Final Results

RNS Number : 5832T

Global Petroleum Ltd

30 September 2010

 



GLOBAL PETROLEUM LIMITED

ANNUAL FINANCIAL REPORT - 30 JUNE 2010

The Directors of Global Petroleum Limited present their report on the Consolidated Entity consisting of Global Petroleum Limited ("the Company" or "Global" or "Parent") and the entities it controlled at the end of, or during, the year ended 30 June 2010 ("Consolidated Entity" or "Group").

PRINCIPAL ACTIVITIES

The principal activities of the Consolidated Entity during the year consisted of oil and gas exploration, development and production and there has been no change in the nature of those activities. 

DIVIDENDS

No dividends have been declared, provided for or paid in respect of the financial year ended 30 June 2010 (2009:  nil).

EARNINGS PER SHARE

	2010 Cents	2009 Cents
Basic earnings/(loss) per share	0.63	(3.23)
Diluted earnings/(loss) per share	0.63	(3.23)

CONSOLIDATED RESULTS

	2010 $	2009 $
Profit/(loss) of the Consolidated Entity before income tax expense	2,351,449	(7,232,701)
Income tax benefit/(expense)	(1,245,032)	1,599,622
Net profit/(loss)	1,106,417	(5,633,079)

The Consolidated Entity recorded a before tax profit of $2,351,449.  The profit is in part attributable to the settlement of the legal claim against Woodside Energy (Kenya) Pty Limited relating to the Kenyan Farm-In Agreement.  Global received settlement funds of $6,510,000 upon reaching mutual agreement to withdraw from legal proceedings.  Expenses of $2,654,534 were incurred during the year in pursuing the legal claim.  Income tax expense of $1,245,032 has been recorded in relation to the settlement.

Revenue from production at the Leighton Project was $1,224,723 (2009: $224,884) with gross profit after cost of sales of $562,044 (2009: $58,022 Loss).  During the year, an additional four wells were drilled and placed on production taking the total number of producing wells from which Global receives revenue at 30 June 2010 to six.

Exploration and evaluation expenditure written off during the year was $2,442,466 (2009: $9,945,093).  This expenditure relates primarily to the Uganda Project.  Global funded 25% of the cost of the second exploration well in Uganda Licence EA5 during 2010.

REVIEW OF OPERATIONS AND ACTIVITIES

Leighton Project

During the year ended 30 June 2010, four wells were drilled at the Leighton oil prospect in which the Company has earned a 15% Working Interest (11.25% Net Revenue Interest). 

Tyler Ranch #2 was spudded in August 2009 and flowed oil and gas in September 2009 from the Olmos formation at a rate that was in line with the first two Leighton wells. The second well during the year, Tyler Ranch #3, spudded in September 2009 and began flowing oil and gas at the rate of 500boepd from the Olmos which was greater than the initial flow rates of each of the first three Leighton wells.

The fifth Leighton well and the third for the year, Tyler Ranch #4, began drilling in October 2009 and was deepened to the Eagle Ford shale and Edwards Limestone.  The well encountered 142 feet of oil and gas bearing Eagle Ford shale, 26 feet in the Buda/Edwards Limestones in addition to the 28 feet of oil and gas bearing Olmos which is now in production.  The well flowed oil and gas from the Olmos at an initial rate of 480 boepd which compares with the first four wells of between 360 to 500 boepd.

Tyler Ranch #5, the sixth Leighton well, commenced drilling in April 2010 and reached a depth of 2,743m (9,000ft) after encountering oil and gas shows in the Olmos reservoir, which is the same reservoir that the earlier five (5) Leighton wells are producing from. The successful well, which was completed and connected for production in May 2010, has a similar thickness in the Olmos to the other Leighton wells.

As at 30 June 2010, the Company had an interest in, and was receiving revenue from, the production of 6 Leighton wells from the Olmos reservoir.  An additional Leighton well, Tyler Ranch #6 was drilled during August 2010 and was placed on production in mid September.

Global's Net Revenue Interest Share of total production for the year ended 30 June 2010 was:

Gas (mcf)	22,398
Oil (bbl)	10,000
Total (boe)	13,733

Glossary:

bbl:      barrel

mcf:     thousand cubic feet

boe:     barrels of oil equivalent (including gas converted to oil equivalent barrels on basis of 6mcf to 1 barrel of oil equivalent)

The first Eagle Ford well at the Leighton Project commenced drilling in September 2010.

In August 2010, Global reached agreement with Texon Petroleum Ltd to simplify the ownership arrangements for Eagle Ford wells that would straddle areas of differing ownership, by cross assigning lease holdings across the expanded contract area.  Under the amended Participation Agreement the contract area of the Leighton prospect has been expanded to 1,651 acres for all depths beneath the Olmos Formation.  Global now owns an undivided 7.939% Working Interest (5.95% Net Revenue Interest) across the expanded area including the Eagle Ford Shale (131.05 nett acres).

The additional 777.059 acres included in the expanded contract area is adjacent to and in the vicinity of the original contract area of the Leighton Prospect and is comprised of 457.059 acres in Leighton Prospect lying outside the outside contract area and 320 acres in the adjacent Mandurah Prospect with depths from 7,100 feet down to 100 feet below the base of the Edwards Limestone Formation.

Following a recent survey, the acreage within the original contract area also increased by an additional 43.291 acres from 830.4 to 873.691 acres.  Under the amended Participation Agreement, Global retains its 15% working interest (11.25% net revenue interest) in the expanded 873.961 acres from the surface down to the stratigraphic equivalent of the base of the Olmos Formation.

Uganda

During the year, Global announced that it had elected to maintain its option to earn a 25% interest in Uganda Licence EA5 ("EA5") by funding 25% of the cost of the second exploration well in EA5.

The well had a primary stratigraphic target interval below 665m and a secondary target interval which is immediately above expected basement at a depth of 795m. The higher interval is targeted to encounter high quality fluvial sandstones, similar to those found in the successful wells in Licence EA1, adjacent to EA5, but which were absent in the first exploration well, Iti-1.

The well, which was spud on 13 February 2010, was plugged and abandoned after it was drilled to a total depth of 764 metres and did not encounter oil, despite persistent methane gas traces, and tested water from the target reservoir interval using a wireline fluid sampler. Electric logging confirmed the absence of oil and gas.

In June 2010, the Company reached agreement with Neptune Petroleum (Uganda) Limited, a wholly owned subsidiary of Tower Resources plc ("Tower"), whereby Global will have a continuing option to participate in the Uganda project whilst having no current obligation to contribute to ongoing expenditure.

The agreement provides Global with a right to convert its investment in the project to date into a 25% legal and beneficial interest in Uganda Licence EA5.  Under the terms of the agreement, Global shall have the right to elect to participate until such time that Tower has obtained a firm offer of funds from a third party or through its own fund-raising efforts, to fund any material operation in respect of the Licence.  Global will be required to reimburse Tower for 25% of ongoing costs during the option period should it elect to participate and, in the event of third party funding, Global will dilute proportionately with Tower.

Kenya

As previously advised, notice was given to Woodside Energy (Kenya) Pty Limited ("Woodside") terminating the Farm-In Agreement ("FIA").  The termination notice was given based on Woodside's refusal to drill a second exploratory well in the project area in accordance with the FIA and its failure to take any steps to remedy this refusal, which the Company considers to be a repudiation and breach of the FIA.

The Company and joint venture partner Dana Petroleum (E&P) Limited ("Dana") commenced legal proceedings in the English High Court of Justice to recover losses suffered as a result.  In April 2010, the parties reached a mutual agreement to withdraw from legal proceedings, with a lump sum payment of US$12 million to be received by Dana and Global jointly, apportioned on a 50/50 basis. 

Corporate / Financial

As at 30 June 2010 the Company has cash of $27,898,875 (2009: $26,151,515).

The Board continues to review opportunities for other acquisitions, joint ventures, or investments in the resources sector, both domestic and overseas, which may enhance shareholder value.

SIGNIFICANT CHANGES IN THE STATE OF AFFAIRS

Other than as outlined in the Review of Operations and Activities above, the following significant changes in the state of affairs of the Consolidated Entity occurred during the year:

·     On 10 November 2009, the Company advised that it had elected to maintain its option to earn a 25% interest in Uganda Licence EA5 ("EA5") by funding 25% of the cost of the second exploration well in EA5;

·     On 20 April 2010, the Company advised that, along with joint venture partner Dana Petroleum (E&P) Limited ("Dana"), it had reached a mutual agreement with Woodside Energy (Kenya) Pty Limited to withdraw from legal proceedings in relation to the Kenyan Farm In Agreement, with a lump sum payment of US$12 million to be received by Dana and Global jointly, apportioned on a 50/50 basis.  Global's share of the settlement funds received were A$6,510,000;

·     On 1 June 2010 Mr Shane Cranswick resigned as a Director and Company Secretary of the Company.  Mr Clint McGhie was appointed as a Non-Executive Director and Company Secretary with effect from the same date; and

·     On 25 June 2010, the Company advised that it had reached agreement with Neptune Petroleum (Uganda) Limited, a wholly owned subsidiary of Tower Resources plc ("Tower"), whereby Global will have a continuing option to participate in the Uganda project whilst having no current obligation to contribute to ongoing expenditure.

SIGNIFICANT POST BALANCE DATE EVENTS

(i)  On 27 August 2010, the Company advised that it had signed an amendment to the Participation Agreement with Texon Petroleum Ltd (ASX: TXN) expanding the contract area of the Leighton Prospect to 1,651 acres for all depths beneath the Olmos Formation by cross-assigning its 15% working interest in the existing 873.691 acres, with 777.059 acres in which Texon holds an average 96% working interest.  Global will now own an undivided 7.939% working interest across the expanded area including the Eagle Ford Shale (131.05 net acres).

Under the amended Participation Agreement, Global retains its 15% working interest (11.25% net revenue interest) in the 873.961 acres from the surface down to the stratigraphic equivalent of the base of the Olmos Formation.

(ii) On 13 September 2010, the Company advised that the seventh well on the Leighton Project, Tyler Ranch #6, had begun to flow oil and gas at the gross rate of 350 boepd from the Olmos reservoir (comprising 205 bopd and 880 mcf of gas per day) through a 10/64" choke at 2,000 psi.  Global has a 15% working interest (11.25% net revenue interest) in this well.

Other than as outlined above, as at the date of this report there are no matters or circumstances, which have arisen since 30 June 2010 that have significantly affected or may significantly affect:

·     the operations, in financial years subsequent to 30 June 2010 of the Consolidated Entity;

·     the results of those operations, in financials years subsequent to 30 June 2010 of the Consolidated Entity; or

·     the state of affairs, in financial years subsequent to 30 June 2010 of the Consolidated Entity.

ENVIRONMENTAL REGULATION AND PERFORMANCE

The Consolidated Entity's operations are subject to various environmental laws and regulations under the relevant government's legislation. Full compliance with these laws and regulations is regarded as a minimum standard for all operations to achieve.

Instances of environmental non-compliance by an operation are identified either by external compliance audits or inspections by relevant government authorities.

There have been no significant known breaches by the Consolidated Entity during the financial year.

LIKELY DEVELOPMENTS AND EXPECTED RESULTS

It is the Board's current intention that the Consolidated Entity will focus on maximising the value of its oil and gas exploration assets in the United States of America and Africa and continue to examine new opportunities in mineral exploration, particularly in the oil and gas sector. 

All of these activities are inherently risky and the Board is unable to provide certainty that any or all of these activities will be able to be achieved. In the opinion of the Directors, any further disclosure of information regarding likely developments in the operations of the Consolidated Entity and the expected results of these operations in subsequent financial years may prejudice the interests of the Company and accordingly, has not been disclosed.

For and on behalf of the Directors

MARK SAVAGE

Chairman

30 September 2010

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

FOR THE YEAR ENDED 30 JUNE 2010

	2010 $	2009 $
Continuing operations
Revenue	1,224,723	224,884
Cost of Sales	(662,679)	(282,906)
Gross Profit/(Loss)	562,044	(58,022)
Finance and other income	7,869,270	3,729,546
Administration costs	(982,865)	(954,468)
Business development	-	(4,664)
Exploration and evaluation expenditure written off	(2,442,466)	(9,945,093)
Litigation costs	(2,654,534)	-
Profit/(loss) before income tax	2,351,449	(7,232,701)
Income tax (expense)/benefit	(1,245,032)	1,599,622
Profit/(loss) for the Year	1,106,417	(5,633,079)
Profit/(loss) attributable to members of Global Petroleum Limited	1,106,417	(5,633,079)
Other comprehensive income
Exchange differences on translating foreign operations	56,382	(176,158)
Change in fair value - available-for-sale investments	-	(4,404,696)
Reversal of deferred tax liability in respect of available-for-sale investments	-	1,315,130
Other comprehensive income/(loss) for the period, net of tax	56,382	(3,265,724)
Total comprehensive income/(loss) for the period	1,162,799	(8,898,803)
Total comprehensive income/(loss) attributable to members of Global Petroleum Limited	1,162,799	(8,898,803)
Basic earnings/(loss) per share from continuing operations (cents per share)	0.63	(3.23)
Diluted earnings/(loss) per share from continuing operations (cents per share)	0.63	(3.23)

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

AS AT 30 JUNE 2010

	2010 $	2009 $
Current assets
Cash and cash equivalents	27,898,875	26,151,515
Trade and other receivables	267,629	84,497
Other assets	-	600
Total current assets	28,166,504	26,236,612
Non-current assets
Exploration and evaluation expenditure	-	-
Oil and gas assets	1,553,239	1,238,654
Total non-current assets	1,553,239	1,238,654
TOTAL ASSETS	29,719,743	27,475,266
Current liabilities
Trade and other payables	201,832	381,749
Current tax payable	1,245,032	-
Total current liabilities	1,446,864	381,749
Non-current liabilities
Provisions	25,066	8,503
Deferred tax liabilities	-	-
Total non-current liabilities	25,066	8,503
TOTAL LIABILITIES	1,471,930	390,252
NET ASSETS	28,247,813	27,085,014
Equity
Issued capital	35,590,053	35,590,053
Reserves	(97,208)	(153,590)
Accumulated losses	(7,245,032)	(8,351,449)
TOTAL EQUITY	28,247,813	27,085,014

CONSOLIDATED STATEMENT OF CASH FLOWS

FOR THE YEAR ENDED 30 JUNE 2010

	2010 $	2009 $
Cash flows from operating activities
Cash paid to suppliers and employees	(638,565)	(963,910)
Interest received	869,691	1,617,166
Oil and gas revenue received	1,145,673	116,765
Net cash from operating activities	1,376,799	770,021
Cash flows from investing activities
Payments for oil and gas assets	(975,096)	-
Payments for exploration expenditure	(2,442,466)	(11,389,363)
Proceeds from sale of investments	-	2,324,319
Litigation settlement	6,510,000	-
Litigation expenses	(2,654,534)	-
Net cash from/(used in) investing activities	437,904	(9,065,044)
Net increase/(decrease) in cash and cash equivalents	1,814,703	(8,295,023)
Cash and cash equivalents at 1 July	26,151,515	34,454,208
Effects of exchange rate changes on cash and cash equivalents	(67,343)	(7,670)
Cash and cash equivalents at 30 June	27,898,875	26,151,515

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2010

Principles of Consolidation

The consolidated financial statements incorporate the assets and liabilities of all subsidiaries of the Company as at 30 June 2010 and the results of all subsidiaries for the year then ended. 

Subsidiaries are all those entities (including special purpose entities) over which the Group has the power to govern the financial and operating policies, generally accompanying a shareholding of more than one-half of the voting rights.  The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Group controls another entity.

Subsidiaries are fully consolidated from the date on which control is transferred to the Group.  They are de-consolidated from the date that control ceases.

Intercompany transactions and balances, and unrealised gains on transactions between Group companies, are eliminated.  Unrealised losses are also eliminated unless the transaction provides evidence of the impairment of the asset transferred.  Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group.

Joint venture operations

The interests of the Group in unincorporated joint ventures are brought to account by recognising in its financial statements the assets it controls, the liabilities that it incurs, the expenses it incurs and its share of income that it earns from the sale of goods or services by the joint venture.

Use of Estimates and Judgements

The preparation of financial statements in conformity with AASBs requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses.  Actual results may differ from these estimates.

Estimates and underlying assumptions are reviewed on an ongoing basis.  Revisions to accounting estimates are recognised in the period in which the estimates are revised and in any future periods affected.

Cash and Cash Equivalents

Cash and cash equivalents include cash on hand, deposits held at call with banks, other short-term highly liquid investments with original maturities of 2 months or less, and bank overdrafts.  Bank overdrafts are shown within short-term borrowings in current liabilities on the Statement of Financial Position.

Trade and Other Receivables

Trade receivables are recognised initially at fair value and subsequently measured at amortised cost less an allowance for doubtful debts.  Trade receivables are due for settlement no more than 30 days from the date of recognition.  An estimate of doubtful debts is made and taken to a provision account when collection of the full amount is no longer probable.  Bad debts are written off as incurred.

Investments and Other Financial Assets

The Group classifies its investments in the following categories:  financial assets at fair value through the Statement of Comprehensive Income, loans and receivables and available-for-sale financial assets.  The classification depends on the purpose for which the investments were acquired.  Management determines the classification of its investments at initial recognition and re-evaluates this designation at each reporting date.

Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market.  They arise when the Company provides money, goods or services directly to a debtor with no intention of selling the receivable.  They are included in current assets, except for those with maturities greater than twelve months after the balance sheet date which are classified as non-current assets.  Loans and receivables are included in receivables and other financial assets in the Statement of Financial Position.

Available-for-sale financial assets

Available-for-sale financial assets, comprising principally marketable equity securities, are non-derivatives that are either designated in this category or not classified in any of the other categories.  They are included in non-current assets unless management intends to dispose of the investment within twelve months of the balance sheet date.

Purchases and sales of investments are recognised on trade-date - the date on which the Group commits to purchase or sell the asset.  Investments are initially recognised at fair value plus transaction costs for all financial assets not carried at fair value through the Statement of Comprehensive Income.  Financial assets are derecognised when the rights to receive cash flows from the financial assets have expired or have been transferred and the Group has transferred substantially all the risks and rewards of ownership.

Available-for-sale financial assets are subsequently carried at fair value.  Unrealised gains and losses arising from changes in the fair value of non-monetary securities classified as available-for-sale are recognised in equity in the fair value reserve.  When securities classified as available-for-sale are sold or impaired, the accumulated fair value adjustments are included in the Statement of Comprehensive Income as gains and losses from investment securities.

The fair values of quoted investments are based on current bid prices.  If the market for a financial asset is not active (and for unlisted securities), the Group establishes fair value by using valuation techniques.  These include reference to the fair values of recent arm's length transactions, involving the same instruments or other instruments that are substantially the same, discounted cash flow analysis, and option pricing models.

The Group assesses at each balance date whether there is objective evidence that a financial asset or group of financial assets is impaired.  In the case of equity securities classified as available-for-sale, a significant or prolonged decline in the fair value of a security below its cost is considered in determining whether the security is impaired.  If any such evidence exists for available-for-sale financial assets, the cumulative loss - measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that financial asset previously recognised in profit and loss - is removed from equity and recognised in the Statement of Comprehensive Income.  Impairment losses recognised in the Statement of Comprehensive Income on equity instruments are not reversed through the Statement of Comprehensive Income.

Fair Value Estimation

The fair value of financial instruments traded in active markets (such as publicly traded derivatives, and trading and available-for-sale securities) is based on quoted market prices at the year end.  The quoted market price used for financial assets held by the Group is the current bid price; the appropriate quoted market price for financial liabilities is the current ask price.

Exploration and Evaluation Expenditure

Exploration and evaluation expenditure encompasses expenditures incurred by the Group in connection with the exploration for and evaluation of mineral resources before the technical feasibility and commercial viability of extracting a mineral resource are demonstrable.

Exploration and evaluation expenditure incurred by the Group is accumulated for each area of interest and recorded as an asset if:

·     the rights to tenure of the area of interest are current; and

·     at least one of the following conditions is also met:

§ the exploration and evaluation expenditures are expected to be recouped through successful development and exploitation of the area of interest, or alternatively, by its sale; and/or

§ exploration and evaluation activities in the area of interest have not at the reporting date reached a stage which permits a reasonable assessment of the existence or otherwise of economically recoverable reserves, and active and significant operations in, or in relation to, the area of interest are continuing.

For each area of interest, expenditure incurred in the acquisition of rights to explore is capitalised, classified as tangible or intangible based on the nature of the asset, and recognised as an exploration and evaluation asset.  Exploration and evaluation assets are measured at cost at recognition. 

Recoverability of the carrying amount of the exploration and evaluation assets is dependent on successful development and commercial exploitation, or alternatively, sale of the respective areas of interest.

The recoverable amount is the greater of its fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset.

Where a decision is made to proceed with development, accumulated exploration expenditure is tested for impairment and transferred to oil and gas assets, and then amortised over the life of the reserves associated with the area of interest once mining operations have commenced. Amortisation of capitalised costs is not charged on revenues earned from production testing.

An impairment loss is recognised if the carrying amount of capitalised costs exceeds its recoverable amount. Impairment losses are recognised in the Statement of Comprehensive Income.

Capitalised oil and gas costs are reviewed each reporting date to establish whether an indication of impairment exists.  If any such indication exists, the recoverable amount of the capitalised exploration costs is estimated to determine the extent of the impairment loss (if any).  Where an impairment loss subsequently reverses, the carrying amount of the asset is increased to the revised estimate of its recoverable amount, but only to the extent that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset in previous years.

Trade and Other Payables

Liabilities for trade creditors and other amounts are carried at amortised cost. The amounts are unsecured and are usually paid within 30 days.

Employee Benefits

Liabilities for wages and salaries, including non-monetary benefits, annual leave and accumulating sick leave expected to be settled within twelve months of the reporting date are recognised in provisions in respect of employees' services up to the reporting date and are measured at the amounts expected to be paid when the liabilities are settled.  Liabilities for non-accumulating sick leave are recognised when the leave is taken and measured at the rates paid or payable. Employee benefits payable later than one year are measured at the present value of the estimated future cash flows to be made for those benefits.

Site Restoration Provision

Provisions made for environmental rehabilitation are recognised where there is a present obligation as a result of exploration, development or production activities having been undertaken, and it is probable that an outflow of economic benefits will be required to settle the obligation. The estimated future obligations include the costs of removing facilities, abandoning wells and restoring the affected area. The provision for future restoration costs is the best estimate of the present value of the expenditure required to settle the obligation at the reporting date, based on current legal requirements and technology. Future restoration costs are reviewed annually and any changes are reflected in the present value of the restoration provision at the end of the reporting period. The amount of the provision for future restoration costs relating to exploration and development activities is capitalised as a cost of those activities. If the effect is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money, and where appropriate the risks specific to the liability. The unwinding of discounting on the provision is recognised as a finance cost.

Issued Capital

Ordinary shares are classified as equity. Issued and paid up capital is recognised at the fair value of the consideration received by the Company.

Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds. 

Dividends

Provision is made for the amount of any dividend declared on or before the end of the year but not distributed at balance date.

Earnings per Share

Basic earnings per share is calculated by dividing the profit attributable to equity holders of the Company, excluding any costs of servicing equity other than ordinary shares, by the weighted average number of ordinary shares outstanding during the year, adjusted for bonus elements in ordinary shares issued during the year.

Diluted earnings per share adjusts the figures used in the determination of basic earnings per share to take into account the after tax effect of interest and other financing costs associated with dilutive potential ordinary shares and the weighted average number of shares assumed to have been issued for no consideration in relation to dilutive potential ordinary shares.

Goods and Services Tax

Revenues, expenses and assets are recognised net of the amount of GST except:

·     where the GST incurred on a purchase of goods and services is not recoverable from the taxation authority, in which case the GST is recognised as part of the cost of acquisition of the asset or as part of the expense item as applicable; and

·     receivables and payables are stated with the amount of GST included.

The net amount of GST recoverable from, or payable to, the taxation authority is included as part of receivables or payables in the Statement of Financial Position.

Cash flows are included in the Cash Flow Statement on a gross basis and the GST component of cash flows arising from investing and financing activities, which is recoverable from, or payable to, the taxation authority are classified as operating cash flows.

Revenue

(i)         Sale of oil and gas

Revenue from the sale of oil and gas is recognised when the significant risks and rewards of ownership have transferred to the buyer and can be measured reliably. Delivery of gas is by pipeline and sales contracts define the point of transfer of ownership.

Other Income

Other income is measured at the fair value of the consideration received or receivable. 

Impairment of Assets

Financial assets

A financial asset is considered to be impaired if objective evidence indicates that one or more events have had a negative effect on the estimated future cash flows of that asset.

An impairment loss in respect of a financial asset measured at amortised cost is calculated as the difference between its carrying amount and the present value of the estimated cash flows discounted at the original effective interest rate. An impairment loss in respect of an available-for-sale financial asset is calculated by reference to its current fair value.

Individually significant financial assets are tested for impairment on an individual basis. The remaining financial assets are assessed collectively in groups that share similar credit risk characteristics.

All impairment losses are recognised in the Statement of Comprehensive Income. Any cumulative loss in respect of an available-for-sale financial asset recognised previously in equity is transferred to the Statement of Comprehensive Income.

An impairment loss is reversed if the reversal can be related objectively to an event occurring after the impairment loss was recognised. For financial assets measured at amortised cost and available-for-sale assets that are debt securities, the reversal is recognised in the Statement of Comprehensive Income. For available-for-sale financial assets that are equity securities, the reversal is recognised directly in equity.

Non-Financial assets

The carrying amounts of the Group's non-financial assets except exploration and evaluation expenditure are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists then the recoverable amount is estimated. For intangible assets that have indefinite lives or that are not yet available for use, recoverable amount is estimated at each reporting date.

The recoverable amount of an asset is the greater of its value in use and its fair value less costs to sell.

An impairment loss is recognised in the Statement of Comprehensive Income if the carrying amount of an asset exceeds its recoverable amount.

Business Combinations

The Group has adopted revised AASB 3 Business Combinations (2008) and amended AASB 127 Consolidated and Separate Financial Statements (2008) for business combinations occurring in the financial year starting 1 July 2009.  All business combinations occurring on or after 1 July 2009 are accounted for by applying the acquisition method.  The change in accounting policy is applied prospectively and had no material impact on earnings per share.

For every business combination, the Group identifies the acquirer, which is the combining entity that obtains control of the other combining entities or businesses. Control is the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities.  In assessing control, the Group takes into consideration potential voting rights that currently are exercisable. The acquisition date is the date on which control is transferred to the acquirer. Judgement is applied in determining the acquisition date and determining whether control is transferred from one party to another.

Measuring goodwill

The Group measures goodwill as the fair value of the consideration transferred including the recognised amount of any non-controlling interest in the acquiree, less the net recognised amount (generally fair value) of the identifiable assets acquired and liabilities assumed, all measured as of the acquisition date.

Consideration transferred includes the fair values of the assets transferred, liabilities incurred by the Group to the previous owners of the acquiree, and equity interests issued by the Group. Consideration transferred also includes the fair value of any contingent consideration and share-based payment awards of the acquiree that are replaced mandatorily in the business combination (see below).  If a business combination results in the termination of pre-existing relationships between the Group and the acquiree, then the lower of the termination amount, as contained in the agreement, and the value of the off-market element is deducted from the consideration transferred and recognised in other expenses.

Share-based payment awards

When share-based payment awards exchanged (replacement awards) for awards held by the acquiree's employees (acquiree's awards) relate to past services, then a part of the market-based measure of the awards replaced is included in the consideration transferred.  If they require future services, then the difference between the amount included in consideration transferred and the market-based measure of the replacement awards is treated as post-combination compensation cost.

Contingent liabilities

A contingent liability of the acquiree is assumed in a business combination only if such a liability represents a present obligation and arises from a past event, and its fair value can be measured reliably.

Non-controlling interest

The Group measures any non-controlling interest at its proportionate interest in the identifiable net assets of the acquiree.

Transaction costs

Transaction costs that the Group incurs in connection with a business combination, such as finder's fees, legal fees, due diligence fees, and other professional and consulting fees, are expensed as incurred.

Share-Based Payments

Share-based payments are provided to Directors, employees, consultants and other advisors. 

The fair value of options granted (determined using the Black-Scholes option pricing model) is recognised as an expense with a corresponding increase in equity.  The fair value is measured at grant date and recognised over the period during which option holders become unconditionally entitled to the options.

Where share based payments vest only if non-market performance criteria are met, the value of the share based payment is recognised only when it is likely that such criteria may be met, and the expense recognised is adjusted to reflect the number of awards that ultimately vest.

Income Tax

The income tax expense or revenue for the period is the tax payable on the current period's taxable income based on the national income tax rate for each jurisdiction adjusted by changes in deferred tax assets and liabilities attributable to temporary differences between the tax bases of assets and liabilities and their carrying amounts in the financial statements, and to unused tax losses.

Deferred tax assets and liabilities are recognised using the balance sheet method for temporary differences at the tax rates expected to apply when the assets are recovered or liabilities are settled, based on those tax rates which are enacted or substantively enacted for each jurisdiction.  The relevant tax rates are applied to the cumulative amounts of deductible and taxable temporary differences to measure the deferred tax asset or liability.  An exception is made for certain temporary differences arising from the initial recognition of an asset or a liability.  No deferred tax asset or liability is recognised in relation to these temporary differences if they arose in a transaction, other than a business combination, that at the time of the transaction did not affect either accounting profit or taxable profit or loss.

Deferred tax assets are recognised using the balance sheet method for deductible temporary differences and unused tax losses only if it is probable that future taxable amounts will be available to utilise those temporary differences and losses.

Deferred tax liabilities and assets are not recognised for temporary differences between the carrying amount and tax bases of investments in controlled entities where the parent entity is able to control the timing of the reversal of the temporary differences and it is probable that the differences will not reverse in the foreseeable future.

Current and deferred tax balances attributable to amounts recognised directly in equity are also recognised directly in equity.

Tax consolidation

The Company is the head entity in a tax-consolidated group comprising the Company and all of its Australian wholly owned subsidiaries.  The implementation date of the tax consolidation system for the tax-consolidated group was 1 July 2003.

Any current tax liabilities (or assets) and deferred tax assets arising from unused tax losses are assumed by the head entity from the subsidiaries in the tax-consolidated group.  The assumption of current tax liabilities (or assets) and deferred tax assets arising from unused tax losses has been undertaken in the context that the head entity in conjunction with other members of the tax-consolidated group has not, as yet, entered into any tax funding agreement. 

Foreign Currencies

(ii)        Transactions and balances

Foreign currency transactions are translated into functional currency using the exchange rates prevailing at the date of the transaction. Foreign currency monetary items are translated at the year-end exchange rate. Non-monetary items measured at historical cost continue to be carried at the exchange rate at the date of the transaction. Non-monetary items measured at fair value are reported at the exchange rate at the date when fair values were determined.

Exchange differences arising on the translation of monetary items are recognised in the Statement of Comprehensive Income, except where deferred in equity as a qualifying cash flow or net investment hedge.

Exchange differences arising on the translation of non-monetary items are recognised directly in equity to the extent that the gain or loss is directly recognised in equity, otherwise the exchange difference is recognised in the Statement of Comprehensive Income.

(iii)       Group companies

The financial results and position of foreign operations whose functional currency is different from the group's presentation currency are translated as follows:

·     assets and liabilities are translated at year-end exchange rates prevailing at that reporting date;

·     income and expenses are translated at the date of transaction.  For practical reasons, a rate that approximates the exchange rate at the date of the transaction is used, for example average exchange rate for the period; and

·     retained earnings are translated at the exchange rates prevailing at the date of the transaction.

Exchange differences arising on translation of foreign operations are transferred directly to the group's foreign currency translation reserve in the Statement of Financial Position. These differences are recognised in the Statement of Comprehensive Income in the period in which the operation is disposed.

	Notes	2010 $	2009 $
PROFIT/(LOSS) FROM OPERATIONS
(a)        Revenue
Oil and gas revenue		1,224,723	224,884
(b)        Cost of sales
Cost of oil and gas sold		182,894	39,716
Amortisation of oil and gas assets		479,785	243,190
		662,679	282,906
(c)        Financial and other income
Interest income		869,729	1,617,166
Net foreign exchange gain		489,541	25,213
Litigation settlement proceeds		6,510,000	-
Gain on disposal of available-for-sale investments		-	2,087,167
		7,869,270	3,729,546
(d)        Profit/(Loss) Before Tax
Profit/(loss) before income tax has been arrived at after charging the following expenses attributable to continuing operations:
Salaries and employee benefits expense		180,165	180,000
Consulting and professional fees		92,550	80,875
Post employment benefits		4,064	-
Shareholder costs		181,654	217,934
Administrative and other expenses		524,432	475,659
		982,865	954,468

	Notes	2010 $	2009 $
ISSUED CAPITAL
Issued and Paid Up Capital
174,444,787  (2009: 174,444,787 ) fully paid ordinary shares		35,590,053	35,590,053

Movements in Ordinary Share Capital During the Past Two Years Were as Follows:

There were no movements in the ordinary share capital during the years ended 30 June 2010 or 30 June 2009.

	2010 Cents per Share	2009 Cents per Share
EARNINGS PER SHARE
Basic earnings/(loss) per share	0.63	(3.23)
Diluted earnings/(loss) per share	0.63	(3.23)

The following reflects the income and share data used in the calculations of basic and diluted earnings per share:

	Notes	2010 $	2009 $
Net profit/(loss) used in calculating basic and diluted earnings per share		1,106,417	(5,633,079)
		Number of Shares 2010	Number of Shares 2009
Weighted average number of ordinary shares used in calculating basic earnings per share		174,444,787	174,444,787
Effect of dilutive securities		-	-
Adjusted weighted average number of ordinary shares and potential ordinary shares used in calculating basic and diluted earnings per share		174,444,787	174,444,787

 

RELATED PARTIES

Subsidiaries

All controlled entities are included in the consolidated financial statements.  The parent entity does not guarantee to pay the deficiency of its controlled entities in the event of a winding up of any controlled entity.  The financial year-end of the controlled entities is the same as that of the parent entity.

		Ownership Interest
	Country of Incorporation	2010 %	2009 %
Parent entity
Global Petroleum Limited	Australia
Subsidiaries
Star Petroleum Plc	United Kingdom	100		100
Star Petroleum International (Kenya) Limited *	British Virgin Islands	100		100
Dampier Oil Pty Ltd*	Australia	100		100
Global Mine Management Pty Limited *	Australia	100		100
Global Petroleum (USA) Pty Ltd*	Australia	100		100
GP Exploration, Inc.*	United States of America	100		100
Astral Petroleum Limited *	United Kingdom	100		100
Astral Petroleum (Malta) Limited *	British Virgin Islands	100		100

* No separate audit opinion issued as not required in place of incorporation.  The results and state of affairs of the entity has been reviewed in forming the audit opinion on the financial report of the Consolidated Entity.

 

19.     INTERESTS IN JOINT VENTURE OPERATIONS

The Company and Consolidated Entity hold the following interests in various joint ventures, whose principal activities are in petroleum exploration.

Included in the assets and liabilities of the Consolidated Entity are the following assets and liabilities:

	Notes	2010 $	2009 $
Current assets
Cash and cash equivalents		-	103,683
Trade and other receivables		247,631	68,403
Total current assets		247,631	172,086
Non-current assets
Oil and gas assets		1,553,239	1,238,654
Total non-current assets		1,553,239	1,238,654
TOTAL ASSETS		1,800,870	1,410,740
Current liabilities
Trade and other payables		38,494	143,853
Total current liabilities		38,494	143,853
Non-current liabilities
Provisions		25,066	8,503
Total non-current liabilities		25,066	8,503
TOTAL LIABILITIES		63,560	152,356
NET ASSETS		1,737,310	1,258,384

		Joint Venture % Interest Held
	Notes		2010 %	2009 %
Leighton Project			15	15
Kenya			-	20
Malta - dormant			80	80
Iraq (TM Services / Global) - dormant			50	50

Kenya

Notice was given to Woodside Energy (Kenya) Pty Limited ("Woodside") terminating the Farm-In Agreement ("FIA"). The termination notice was given based on Woodside's refusal to drill a second exploratory well in the project area in accordance with the FIA and its failure to take any steps to remedy this refusal, which the Company considers to be a repudiation and breach of the FIA.

The Company and joint venture partner Dana Petroleum (E&P) Limited ("Dana") commenced legal proceedings to recover losses suffered as a result. The proceedings progressed to the pre-trial disclosure stage and in April 2010, the parties reached mutual agreement to withdraw from legal proceedings, with a lump sum payment of US$12 million to be received by Dana and Global jointly, apportioned on a 50/50 basis.

Leighton Project

On 15 August 2008, the Company announced it was farming in to the Leighton oil prospect owned by Texon Petroleum Limited (ASX: TXN).  The Company earned a 15% Working Interest ("WI") in the first well by funding 30% of the cost of drilling the well in addition to reimbursing Texon US$180,000 in respect of prospect generation and lease costs for the well.

When the first well on Leighton had been drilled, Global opted to participate in the drilling of a second well under the same terms to earn a 15% WI in the Leighton leases.  All subsequent wells drilled on Leighton are at each company's earned working interest.

Global has now commenced receiving revenue from the production of Peeler #1 and Tyler Ranch #1, #2, #3, #4 and #5.

The full version of the Annual Financial Report is available on Global Petroleum Limited's website:

www.globalpetroleum.com.au

 

END

 

 

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