Final Results

RNS Number : 0772M

Ascent Resources PLC

18 May 2010

 



Ascent Resources plc / Epic: AST / Index: AIM / Sector: Oil and Gas

18 May 2010

Ascent Resources plc ('Ascent' or 'the Company')

Final Results

Ascent Resources plc, the AIM-traded oil and gas production and exploration company, announces its final results for the year ended 31 December 2009.

Overview

·    Active technical programme scheduled for 2010; core focus on the Petišovci-Lovsázi project in Slovenia and Hungary where substantial gas reserves are estimated following positive 3-D seismic processing and interpretation 

·    Gross loss of £219,000 (2008: Gross profit of £387,000)

·    Cash at period end of £4.6 million

·    Sale of Swiss subsidiary for €8 million cash consideration, along with various participation options (post-period end)

·    Sale of share in Perazzoli Drilling; combined with partner's share, generating cash of €1.85 million (post-period end)

·    Production on-line from  Penészlek Project, in the Nyírség exploration permits of eastern Hungary

·    Identified potential prospect in Italy's Latina Valley following completion of the Fontana-1 well

Ascent Resources Managing Director Jeremy Eng said, "2010 holds many opportunities for Ascent and could prove instrumental; we have an extensive work programme targeting a number of considerable prospects and funding in place as a result of our efforts to realise the value inherent within our portfolio. 

"Our team has demonstrated the ability to execute on the full cycle of the exploration and production process, and with gas production on-line in Hungary providing underpinning revenues, we can dedicate our focus to developing the exciting opportunities we have identified within our portfolio."

For further information please visit www.ascentresources.co.uk or contact:

Jeremy Eng	Ascent  Resources plc	Tel: [phone]
Simon Cunningham	Ascent  Resources plc	Tel: [phone]
Hugo de Salis	St Brides Media & Finance Ltd	Tel: [phone]
Paul Youens	St Brides Media & Finance Ltd	Tel: [phone]
Shane Gallwey	Astaire Securities	Tel: [phone]
Jerry Keen	Astaire Securities (Corporate Broking)	Tel: [phone]
Toby Gibbs	Astaire Securities	Tel: [phone]
Daniel Fox-Davies	Fox-Davies Capital Ltd	Tel: [phone]
James Hehn	Fox-Davies Capital Ltd	Tel: [phone]

CHAIRMAN'S STATEMENT

This has been a year of great progress for Ascent.  We have advanced a number of our key projects with production from new wells in Hungary, sizeable new prospects identified from new 3-D seismic in both Slovenia and Hungary, and of course the recent sale of our Swiss subsidiary for €8 million post period end.  The fact that we were able to obtain such a strong price for our Swiss subsidiary, while retaining the opportunity to participate in any conventional development in the Swiss permits, illustrates the inherent value in our portfolio of multiple oil and gas production, exploration and appraisal assets across Europe. 

Our established strategy of participating in low-cost onshore assets with high upside potential gives us a degree of flexibility and mobility that has proved invaluable given the recent market uncertainty.  Indeed, the diversity of our portfolio has become one of our key strengths in such a volatile market and has allowed us to schedule a very active technical programme for 2010.  This programme is intended to enhance our asset base by increasing reserves and generating additional production volumes and revenues.

During the year we continued gas production from the Penészlek area of the Nyírség permits in Hungary.  We also announced additional discoveries that will provide a valuable revenue stream in the coming years that will enable us to pursue a number of larger opportunities across our portfolio.  The Penészlek project, although small in size, demonstrates our ability to accomplish the full cycle of the exploration and production process, from the preliminary geological analysis and the acquisition of seismic, through to the drilling and construction of facilities and in due course, to gas sales. 

Slovenia and Hungary remain the core focus for 2010 in particular the Petišovci-Lovsázi project which covers an area of 178 square kilometres, about 90 km² in either country.  120 km² of 3-D seismic data has already been acquired and the interpretation of this seismic data has revealed a number of new drilling targets mapped outside the area of the core deep gas field.  In addition to the substantial deep gas reserves, independently estimated as greater than 300bcf only on the Slovenian part of the project, our estimates for these newly identified prospects show a combined potential of over 75 Bcf of additional recoverable gas and it is likely that successful drilling of some of these prospects could lead to further follow-on targets.  Slovenia, like Hungary, has a strong demand for domestic gas production and with this in mind, planning is now underway for a number of wells to be drilled both in 2010 and in 2011 and discussions are on-going with project partners to prioritise the drilling of identified prospects.   

Acquisition of a further 65 km² of 3-D seismic in the adjacent Lovaszi field area across the Hungarian border has been completed and an initial two exploration wells in this area are planned and possible locations have been identified.

In Italy's Latina Valley our project partners agree that the results of the Fontana-1 well are sufficiently encouraging to proceed with the permitting of a hydrocarbon appraisal well, the Anagni-2, located within 1 km of the Fontana-1 location, targeting an adjacent structure. 

As previously referenced, in April Ascent sold its 100% owned Swiss subsidiary, PEOS AG, to eCORP Europe International Ltd., for a cash consideration of €8 million along with various participation options.  We believe this was an outstanding transaction, having retained, without obligation, the opportunity to participate in the development of fields within the permits whilst simultaneously realising €8 million from our investment in the Swiss assets.  We expect that the drilling of the Hermrigen-2 appraisal well will commence later this year.  Our estimates of reserves is 150 Bcf in the Muschelkalk and Bunter layers of the Hermrigen prospect and Ascent has the right to a 45% interest in the development of these reserves by choosing to pay 45% of the well cost after discovery.

With a portfolio of European assets and a technical team with in-depth experience both operationally and corporately, we believe we have a structure that can be utilised to generate substantial additional shareholder value. 

Outlook

I believe that the Company has never been in a stronger position to move forward.  We have a diverse portfolio of assets with a healthy balance of development, appraisal and exploration projects.  We have a significant amount of work scheduled across the portfolio for 2010 with our priority being the Petišovci-Lovsázi project in Slovenia and Hungary.  We believe this to be a potentially sizable onshore European project and we look forward to accelerating the development of this exciting opportunity in the coming period.

Finally I would like to take this opportunity to thank everyone involved in the Company for their continued hard work and the part they have all played in moving Ascent further towards achieving its goals this year.  We continue to place significant belief in the value of our assets to generate genuine returns to shareholders and I look forward to updating you with further developments, during what I believe, will be a year of great activity for the Company.

John Kenny

Chairman

OPERATIONS REVIEW

Ascent Resources Plc ('Ascent' or 'the Company') is a multi-project oil and gas exploration company, operating in five countries with a focus on Europe.  The Company has a balanced portfolio of hydrocarbon exploration and development projects located in Italy, Switzerland, Hungary, Slovenia and the Netherlands. 

The Company's assets are categorised according to their status and risk profile as producing, development or redevelopment projects or appraisal and exploration projects.  The Company funds its activities through a combination of debt and equity funding for lower risk development projects and farm-outs for higher risk exploration projects.

The Company continues to focus on low cost onshore oil and gas assets with high upside potential.  This potential is realised by advancing projects from the exploration and appraisal stages, through to development and cash generating production.  Modern exploration and development techniques such as 3-D seismic are utilised; with a proven success record within the Company's portfolio.

The scale of Ascent's European portfolio and an improved financial position resulted in 2009 being an active year, with a number of key successes and continuous progress made across the Company's projects. 

Production, Development & Redevelopment Projects

Hungary, Nyírség - Penészlek Area - Development

(48.78% interest through PetroHungaria kft ('PetroHungaria'))

The Penészlek area has seen a number of successes for the Company, with gas production from shallow Miocene reservoirs in the first half of 2009 from the PEN-104 site and PEN-105 beginning production at a rate of over 2 MMscfd in March 2010.  Gas from the Penészlek area is sold via a dedicated automated facility directly into the high pressure Hungarian gas pipeline network. 

The PEN-101 well has been successfully drilled and tested and is ready for the production and sale of gas.  It is anticipated the revenues generated from the producing wells in Penészlek will provide the Company with positive cash flow during the remainder of 2010 and through to 2011.

The PEN-104 well site which started production in 2008 is to be restored following the depletion of commercially available gas.  Further exploration and appraisal prospects exist in both Pannonian clastic and Miocene tuffaceous formations.

Since the year end, Leni Gas & Oil ('LGO') has relinquished its interest in the Penészlek project (announced by LGO on 5 March 2010), The LGO interest has been distributed among the remaining project partners in proportion to their prior interest in the project, at no additional cost.

Following the reallocation of LGO's interest and the conversion of Geomega's interest in the PEN-101 and PEN-106 wells from a working to a carried interest, the partners' interests in the project are now:

	Project Interest	PEN-101 & PEN-106
		Revenue Interest	Cost Share
Ascent Resources plc	48.776%	51.654%	53.381%
DualEx	40.440%	42.826%	44.258%
Swede Resources	2.157%	2.285%	2.361%
Geomega kft	8.627%	3.235%	0%

Hungary, Bajcsa Gasfield Redevelopment

(49% interest through a 98%% holding in ZalaGasCo kft ('ZGC'))

The Bajcsa gasfield was originally developed in the 1980s using vertical wells and standard completions.  Production from these low permeability sandstone reservoirs recovered only about a quarter of the gas-in-place.  Going forward, modern techniques should be able to recover substantially more of the gas and a horizontal well has been designed with the intention of substantially increasing both productivity and recovery.  The drilling of this Bj-28 well awaits final approval.  As a redevelopment project, any production can be immediately transported to market through the existing infrastructure with minimal further investment.

Work on the Bajcsa field confirmed gas in at least two of seven identified reservoirs and considerable effort has been spent in the planning stages of this project in order to establish the most efficient way to develop these gasfields.  Once the first well is drilled and the results analysed, it is envisaged that a number of similar wells will be possible. The project is a 50:50 joint venture with MOL RT ('MOL'), Hungary's leading oil and gas company and the project is operated by them with technical input from ZGC.

Hungary, Nyírség - Panhandle

(20.167% interest through HN Ventures Inc) 

The Görbehàza-1 (GH-1) gas discovery was the first of two gas zones targeted for completion and has produced gas at over 3.5 MMscfd from the first of its two completion intervals.  The well has been completed as a gas producing well and is awaiting the construction of a 2.5km export pipeline to the Hajdúnánás Gas Production Facility for sale into the main Hungarian gas pipeline network.  Gas is reservoired in shallow Pannonian sands and there are other exploration targets in both Pannonian clastics and deeper Miocene tuffaceous formations.  

Slovenia & Hungary, Petišovci & Lovsázi/Ujfalu - Development &

Redevelopment

(45% interest in Petišovci Dolina and 15.75% interest in Globoki with 75% interest in extended project area through Ascent Slovenia Limited ('ASL'), formerly Nemmoco Slovenia Corporation ('NSC'))

(50% interest in Lovászi/Ujfalu, through Ascent Hungary Limited)

The Petišovci field area in Slovenia and the immediately adjacent Lovsázi project area across the Hungarian-Slovenian border will be key to the Company's work programme for 2010.  A substantial tight gas reserve is known to exist in the deeper part of both the Lovászi and Petišovci fields and, in addition to the shallower conventional oil and gas reservoirs already known, the successful completion of 3-D seismic undertaken late in 2009 has revealed new exploration and appraisal targets in both shallow and deep horizons.  Operations in Slovenia are conducted through the Company's wholly owned subsidiary ASL, while MOL, partners the Company on the Hungarian side of the border.

As a result of the successful completion of 3-D seismic processing and interpretation in Slovenia announced in March 2010, 12 new drilling targets have been identified and plans have been made to drill a number of wells throughout 2010 and in 2011.  The project areas have been extended and the majority of new prospects have been identified in these new areas.  These new prospects are in addition to the reserves identified in the Independent Persons Report on the deep prospects completed in 2004 and management estimates there could be the potential for some additional 75 Bcf of recoverable gas. 

Both projects are of significant importance to the Company, with ASL holding a 75% interest in both the shallow and the deep reservoirs of the 61.5 km² extended Slovenian area and the acquisition of 65 km² of 3-D seismic in the Lovászi field in Hungary recently completed.

This is a previously producing field with an established infrastructure which will facilitate early production.  The project could have the potential to provide a significant contribution to the local gas market.

Italy, Strangolagalli, Ripi - Redevelopment

(50% interest through Ascent Resources Italia s.r.l)

The Ripi field is an oilfield which has produced oil for more than 50 years from shallow flysch sediments between 400m and 800m deep.  The first stage of the redevelopment of Ripi is the acquisition of a shallow hi-resolution 2-D seismic survey, designed and commissioned by the Company and field operator Pentex Italia Ltd.  Here, the productive horizons are clastic reservoirs within the flysh that overlies the carbonate platform that provides the reservoirs in the nearby Anagni/Fontana project. 

The new seismic, which is expected to be acquired in 2010, is designed to image the reservoir units so that state-of-the-art wells can be drilled to efficiently produce the remaining oil.

Appraisal Projects

Switzerland, Frienisberg-Seeland Permit

(45% optional interest from disposal of wholly owned subsidiary PEOS AG)

The Frienisberg-Seeland Hermrigen gas exploration and appraisal project follows on from a gas discovery drilled by Elf Aquitaine in 1982.  The original Hermrigen well was drilled before gas pipeline infrastructure was built in the area and consequently was not developed at this time.  Following extensive analysis of the geological and seismic data and further geochemical analyses, an appraisal well has been designed to assess the original gas discovery before going on to drill down to the primary target of the Hermrigen-1 well. This well is planned and will confirm the commercial viability of this discovery. 

In April 2010 Ascent sold its 100% owned Swiss subsidiary, PEOS AG, to eCORP Europe International Ltd. ('eCORP'), for cash consideration of €8 million, together with various farm-in options on certain potentially successful discoveries ('the Transaction').

Under the terms of the Transaction Ascent retains the right to acquire 45% of any conventional discovery from the Hermrigen 2, Essertines 2 and Linden 2 appraisal wells by paying 45% of drilling costs post any discovery - with no obligation to participate.  Additionally Ascent retains the right to 22.5% of any discovery from certain additional conventional prospects by paying 22.5% of the drilling costs post discovery, again with no obligation to participate.  eCORP has irrevocably committed to drill the Hermrigen-2 appraisal well with permitting underway for drilling in Q4 2010.

Italy, Latina Valley Frosinone Exploration Permit

(80% interest through Ascent Resources Italia s.r.l.)

The Anagni-1 well, within the Frosinone project area was drilled by Ascent in 2006 and had strong oil shows.  Despite extensive testing, the well only produced small amounts of oil and in 2008, additional seismic was acquired and it became apparent that the well had intersected the side of the structure. 

In late 2009, Fontana-1 was drilled to collect cores and appraise the shallow part of the Anagni structure, however the original well experienced mechanical problems after reaching the target depth.  A replacement Fontana well was drilled in February 2010.  A core sample taken from the limestone of the target Carbonate Platform formations contained live oil, while deeper dolomite horizons have been shown to contain water from data acquired from logging tools.  The Partners believe that the results are sufficiently encouraging to proceed with the permitting of a hydrocarbon appraisal well, Anagni-2, located within 1 km of the Fontana-1 location, which will target a smaller adjacent structure.

The Fontana well, was permitted and drilled as a geological appraisal well to collect cores from the carbonate platform identified while drilling the nearby Anagni-1 well.  The target Carbonate platform formations have been found over 300m shallower than in the original Anagni-1 well.  At the planned Anagni-2 location, it is expected that they will be even shallower still at an estimated 300m below ground level.  Importantly, the Fontana-1 well has confirmed the presence of a second thrust formation within the complex geology of this region.

Netherlands, Blocks M10/M11

(27% interest through Ascent Resources (Netherlands) B.V.)

This appraisal project is in shallow blocks M10 and M11 in the southern part of the North Sea.  The discovery well, M-11-1 was drilled by NAM in 1985.  The complete area benefits from full 3-D seismic coverage and in addition to the structure in the Rotligendes sandstones, a number of other prospects and leads have been identified.  The Company has until December 2010 to make a decision with regards the drilling of appraisal wells. 

Switzerland, Bern Canton, Linden Exploration Permit

(45% optional interest from disposal of wholly owned subsidiary PEOS AG)

The Linden-1 well was drilled by Elf Aquitaine in 1972 and tested gas at the time.  Ascent was awarded the permit in August 2005 and in April 2008 the permit was extended to 2011. 

In April 2010 Ascent sold its 100% owned Swiss subsidiary, PEOS AG, to eCORP Europe International Ltd. ('eCORP'), for cash consideration of €8 million, together with various farm-in options on certain potentially successful discoveries ('the Transaction'). Under the terms of the Transaction Ascent retains the right to acquire 45% of any conventional discovery from the Linden 2 appraisal well by paying 45% of drilling costs post any discovery - with no obligation to participate.

Exploration Projects

Italy, Po Valley, Cento and Bastiglia Exploration Permit

(100% interest through Ascent Resources Italia s.r.l.)

The Cento and Bastiglia exploration permits contain both shallow Pliocene and deep Miocene exploration targets and are located in the Po Valley, in the heart of the largest onshore gas producing area in Europe.   The Gazzata-1 well was spudded in May 2009.  This well was funded under the terms of a farm-out agreement with Otto Energy Limited ('Otto').  The Gazzata-1 well was abandoned in 2009 due to a lack of commercial gas reserves.  In April 2010 the farm-out agreement was cancelled and Otto withdrew from the permit

The Cento and Bastiglia Permit is one of the largest in this prolific region.  The acquisition of new seismic data over a variety of targets should determine new drilling locations within the prospect.  The Italian gas market remains strong and a discovery here could be particularly valuable to the Company.

Slovenia, East Slovenian Exploration Project

(40% interest through wholly owned Ascent Slovenia Limited, formerly Nemmoco Slovenia Corporation)

The East Slovenia Exploration project is located just to the north of the development projects at Petişovci.  This encompasses an area of 864 km² in three blocks and is located within the Pomurje Regional Exploration Area where some 65 exploration wells have been drilled over the past 50 years.  Almost 50% of these exploration wells reported good shows of gas and oil.  3-D seismic was acquired over a 200 km² area in the Filovci exploration area and at least two wells are planned to be drilled in this area during 2010.

Switzerland, Vaud Canton, Gros de Vaud Exploration Permit

(45% optional interest from disposal of wholly owned subsidiary PEOS AG)

The Vaud Concession is an exploration project for both oil and gas and is situated north of Lausanne, it was awarded to Ascent in May 2006 and was been extended to June 2010 last year.  The Gros de Vaud exploration area includes the 1962 oil discovery at Essertines that produced several thousand barrels of oil from Jurassic aged reservoirs and surface seeps of both oil and gas are present in the area, with the sub-salt Triassic gas potential providing the biggest targets.

In April 2010 Ascent sold its 100% owned Swiss subsidiary, PEOS AG, to eCORP Europe International Ltd. ('eCORP'), for cash consideration of €8 million, together with various farm-in options on certain potentially successful discoveries ('the Transaction'). Under the terms of the Transaction Ascent retains the right to acquire 45% of any conventional discovery from the Essertines 2 appraisal well by paying 45% of drilling costs post any discovery - with no obligation to participate.

Italy, Latium Coast, Fiume Arrone Exploration Permit

(56% interest through Ascent Resources Italia, s.r.l.)

The 2006 well, drilled by Ascent Italia at Fiume Arrone, had good gas shows but lacked adequate reservoir.  New seismic will be required to determine new drilling locations.

Netherlands, Blocks P4, M8

The licences for exploration in the M8A and P4 blocks have been relinquished.

Other Enterprises

Perazzoli Drilling

The Company, through its subsidiary company Ascent Drilling Limited ('Ascent Drilling') originally acquired a share in Perazzoli Drilling in order to obtain priority access and ensure optimal contract terms for drilling services.  Since the year end, the Company has disposed of its stake in Perazzoli and retained these advantages through a five year service alliance with Perazzoli.

The service alliance provides a 30% discount on €10 million of drilling services to Ascent and first call on uncommitted drilling units.  In order to facilitate the transaction, Ascent first bought out their 50% partner in Ascent Drilling using equity.  The resulting 45% stake of Perazzoli was then sold generating cash of €1.85 million.

CONSOLIDATED INCOME STATEMENT

for the year ended 31 DECEMBER 2009

		Year ended 31 December  2009		Year ended 31 December 2008
	Notes	£ 000's		£ 000's
Revenue		898		1,475
Cost of sales	2	(1,117)		(1,088)
Gross (loss)/ profit		(219)		387
Administrative expenses	3	(1,519)		(1,727)
Results from operating activities before other costs		(1,738)		(1,340)
Impairment write down of exploration costs	6	(8,528)		(3,240)
Impairment of equity accounted investee		(300)		-
Loss from operating activities		(10,566)		(4,580)
Finance income		53		160
Finance cost		(510)		(473)
Profit on sale of investments	4	127		1,985
Net finance costs		(330)		1,672
Share of profit of equity accounted investees		274		88
Loss before taxation		(10,622)		(2,820)
Income tax expense		-		-
Loss for the year		(10,622)		(2,820)
Loss attributable to:
Owners of the Company		(10,756)		(2,860)
Non-controlling interests		134		40
Loss for the year		(10,622)		(2,820)
Loss per share
Basic loss per share	5	(3.11p)		(0.94p)
Fully diluted loss per share	5	(3.11p)		(0.94p)
All amounts relate to continuing operations.

CONSOLIDATED BALANCE SHEET

as at 31 DECEMBER 2009

							31 December 2009		31 December 2008
						Notes	£ 000's		£ 000's
Assets
Non-current assets
Property, plant and equipment							158		266
Exploration and decommissioning costs						6	9,738		13,146
Investments in equity-accounted investees							1,191		1,300
Total non-current assets							11,087		14,712
Current assets
Inventories							431		609
Trading investments							46		145
Other financial assets						7	888		955
Trade and other receivables						8	2,927		2,627
Cash and cash equivalents							4,630		1,236
Total current assets							8,922		5,572
Total assets							20,009		20,284
Equity and liabilities
Attributable to the equity holders of the parent company
Share capital							500		305
Equity reserve							84		84
Share premium account							22,540		13,067
Share based payment reserve							2,496		1,042
Translation reserves							2,873		3,928
Retained earnings							(19,853)		(7,816)
Total equity attributable to the shareholders of the Company							8,640		10,610
Minority interest							174		40
Total equity							8,814		10,650
Non-current liabilities
Borrowings						9	851		4,525
Provisions							152		32
Total non-current liabilities							1,003		4,557

Current liabilities
Trading and other payables	10	6,601		4,515
Borrowings	9	3,591		562
Total current liabilities		10,192		5,077
Total liabilities		11,195		9,634
Total equity and liabilities		20,009		20,284

CONSOLIDATEDCASH FLOW STATEMENT

for the year ended 31 DECEMBER 2009

	Year ended   31 December 2009		Year ended   31 December 2008
Cash used in operations	£ 000's		£ 000's
Loss before tax	(10,756)		(2,860)
Depreciation charge	125		560
Increase in receivables	(301)		(369)
Increase in payables	2,089		103
Decrease in inventories	178		-
Impairment in associate	300		-
Profit on sale of subsidiary	-		(1,363)
Profit on sale of current asset investments	(127)		(621)
Revaluation of quoted securities	(18)		454
Impairment of exploration expenditure	8,528		3,240
Amortisation of decommissioning costs	-		336
Increase in decommissioning provision	-		(214)
Share-based payment charge/(credit)	173		(149)
Exchange differences	(66)		611
Share of profit of associate undertakings	(140)		(88)
	(15)		(360)
Finance income	(53)		(160)
Finance cost	510		374
Net cash generated/( used) in operating activities	442		(146)

Cash flows from investing activities
Interest received	36		160
Payments for investing in exploration	(6,031)		(4,602)
Increase in payables	-		2,282
Acquisition of property, plant and equipment	(30)		(813)
Proceeds from disposal of subsidiary	-		1,582
Proceeds from disposal of current asset investment	247		659
Acquisition of subsidiaries	-		(20)
Net cash received from non-controlling interest	-		40
Net cash flows used in investing activities	(5,778)		(712)
Cash flows from financing activities
Interest paid	(328)		(374)
Proceeds from loans	-		2,103
Loans repaid	(524)		(1,070)
Proceeds from issue of shares	10,067		-
Share issue costs	(399)		-
Net cash flows from financing activities	8,816		659
Net decrease in cash and cash equivalents for the year	3,480		(199)
Net foreign exchange differences	(85)		110
Cash and cash equivalents at beginning of the year	1,235		1,324
Cash and cash equivalents at end of the year	4,630		1,235

NOTES TO THE FINANCIAL STATEMENTS

for the year ended 31 DECEMBER 2009

1        Accounting policies

Reporting entity

Ascent Resources plc ('the Company') is a company domiciled and incorporated in England.  The address of the Company's registered office is One America Square, Crosswall, London, EC3N 2SG. The consolidated financial statements of the Company for the year ended 31 December 2009 comprises the Company and its subsidiaries (together referred to as the 'Group') and the Group's interest in associates and joint ventures. The parent company financial statements present information about the Company as a separate entity and not about its group.

Statement of compliance

The Group's and Company's financial statements for the year ended 31 December 2009 were approved and authorised for issue by the Board of Directors on 13 May 2010 and the Balance Sheets were signed on behalf of the Board by Jeremy Eng.

Both the Parent Company financial statements and the Group financial statements give a true and fair view and have been prepared and approved by the directors in accordance with International Financial Reporting Standards as adopted by the EU ('Adopted IFRSs').

Basis of preparation

On publishing the Parent Company financial statements here together with the Group financial statements, the Company is taking advantage of the exemption in s408 of the Companies Act 2006 not to present its individual income statement and related notes that form a part of these approved financial statements.

Going Concern

The financial statements of the Group and Company are prepared on a going concern basis.

In common with many similar companies, the Group and Company raise finance for its exploration and appraisal activities in discrete tranches. Ultimately, the Group and Company must either raise additional tranches of funding and/or generate sufficient net cash flows from operations.

The Directors are of the opinion that the Group and Company will have sufficient cash to fund its activities based on forecast cash flow information for a period in excess of twelve months from the date of approval of these financial statements. Management continues to monitor all working capital commitments and balances on a weekly basis and believe that they have secured appropriate levels of financing for the Group and Company to continue to meet their liabilities as they fall due for at least the next twelve months.

In preparing base and sensitised cash flow forecasts the Directors have identified a number of cash receipts and cash payments where they have had to use their best judgement to make certain estimates.

The base forecasts are based upon estimates of planned production from producing fields, future gas prices and estimates of costs for planned exploration activities.  On a number of projects certain assumptions have also been made with regard to working capital management and matching cash inflows from cash calls to cash outflows.

Accordingly, the Directors have also prepared sensitised forecasts to reflect the risk that production volumes and gas prices may be lower than estimated and exploration costs may be higher. These forecasts indicate that the Group and Company can continue to operate within existing facilities for the foreseeable future.  If the amount or timing of forecast inflows and outflows were to change adversely the Group and Company may be required to reconsider discretionary exploration activity and/or seek additional bridging finance to meet any shortfall.

2	Cost of sales	Year ended 31 December 2009		Year ended 31 December 2008
		£ 000's		£ 000's
	Operating Costs relating directly to producing assets	173		204
	DD&A of producing assets	122		556
	Other directly incurred costs	822		328
		1,117		1,088

3	Administrative Expenses
	Depreciation of plant and equipment	3		4
	Employee Costs	801		342
	Consulting charges	178		906
	Profit on sale of fixed assets	-		(1)
	Revaluation of quoted securities	(18)		321
	Other office costs	555		155
		1,519		1,727

4. Profit on sale of investments

	Sale of subsidiary company
	Compania Petrolifera de Sedano sl	-		44
	Teredo Oils Limited	-		38
	Part disposal of subsidiary company
	PetroHungaria kft	-		1,123
	ZalaGasCo kft	-		158
	Sale of investments
	D9 (Netherlands)	-		424
	Szolnok (Hungary)	-		184
	Sale of current asset investments
	Shares held in Leni Gas and Oil plc	127		14
		127		1,985

5. Loss per share

		Year ended 31 December 2009		Year ended 31 December 2008
	Losses	£ 000's		£ 000's
	Losses for the purposes of basic earnings per share being net loss attributable to equity shareholders	10,622		2,860
	Losses for the purposes of diluted earnings per share being adjusted net loss attributable to equity shareholders	10,622		2,860
	Number of shares
		Number		Number
	Weighted average number of ordinary shares for the purposes of basic earnings per share	341,433,823		304,782,042

	Number of shares
		Number		Number
Weighted average number of ordinary shares for the purposes of diluted earnings per share		341,433,823		304,782,042

The calculation of diluted earnings per share assumes conversion of all potentially dilutive ordinary shares.  Dilutive shares arise from share options, warrants and the convertible bond held by the Company.  A calculation is done to determine the number of shares that could have been acquired at fair value, based upon the monetary value of the subscription rights attached to outstanding share options, warrants and convertible bonds.

6. Exploration Costs - Group

	Group	Italy		Hungary		Slovenia	Other Europe		Total
		£ 000's		£ 000's		£ 000's	£ 000's		£ 000's
	Cost
	At 1 January 2008	8,087		1,422		274	1,402		11,185
	Additions	2,361		1,772		-	115		4,248
	Disposals	-		-		-	(1,028)		(1,028)
	Additions  to decommissioning asset	54		32		-	-		86
	Effects of movements in exchange rates	1,968		448		-	204		2,620
	At 31 December 2008	12,470		3,674		274	693		17,111
	At 1 January 2009	12,469		3,674		274	693		17,110
	Additions	816		1,479		3,709	27		6,031
	Additions to decommissioning asset	-		120		-	-		120
	Effects of movements in exchange rates	(856)		(158)		(29)	(33)		(1,076)
	At 31 December 2009	12,429		5,115		3,954	687		22,185
	Impairment
	At 1 January 2008	-		566		-	1,028		1,594
	Charge for the year	1,574		1,666		-	-		3,240
	On disposals	-		-		-	(1,028)		(1,028)
	Decommissioning charge for the year	315		22		-	-		337
	Effects of movements in exchange rates	-		(178)		-	-		(178)
	At 31 December 2008	1,889		2,076		-	-		3,965
	At 1 January 2009	1,889		2,076		-	-		3,965
	Charge for the year	7,810		622		-	96		8,528
	Decommissioning charge for the year	-		-		-	-		-
	Effects of movements in exchange rates	-		(46)		-	-		(46)
	At 31 December 2009	9,699		2,652		-	96		12,447

	Carrying value
	At 31 December 2009	2,730		2,463		3,954	591		9,738
	At 1 January 2009 and 31 December 2008	10,581		1,598		274	693		13,146
	At 1 January 2008	8,087		856		274	374		9,591

'Other Europe' include the Netherlands and Switzerland.

For the purposes of impairment testing the intangible oil and gas assets are allocated to the Groups cash generating units, which represent the lowest level within the Group at which the intangible oil and gas assets are measured for internal management purposes, which is not higher than the Group's operating segments.

The amounts for intangible exploration assets represent costs incurred on active exploration projects. These amounts are written off to the income statement as an impairment expense unless commercial reserves are established or the determination process is not completed and there are no indications of impairment.  The outcome of ongoing exploration, and therefore whether the carrying value of intangible exploration assets will ultimately be recovered, is inherently uncertain.

The impairment charge for the year relates to the Anangi-1 well and the Arrone site in Italy and abandoned and unsuccessful wells at the Penészlek site in Hungary.  Further details of these are as follows:

Anagni

The Anagni-1 well was drilled in 2006 and deepened in 2007.  After a protracted test the well was plugged and abandoned.  The well was drilled and cored and the results of the core testing demonstrated significant oil shows.  In 2008 2-D seismic data was obtained and based on the interpretation and mapping of the results from the seismic a new well location, "Fontana-1" was determined.  Due to infrastructure constraints, the well location of Fontana-1 was chosen between, rather than on, two new seismic lines.

Fontana-1 commenced drilling in late 2009 and the well drilled carbonate formations approximately 550 meters below the surface.  Two cores were recovered as well as extensive data.  The interpretation of this data confirms the presence of a shallower thrust structure over the original Anangi-1 structure.

The Directors consider the results from the Fontana drilling triggers an impairment in respect of expenditure capitalised in respect of the Anagani-1 well and accordingly have incorporated an impairment provision of approximately £7.8 million in respect of this asset.  Given subsequent work undertaken in this licence area, the Directors believe the Anagni-1 well expenditure will not lead to the establishment of commercial reserves.

The results from the drilling from Fontana-1 are sufficiently encouraging to justify the acquisition of high-resolution 2D seismic and consequently, at this stage the determination process has not been completed in respect of expenditure on Fontana-1. 

Arrone

The costs for exploration work on the Group's Arrone prospect in Italy were written off during 2009 and 2008 as these costs did not result in the establishment of commercial reserves.

Penészlek

During 2009 the PEN-104 well site at the Penészlek site, which started production in 2008, was abandoned following the depletion of commercially available gas. Additionally, other exploration costs were written off in respect of this project as these did not result in the establishment of commercial reserves.  In total approximately £0.6 million has been impaired in respect of this project.

A decommissioning charge has been made in the year in respect to the Penészlek site in Hungary and the Anagni and Arrone sites in Italy.

Other Europe

Certain costs in relation to exploration work on the Group's interests in the Netherlands were written off during 2009 as the licences relating to these costs have been relinquished.

7. Other financial assets - Group

		2009		2008
		£ 000's		£ 000's
	Held to maturity financial assets	888		955

The Group has a loan outstanding with Cassa Di Risparmio de Cento Bank. The Loan expires on 5 June 2012, the interest is calculated by reference to the three month Euribor rate plus a margin of 1%.

The loan is secured by cash held in an interest bearing deposit account.  This amount was previously included within 'Trade and other receiveables' and has been reclassified under 'other financial assets' as at 31 December 2009 as this disclosure more appropriately classifies the position.

Management has considered this reclassification and concluded that a third balance sheet as required by IAS 1 is not disclosed on the grounds of materiality.

8. Trade and other receivables - Group

		2009		2008
		£ 000's		£ 000's
	Trade receivables	39		31
	VAT recoverable	1,277		880
	Other receivables	451		160
	Prepayments & accrued income	1,160		1,556
		2,927		2,627

9. Borrowings

		2009		2008
	Group	£ 000's		£ 000's
	Current
	Convertible loan note	2,481		-
	Bank loan	554		562
	Other loans	556		-
		3,591		562
	Non-current
	Convertible loan note	-		2,416
	Bank loan	851		1,512
	Other loans	-		597
		851		4,525
	Group non-current borrowings are repayable as follows:
	In the first
	In the second year	554		3,928
	In the third to fifth year	297		597
		851		4,525

The Directors consider that the carrying amount of the bank and other loans approximates to their fair value. The weighted average interest rate of the bank loan is 5.2% (2008: 5.2%).

Bank loan

The Group has a loan outstanding with Cassa Di Risparmio de Cento Bank. The Loan expires on 5 June 2012.  Interest is calculated by reference to the three month Euribor rate plus a margin of 1%. The loan is secured by cash on deposit held as security (see Note 7).

Convertible loan note

On 14 November 2007 the Company issued 2,500,000 £1 loan notes at par to finance further working capital requirements of the Group. The term of the loan notes is three years and the debt is unsecured.  The conversion price into ordinary shares is fixed at 20p (adjusted for equity issues post the issue of the loan note) and interest is calculated at a fixed 8.5% to be paid bi-annually on 1 January and 1 July each year.

The Company has the option to settle the accrued interest in shares and should this be exercised a 10% discount on market value would apply. The loan note holders can elect to convert the note at any time. The Company may elect to convert the notes at any time after the first anniversary of the loan notes being issued, if the value of the share is equal to or above 20p.

As at 31 December 2009, the loan notes mature within one year of the balance sheet date and therefore the carrying amount has been transferred to 'Current Liabilities' from 'Non-current liabilities'.

	£ 000's
Nominal value of the loan notes issued	2,500
Equity component	(84)
Total liability component at 31 December 2008 and 1 January 2009	2,416
Effective interest charge for year	277
Interest paid in  the year	(212)
Total liability component at 31 December 2009	2,481

10. Trade and other payables - Group

		2009		2008
		£ 000's		£ 000's
	Trade payables	6,230		3,867
	Tax and social security payable	17		107
	Other creditors	115		-
	Accruals and deferred income	239		541
		6,601		4,515

 

END

 

 

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