0.89 per option. The value of these options was determined using the
Black-Scholes option-pricing model with assumptions of the risk free rate of
4.5%, the average term of 9 years, stock value at time of granting of #1 and
volatility of 30%. The total value of $1,500,000 was recorded in the
consolidated income statement for the year ended 31 December 2005.

                                                                       Number of
Option 3                                                                 options

Outstanding at 1 January 2005                                                -
Granted                                                              2,315,000
                                                                       ---------

Outstanding at 31 December 2005                                      2,315,000




The Company granted 2,315,000 options to directors on 22 July 2005. The options
had an exercise price of #1.56 and expire on 21 July 2010. The options vest
semi-annually over 24 months. Management has estimated the fair value of these
options, once vested, to be $0.88 per option. The value of these options was
determined using the Black-Scholes option pricing model with assumptions of the
risk free rate of 4.3%, the average term of 4.5 years, stock value at time of
granting of #1.56 and volatility of 30%. The total value of $203,000 was
recorded in the consolidated income statement for the year ended 31 December
2005.



Notes to the financial statements
For the year ended 31 December 2005


17.    Share based payments

                                                                       Number of
Option 4                                                                 options

Outstanding at 1 January 2005                                                -
Granted                                                              1,525,000
                                                                       ---------

Outstanding at 31 December 2005                                      1,525,000
                                                                       =========



The Company granted 1,525,000 options to directors on 9 November 2005. The
options had an exercise price of #2.068 and expire on 8 November 2010. The
options vest semi-annually over 24 months. Management has estimated the fair
value of these options, once vested, to be $1.23 per option. The value of these
options was determined using the Black-Scholes option-pricing model with
assumptions of the risk free rate of 4.3%, the average term of 9 years, stock
value at time of granting of #2.06 and volatility of 30%. The total value of
$187,000 was recorded in the consolidated income statement for the year ended 31
December 2005.

                                                                       Number of
Option 5                                                                 options

Outstanding at 1 January 2005                                                -
Granted                                                                 60,000
                                                                       ---------

Outstanding at 31 December 2005                                         60,000
                                                                       =========



The Company granted 1,525,000 options to directors on 8 December 2005. The
options had an exercise price of #2.068 and expire on 7 December 2010. The
options vest semi-annually over 24 months. The value of these options was
determined using the Black-Scholes option-pricing model with assumptions of the
risk free rate of 4.3%, the average term of 9 years, stock value at time of
granting of #2.07 and volatility of 30%. The total value of $7,000 was recorded
in the consolidated income statement for the year ended 31 December 2005.


Other options


On 3 December 2004, the Company granted 1,134,000 assignable options to NWCF LLP
as partial consideration for their advisory services in connection with the
admission of the Company to AIM. These options have an exercise price of #1 and
expire on 9 December 2009. Management has estimated the fair value of these
options to be $0.65 per option, totalling $752,000. The value of these options
was determined using the Black-Scholes option-pricing model with assumptions of
the risk free rate of 4.25%, the term of 5 years, stock value at time of
granting of #1 and volatility of 30%. The total value of $752,000 was recorded
in other reserves. This did not affect the consolidated income statement as the
cost was taken to the capital reserve as an expense of the issue of common
shares on AIM.


On 3 December 2004, the Company granted 2,400,000 assignable options to ODL
Securities Limited as partial consideration for their advisory services in
connection with the admission of the Company to AIM. These options have an
exercise price of #1 and expire on 9 December 2007. Management has estimated the
fair value of these options to be $0.48 per option, totaling $1,163,000. The
value of these options was determined using the Black-Scholes option-pricing
model with assumptions of the risk free rate of 3.75%, the term of 3 years,
stock value at time of granting of #1 and volatility of 30%. The total value of
$1,163,000 was recorded in other reserves. This did not affect the consolidated
income statement as the cost was taken to the capital reserve as an expense of
the issue of common shares on AIM.



Notes to the financial statements

For the year ended 31 December 2005


18.    Trade and other payables

Group                                                 2005                2004
                                                     $'000               $'000

Other taxes and social security                         14                   -
Accruals and deferred income                           401                  45
                                                   ---------         -----------

                                                       415                  45
                                                   =========         ===========

Company                                               2005                2004
                                                     $'000               $'000

Other taxes and social security                         14                   -
Accruals and deferred income                           288                  45
                                                   ---------         -----------

                                                       302                  45
                                                   =========         ===========





Accruals principally comprise amounts outstanding for trade purchases and
ongoing costs.


19. Related party transactions

a)         Transactions between group companies are disclosed in note 13.


b)         Payments were made in respect of administrative services through
other companies that are related to the shareholders of the Company, for which
fees of $231,000 (2004: $132,000) were charged, being an appropriate allocation
of costs incurred by relevant administrative departments.


20. Contingent liabilities


Seisco Investments Limited

Seisco Investments Limited ('Seisco') is a special purpose vehicle that has a
common director and shareholder. During 2002 Seisco provided Equator with
$500,000 to fund Equator's share of the acquisition costs of certain seismic
data. The amount borrowed was repaid during 2002 and 2003 from the revenue
generated from licensing the seismic data.


In the event that no future seismic revenues can be expected from the majority
owner (the 'Majority Owner') of this designated batch of seismic data acquired
in 2002, the acquisition cost of which was funded by Seisco, as a result of the
Majority Owner of such data entering into liquidation proceedings Equator will
issue Seisco with a maximum of 100,000 common shares. The number of common
shares to be issued to Seisco in the event of the cessation of seismic revenues
due to the liquidation of the Majority Owner will be dependant upon the extent
to which the funds provided by Seisco have been repaid prior to the cessation of
seismic revenues as shown below:

                                                                       Number of
                                                                          shares
Amount of initial investment repaid                                 to be issued

Greater than initial funds provided but less than 1.5 times
initial funds provided                                                 100,000
                                                                   =============

Greater than 1.5 times initial funds provided                           50,000
                                                                   =============






Notes to the financial statements
For the year ended 31 December 2005


21. Subsequent events


On 19 January 2006, the Company issued 380,000 new common shares on exercise of
warrants at $1.31 per share.


On 2 February 2006, the Company issued 2,030,000 new common shares on exercise
of warrants at $1.31 per share.


On 20 February 2006, the Company issued 41,050,900 new common shares with
institutional investors at $6.09 per share.




                      This information is provided by RNS
            The company news service from the London Stock Exchange

END
FR AKNKKPBKDCPD

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