Financial Report

Global Petroleum Ltd 18 March 2005 GLOBAL PETROLEUM LIMITED ABN 68 064 120 896 FINANCIAL REPORT FOR THE HALF-YEAR ENDED 31 DECEMBER 2004 CORPORATE DIRECTORY Directors Auditor Dr John Armstrong - KPMG Executive Chairman Peter Blakey Level 30 Central Plaza One Peter Dighton 345 Queen Street Mark Savage Brisbane QLD 4000 Peter Taylor Australia Secretary Bankers Des Olling Australia and New Zealand Banking Group Limited Registered and Principal Level 3 Office Level 9 324 Queen Street 46 Edward Street Brisbane QLD 4000 Brisbane QLD 4000 Australia Australia Telephone: (61 7) Stock Exchange Listing 3211 1122 Facsimile: (61 7) Global Petroleum Limited shares 3211 0133 Website: are listed on the Australian Stock www.globalpetroleum.com.au Exchange (Symbol: GBP). Share Register Computershare Investor Home Exchange: Brisbane Office Services Pty Ltd Level 27 Central Plaza Australian Stock Exchange One 345 Queen Street Riverside Centre Brisbane Queensland 4000 Level 6 123 Eagle Street Australia Brisbane QLD 4000 Telephone: (61 7) 3237 Australia 2100 Facsimile: (61 7) 3229 9860 Global Petroleum Limited shares are listed on the Alternative Investment Market (AIM) of the London Stock Exchange. DIRECTORS' REPORT FOR THE HALF-YEAR ENDED 31 DECEMBER 2004 The Directors of Global Petroleum present their report on the consolidated entity consisting of Global Petroleum Limited ('the Company' or 'Global') and the entities it controlled during the half-year ended 31 December 2004 ('Consolidated Entity' or 'Group'), together with the consolidated financial report for the half-year ended 31 December 2004 and the review report thereon. DIRECTORS The names of the Directors of Global in office during the half-year and until the date of this report are: Dr John Armstrong (Executive Chairman) - appointed 31 May 2002 Peter Blakey - appointed 4 October 2001 Peter Dighton - appointed 23 December 2003 Mark Savage - appointed 22 November 1999 Peter Taylor - appointed 4 October 2001 REVIEW AND RESULTS OF OPERATIONS Operating Results During the December 2004 half-year, the Group recorded a net loss of $729,503 (2003: net loss of $2,380,249). Principal Activities The principal activities in regard to the Company's projects were: (a) Alternative Investment Market ('AIM') The Company announced its intention to seek admission to AIM in the first quarter of 2005. On 7 March 2005, the Company's ordinary shares were admitted to trading on AIM. (b) Kenya: (i) Woodside elected to continue in Blocks L-5 and L-7; (ii) Woodside increased its equity from 40 to 50% in Blocks L-5 and L-7; (iii) New seismic survey in Blocks L-5 and L-7; (iv) Woodside withdrew from Block L-10. Remaining parties, Dana and Global, are seeking revised terms from the Kenyan Government; and (v) Woodside has until late 2005 to notify its intentions in regard to Block L-11. Principal Activities (continued) (c) Falkland Oil and Gas Limited ('FOGL') www.fogl.co.uk (i) Global retained 16.06% shareholding in listed FOGL; and (ii) FOGL began trading on the UK Alternative Investment Market ('AIM') on 14 October 2004. (d) Falkland Gold and Minerals Limited ('FGML') www.fgml.co.uk (i) Global retained 10.1% shareholding in listed FGML; and (ii) FGML began trading on the UK Alternative Investment Market ('AIM') on 9 December 2004. (e) Astral Petroleum Limited As a result of the acquisition of 100% of the share capital of Astral Petroleum Limited, Global now has: (i) 100% of Ireland Licence option 03/3; and (ii) 100% of Malta Exploration Study Agreements for Blocks 4 and 5. (f) Queensland - ATP728P The Company surrendered its interest in its 100% held ATP728P to the Queensland Government in February 2005. (g) Montenegro The Company's interest was sold for £350,000 (A$852,933). (h) Iraq The Company continues to seek a suitable opportunity for participation in the Iraqi oil and gas industry. (i) Rights Issue A$5.5 million (before costs) raised via one-for-three non-renounceable rights issue. Review of Operations (a) Alternative Investment Market ('AIM') The Company has appointed London based broker KBC Peel Hunt to act as Nominated Advisor and Broker. The Company achieved its target compliance listing on the AIM on 7 March 2005. (b) Kenya The Company has a holding of 20% in three blocks L-5, L-7, and L-11 offshore Kenya. In regard to the fourth Block L-10 which is now held by Dana (80% and operator) and Global (20%) - as a result of the withdrawal of Woodside - the terms of an extension of the Licence including the work programme are under negotiation with the Kenyan authorities. In L-5, L-7 and L-11 Global is in a Joint Venture with Woodside (50% and operator in L5 and L7, and 40% in L11) and Dana Petroleum (E&P) Limited (30% in L5 and L7 and 40% in L11). The costs associated with Global's 20% equity are carried for all activities including the drilling and testing of two wells. Mapping of the 2003 5,500km 2D seismic survey revealed several leads in Blocks L-5 and L-7 in water depths of 1,650 -2,800 metres with the leads (potential targets for drilling) ranging in size from 10 sq km (2,500 acres) to 60 sq km (15,000 acres). A new 3,600 km 2D seismic survey to investigate nine (9) of these leads began on 23 November 2004 and was completed on 10 January 2005. Records from this survey will now be processed. Interpreted results of this latest seismic survey, which are anticipated to be available in the second quarter of calendar year 2005, will assist the Joint Venture in reviewing prospects for drilling - with the first well expected to commence in the fourth quarter of calendar year 2005. In Block L-11, Woodside has until late 2005 to determine whether or not to continue in this Block. (c) Falkland Oil and Gas Limited ('FOGL') (Global shareholding 16.06%) www.fogl.co.uk FOGL raised £12 million (A$30 million) and began trading on the UK Alternative Investment Market ('AIM') on 14 October 2004. The shares have since traded between 40p and 117.5p per share. At the closing price of 117.5p/share on 11 March 2005, the Company's shareholding in FOGL is valued at approximately A$36.6 million (21.6c per Global Petroleum Limited ordinary share). FOGL was awarded new Falkland Island licences covering an additional 50,000 sq km in its own right in early December 2004 - refer to FOGL's release dated 7 December 2004. FOGL began a 10,500km 2D seismic survey over both the old and new areas on 28 December 2004 and by 10 March 2005 had recorded 7,107km - refer to FOGL's release dated 21 December 2004 and weekly progress reports, the most recent being 11 March 2005, which are on the FOGL website. Review of Operations (continued) (d) Falkland Gold and Minerals Limited ('FGML') (Global shareholding 10.1%) www.fgml.co.uk FGML (the company changed its name from Falkland Minerals Limited) raised £10 million (A$25 million) and began trading on AIM on 9 December 2004 and the shares have since traded between 37p and 46.5p per share. At the closing price of 40p on 11 March 2005, the Company's shareholding in FGML is valued at approximately A$7.7 million (4.5c per Global Petroleum Limited ordinary share). FGML's earlier work (stream sampling and an aeromagnetic survey) conducted in 2004 and previously, identified 23 targets for drilling and the presence of alluvial gold in several drainage systems. FGML's plans including beginning drilling in February 2005 are set out in its releases dated 9 December 2004, 7 February 2005 and 3 March 2005 which can be found on the FGML website. (e) Astral Petroleum Limited (i) Ireland Licence Option 03/3 (Global 100%) Global acquired 100% of this Licence Option in December 2004. The area comprises part blocks 57/3, 57/4, 57/8 and 57/9 in the North Celtic Sea Basin and is located 30-70km to the south and south west of the Seven Heads and Kinsala Head gas fields. Well 57/9-1 drilled in the Licence Option area in 1984 flowed 2.6 million cubic feet of gas per day from Lower Cretaceous Wealdon Sands and recovered some oil. The company plans further studies focused on a Jurassic lead which has been mapped in the area below the Wealdon Sands. The company plans to convert the Licencing Option to an Exploration Licence and to farmout a significant part of its holding. (ii) Malta Blocks 4 & 5 (Global 100%) Global acquired 100% of an Exploration Study Agreement for Blocks 4 and 5 in December 2004. These Blocks are located at the south end of the Ragusa Trough which appears to be the source of the oil in fields in the northern Italian part of the Trough. The company plans further studies with a view to converting this current agreement to Production Sharing Contract and farming out a significant part of its equity. (f) Queensland ATP 728P (Global 100%) The Company surrendered its interest in its 100% held ATP728P to the Queensland Government in February 2005. All exploration and evaluation expenditure relating to the project has been written off in the financial statements for the half-year ended 31 December 2004. (g) Montenegro The Group has sold its 51% interest in a contract over an area in Montenegro for £350,000 (A$852,933). Review of Operations (continued) (h) Iraq The Company is maintaining contact with Iraqi authorities regarding opportunities for it to participate in the petroleum industry in Iraq. (i) Rights Issue The Company lodged a Prospectus for a one for three non-renounceable rights issue at a price of 15 cents per new share with ASIC and ASX on 24 August 2004 and the Offer closed on 20 September 2004. The offer raised A$5.5 million (before costs) to fund ongoing work obligations, meet working capital requirements and to add projects which fit the overall strategy of the Company. Lead Auditor's Independence Declaration under Section 307C of the Corporations Act 2001 The lead auditor's independence declaration is set out on page 7 and forms part of the directors' report for the half-year ended 31 December 2004. Signed in accordance with a resolution of Directors. JD Armstrong Director Brisbane 15 March 2005 LEAD AUDITOR'S INDEPENDENCE DECLARATION UNDER SECTION 307C OF THE CORPORATIONS ACT 2001 To the Directors of Global Petroleum Limited: I declare that, to the best of my knowledge and belief, in relation to the review for the half-year ended 31 December 2004 there have been: (a) no contraventions of the auditor independence requirements as set out in the Corporations Act 2001 in relation to the review; and (b) no contraventions of any applicable code of professional conduct in relation to the review. KPMG Robert S Jones Partner Brisbane 15 March 2005 INDEPENDENT REVIEW REPORT TO THE MEMBERS OF GLOBAL PETROLEUM LIMITED Scope The financial report and Directors' responsibility The financial report comprises the statement of financial position, statement of financial performance, statement of cash flows, accompanying notes 1 to 11 to the financial statements, and the directors' declaration set out in pages 10 to 19 for Global Petroleum Limited Consolidated Entity ('Consolidated Entity'), for the half-year ended 31 December 2004. The Consolidated Entity comprises Global Petroleum Limited ('the Company') and the entities it controlled during that half-year. The directors of the Company are responsible for the preparation and true and fair presentation of the financial report in accordance with the Corporations Act 2001. This includes responsibility for the maintenance of adequate accounting records and internal controls that are designed to prevent and detect fraud and error, and for the accounting policies and accounting estimates inherent in the financial report. Review Approach We conducted an independent review in order for the Company to lodge the financial report with the Australian Securities and Investment Commission. Our review was conducted in accordance with Australian Auditing Standards applicable to review engagements. We performed procedures in order to state whether on the basis of the procedures described anything has come to our attention that would indicate the financial report does not present fairly, in accordance with the Corporations Act 2001, Australian Accounting Standard AASB 1029 'Interim Financial Reporting' and other mandatory financial reporting requirements in Australia, a view which is consistent with our understanding of the Consolidated Entity's financial position, and of its performance as represented by the results of its operations and cash flows. We formed our statement on the basis of the review procedures performed, which were limited primarily to: - enquiries of company personnel; and - analytical procedures applied to the financial data. While we considered the effectiveness of management's internal controls over financial reporting when determining the nature and extent of our procedures, our review was not designed to provide assurance on internal controls. The procedures do not provide all the evidence that would be required in an audit, thus the level of assurance is less than given in an audit. We have not performed an audit and, accordingly, we do not express an audit opinion. A review cannot guarantee that all material misstatements have been detected. Independence In conducting our review, we followed applicable independence requirements of Australian professional ethical pronouncements and the Corporation Act 2001. Statement Based on our review, which is not an audit, we have not become aware of any matter that makes us believe the half-year financial report of Global Petroleum Limited is not in accordance with: (a) the Corporations Act 2001, including: (i) giving a true and fair view of the Consolidated Entity's financial position as at 31 December 2004 and of its performance for the half-year ended on that date; and (ii) complying with Australian Accounting Standard AASB 1029 'Interim Financial Reporting' and the Corporations Regulations 2001; and (b) other mandatory financial reporting requirements in Australia. KPMG Robert S Jones Partner Brisbane 15 March 2005 DIRECTORS' DECLARATION In the opinion of the Directors of Global Petroleum Limited ('the Company'): 1. the financial statements and notes set out on pages 11 to 19 are in accordance with the Corporations Act 2001, including: (a) giving a true and fair view of the financial position of the consolidated entity as at 31 December 2004 and of its performance, as represented by the results of its operations and cash flows, for the half-year ended on that date; and (b) complying with Australian Accounting Standard AASB 1029 'Interim Financial Reporting' and the Corporations Regulations 2001; and 2. there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable. Signed in accordance with a resolution of Directors. JD Armstrong Director Brisbane 15 March 2005 STATEMENT OF FINANCIAL PERFORMANCE FOR THE HALF-YEAR ENDED 31 DECEMBER 2004 Consolidated Consolidated Note 2004 2003 $ $ Revenue from operating activities 420,012 40,634 Proceeds on disposal of exploration 852,933 - assets ----------- ----------- Revenue from ordinary activities 1,272,945 40,634 Borrowing costs - (1,712) Depreciation expense (33,412) (13,563) Salaries and employee benefits expense (219,670) (54,939) Consulting and professional fees (213,235) (106,719) Shareholder costs (163,126) (54,893) Occupancy costs (19,868) (8,260) Carrying amount of non-current assets - (2,357) disposed Exploration and evaluation expenditure written off Relating to exploration assets disposed 5 (922,035) - Other 5 (158,135) (2,142,996) Unrealised foreign exchange gain/(loss) 1,303 (13,168) Net (other expenses)/recovery of expenses from ordinary activities (198,140) (22,276) Share of net losses of associates accounted for using the equity method (76,130) - ----------- ----------- Loss from ordinary activities before related income tax expense/benefit (729,503) (2,380,249) Income tax (expense)/benefit - - ----------- ----------- Net loss (729,503) (2,380,249) ----------- ----------- Non-owner transaction changes in equity - - =========== =========== Total changes in equity from non-owner transactions attributable to members of the parent entity (729,503) (2,380,249) =========== =========== Basic earnings per share (cents per share) (0.46) (1.77) Diluted earnings per share (cents per (0.46) (1.77) share) The statement of financial performance is to be read in conjunction with the notes to the half-year financial statements set out on pages 14 to 19. STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER 2004 Note Consolidated Consolidated 31 December 30 June 2004 2004 $ $ Current Assets Cash assets 7,046,034 3,289,133 Receivables 228,644 119,222 Other financial assets 601 61,480 Other assets 69,827 13,929 ---------- ---------- Total Current Assets 7,345,106 3,483,764 ---------- ---------- Non-current Assets Investments accounted for using the equity 7 - 2,112,981 method Other financial assets 7 2,502,139 - Property, plant and equipment 80,957 114,318 Exploration and evaluation expenditure 18,331,041 18,107,796 ---------- ---------- Total Non-current Assets 20,914,137 20,335,095 ---------- ---------- TOTAL ASSETS 28,259,243 23,818,859 ---------- ---------- Current Liabilities Payables 341,908 945,838 Provisions 39,146 48,801 ---------- ---------- TOTAL LIABILITIES 381,054 994,639 ---------- ---------- NET ASSETS 27,878,189 22,824,220 ========== ========== Equity Contributed equity 3 34,322,129 28,538,657 Accumulated losses 4 (6,443,940) (5,714,437) ---------- ---------- TOTAL EQUITY 27,878,189 22,824,220 ========== ========== The statement of financial position is to be read in conjunction with the notes to the half-year financial statements set out on pages 14 to 19. STATEMENT OF CASH FLOWS FOR THE HALF-YEAR ENDED 31 DECEMBER 2004 Consolidated Consolidated 2004 2003 $ $ CASH FLOWS FROM OPERATING ACTIVITIES Payments to suppliers and employees (822,648) (436,232) Goods and services tax refunded 48,990 30,824 Interest received 128,598 40,999 Management fees received 293,787 - Receipts from joint venture partners - 94,222 Interest and other costs of finance paid - (1,718) ---------- --------- --------- Net cash flows used in operating activities (351,273) (271,905) ---------- --------- CASH FLOWS FROM INVESTING ACTIVITIES Acquisition of property, plant and equipment (6,650) (3,769) Payments for exploration expenditure, including overheads capitalised (308,435) (598,474) Proceeds on disposal of exploration assets 852,933 - Payments for controlled entities (741,782) - Payments for other financial assets (1,183,369) - Proceeds from other financial assets 60,879 149,678 ---------- --------- Net cash flows used in investing activities (1,326,424) (452,565) ---------- --------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from the issue of shares 5,536,518 1,624,000 Share issue expenses (123,046) (73,281) ---------- --------- Net cash flows from financing activities 5,413,472 1,550,719 ---------- --------- NET INCREASE IN CASH HELD 3,735,775 826,249 Cash acquired on acquisition of controlled 21,126 - entities Cash at beginning of half-year 3,289,133 2,046,677 ---------- --------- CASH AT END OF HALF-YEAR 7,046,034 2,872,926 ========== ========= The statement of cash flows is to be read in conjunction with the notes to the half-year financial statements set out on pages 14 to 19. NOTES TO THE FINANCIAL STATEMENTS FOR THE HALF-YEAR ENDED 31 DECEMBER 2004 1. BASIS OF PREPARATION OF THE HALF-YEAR FINANCIAL REPORT The half-year consolidated financial report is a general purpose financial report which has been prepared in accordance with Accounting Standard AASB 1029 'Interim Financial Reporting', the recognition and measurement requirements of applicable AASB standards, Urgent Issues Group Consensus Views, other authoritative pronouncements of the Australian Accounting Standards Board and the Corporations Act 2001. This half-year financial report is to be read in conjunction with the 30 June 2004 Annual Financial Report and any public announcements by Global Petroleum Limited and its Controlled Entities during the half-year in accordance with the continuous disclosure obligations arising under the Corporations Act 2001. It has been prepared on the basis of historical costs and except where stated, does not take into account changing money values or fair values of non-current assets. These accounting policies have been consistently applied by each entity in the consolidated entity and are consistent with those applied in the 30 June 2004 Annual Financial Report. The half-year report does not include full note disclosures of the type normally included in an annual financial report. 2. SEGMENT REPORTING Geographical Segments 2004 Australia Europe Africa Fiji Falkland Iraq Indonesia Eliminations Consolidated Islands $ $ $ $ $ $ $ $ $ Segment 149,195 852,933 - - 270,817 - - 1,272,945 revenue Total 149,195 852,933 - - 270,817 - - 1,272,945 revenue Segment (490,530) (95,148) - - (114,578) - (29,247) (729,503) result - ========= Consolidated loss from ordinary activities before income tax (729,503) NOTES TO THE FINANCIAL STATEMENTS (continued) 2. SEGMENT REPORTING (continued) Geographical Segments 2003 Australia Europe Africa Fiji Falkland Iraq Indonesia Eliminations Consolidated Islands $ $ $ $ $ $ $ $ $ Segment 40,634 - - - - - - - 40,634 revenue Total 40,634 - - - - - - - 40,634 revenue Segment (205,091) (1,470,850) (11,624) (689,179) (3,505) - - (2,380,249) result - ========= Consolidated profit/(loss) from ordinary (2,380,249) activities before income tax Intersegment pricing is on an arms-length basis. 3. CONTRIBUTED EQUITY 31 December 2004 30 June 2004 $ $ (a) Issued and paid up capital: 34,322,129 28,538,657 ========= ======== Issued and paid-up capital is net of prospectus and capital-raising costs of $431,032 (30 June 2004: $307,986). (b) Movements in securities on issue during the period were as follows: Date Details No. of Ordinary Issue $ Shares Price ($) 1/07/04 Opening balance 131,384,666 28,846,643 28/09/04 Rights issue 36,910,121 0.15 5,536,518 16/12/04 Shares issued on acquisition of controlled entity (Note 6) 1,000,000 0.37 370,000 ========= ====== ========= 31/12/04 Closing balance 169,294,787 34,753,161 ========= ====== ========= (c) On 28 September 2004 the Company issued 36,910,121 ordinary shares at a price of $0.15 per share following a one for three non-renounceable rights issue that closed on 20 September 2004. Transaction costs of $123,046 were recognised as a reduction of the proceeds of issue. On 16 December 2004 the Company issued 1,000,000 ordinary shares at a deemed price of $0.37 per share as part consideration to the vendors on acquisition of Astral Petroleum Limited (Note 6). 714,982 shares are subject to escrow until 16 December 2005. NOTES TO THE FINANCIAL STATEMENTS (continued) 4. ACCUMULATED LOSSES Consolidated Consolidated 2004 2003 $ $ Accumulated losses at beginning of the half-year (5,714,437) (2,660,029) Net loss attributable to members of the parent (729,503) (2,380,249) entity ------------ ---------- Accumulated losses at end of the half-year (6,443,940) (5,040,278) ============ ========== 5. SIGNIFICANT ITEMS Loss from ordinary activities before related income tax expense/benefit includes the following revenue / (expense) whose disclosure is relevant in explaining the financial performance of the consolidated entity: ============ ========== Proceeds on disposal of exploration assets 852,933 - Exploration and evaluation expenditure written off Relating to exploration assets disposed (922,035) - Other (158,135) (2,142,996) ============ ========== In October 2004 the consolidated entity received proceeds of £350,000 ($852,933) on the sale of its 51% interest in a contract over a licensed area in Montenegro. Other exploration and evaluation expenditure written off relates principally to the surrender of the Company's interest in ATP728P to the Queensland Government in February 2005. (2003: other exploration and evaluation expenditure written off related to the proposed release of the remaining two Fiji licences and the write-down in the Montenegro interest.) 6. ACQUISITION OF CONTROLLED ENTITIES On 6 December 2004 the Company acquired 100% of the Astral Petroleum Limited group, consisting of the following entities. In each case, the consolidated entity's interest is 100%. Name of entity Country of incorporation Astral Petroleum Limited United Kingdom Astral Petroleum Resources (Ireland) Ltd British Virgin Islands Astral (Malta) Ltd British Virgin Islands The consideration payable under the acquisition agreement consists of three tranches. The Company paid cash of £195,000 ($504,000) and issued 1 million ordinary shares in December 2004 (Tranche 1). Tranches 2 and 3 are contingent on certain conditions relating to the farmout of the interests acquired by the consolidated entity in the Irish and Maltese permit areas (refer Note 9). The effect of the results of the Astral Petroleum Limited group on the half-year net loss was not material. The consolidated entity did not gain control over any entities during the prior corresponding half-year period. NOTES TO THE FINANCIAL STATEMENTS (continued) 7. INVESTMENTS ACCOUNTED FOR USING THE EQUITY METHOD Details of investments in associates are as follows. Ordinary Share Investment Carrying Amount Ownership Interest Consolidated Consolidated 31 Dec 30 Jun 31 Dec 31 Dec 30 Jun 31 Dec 2004 2004 2003 2004 2004 2003 % % % $ $ $ Falkland Gold and 10.1 21.9 - - 330,757 - Minerals Ltd (formerly Falkland Minerals Ltd) Falkland Oil and Gas 16.1 25.7 - - 1,782,224 - Ltd -------- -------- -------- - 2,112,981 - ======== ======== ======== The use of the equity method of accounting for the consolidated entity's investment in Falkland Oil and Gas Limited was discontinued in October 2004 subsequent to a share placing and public offer by that company, and the listing of the company's shares for trading on the Alternative Investment Market ('AIM') of the London Stock Exchange. The use of the equity method of accounting for the consolidated entity's investment in Falkland Gold and Minerals Limited was discontinued in December 2004 subsequent to a share placing and public offer by that company, and the listing of the company's shares for trading on the Alternative Investment Market ('AIM') of the London Stock Exchange. The consolidated entity's investment in these entities is included within 'other financial assets' (non-current) as investments in listed shares at cost, with carrying amounts of $1,761,971 for Falkland Oil and Gas Limited and $740,168 for Falkland Gold and Minerals Limited (total $2,502,139). 8. INVESTMENTS IN JOINT VENTURE ENTITIES The consolidated entity holds the following interests in various joint ventures, whose principal activities are in petroleum or minerals exploration. Joint Venture Principal Activity Ownership interest (Consolidated) 2004 2003 % % Kenya Petroleum exploration 20.0 20.0 Falkland Island Offshore Petroleum exploration - 50.0 Falkland Island Minerals Gold, diamonds exploration - 33.3 Fira - Global (Iraq) Production sharing applications 20.0 20.0 Indonesia Petroleum exploration - 90.0 NOTES TO THE FINANCIAL STATEMENTS (continued) 9. CONTINGENT LIABILITIES AND CONTINGENT ASSETS Other than as set out below, there were no material changes in contingent liabilities or contingent assets since 30 June 2004. Acquisition of Astral Petroleum Limited - contingent consideration Consideration payable upon the acquisition of Astral Petroleum Limited (refer Note 6) includes amounts contingent on certain conditions relating to the farmout of the interests acquired by the consolidated entity in the Irish and Maltese permit areas. If the consolidated entity enters into a farmout in relation to the Irish permit area that satisfies the conditions under the acquisition agreement by 25 November 2005, the Company will be required to issue an additional 4 million ordinary shares. If the consolidated entity enters into a farmout in relation to the Maltese permit area that satisfies the conditions under the acquisition agreement by 25 November 2005, the Company will be required to issue a further 4 million ordinary shares. 10. EVENTS SUBSEQUENT TO REPORTING DATE International Financial Reporting Standards For reporting periods beginning on or after 1 January 2005, the consolidated entity must comply with Australian equivalents to International Financial Reporting Standards (AIFRS) as issued by the Australian Accounting Standards Board. This half-year financial report has been prepared in accordance with the Australian accounting standards and other financial reporting requirements (Australian GAAP) applicable for reporting periods ending on 31 December 2004. The differences between Australian GAAP and AIFRS identified to date as potentially having a significant effect on the consolidated entity's financial performance and financial position are summarised below. This summary should not be taken as an exhaustive list of all the differences between Australian GAAP and AIFRS. No attempt has been made to identify all disclosure, presentation or classification differences that would affect the manner in which transactions or events are presented. Management has made an initial impact assessment of conversion to AIFRS, and is currently reviewing this assessment. A detailed analysis of the specific impacts of AIFRS is planned; however the consolidated entity has not quantified the effects of the differences discussed below. There can be no assurances that the consolidated financial performance and financial position as disclosed in this financial report would not be significantly different if determined in accordance with AIFRS. Any assessments made in respect of the transition to AIFRS may require adjustment before inclusion in the first complete annual / half-year financial report prepared in accordance with AIFRS due to new or revised standards or interpretations, changes in the operations of the business, or additional guidance on the application of AIFRS in a particular industry or to a particular transaction. NOTES TO THE FINANCIAL STATEMENTS (continued) 10. EVENTS SUBSEQUENT TO REPORTING DATE (continued) International Financial Reporting Standards (continued) The key potential implications of the conversion to AIFRS on the consolidated entity, identified to date, are as follows: • Financial instruments must be recognised in the statement of financial position and all derivatives and most financial assets must be carried at fair value. • Income tax will be calculated based on the 'balance sheet' approach, which will result in more deferred tax assets and liabilities and, as tax effects follow the underlying transaction, some tax effects will be recognised in equity. • Certain exploration and evaluation costs may be required to be expensed as incurred. However, AASB 6 permits the capitalisation of exploration and evaluation costs post-exploration stage and pre-feasibility stage, as prescribed by the standard. • Impairments of assets will be determined on a discounted basis, with strict tests for determining whether goodwill, exploration and evaluation expenditure and cash-generating operations have been impaired. • Equity-based compensation in the form of shares and options will be recognised as expenses in the periods, based on the fair value of shares and options, during which the employee provides related services. • Investments accounted for using the equity method may be affected by differences in the recognition, measurement and disclosure requirements under AIFRS. • In accounting for business combinations, the identifiable assets, liabilities and contingent liabilities of the acquiree are recognised at their fair value. • The primary statements in the financial statements include a statement of changes in equity. Certain items which are recognised directly in equity will be disclosed in the statement of changes in equity. • Changes in accounting policies will be recognised by restating comparatives rather than making current year adjustments with note disclosure of prior year effects. 11. RECONCILIATION OF AUSTRALIAN GENERALLY ACCEPTED ACCOUNTING PRINCIPLES TO UNITED KINGDOM GENERALLY ACCEPTED ACCOUNTING PRINCIPLES These half-year financial statements are prepared in accordance with Australian Generally Accepted Accounting Principles (Australian GAAP) which differs in certain respects from United Kingdom Generally Accepted Accounting Principles (UK GAAP). There are no material differences between UK GAAP and Australian GAAP for the half-year ended 31 December 2004. This information is provided by RNS The company news service from the London Stock Exchange

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