Offer for Fusion Oil & Gas
Sterling Energy PLC
25 September 2003
Offer for Fusion Oil & Gas plc
by Evolution Beeson Gregory Limited
on behalf of
Sterling Energy plc
and
Placing to raise £10 million
PART 2
APPENDIX I
CONDITIONS OF THE OFFER
The Offer will be subject to the following conditions:
(a) valid acceptances being received (and not, where
permitted, withdrawn) by not later than 3.00 p.m. on the first closing date of
the Offer (or such later time(s) and/or date(s) as Sterling may, subject to the
rules of the Code, decide) in respect of not less than 90 per cent. (or such
lesser percentage as Sterling may decide) of the Fusion Shares to which the
Offer relates, provided that, unless agreed by the Panel, this condition will
not be satisfied unless Sterling and/or its wholly-owned subsidiaries have
acquired or agreed to acquire (pursuant to the Offer or otherwise), directly or
indirectly, Fusion Shares carrying, in aggregate, over 50 per cent. of the
voting rights then normally exercisable at general meetings of Fusion on such
basis as may be required by the Panel (including for this purpose, to the extent
(if any) required by the Panel, any voting rights attaching to any shares which
are unconditionally allotted or issued before the Offer becomes or is declared
unconditional as to acceptances, whether pursuant to the exercise of conversion
or subscription rights or otherwise); and for this purpose (i) the expression
'Fusion Shares to which the Offer relates' shall be construed in accordance with
sections 428-430F of the Companies Act 1985; and (ii) shares which have been
unconditionally allotted shall be deemed to carry the voting rights which they
will carry on issue;
(b) an announcement by AIM that it will admit for trading on AIM the
Sterling Shares to be issued pursuant to the Offer and the Placing;
(c) no government or governmental, quasi-governmental, supranational,
statutory or regulatory body, or any court, institution, investigative body,
association, trade agency or professional or environmental body or (without
prejudice to the generality of the foregoing) any other person or body in any
jurisdiction (each, a 'Relevant Authority') having decided to take, instituted,
implemented or threatened any action, proceedings, suit, investigation or
enquiry or enacted, made or proposed any statute, regulation or order or
otherwise taken any other step or done any thing, and there not being
outstanding any statute, legislation or order, that would or might:
(i) restrict, restrain, prohibit, delay, impose additional
conditions or obligations with respect to, or otherwise interfere with the
implementation of, the Offer or the acquisition of any Fusion Shares by Sterling
or any matters arising therefrom;
(ii) result in a delay in the ability of Sterling, or render
Sterling unable, to acquire some or all of the Fusion Shares;
(iii) require, prevent, delay or affect the divestiture by
Sterling or any of its subsidiaries, subsidiary undertakings or associated
undertakings (including any company of which 20 per cent. or more of the voting
capital is held by the Sterling Group or any partnership, joint venture, firm or
company in which any of them may be interested) (together the 'wider Sterling
Group') or Fusion or any of its subsidiaries, subsidiary undertakings or
associated undertakings (including any company of which 20 per cent. or more of
the voting capital is held by the Fusion Group or any partnership, joint
venture, firm or company in which any of them may be interested) (together the
'wider Fusion Group') of all or any portion of their businesses, assets or
property or of any Fusion Shares or other securities in Fusion or impose any
limitation on the ability of any of them to conduct their respective businesses
or own their respective assets or properties or any part thereof;
(iv) impose any limitation on the ability of any member of the
wider Sterling Group to acquire or hold or exercise effectively, directly or
indirectly, all rights of all or any of the Fusion Shares (whether acquired
pursuant to the Offer or otherwise);
(v) require any member of the wider Sterling Group or the
wider Fusion Group to offer to acquire any shares or other securities or rights
thereover in any member of the wider Fusion Group owned by any third party;
(vi) make the Offer or its implementation or the proposed
acquisition of Fusion or any member of the wider Fusion Group or of any Fusion
Shares or any other shares or securities in, or control of, Fusion, illegal,
void or unenforceable in or under the laws of any jurisdiction;
(vii) impose any limitation on the ability of any member of the
wider Sterling Group or the wider Fusion Group to co-ordinate its business, or
any part of it, with the business of any other member of the wider Sterling
Group or the wider Fusion Group; or
(viii) otherwise adversely affect any or all of the businesses,
assets, prospects or profits of any member of the wider Sterling Group or the
wider Fusion Group or the exercise of rights of shares of any company in the
wider Fusion Group,
and all applicable waiting periods during which such Relevant Authority could
institute, implement or threaten any such action, proceeding, suit,
investigation, enquiry or reference or otherwise intervene having expired,
lapsed or been terminated;
(d) all authorisations, orders, grants, consents,
clearances, licences, permissions and approvals, in any jurisdiction, deemed
necessary or appropriate by Sterling for or in respect of the Offer, the
proposed acquisition of any shares or securities in, or control of, Fusion or
any member of the wider Fusion Group by any member of the wider Sterling Group
or the carrying on of the business of any member of the wider Fusion Group or
the wider Sterling Group, the issue of the New Sterling Shares or any matters
arising therefrom being obtained in terms satisfactory to Sterling from all
appropriate Relevant Authorities or (without prejudice to the generality of the
foregoing) from any persons or bodies with whom any members of the wider Fusion
Group or the wider Sterling Group has entered into contractual arrangements and
such authorisations, orders, grants, consents, clearances, licences, permissions
and approvals remaining in full force and effect and there being no intimation
of any intention to revoke or not to renew the same and all necessary filings
having been made, all appropriate waiting and other time periods (including
extensions thereto) under any applicable legislation and regulations in any
jurisdiction having expired, lapsed or been terminated and all necessary
statutory or regulatory obligations in any jurisdiction in respect of the Offer
or the proposed acquisition of Fusion by Sterling or of any Fusion Shares or any
matters arising therefrom having been complied with;
(e) appropriate assurances being received, in terms
satisfactory to Sterling, from the relevant authorities or any party with whom
any member of the wider Fusion Group has any contractual or other relationship
that the interests held by any member of the wider Fusion Group under licences,
leases, consents, permits and other rights will not be adversely amended or
otherwise affected by the Offer or the proposed acquisition of Fusion or any
matters arising therefrom, that such licences, leases, consents, permits and
other rights are in full force and effect and that there is no intention to
revoke or amend any of the same;
(f) there being no provision of any agreement, instrument,
permit, licence or other arrangement to which any member of the wider Fusion
Group is a party or by or to which it or any of its assets may be bound or
subject which, as a consequence of the Offer or the acquisition of Fusion or
because of a change in the control or management of Fusion or any member of the
wider Fusion Group or any matters arising therefrom or otherwise, could or might
have the result that:
(i) any moneys borrowed by, or other indebtedness, actual
or contingent, of, or grant available to, any member of the wider Fusion Group
becomes or is capable of being declared repayable immediately or earlier than
the repayment date stated in such agreement, instrument or other arrangement or
the ability of any member of the wider Fusion Group to borrow moneys or incur
indebtedness is withdrawn, inhibited or adversely affected;
(ii) any mortgage, charge or other security interest is
created over the whole or any part of the business, property or assets of any
member of the wider Fusion Group or any such security (whenever arising) becomes
enforceable;
(iii) any such agreement, instrument, permit, licence or other
arrangement, or any right, interest, liability or obligation of any member of
the wider Fusion Group therein, is terminated or materially adversely modified
or affected or any material action is taken or onerous obligation arises
thereunder;
(iv) the value of any member of the wider Fusion Group or its
financial or trading position is prejudiced or adversely affected;
(v) any material asset or, other than in the ordinary course
of business, any asset of the wider Fusion Group being or falling to be charged
or disposed of;
(vi) the rights, liabilities, obligations or interests or
business of any member of the wider Fusion Group in or with any other person,
firm or company (or any arrangement relating to such interest or business) is
terminated, modified or adversely affected; or
(vii) any member of the wider Fusion Group ceases to be able to
carry on business under any name under which it currently does so;
(g) since 30 June 2002 (being the latest date to which the
published audited results of Fusion were made up) save as announced publicly and
in each case delivered to a Regulatory Information Service (as defined in the
AIM Rules) prior to 25 September 2003, no member of the wider Fusion Group
having:
(i) issued or agreed to issue or authorised or proposed the
issue of additional shares of any class or issued or authorised or proposed the
issue of or granted securities convertible into or rights, warrants or options
to subscribe for or acquire such shares or convertible securities or redeemed,
purchased or reduced or announced any intention to do so or made any other
change to any part of its share capital;
(ii) recommended, declared, paid or made or proposed to
recommend, declare, pay or make any dividend, bonus or other distribution other
than dividends lawfully paid to Fusion or wholly-owned subsidiaries of Fusion;
(iii) authorised or proposed or announced its intention to
propose any merger or acquisition or disposal or transfer of assets or shares or
any change in its share or loan capital;
(iv) issued or authorised or proposed the issue of any
debentures or incurred or increased any indebtedness or contingent liability;
(v) disposed of or transferred, mortgaged or encumbered any
asset or any right, title or interest in any asset or entered into or varied any
contract, commitment or arrangement (whether in respect of capital expenditure
or otherwise) which is of a long term or unusual nature or which involves or
could involve an obligation of a nature or magnitude which is material or
authorised, proposed or announced any intention to do so;
(vi) entered into or varied or proposed to enter into or vary
any contract, reconstruction, amalgamation, arrangement or other transaction
which is of a long term or unusual or onerous nature or is otherwise than in the
ordinary course of business or announced any intention to do so;
(vii) entered into, or varied the terms of, any contract or
agreement with any of the directors or senior executives of Fusion;
(viii) taken or proposed any corporate action or had any legal
proceedings started or threatened against it for its winding-up, dissolution or
reorganisation or for the appointment of a receiver, administrator,
administrative receiver, trustee or similar officer of all or any of its assets
and revenues;
(ix) waived or compromised any claim other than in the ordinary
course of business;
(x) made any amendment to its memorandum or articles of
association;
(xi) entered into any contract, transaction or arrangement
which is or may be restrictive on the business of any member of the wider Fusion
Group or the wider Sterling Group;
(xii) entered into any contract, commitment or agreement with
respect to any of the transactions or events referred to in this condition (g);
and
(xiii) been unable or admitted that it is unable to pay its debts
or having stopped or suspended (or threatened to stop or suspend) payment of its
debts generally or ceased or threatened to cease carrying on all or a
substantial part of its business;
(h) since 30 June 2002 (being the latest date to which the
latest published audited results of Fusion were made up) save as announced
publicly and in each case delivered to a Regulatory Information Service (as
defined in the AIM Rules) prior to 25 September 2003:
(i) no litigation, arbitration, prosecution or other legal
proceedings having been instituted, announced or threatened or become pending or
remained outstanding by or against any member of the wider Fusion Group or to
which any member of the wider Fusion Group is or may become a party (whether as
plaintiff, defendant or otherwise);
(ii) no adverse change having occurred in the business,
assets, financial or trading position, profits or prospects of any member of the
wider Fusion Group;
(iii) no investigation by any Relevant Authority having been
threatened, announced, implemented or instituted or remaining outstanding;
(i) Sterling not having discovered that:
(i) any business, financial or other information concerning
any member of the wider Fusion Group disclosed publicly by or on behalf of any
member of the wider Fusion Group, either contains a misrepresentation of fact or
omits to state a fact necessary to make the information contained therein not
misleading; or
(ii) any member of the wider Fusion Group is subject to any
liability, actual or contingent, which is not disclosed in the annual report and
accounts of Fusion for the financial year ended 30 June 2002; and
(j) Sterling not having discovered that:
(i) any past or present member of the wider Fusion Group
has not complied with all applicable legislation or regulations of any
jurisdiction with regard to the storage, disposal, discharge, spillage, leak or
emission of any waste or hazardous substance or any substance likely to impair
the environment or to harm human health or otherwise relating to environmental
matters (which non-compliance might give rise to any liability (whether actual
or contingent) on the part of any member of the wider Fusion Group) or that
there has otherwise been any such disposal, discharge, spillage, leak or
emission (whether or not the same constituted a non-compliance by any person
with any such legislation or regulations and wherever the same may have taken
place) which in any such case might give rise to any liability (whether actual
or contingent) on the part of any member of the wider Fusion Group;
(ii) there is or is likely to be any liability (whether
actual or contingent) to make good, repair, reinstate or clean up any property
now or previously owned, occupied or made use of by any past or present member
of the wider Fusion Group or any controlled waters under any environmental
legislation, regulation, notice, circular or order of any Relevant Authority or
third party or otherwise;
(iii) that circumstances exist (whether as a result of the
making of the Offer or otherwise) which might lead to any Relevant Authority
instituting or any member of the wider Fusion Group or the wider Sterling Group
might be required to institute, an environmental audit or take any other steps
which in any such case might result in any actual or contingent liability to
improve or install new plant or equipment or make good, repair, re-instate or
clean up any land or other asset now or previously owned, occupied or made use
of by any member of the wider Fusion Group; or
(iv) circumstances exist whereby a person or class of persons
might have any claim or claims in respect of any product or process of
manufacture or materials used therein now or previously manufactured, sold or
carried out by any past or present member of the wider Fusion Group.
Sterling reserves the right to waive all or any of conditions (c) to (j)
(inclusive) above, in whole or in part. Condition (b) must be fulfilled within
21 days after the later of the first closing date of the Offer and the date on
which condition (a) is fulfilled and conditions (c) to (j) (inclusive) must be
satisfied as at, or waived on or before, 21 days after the later of the first
closing date of the Offer and the date on which condition (a) is fulfilled (or
in each case such later date as the Panel may agree) provided that Sterling
shall be under no obligation to waive or treat as satisfied any of conditions
(c) to (j) (inclusive) by a date earlier than the latest date specified above
for the satisfaction thereof notwithstanding that the other conditions of the
Offer may at such earlier date have been waived or fulfilled and that there are
at such earlier date no circumstances indicating that any of such conditions may
not be capable of fulfilment.
The Partial Cash Alternative will be conditional on the Offer becoming or being
declared unconditional in all respects. It will remain open until 3.00 p.m. on
the first closing date of the Offer and, if the Offer is unconditional as to
acceptances on the first closing date, Sterling reserves the right either to
close the Partial Cash Alternative on the day falling 14 days after the first
closing date of the Offer or to extend it. If, on any closing date of the
Offer, the Offer is not then unconditional as to acceptances and is extended,
the right is reserved to close or extend the Partial Cash Alternative at that
date. If, however, on the first closing date on which the Offer is capable of
being declared unconditional, it is not so declared and is extended, the Partial
Cash Alternative will remain open for at least 14 days thereafter but may then
be closed without prior notice. The right is also reserved to re-introduce a
partial cash alternative as long as the Offer is still then not unconditional as
to acceptances.
If Sterling is required by the Panel to make an offer for Fusion Shares under
the provisions of Rule 9 of the Code, Sterling may make such alterations to the
conditions as are necessary to comply with the provisions of that Rule.
The Offer will lapse if the Offer is referred to the Competition Commission or
if the European Commission in respect thereof either initiates proceedings under
article 6(1)(c) of Council Regulation (EEC) 4064/89 or makes a referral to a
competent authority of the United Kingdom under article 9(1) of that Regulation,
before (in any such case) the later of the first closing date and the date when
the Offer becomes or is declared unconditional as to acceptances.
APPENDIX II
Interim results of Sterling Energy plc for the six months ended 30 June 2003
The following is the full text of the unaudited interim results announcement of
Sterling Energy plc ('Sterling' or the 'Company') for the six months ended 30
June 2003:
'I am very pleased to report further excellent progress on many fronts since the
end of 2002. The highlights are:
• We are reporting a profit before tax of £1,112,000 for the six months
ended 30 June 2003.
• We have continued to add to our US gas reserves through acquisition,
drilling and workovers.
• We have had success with our 60% interest in a new well on Eugene
Island 268, with net reserves of over 4bcf. This tested at a gross level of 5
mmcf/d and was brought onstream in early September.
• The Gryphon 2 discovery was brought onstream as an important gas
producer and we have recently signed a farmout agreement which may result in
further carried wells being drilled in an expanded area.
• Our side-track on El Gordo tapped four separate gas zones. We expect
the first zone to be on production within a few weeks.
• We were awarded a 100% interest in a new licence to the south of our
High Island A68/A83 area, adding to the potential reserves accessible from our
facilities.
• We have also concluded a throughput agreement with Forest Oil to use
our existing High Island 52 facilities to process their gas from their
neighbouring High Island 53 discovery. This is expected onstream next month.
• By the end of June we had increased our production by almost a third
from the year-end level and recorded a positive cash flow from operations for
the six month period then ended.
• Last week we agreed to purchase a 20.37% stake in Fusion Oil & Gas plc
in a share-for-share exchange. The seller, Westmount Energy Limited, has agreed
to a lock-in of the Sterling Shares it receives for at least a year.
• We have today announced a share offer for the issued share capital of
Fusion Oil & Gas plc that we do not already own, valuing the entire issued share
capital of Fusion at approximately £39.5 million. This is being announced
separately and a copy of that announcement is being sent to all Sterling
shareholders.
• We have also today announced a £10 million placing of shares with
major institutions to provide funds for a partial cash alternative to Fusion
shareholders. This is, in my view, a major vote of confidence in the underlying
value of the Company, its prospects and in its management team who collectively
are the largest shareholder in the Company.
Operations
The highlight of the first half of the year was bringing onstream the Gryphon
C-2 well in High Island Block 52, in the Gulf of Mexico. Sterling owns a 7.58
per cent. overriding royalty interest in this well, and it has been producing
solidly at 25 million cubic feet per day ('mmcfd') since February. With gas
prices reaching as high as $19/mcf on day trading in February, revenues from
this asset have been exceptional. Current production from the two Gryphon wells
is in excess of 35 mmcfd, or 2.65 mmcfd net to Sterling.
Elsewhere in the Gulf of Mexico Sterling acquired a 60 per cent. working
interest in the Eugene Island 268 lease and participated in the setting of a new
production platform and the recompletion of the #1 well originally drilled by
UMC in 1997. The well was flow tested at 5 mmcfd, and we anticipate production
at or above this rate. Gas sales commenced on 10 September 2003.
Since the interim date, Sterling has participated in various workover and
recompletions on its existing assets, and has also participated in the Western
Gulf of Mexico Lease Sale, held in August, where it was successful in its only
bid, for High Island Block A-94, which lies adjacent to its existing production
at High Island A68/A83. This area is the subject of an ongoing technical
review, which it is hoped will result in a programme of development drilling on
the field, plus the delineation of large exploration prospects, that have been
identified on existing 2D seismic data.
As previously announced, the El Gordo #4 sidetrack resulted in the drilling of
four potentially commercial gas reservoirs. The deepest of these zones was
completed and placed on production, but has suffered from early sand production.
Currently plans are being made to recomplete this zone using a low cost
sand-control solution.
There remain a number of drilling and recompletion opportunities that the
Company is planning for the latter part of 2003 or early 2004, dependent upon
partner approval and rig availability. These include a sidetrack well in High
Island 52 in which Sterling owns a 45 per cent. working interest, and new
drilling in Galveston 303, in which Sterling has a 17.5 per cent. working
interest. We have also recently entered into a further agreement with Gryphon
granting them an option to fund the drilling of up to two additional deep wells
within the High Island 52 and 53 Production Unit, wherein we would receive a
royalty until payout, and then have the right to back-in for a working interest
in the well. We are hopeful that a well will be drilled early in 2004.
Internationally, aside from the Fusion offer, work is ongoing on the Reed Bank
project in the Philippines and new exploration acreage is under negotiation in
four separate countries.
Financial report for the six months to 30 June 2003 ('the period')
During 2002, the Group was transformed by the reverse takeover of Sterling
Energy Limited. The financial impact of this transaction on the six months to 30
June 2003 is illustrated in a number of the 'Financial Highlights' shown below.
Financial Highlights:
• The Group recorded a profit before taxation of £1,112,000 in
the period compared with a loss before taxation in the corresponding period in
2002 of £102,000.
• Turnover increased to £2,591,000 in the six months to 30 June
2003 from £22,000 in the first six months of 2002.
• Production averaged 4.2 million cubic feet equivalent per day
('mmcfe/d') in the first half, with an average of over 4.4 mmcfe/d in the second
quarter.
• Direct operating and related costs averaged $0.94 per
thousand cubic feet equivalent per day ('mcfe'), whilst depletion and
amortisation were $0.95/mcfe in the first half of 2003.
• Gross profit in the period was £1,712,000 compared with
£3,000 in the corresponding period in 2002.
• Basic earnings per share (after tax) were 0.27p per share in
the period compared with a loss of 0.2p in the corresponding period.
• Net current assets were transformed: end June 2003 total of
£6,364,000 (end June 2002: £192,000).
• Shareholders' funds rose to £16,921,000 at the period end
from £14,910,000 at the end of 2002.
• Net cash generated from operations of £499,000 in the period
(six months 2002: outflow £9,000).
• Capital expenditures of £2,544,000 in the period on new wells
and other works.
• Over £1,400,000 raised from the exercise of nearly 100% of
the outstanding warrants in the period.
Commentary:
The attached interim financial information shows improvement in a wide range of
performance areas. The improvement in the Group's financial position has been
gratifying with the benefits of our strategy showing through.
I am very pleased to report the further and continuing transformation of the
Group's financial performance in the six months to 30 June 2003. We saw an
excellent and continued improvement in gross profit to £1,712,000 in the period,
both compared with the corresponding period in 2002 and the second half of 2002.
This mainly reflects the purchase of SEL and Galveston 303 in October 2002 on
the re-admission to AIM, the commencement of production from the Gryphon-2 well
in March and the strong gas prices.
Turnover of £2,591,000 reflected our much increased average production in the
period to 4.2 mmcfe/d, compared with 3.3mmcfe/d at the end of 2002 and virtually
nil in the corresponding period of 2002. Approximately 95 per cent. of this
production was gas, sold at an average price in the period of $5.55/mcf, with an
exchange rate of US$1.65:£.
Direct operating and related costs averaged $0.94/mcfe, whilst depletion and
amortisation were $0.95/mcfe. After deducting overheads, the operating profit
was £1,110,000 compared with losses in both halves of 2002. An improvement in
interest income, due to positive cash balances, offset interest expenses on a
bank loan and on the unwinding of the discount on provisions for
decommissioning.
A taxation charge of £125,000 arose mainly on the US income and is computed
assuming the use of certain taxable US losses arising in prior periods. The
future tax payable will depend on a number of factors, not least the level and
composition of capital expenditures. It should be expected that, having taken
into account deferred tax, the rate of charge will be more normal in future.
Despite a fall in the US$ exchange rate of some 6 per cent. in the first half,
the net profit was £987,000 with basic earnings per share of 0.27p in the period
(first six months 2002: loss 0.2p).
Net current assets at the period end of £6,364,000 was mainly comprised of cash
balances. Period- end debtors and prepayments of £1,839,000 were largely offset
by a bank loan and creditors of £2,070,000. We are in the final stages of
renewing the bank loan of over £1,200,000 and expect to increase the facility
level and extend part of its repayment terms past one year, reflecting, amongst
other things, recent drilling results.
Most of the capital expenditures of over £2,500,000 incurred in the period,
which were mainly on the two wells announced as successful since the period-end
and expected onstream shortly, have been shown as additions to intangible fixed
assets. These and related costs are expected to be transferred into depletable
tangible pools in the second half of the year.
After the exercise of almost 100 per cent. of the outstanding warrants to raise
some £1,400,000, shareholders' funds at the period end rose to £16,921,000, with
the issued ordinary share capital being approximately 378.4 million ordinary
shares. The 40.0 million deferred consideration shares shown as 'shares to be
issued'' are expected to be allotted in full at the end of 2003.
Outlook
Our progress has been fast and the results from our portfolio of prospects have
shown some of the potential to be realised. Although gas prices have recently
shown their usual summer retreat, with the recent drilling success, especially
on our Eugene Island well, I remain optimistic of further operational progress
and improvement.
I am hopeful of a successful outcome to our offer for Fusion, which we see as a
sensible building block which will create a geographically focused portfolio of
production, appraisal and exploration assets with enhanced opportunities for all
shareholders. We also believe that by creating a larger independent oil company
with a stronger balance sheet, we will be able to extract greater value from the
existing exploration portfolio. We continue to look to acquire additional
production in the Gulf of Mexico, if and when suitable opportunities arise.
We will, however, not overpay for acquisitions. We will cautiously add to our
production and exploration portfolios organically and through deals, allowing
our skills and professional approach to again yield the excellent results that
our management team has so far secured for the Company.
Richard O'Toole
Chairman
25 September 2003
Sterling Energy plc - Consolidated profit and loss account
For the six months to 30 June 2003
Six months to Six months to Year ended
30 June 30 June 31 December
2003 2002 2002
£000's £000's £000's
(unaudited) (unaudited) (audited)
Turnover
Existing operations 2,591 8 22
Acquisitions - 14 566
2,591 22 588
Cost of sales
Existing operations (879) (8) (13)
Acquisitions - (11) (365)
(879) (19) (378)
Gross profit
Existing operations 1,712 - 9
Acquisitions - 3 201
1,712 3 210
Administrative expenses
Amounts written off intangible fixed assets - (10) -
Other:
Existing operations (602) (64) (131)
Acquisitions - - (157)
(602) (74) (288)
Operating profit/(loss)
Existing operations 1,110 (74) (122)
- 3 44
Acquisitions
1,110 (71) (78)
Investment income 81 7 22
Interest payable and similar charges (79) (38) (42)
Profit/(loss) on ordinary activities before 1,112 (102) (98)
taxation
Taxation (Note 6) (125) - -
Profit/(loss) for the financial period 987 (102) (98)
Earnings/(loss) per share (Note 7): basic 0.27p (0.2p) (0.1p)
: diluted 0.24p (0.2p) (0.1p)
Sterling Energy plc - Consolidated balance sheet
As at 30 June 2003
As at As at As at
30 June 30 June 31 December
2003 2002 2002
£000's £000's £000's
(unaudited) (unaudited) (audited)
Fixed assets
Intangible assets (Note 8) 6,444 33 4,096
Tangible assets 6,058 142 6,560
12,502 175 10,656
Current assets
Debtors 1,839 33 673
Cash at bank and in hand 6,595 651 7,334
8,434 684 8,007
Creditors: amounts falling due within one year (2,070) (492) (1,006)
Net current assets 6,364 192 7,001
Total assets less current liabilities 18,866 367 17,657
Creditors: amounts falling due after one year - - (808)
Provisions for liabilities and charges (1,945) - (1,939)
Net assets 16,921 367 14,910
Capital and reserves
Called-up share capital 3,784 1,347 3,538
Shares to be issued 1,600 - 1,600
Share premium account 14,516 2,377 13,334
Currency translation reserve (577) 36 (173)
Profit and loss account (2,402) (3,393) (3,389)
Shareholders' funds 16,921 367 14,910
Shareholders' funds may be analysed as:
Equity interests 16,921 (524) 14,910
Non-equity interests - 891 -
16,921 367 14,910
Sterling Energy plc - Consolidated statement of recognised gains and losses
For the six months to 30 June 2003
Six months to Six months to Year ended
30 June 30 June 31 December
2003 2002 2002
£000's £000's £000's
(unaudited) (unaudited) (audited)
Profit/(loss) for the financial period 987 (102) (98)
Currency translation adjustments (404) - (209)
Total recognised gains/(losses) relating to the period 583 (102) (307)
Reconciliation of movements in Group shareholders' funds
For the six months ended 30 June 2003
Six months to Six months to Year ended
30 June 30 June 31 December
2003 2002 2002
£000's £000's £000's
(unaudited) (unaudited) (audited)
Profit/(loss) for the financial period 987 (102) (98)
Other recognised losses for the period (404) - (209)
Shares issued (net of expenses) 1,428 - 13,147
Shares to be issued - - 1,600
Total movement in the period 2,011 (102) 14,440
Shareholders' funds at start of period 14,910 470 470
Shareholders' funds at end of period 16,921 368 14,910
Consolidated cash flow statement (see note 9)
For the six months ended 30 June 2003
Six months to Six months to Year ended
30 June 30 June 31 December
2003 2002 2002
£000's £000's £000's
(unaudited) (unaudited) (audited)
Net cash inflow/(outflow) from operations 499 (9) (1,104)
Returns on investments and servicing of finance 61 (27) (3)
Capital expenditure (2,544) (17) (79)
Acquisitions - - 405
Cash outflow before financing (1,984) (53) (781)
Financing 1,428 138 6,574
(Decrease)/increase in cash (556) 85 5,793
Notes to the interim financial information for the six months to 30 June 2003
1. There being no distributable reserves, no interim dividend can be
paid for the six months to 30 June 2003.
2. The interim financial information contained herein does not
constitute statutory accounts within the meaning of Section 240 of the Companies
Act 1985. The results for the year ended 31 December 2002 have been extracted
from the statutory accounts of the Group for the year then ended which have been
filed with the Registrar of Companies. The auditors' report on those accounts
was unqualified and did not contain any statement under section 237 of the
Companies Act 1985.
3. The interim financial information as at and for the six months ended
30 June 2003, including the comparatives for the 6 months ended 30 June 2002,
has not been audited by Sterling Energy plc's auditors.
4. The financial information included in this document has been prepared
on a consistent basis and using the same accounting policies as the audited
financial statements for the year ended 31 December 2002.
5. The Directors of the Company approved the financial information
included in this interim results document on 24 September 2003.
6. There is no provision for deferred tax at 30 June 2003 (30 June 2002
and 31 December 2002: £ nil). The difference between the current tax charge of
£125,000 and the amount calculated by applying the applicable standard rate of
tax is as follows:
Six months to Six months to Year ended
30 June 30 June 31 December
2003 2002 2002
£000's £000's £000's
(unaudited) (unaudited) (audited)
Group profit/(loss) on ordinary activities before tax 1,112 (102) (98)
Tax on Group profit/(loss) on ordinary activities at
standard US corporation tax rate of 34 per cent. (year
2002: 35 per cent.) 378 (36) (34)
Effects of:
Expenses not deductible for tax purposes 5 5 32
Capital allowances in excess of depreciation - - (6)
Depletion and impairment of oil & gas properties 138 11 58
Other temporary differences (4) - (18)
Adjustment for tax losses (see below) (392) 20 (32)
Group current tax charge for the period 125 - -
Subsequent to the acquisition of the whole of the issued share capital of
Sterling Energy Limited ('SEL') and its US subsidiary, Sterling Energy, Inc. ('
SEI') in October 2002 for approximately £7,880,000, the Group has generated its
results primarily in the US. The tax rate in the above reconciliation for all
periods presented is the standard rate for US corporation tax.
In deriving the tax charge for the six months to 30 June 2003 the Group has
recognised the utilisation of all of SEI's US taxable losses arising in previous
periods, including those prior to its acquisition, which the directors believe
to be available for offset against taxable profits in this period.
7. Basic earnings/(loss) per share is based on the profit on ordinary
activities after taxation of £987,000 (first half 2002: loss for the period,
£102,000; year 2002: loss for the year £98,000) and the weighted average number
of 359,327,058 ordinary shares of 1p each in issue during the period (first half
2002: 44,537,208; year 2002: 90,983,836). Diluted loss per share is the same as
basic loss per share in both the six months to 30 June 2002 and for the year
2002.
For the six months to 30 June 2003, diluted earnings per share was 0.24p per
share. This is computed based on 414,190,544 ordinary shares, being the total
used for the computation of the basic earnings per share adjusted for 40,000,000
deferred consideration shares expected to be issued at the end of 2003 and
assuming the exercise of 11,701,121 of the options and 3,162,365 of the
warrants outstanding during the period respectively.
8. The additions to intangible fixed assets in the six months to 30 June
2003 of £2,448,000 is comprised principally of costs prepaid in relation to work
on two wells which was carried out after 30 June 2003. The Group declared these
wells to be productive in August 2003 and the costs were then accordingly
transferred into tangible fixed assets.
9. Consolidated cash flow statement
(a) Reconciliation of operating profit/(loss) to net cash flow from
operations
Six months to Six months to Year ended
30 June 30 June 31 December
2003 2002 2002
£000's £000's £000's
(unaudited) (unaudited) (audited)
Operating profit/(loss) 1,110 (71) (78)
Depletion and depreciation 441 11 170
Amounts written off intangible fixed asset - 10 -
(Increase)/decrease in debtors (1,166) (13) (334)
(Increase)/decrease in creditors 114 54 (862)
Net cash inflow/(outflow) from operations 499 (9) (1,104)
Returns on investments and servicing of finance
Interest received 81 7 18
Interest paid (20) (34) (21)
61 (27) (3)
Capital expenditure
Purchase of intangible fixed assets (2,448) (17) (33)
Purchase of tangible fixed assets (96) - (46)
(2,544) (17) (79)
Acquisitions
Purchase of subsidiary undertakings - - (202)
Cash acquired with subsidiary undertakings - - 607
- - 405
Financing
Issue of Ordinary shares 1,428 138 6,574
(b) Analysis and reconciliation of net funds
At Cash Exchange At
1 January Flow & Other 30 June
2003 £000's Movements 2003
£000's £000's £000's
Cash at bank and in hand* 6,476 (556) (223) 5,697
Debt due after 1 year (808) - 808 -
Debt due within 1 year (435) - (777) (1,212)
Net funds 5,233 (556) (192) 4,485
* The cash balance at 30 June 2003 excludes £898,000 of restricted cash (end of
2002: £858,000)
10. Further copies of this interim statement are available from
the Company Secretary, Sterling Energy plc, Mardall House, Vaughan Road,
Harpenden, Hertfordshire, AL5 4HU, United Kingdom. Telephone +44 (0) 1582
462121, Fax +44 (0) 1582 461221.
11. Subsequent event
On 19 September 2003, the Company announced that it had agreed to buy the whole
of the issued share capital of Westmount Resources Limited ('Westmount Resources
'). Westmount Resources' assets consist of 20,000,000 ordinary shares in Fusion
('Fusion Shares'), whose shares are listed on AIM. These Fusion Shares represent
20.37 per cent. of Fusion's issued share capital. Westmount Resources also owns
500,000 partly paid shares in Fusion Oil & Gas NL, a wholly owned subsidiary of
Fusion, which are each convertible into one Fusion share on payment of A$0.199.
The consideration payable for Westmount Resources is 71,375,000 new ordinary
shares of 1p each in the Company. By reference to the closing mid-market price
of a Fusion share of 39.25 pence on 18 September 2003, the Fusion Shares had a
market value of £7.85 million.'
The Directors
Sterling Energy plc
Mardall House
7-9 Vaughan Road
Harpenden
Herts AL5 4HU
INDEPENDENT REVIEW REPORT TO STERLING ENERGY PLC (THE 'COMPANY')
Introduction
We have been instructed by the Company to review the financial information of
the Company and its subsidiary undertakings (the 'Group') for the six months
ended 30 June 2003 in Appendix II of the Offer Announcement dated 25 September
2003 ('the Offer Announcement'), which comprises the consolidated profit and
loss account, consolidated balance sheet, consolidated statement of recognised
gains and losses, reconciliation of movements in Group shareholders' funds,
consolidated cash flow statement and the related notes 1 to 11.
This report is made solely to the Company, in accordance with the terms of our
engagement to assist the Company in meeting the requirements of the Panel on
Takeovers and Mergers. Our work has been undertaken so that we might state to
the Company those matters we are required to state to them in this 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 for our review work,
for this report, or for the conclusions we have formed.
Directors' responsibilities
The interim report, including the financial information contained therein, is
the responsibility of, and has been approved by, the directors of the Company.
Where a company is fully listed, the directors are also responsible for ensuring
that the accounting polices and presentation applied to the interim figures are
consistent with those applied in preparing the preceding annual accounts except
where any changes, and the reasons for them, are disclosed. The directors of
the Company have voluntarily complied with this requirement in preparing the
interim report.
Review work performed
We conducted our review in accordance with the guidance contained in Bulletin
1999/4 issued by the Auditing Practices Board for use in the United Kingdom by
auditors of fully listed companies. A review consists principally of making
enquiries of Group management and applying analytical procedures to the
financial information and underlying financial data and, based thereon,
assessing whether the accounting policies and presentation have been
consistently applied unless otherwise disclosed. A review excludes audit
procedures such as tests of controls and verification of assets, liabilities and
transactions. It is substantially less in scope than an audit performed in
accordance with United Kingdom auditing standards and therefore provides a lower
level of assurance than an audit. Accordingly, we do not express an audit
opinion on the financial information.
Review conclusion
On the basis of our review we are not aware of any material modifications that
should be made to the financial information as presented for the six months
ended 30 June 2003. We have not reviewed the financial information in respect
of the six months ended 30 June 2002.
Deloitte & Touche LLP
Chartered Accountants
London
25 September 2003
Letter from Evolution Beeson Gregory
The Directors
Sterling Energy plc
Mardall House
7-9 Vaughan Road
Harpenden
Herts
AL5 4HU
25 September 2003
Dear Sirs,
We write in relation to the interim statement of Sterling for the six months
ended 30 June 2003, as set out in Appendix II of the announcement of the offer
to be made by Evolution Beeson Gregory on behalf of Sterling to acquire the
issued and to be issued share capital of Fusion dated 25 September 2003.
We have discussed with you the interim statement and the basis on which it has
been prepared by you, and you have confirmed to us that all information material
to the statement has been disclosed to us.
A review consists principally of making enquiries of management and applying
analytical procedures to the financial information and underlying financial data
and it is based thereon. Specifically we have not performed an audit, which
includes tests of controls and verification of assets, liabilities and
transactions and we are therefore not expressing an audit opinion on the
financial information.
On the basis of our review we are not aware of any material modifications that
should be made to the financial information as presented for the six months
ended 30 June 2003.
Yours faithfully,
for and on behalf of
Evolution Beeson Gregory Limited
APPENDIX III
DEFINITIONS
The following definitions apply throughout this announcement unless the context
requires otherwise:
'Act' the Companies Act 1985 (as amended)
'Admission' the admission of the New Sterling
Shares to trading on AIM becoming
effective in accordance with the AIM
Rules
'Additional Cash Election' the right for Fusion Shareholders who
accept the Offer to elect to receive
cash consideration in addition to that
receivable under the Partial Cash
Alternative and, where the context
admits, any subsequent revision,
variation, extension or renewal thereof
'AIM' the Alternative Investment Market of the
London Stock Exchange
'AIM Rules' the AIM Admission Rules published by
the London Stock Exchange as in force at
the date of this document or, where the
context requires, as amended and
modified after the date of this document
'Australia' the Commonwealth of Australia, its
states, territories and possessions
'Board' or 'Directors' the directors of either Sterling or
Fusion, as the context requires
'business day' a day (other than a Saturday) on which
banks are generally open for business in
London
'Canada' Canada, its provinces and territories
and all areas subject to its
jurisdiction and any political
sub-division thereof
'Closing Price' the closing middle-market price of a
Fusion Share or a Sterling Share, as the
case may be, as derived from the Daily
Official List
'Code' The City Code on Takeovers and Mergers
'Daily Official List' the Daily Official List of the London
Stock Exchange
'Enlarged Group' the Sterling Group as enlarged
following completion of the Offer
'Evolution Beeson Gregory' Evolution Beeson Gregory Limited,
financial adviser to Sterling
'Form of Acceptance' the form of acceptance, authority and
election for use in connection with the
Offer which will accompany the Offer
Document
'Fusion' Fusion Oil & Gas plc
'Fusion Group' Fusion and its subsidiary and
associated undertakings and, where the
context admits, each of them
'Fusion NL' Fusion Oil & Gas NL
'Fusion NL Partly Paid Shares' the partly paid shares in Fusion NL
'Fusion NL Shareholders' holders of the Fusion NL Partly Paid
Shares
'Fusion Option Holders' the holders of options or awards under
the Fusion Share Option Scheme or other
options to subscribe for Fusion Shares
'Fusion Shareholders' holders of the Fusion Shares
'Fusion Share Option Scheme' the Fusion 2000 Non-Approved Share
Option Scheme adopted by Fusion
Shareholders on 10 October 2000
'Fusion Shares' the existing unconditionally allotted
or issued and fully paid ordinary shares
of 1p each in Fusion and any further
such shares which are unconditionally
allotted or issued before the date on
which the Offer closes (or such earlier
date, not being earlier than the date on
which the Offer becomes or is declared
unconditional as to acceptances, as
Sterling may, subject to the Code,
decide) including any such shares
unconditionally allotted or issued upon
the exercise of options granted under
the Fusion Share Option Scheme or upon
the Fusion NL Partly Paid Shares being
paid up
'London Stock Exchange' the London Stock Exchange plc
'New Sterling Shares' the new ordinary shares of 1p each in
the capital of Sterling, to be allotted
and issued pursuant to the Offer
'the Offer Document' the offer document to be sent to holders
of Fusion Shares containing the formal
terms of the Offer
'Offer' the offer to be made by Evolution
Beeson Gregory on behalf of Sterling for
the Fusion Shares not already owned by
Sterling on the terms and conditions set
out in this announcement (including,
where the context requires, the Partial
Cash Alternative) and including, where
the context requires, any subsequent
revision, variation, extension or
renewal thereof
'Panel' The Panel on Takeovers and Mergers
'Partial Cash Alternative' the right of Fusion Shareholders who
accept the Offer to elect to receive
part of their consideration in cash
subject to availability and, where the
context admits, any subsequent revision,
variation, execution or renewal thereof
'Placing' the placing of 90,909,090 new Sterling
Shares pursuant to the Placing Agreement
'Placing Agreement' the conditional agreement dated 25
September 2003, between Sterling and
Evolution Beeson Gregory
'Placing Shares' the 90,909,090 new Sterling Shares to
be issued pursuant to the Placing
'Sterling' or the 'Company' Sterling Energy plc (registered in
England under number 1757721)
'Sterling Acquisition
Agreement' the agreement dated 27 June 2002, as
amended by deed on 25 September 2002
between LEPCO plc and Sterling G.P.
Limited for and on behalf of Sterling
Energy Limited Partnership for the
acquisition of Sterling Energy Limited
'Sterling Group' Sterling and its subsidiary and
associated undertakings and, where the
context admits, each of them
'Sterling Share Option Scheme' the LEPCO share option plan
'Sterling Shareholders' holders of Sterling Shares
'Sterling Shares' ordinary shares of 1p each in the
capital of Sterling
'United Kingdom' or 'UK' the United Kingdom of Great Britain and
Northern Ireland
'UK Listing Authority' the Financial Services Authority in its
capacity as the competent authority for
the purposes of Part VI of the Financial
Services and Markets Act 2000
'United States' or 'US' the United States of America, its
possessions and any other area subject
to its jurisdiction and any political
subdivision thereof
'Westmount Acquisition
Agreement' the agreement between the Company and
Westmount Energy for the acquisition of
Westmount Resources dated 19 September
2003
'Westmount Energy' Westmount Energy Limited
'Westmount Resources' Westmount Resources Limited
All references to legislation in this document are to English legislation unless
the contrary is indicated.
Any reference to any provision of any legislation shall include any amendment,
modification, re-enactment or extension thereof.
Words importing the singular shall include the plural and vice versa, and words
importing the masculine gender shall include the feminine or neutral gender.
For the purposes of this document, 'subsidiary', 'subsidiary undertaking', '
undertaking' and 'associated undertaking' have the respective meanings under the
Companies Act 1985.
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