Interim Results

Global Petroleum Ltd 10 March 2006 Global Petroleum Ltd INTERIM FINANCIAL REPORT FOR THE HALF-YEAR ENDED 31 DECEMBER 2005 DIRECTORS' REPORT The directors of Global Petroleum Limited 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 2005 ('consolidated entity' or 'group'), together with the condensed consolidated financial report for the half-year ended 31 December 2005 and the review report thereon. DIRECTORS The directors of the Company at any time during or since the end of the half-year are: Dr John Armstrong (Executive Chairman) - appointed 31 May 2002 Mr Peter Blakey - appointed 4 October 2001 Mr Peter Dighton - appointed 23 December 2003 Mr Mark Savage - appointed 23 November 1999 Mr Peter Taylor - appointed 4 October 2001 REVIEW AND RESULTS OF OPERATIONS Operating results During the December 2005 half-year, the group recorded a loss of $338,677 (2004: $936,577). Principal activities The principal activities in regard to the Company's projects were: (a) Kenya: (i) Over 30 prospects and leads identified in L-5 and L-7; (ii) Woodside Energy withdraws from L-11; and (iii)Global and Dana Petroleum withdraw from L-10 and L-11. (b) Falkland Oil and Gas Limited ('FOGL') www.fogl.co.uk (i) Global has a 14.0% shareholding in listed FOGL (12.85 million shares). At 6 March 2006 FOGL shares traded at 158 p/share which values the Company's holding at A$47.9 million or 28 cents per Global ordinary share; (ii) FOGL has recorded 11,500 km of second round 15,000 km 2D seismic; (iii)FOGL is seeking Farminees to share risk, cost and upside; and (iv) New Chairman and CEO appointed. (c) Falkland Gold and Minerals Limited ('FGML') www.fgml.co.uk (i) The group sold its 10.1% interest in FGML in December 2005 for 10p per share for consideration of A$1.83 million. This resulted in a gain on disposal of $1.09 million. (d) Astral Petroleum Limited (i) Shareholders approved an extension of time for the issue of fully paid Global shares to Astral Petroleum vendors if farmouts from the Company's acreage in Ireland and Malta are achieved; (ii) Ireland Option License extended to 31 December 2006; and (iii)Malta Blocks extended to 26 June 2006. Review of operations (a) Kenya The Company holds a 20% interest in two blocks (L-5 and L-7) offshore Kenya together with Woodside Energy (50% and operator) and Dana Petroleum (30%). From the results of Woodside's mapping of the 2003 5,500 km 2D seismic survey and the 2004/05 3,600 km 2D seismic survey, it is clear that L-5 and L-7 contain over 30 prospects and leads, a number of which are each capable of containing several hundred to a billion barrels of recoverable oil. There are Direct Hydrocarbon Indicators ('DHI': potential oil and gas indicator) on some of the leads. In its 2004 Annual Report, Dana noted that the two possible first targets - Pomboo (L-5) and Sokwe (L-7) - each have the potential to contain over one billion barrels of oil in place. More recently in its late 2005 presentation to investors, Woodside noted that its Kenya holdings contain 'multiple large structural prospects', which it includes in its group of 'big hit' targets. The costs associated with the Company's 20% equity in L-5 and / or L-7 are fully carried for all activities including the drilling and testing of the first two wells. Woodside will only earn its equity when these two wells are drilled. Woodside is still to make a firm commitment to a drilling rig in Kenya, although it continues to investigate rig possibilities. In its half-yearly report to shareholders dated 15 February 2006 Woodside advised that drilling is planned 'Q3/4 2006' and it is hoped that Woodside will have established a firm position on a rig to do this in the near future. The Company withdrew from Blocks L-10 and L-11 in October 2005. Woodside had previously withdrawn from L-10 in August 2004 and in September 2005 it withdrew from L-11. In October 2005, both Dana and the Company withdrew from L-10 because the partners were unable to reach agreement with the Kenyan Government as to the work programme terms for an extension. The partners then also withdrew from L-11 on the basis of its assessed low oil and gas prospectivity. (b) Falkland Oil and Gas Limited ('FOGL') (Global shareholding 14%) www.fogl.co .uk Global now holds 14% of FOGL which was diluted from 16.1% as a result of the Company deciding to conserve its cash position and not to participate in a placement of 11.765 million new shares at 85p per share in May 2005. At 6 March 2006 FOGL shares traded at 158 p/share which values the Company's holding at A$47.9 million or 28 cents per Global ordinary share. FOGL holds licenses over 29,000 km2 which is held by FOGL 77.5% and Hardman Resources 22.5% and licenses over 50,000 km2 which are held by FOGL in its own right. The first round of 9,450 km of 2D seismic which commenced in December 2004 identified 130 leads some of which are very large and capable of holding several billion barrels of oil. Based on these results a second round of 15,000 km 2D seismic was commenced in June 2005. By mid-February 2006 some 11,500 km of seismic had been completed. Results of the latest round are expected be available in the first half of calendar 2006. In view of the prospectivity of its areas FOGL appointed Stellar Energy Advisors to introduce potential farminees to offset the costs associated with the next stage of the project leading up to drilling, possibly in calendar 2007. In December 2005 Global's Dr John Armstrong stepped down as Executive Chairman and FOGL appointed a new Chairman and new CEO. Dr Armstrong remains a director of FOGL. (c) Falkland Gold and Minerals Limited ('FGML') www.fgml.co.uk The group sold its 10.1% interest in FGML in December 2005 for 10p per share for consideration of A$1.83 million. This resulted in a gain on disposal of $1.09 million. The sale will supplement cash resources and be used to fund existing and potential new projects. (d) Astral Petroleum Limited At the Company's AGM on 24 November 2005 shareholders approved a once only extension of time from 25 November 2005 until 30 June 2006 for the issue to the vendors of Astral Petroleum Limited an additional four million fully paid ordinary shares in the Company if the Company achieves a conditional farmout in each of the Irish and Malta licenses. That is, potentially an additional eight million shares. (i) Ireland Licence Option 03/3 (Global 100%) Global acquired 100% of this Licence Option in December 2004 for a period of 12 months. An extension has been granted by the Irish Government from 31 December 2005 until 31 December 2006. The area comprises part blocks 57/3, 57/4, 57/8 and 57/9 in the North Celtic Sea Basin and is located 30-70 km to the south and south west of the Seven Heads and Kinsale Head gas fields. The Company continues to reprocess the seismic data over the main prospect of below the Wealdon Sands which has Jurassic and Lower Cretaceous targets capable of holding a potential 280 million barrels of oil in place. (ii) Malta Blocks 4 & 5 (Global 100%) Global acquired 100% of an Exploration Study Agreement for Blocks 4 and 5 in December 2004 for a period of 12 months. An extension has been granted from 26 December 2005 until 26 June 2006. 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. Reprocessing of key seismic lines of the 1991 Texaco Survey as required by the study agreement was conducted during the period. Previous mapping of the Gamma and Beta prospects suggest that they could be capable of containing 400-900 million barrels of oil respectively. (iii) In 2005 the Company appointed Envoi Limited, a petroleum industry project broker based in London, to seek Farminees to join Global in these projects. (e) New prospects The Company continues to seek new opportunities in Iraq and other areas. Lead Auditor's Independence Declaration under Section 307C of the Corporations Act 2001 The lead auditor's independence declaration is set out on page 8 and forms part of the directors' report for the half-year ended 31 December 2005. Signed in accordance with a resolution of directors. J D Armstrong Director Brisbane 9 March 2006 CONDENSED CONSOLIDATED INTERIM INCOME STATEMENT FOR THE SIX MONTHS ENDED 31 DECEMBER 2005 Note 31 Dec 2005 31 Dec 2004 $ $ Revenue - rendering of services 2 62,111 270,817 Gains on disposal - available-for-sale investments 5 1,093,589 - Depreciation expense (11,530) (33,412) Salaries and employee benefits expense (229,045) (219,670) Consulting and professional fees (315,772) (213,235) Shareholder costs (60,744) (163,126) Occupancy costs (18,673) (19,868) Losses on disposal - exploration assets - (114,083) Exploration and evaluation expenditure written off (944,482) (320,228) Net other expenses (66,357) (198,140) -------- -------- Loss before financing (490,903) (1,010,945) -------- -------- Financial income - interest received/receivable 150,782 149,195 Net foreign exchange gain 1,444 1,303 -------- -------- Net financing income 152,226 150,498 -------- -------- Share of losses of associates accounted for using the equity method - (76,130) -------- -------- Loss before tax (338,677) (936,577) Income tax expense - - -------- -------- Loss for the period attributable to equity holders of the parent 2 (338,677) (936,577) -------- -------- Cents Cents Basic loss per share (0.20) (0.59) Diluted loss per share (0.20) (0.59) CONDENSED CONSOLIDATED INTERIM STATEMENT OF RECOGNISED INCOME AND EXPENSE FOR THE SIX MONTHS ENDED 31 DECEMBER 2005 Note 31 Dec 31 Dec 2005 2004 $ $ Recognised directly in equity Fair value reserve Available-for-sale investments - change in fair value 1,041,766 - Available-for-sale investments - transferred to profit/loss on disposal (5,352,938) - -------- -------- Net expense recognised directly in equity (4,311,172) - Loss for the period (338,677) (936,577) -------- -------- Total recognised income and expense for the period attributable to equity holders of the parent * 6 (4,649,849) (936,577) -------- -------- Effect of change in accounting policy Effect of adoption of AASB 132 and AASB 139 on 1 July 2005 (with 2004 not restated) Net increase in fair value reserve Available-for-sale investments - change in fair value 9 39,188,153 - Other movements in equity arising from transactions with owners as owners are set out in note 6. * This amount does not include the impact of changes in accounting policy. CONDENSED CONSOLIDATED INTERIM BALANCE SHEET AS AT 31 DECEMBER 2005 31 Dec 2005 30 June 2005 Note $ $ Current assets Cash and cash equivalents 5,487,651 6,159,540 Trade and other receivables 1,946,847 213,340 Other financial assets 600 600 Other assets - 72,710 --------- --------- Total current assets 7,435,098 6,446,190 --------- --------- Non-current assets Available-for-sale investments 5 36,638,953 2,495,798 Property, plant and equipment 58,236 73,897 Exploration and evaluation expenditure 17,563,652 18,068,045 --------- --------- Total non-current assets 54,260,841 20,637,740 --------- --------- TOTAL ASSETS 61,695,939 27,083,930 --------- --------- Current liabilities Trade and other payables 252,121 303,247 Employee benefits 8,247 7,095 --------- --------- Total current liabilities 260,368 310,342 --------- --------- TOTAL LIABILITIES 260,368 310,342 --------- --------- NET ASSETS 61,435,571 26,773,588 --------- --------- Equity Issued capital 34,559,814 34,436,135 Reserves 34,925,436 48,455 Accumulated losses (8,049,679) (7,711,002) --------- --------- TOTAL EQUITY 6 61,435,571 26,773,588 --------- --------- CONDENSED CONSOLIDATED INTERIM STATEMENT OF CASH FLOWS FOR THE SIX MONTHS ENDED 31 DECEMBER 2005 31 Dec 2005 31 Dec 2004 $ $ Cash flows from operating activities Cash paid to suppliers and employees (700,876) (773,658) Interest received 200,652 128,598 Management fees received 168,627 293,787 -------- -------- Net cash used in operating activities (331,597) (351,273) -------- -------- Cash flows from investing activities Acquisition of property, plant and equipment (2,497) (6,650) Exploration expenditure, including overheads capitalised (461,474) (308,435) Proceeds from disposal of exploration assets - 852,933 Acquisition of subsidiaries - (741,782) Cash paid for other financial assets - (1,183,369) Proceeds from other financial assets - 60,879 -------- -------- Net cash used in investing activities (463,971) (1,326,424) -------- -------- Cash flows from financing activities Proceeds from the issue of share capital 125,000 5,536,518 Share issue expenses (1,321) (123,046) -------- -------- Net cash from financing activities 123,679 5,413,472 -------- -------- Net (decrease) / increase in cash and cash equivalents (671,889) 3,735,775 Cash acquired on acquisition of subsidiaries - 21,126 Cash and cash equivalents at 1 July 6,159,540 3,289,133 -------- -------- Cash and cash equivalents at 31 December 5,487,651 7,046,034 -------- -------- NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS Note 1 Significant accounting policies 2 Segment reporting 3 Acquisitions of subsidiaries 4 Interests in joint venture operations 5 Non-current assets - Available-for-sale investments 6 Capital and reserves 7 Contingencies 8 Explanation of transition to AIFRS 9 Changes in accounting policy NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS 1. SIGNIFICANT ACCOUNTING POLICIES Global Petroleum Limited (the 'Company') is a company domiciled in Australia. The condensed consolidated interim financial report of the Company for the six months ended 31 December 2005 comprise the Company and its subsidiaries (together referred to as the 'consolidated entity') and the consolidated entity's interest in associates and jointly controlled entities. The condensed consolidated interim financial report was authorised for issue by the directors on 9 March 2006. (a) Statement of compliance The condensed consolidated interim financial report is a general purpose financial report which has been prepared in accordance with Australian Accounting Standards adopted by the Australian Accounting Standards Board ('AASB') and the Corporations Act 2001. International Financial Reporting Standards ('IFRS') form the basis of Australian Accounting Standards adopted by the AASB, and for the purpose of this report are called Australian equivalents to IFRS ('AIFRS') to distinguish from previous Australian GAAP. The interim financial report of the consolidated entity also complies with IFRS and interpretations adopted by the International Accounting Standards Board. This is the consolidated entity's first AIFRS condensed consolidated interim financial report for part of the period covered by the first AIFRS annual financial report and AASB 1 First time adoption of Australian equivalents to International Financial Reporting Standards. The condensed consolidated interim financial report does not include all of the information required for a full annual financial report. The interim financial report is to be read in conjunction with the most recent annual financial report, however, the basis of their preparation is different to that of the most recent annual financial report due to the first time adoption of AIFRS. This report must also be read in conjunction with any public announcements made by Global Petroleum Limited during the half-year in accordance with continuous disclosure obligations arising under the Corporations Act 2001. An explanation of how the transition to AIFRS has affected the reported financial position, financial performance and cash flows of the consolidated entity is provided in note 8. This note includes reconciliations of equity and profit or loss for comparative periods reported under Australian GAAP (previous GAAP) to those reported for those periods under AIFRS. (b) Basis of preparation The financial report is presented in Australian dollars. The financial report is prepared on the historical cost basis except that the following assets and liabilities are stated at their fair value: financial instruments classified as available-for-sale. Non-current assets held for sale are stated at the lower of carrying amount and fair value less costs to sell. The preparation of an interim financial report in conformity with AASB 134 Interim Financial Reporting requires management to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses. These estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgements about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates. This condensed consolidated interim financial report has been prepared on the basis of AIFRS in issue that are effective or available for early adoption at the consolidated entity's first AIFRS annual reporting date, 30 June 2006. Based on these AIFRS, the Board of Directors have made assumptions about the accounting policies expected to be adopted when the first AIFRS annual financial report is prepared for the year ended 30 June 2006. The consolidated entity has not elected to early adopt any accounting standards under AIFRS at 31 December 2005. The consolidated entity has elected to early adopt IFRS 6 Exploration for and Evaluation of Mineral Resources with effect from 1 July 2005 under IFRS. The Australian Accounting Standards and UIG Interpretations that will be effective or available for voluntary early adoption in the annual financial statements for the period ended 30 June 2006 are still subject to change therefore cannot be determined with certainty. Accordingly, the accounting policies for that annual period that are relevant to this interim financial information will be determined only when the first AIFRS financial statements are prepared at 30 June 2006. The preparation of the condensed consolidated interim financial report in accordance with AASB 134 resulted in changes to the accounting policies as compared with the most recent annual financial statements prepared under previous GAAP. Except for the change in accounting policy relating to classification and measurement of financial instruments (refer note 9), the accounting policies set out below have been applied consistently to all periods presented in these condensed consolidated interim financial statements. They also have been applied in preparing an opening AIFRS balance sheet at 1 July 2004 for the purposes of the transition to Australian Accounting Standards - AIFRS, as required by AASB 1. The impact of the transition from previous GAAP to AIFRS is explained in note 8. Where relevant, the accounting policies applied to the comparative period have been disclosed if they differ from the current period policy. The accounting policies have been applied consistently throughout the consolidated entity for the purposes of this condensed consolidated interim financial report. (c) Principles of consolidation Subsidiaries Subsidiaries are entities controlled by the Company. Control exists when the Company has the power, directly or indirectly, to govern the financial and operating policies of an entity so as to obtain benefits from its activities. In assessing control, potential voting rights that presently are exercisable or convertible are taken into account. The financial statements of subsidiaries are included in the condensed consolidated interim financial report from the date that control commences until the date that control ceases. Associates Associates are those entities for which the consolidated entity has significant influence, but not control, over the financial and operating policies. The condensed consolidated interim financial statements include the consolidated entity's share of the total recognised gains and losses of associates on an equity accounted basis, from the date that significant influence commences until the date that significant influence ceases. When the consolidated entity's share of losses exceeds its interest in an associate, the consolidated entity's carrying amount is reduced to nil and recognition of further losses is discontinued except to the extent that the consolidated entity has incurred legal or constructive obligations or made payments on behalf of an associate. Joint ventures Joint ventures are those entities over whose activities the consolidated entity has joint control, established by contractual agreement. Jointly controlled operations and assets The interest of the consolidated entity in unincorporated joint ventures and jointly controlled assets are brought to account by recognising in its financial statements the assets it controls and the liabilities that it incurs, and the expenses it incurs and its share of income that it earns from the sale of goods or services by the joint venture. Transactions eliminated on consolidation Intragroup balances, and any unrealised gains and losses or income and expenses arising from intragroup transactions, are eliminated in preparing the condensed consolidated interim financial statements. Unrealised gains arising from transactions with associates and jointly controlled entities are eliminated to the extent of the consolidated entity's interest in the entity with adjustments made to the 'Investment in associates' and 'Share of associate's net profit' accounts. Unrealised losses are eliminated in the same way as unrealised gains, but only to the extent that there is no evidence of impairment. Gains and losses are recognised as the contributed assets are consumed or sold by the associates and jointly controlled entities or, if not consumed or sold by the associate or jointly controlled entity, when the consolidated entity's interest in such entities is disposed of. (d) Foreign currency Foreign currency transactions Transactions in foreign currencies are translated at the foreign exchange rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are translated to Australian dollars at the foreign exchange rate ruling at that date. Foreign exchange differences arising on translation are recognised in the income statement. Non-monetary assets and liabilities that are measured in terms of historical cost in a foreign currency are translated using the exchange rate at the date of the transaction. Non-monetary assets and liabilities denominated in foreign currencies that are stated at fair value are translated to Australian dollars at foreign exchange rates ruling at the dates the fair value was determined. Financial statements of foreign operations The assets and liabilities of foreign operations, including goodwill and fair value adjustments arising on consolidation, generally are translated to Australian dollars at foreign exchange rates ruling at the balance sheet date. The revenues and expenses of foreign operations, excluding foreign operations in hyperinflationary economies, are translated to Australian dollars at rates approximating the foreign exchange rates ruling at the dates of the transactions. The revenues, expenses, assets and liabilities of foreign operations in hyperinflationary economies are translated to Australian dollars at the foreign exchange rates ruling at the reporting date. Foreign exchange differences arising on retranslation are recognised directly in a separate component of equity. Prior to translating the financial statements of foreign operations in hyperinflationary economies, the financial statements, including comparatives, are restated to account for changes in the general purchasing power of the local currency. The restatement is based on relevant price indices at the reporting date. Net investment in foreign operations Exchange differences arising from the translation of the net investment in foreign operations are taken to the translation reserve. They are released into the income statement upon disposal. In respect of all foreign operations, any differences that have arisen before 1 July 2004, the date of transition to AIFRS, are presented as a separate component of equity (see note 8). (e) Exploration and evaluation expenditure Exploration and evaluation costs are accumulated in respect of each separate area of interest. Exploration and evaluation costs are carried forward where right of tenure of the area of interest is current and they are expected to be recouped through sale or successful development and exploitation of the area of interest, or where exploration and evaluation activities in the area of interest have not yet reached a stage that permits reasonable assessment of the existence of economically recoverable reserves. When an area of interest is abandoned or the directors decide that it is not commercial, any accumulated costs in respect of that area are written off in the financial period the decision is made. The carrying amounts of exploration and evaluation expenditure are reviewed in accordance with the impairment policy (see accounting policy (j)). The consolidated entity performs an impairment test on capitalised exploration and evaluation costs if there is an impairment indicator such as: • the right to explore has expired during the period or will expire in the near future and is not expected to be renewed • substantive expenditure on further exploration for and evaluation of mineral resources in the specific area is neither budgeted nor planned • exploration and evaluation in the specific area has not led to the discovery of commercially viable quantities of mineral resources and the entity has decided to discontinue such activities in the specific area • sufficient data exists to indicate that the carrying amount of the asset is unlikely to be recovered in full from successful development or by sale even if development in the specific area is likely to proceed. In the event of impairment, write-downs to the income statement are made. Any subsequent increments are also recognised in the income statement to the extent that it is a reversal of the previous write-down. (f) Property, plant and equipment Owned assets Items of property, plant and equipment are stated at cost less accumulated depreciation and impairment losses (see accounting policy (j)). The cost of acquired assets includes (i) the initial estimate at the time of installation and during the period of use, when relevant, of the costs of dismantling and removing the items and restoring the site on which they are located, and (ii) changes in the measurement of existing liabilities recognised for these costs resulting from changes in the timing or outflow of resources required to settle the obligation or from changes in the discount rate. Where parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items of property, plant and equipment. Leased assets Leases in terms of which the consolidated entity assumes substantially all of the risks and rewards of ownership are classified as finance leases. Other leases are classified as operating leases. Lease payments are accounted for as described in accounting policy (o). Subsequent costs The consolidated entity recognises in the carrying amount of an item of property, plant and equipment the cost of replacing part of such an item when that cost is incurred if it is probable that the future economic benefits embodied within the item will flow to the consolidated entity and the cost of the item can be measured reliably. All other costs are recognised in the income statement as an expense as incurred. Depreciation Depreciation is charged to the income statement on a straight-line or reducing balance basis over the estimated useful lives of each part of an item of property, plant and equipment. The depreciation rates used for each class of asset in the current and comparative periods are as follows: 2005 2004 Plant and equipment - reducing balance method of depreciation 11.25% to 40% 11.25% to 40% - straight line method of depreciation 40% 40% The residual value, if not insignificant, is reassessed annually. (g) Investments Investments in debt and equity securities Current accounting policy Financial instruments held by the consolidated entity classified as being available-for-sale are stated at fair value, with any resultant gain or loss recognised directly in equity, except for impairment losses and, in the case of monetary items such as debt securities, foreign exchange gains and losses. Where these investments are derecognised, the cumulative gain or loss previously recognised directly in equity is recognised in profit or loss. Where these investments are interest-bearing, interest calculated using the effective interest method is recognised in the income statement. The fair value of financial instruments classified as available-for-sale is their quoted bid price at the balance sheet date. Financial instruments classified as available-for-sale investments are recognised / derecognised by the consolidated entity on the date it commits to purchase / sell the investments. Securities held to maturity are recognised / derecognised on the day they are transferred to / by the consolidated entity. Comparative period policy Investments in other listed entities are measured at the lower of cost and recoverable amount. The quantitative effect of the change in accounting policy is set out in note 9. (h) Trade and other receivables Trade and other receivables are stated at cost less impairment losses (see accounting policy (j)). (i) Cash and cash equivalents Cash and cash equivalents comprises cash balances and call deposits with an original maturity of three months or less. Bank overdrafts that are repayable on demand and form an integral part of the consolidated entity's cash management are included as a component of cash and cash equivalents for the purpose of the statement of cash flows. (j) Impairment The carrying amounts of the consolidated entity's assets are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists, the asset's recoverable amount is estimated (see below). An impairment loss is recognised whenever the carrying amount of an asset of its cash generating unit exceeds its recoverable amount. Impairment losses are recognised in the income statement unless the asset has previously been revalued, in which case the impairment loss is recognised as a reversal to the extent of that previous revaluation with any excess recognised through the income statement. Impairment losses recognised in respect of cash-generating units are allocated first to reduce the carrying amount of any goodwill allocated to the cash-generating unit (group of units) and then, to reduce the carrying amount of the other assets in the unit (group of units) on a pro rata basis. When a decline in the fair value of an available-for-sale financial asset has been recognised directly in equity and there is objective evidence that the asset is impaired, the cumulative loss that had been recognised directly in equity is recognised in profit or loss even though the financial asset has not been derecognised. The amount of the cumulative loss that is recognised in profit or loss is the difference between the acquisition cost and current fair value, less any impairment loss on that financial asset previously recognised in profit or loss. Calculation of recoverable amount The recoverable amount of assets is the greater of their 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. For an asset that does not generate largely independent cash inflows, the recoverable amount is determined for the cash-generating unit to which the asset belongs. Reversals of impairment An impairment loss in respect of an investment in an equity instrument classified as available-for-sale is not reversed through profit or loss. In respect of other assets, an impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset's carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised. (k) Share capital Transaction costs Transaction costs of an equity transaction are accounted for as a deduction from equity, net of any related income tax benefit. (l) Employee benefits Wages, salaries and annual leave Liabilities for employee benefits for wages, salaries and annual leave represent present obligations resulting from employees' services provided to reporting date, calculated at undiscounted amounts based on remuneration wage and salary rates that the consolidated entity expects to pay as at reporting date, including related on-costs. Defined contribution plans Obligations for contributions to defined contribution pension plans are recognised as an expense in the income statement as incurred. Share-based payment transactions The fair value of options granted is recognised as an employee expense with a corresponding increase in equity. The fair value is measured at grant date and spread over the period during which the employees become unconditionally entitled to the options. The fair value of the options granted is measured using the binomial method, taking into account the terms and conditions upon which the options were granted. The amount recognised as an expense is adjusted to reflect the actual number of share options that vest except where forfeiture is only due to market-related conditions. Options granted after 7 November 2002 that vested before 1 January 2005 have not been recognised on transition to AIFRS, as permitted by AASB 1 First Time Adoption of Australian Equivalents to International Financial Reporting Standards. (m) Trade and other payables Trade and other payables are stated cost. (n) Revenue, net financing income and other income Rendering of services Revenue from management services is recognised in the income statement in line with the management agreements and contracts. Net financing income Net financing income comprises interest receivable on funds invested, dividend income and foreign exchange gains and losses. Interest income is recognised in the income statement as it accrues, using the effective interest method. Dividend income is recognised in the income statement on the date the entity's right to receive payments is established. In the case of distributions from controlled entities recognised by the parent entity, this date is when dividends are declared by the controlled entities. Other income - Sale of non-current assets The proceeds of non-current asset sales are recognised at the date control of the asset passes to the buyer, usually when an unconditional contract of sale is signed. The gain or loss on disposal is calculated as the difference between the carrying amount of the asset at the time of disposal and the net proceeds on disposal (including incidental costs). (o) Expenses Operating lease payments Payments made under operating leases are recognised in the income statement on a straight-line basis over the term of the lease. Lease incentives received are recognised in the income statement as an integral part of the total lease expense and spread over the lease term. (p) Income tax Income tax on the income statement comprises current and deferred tax. Income tax is recognised in the income statement except to the extent that it relates to items recognised directly in equity, in which case it is recognised in equity. Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantially enacted at the balance sheet date, and any adjustment to tax payable in respect of previous years. Deferred tax is provided using the balance sheet liability method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The following temporary differences are not provided for: the initial recognition of assets or liabilities that affect neither accounting nor taxable profit and differences relating to investments in subsidiaries to the extent that they will probably not reverse in the foreseeable future. The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantively enacted at the balance sheet date. A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the asset can be utilised. Deferred tax assets are reduced to the extent that it is no longer probable that the related tax benefit will be realised. Additional income taxes that arise from the distribution of dividends are recognised at the same time as the liability to pay the related dividend. Tax consolidation The Company and its wholly-owned Australian resident entities have formed a tax consolidated group with effect from 1 July 2003 and are therefore taxed as a single entity from that date. The head entity within the tax-consolidated group is Global Petroleum Limited. Current tax expense / income, deferred tax liabilities and deferred tax assets arising from temporary differences of the members of the tax-consolidated group are recognised in the separate financial statements of the members of the tax-consolidated group using the 'separate taxpayer within group' approach by reference to the carrying amounts in the separate financial statements of each entity and the tax values applying under tax consolidation. Current tax liabilities and assets and deferred tax assets arising from unused tax losses and tax credits of the members of the tax-consolidated group are recognised by the Company (as head entity in the tax-consolidated group). Deferred tax assets and deferred tax liabilities are measured by reference to the carrying amounts of the assets and liabilities in the Company's balance sheet and their tax values applying under tax consolidation. Any current tax liabilities (or assets) and deferred tax assets arising from unused tax losses assumed by the head entity from the subsidiaries in the tax consolidated group will be recognised as amounts receivable or payable to other entities in the tax consolidated group in conjunction with any tax funding arrangement amounts. Any difference between these amounts will be recognised by the Company as an equity contribution to or distribution from the subsidiary. Distributions would firstly reduce the carrying amount of the investment in the subsidiary and would then be recognised as revenue. The Company recognises deferred tax assets arising from unused tax losses of the tax-consolidated group to the extent that it is probable that future taxable profits of the tax-consolidated group will be available against which the asset can be utilised. Any subsequent period adjustments to deferred tax assets arising from unused tax losses assumed from subsidiaries are recognised by the head entity only. (q) Segment reporting A segment is a distinguishable component of the consolidated entity that is engaged in providing products or services within a particular economic environment (geographical segment) which is subject to risks and rewards that are different from those of other segments. (r) Goods and services tax Revenues, expenses and assets are recognised net of the amount of goods and services tax (GST), except where the amount of GST incurred is not recoverable from the taxation authority. In these circumstances, the GST is recognised as part of the cost of acquisition of the asset or as part of the expense. Receivables and payables are stated with the amount of GST included. The net amount of GST recoverable from, or payable to, the Australian Taxation Office (ATO) is included as a current asset or liability in the statement of financial position. Cash flows are included in the statement of cash flows on a gross basis. The GST components of cash flows arising from investing and financing activities which are recoverable from, or payable to, the ATO are classified as operating cash flows. 2. SEGMENT REPORTING Segment information is presented in the condensed consolidated interim financial statements in respect of the consolidated entity's geographical segments, which are the primary basis of segment reporting. The geographical segment reporting format reflects the consolidated entity's management and internal reporting structure. Inter-segment pricing is determined on an arm's length basis. Segment results include items directly attributable to a segment as well as those that can be allocated on a reasonable basis. Segment capital expenditure is the total cost incurred during the period to acquire segment assets that are expected to be used for more than one period. Geographical segments The consolidated entity's geographical segments are as follows: 31 Dec Falkland 2005 Australia Europe Africa Islands Iraq Indonesia Eliminations Consolidated $ $ $ $ $ $ $ $ Segment revenue External revenue - - - 62,111 - - - 62,111 ------- ------ ------ ------- ------ ------ -------- -------- Total revenue 62,111 -------- Result Segment result (280,620) (203,531) (943,158) 1,100,182 (11,550) - - (338,677) ------- ------ ------ ------- ------ ------ -------- -------- Income tax expense - -------- Loss for the period (338,677) -------- 31 Dec 2004 Segment revenue External revenue - - - 270,817 - - - 270,817 ------- ------ ------ ------- ------ ------ -------- -------- Total revenue 270,817 -------- Result Segment result (490,530) (270,165) - (114,578) (32,057) (29,247) - (936,577) ------- ------ ------ ------- ------ ------ -------- -------- Income tax expense - -------- Loss for the period (936,577) -------- Business segments The consolidated entity operates within one business segment, being the petroleum and mineral exploration industry. Accordingly, the consolidated entity's total revenue and loss for the period relates to that business segment. 3. ACQUISITIONS OF SUBSIDIARIES The consolidated entity did not gain control over any entities during the current half-year period. During the corresponding half-year period, the Company acquired 100% of Astral Petroleum Limited and its controlled entities under the terms of an acquisition agreement approved by shareholders at the annual general meeting on 25 November 2004. 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 Petroleum (Malta) Ltd British Virgin Islands The consideration payable under the acquisition agreement consists of three tranches. The Company paid cash of £195,000 ($504,322) 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 7). The effect of the results of the Astral Petroleum Limited group on the loss for the six months ended 31 December 2004 was not material. 4. INTERESTS IN JOINT VENTURE OPERATIONS The consolidated entity holds the following interests in joint ventures, whose principal activities are in petroleum exploration. Joint venture % interest held Consolidated Joint venture Principal activity 31 Dec 2005 31 Dec 2004 % % Kenya Petroleum exploration 20.0 20.0 TM Services - Global (Iraq) Petroleum exploration 50.0 - Fira - Global (Iraq) Production sharing - 20.0 applications 5. NON-CURRENT ASSETS - Available-for-sale investments 31 Dec 2005 30 June 2005 Shares - listed - at fair value 36,638,953 - Shares - listed - at cost - 2,495,798 --------- -------- 36,638,953 2,495,798 --------- --------- Investments in listed shares at cost at 30 June 2005 represented investments in Falkland Gold and Minerals Limited ('FGML') and Falkland Oil and Gas Limited ('FOGL'). Under previous GAAP, the consolidated entity recorded available-for-sale investments at cost. In accordance with AIFRS these investments have been recognised at fair value (current market value) with effect from 1 July 2005. Refer note 9 for further details of this change in accounting policy. The consolidated entity disposed of its investment in FGML in December 2005 for net proceeds of $1,827,416 and recorded a net gain on disposal of $1,093,589. 6. CAPITAL AND RESERVES Reconciliation of movement in capital and reserves attributable to equity holders of the parent entity Consolidated Share Fair value Foreign Accumulated Total capital reserve currency losses equity translation reserve $ $ $ $ $ Balance at 1 July 2005 34,436,135 - 48,455 (7,711,002) 26,773,588 Total recognised income and expense - (4,311,172) - (338,677) (4,649,849) Effect of change in accounting policy - 39,188,153 - - 39,188,153 (note 9) Shares issued 125,000 - - - 125,000 Share issue expenses (1,321) - - - (1,321) -------- -------- -------- -------- -------- Balance at 31 December 2005 34,559,814 34,876,981 48,455 (8,049,679) 61,435,571 -------- -------- -------- -------- -------- Share capital The consolidated entity recorded the following amounts within shareholders' equity as a result of the issuance of ordinary shares. Number of Issue price ordinary shares $ $ Balance at 1 July 2005 169,794,787 34,436,135 Shares issued on exercise of options 23 September 2005 500,000 0.25 125,000 Share issue expenses (1,321) ---------- -------- --------- Balance at 31 December 2005 - fully paid 170,294,787 34,559,814 ---------- -------- --------- 7. CONTINGENCIES Other than as set out below, there were no changes in contingent liabilities since 30 June 2005. Acquisition of Astral Petroleum Limited - contingent consideration The Company received approval at the 24 November 2005 AGM for an extension of time for the issue of the contingent consideration payable upon the acquisition of Astral Petroleum Limited. The effect of the approval is that if the consolidated entity enters into a farmout in relation to the Irish permit area that satisfies the conditions under the acquisition agreement by 30 June 2006, the Company will be required to issue an additional 4 million ordinary shares (Tranche 2) to the vendors. If the consolidated entity enters into a farmout in relation to the Maltese permit area that satisfies the conditions under the acquisition agreement by 30 June 2006, the Company will be required to issue a further 4 million ordinary shares (Tranche 3) to the vendors. Guarantees Bank guarantees of $28,000 in relation to prospecting activities in Queensland, Australia, were cancelled during the half-year. 8. EXPLANATION OF TRANSITION TO AIFRS As stated in note 1(a), these are the consolidated entity's first condensed consolidated interim financial statements for part of the period covered by the first AIFRS annual consolidated financial statements prepared in accordance with Australian Accounting Standards - AIFRS. The accounting policies in note 1 have been applied in preparing the condensed consolidated interim financial statements for the six months ended 31 December 2005, the comparative information for the six months ended 31 December 2004, the financial statements for the year ended 30 June 2005 and the preparation of an opening AIFRS balance sheet at 1 July 2004 (the consolidated entity's date of transition). In preparing its opening AIFRS balance sheet, comparative information for the six months ended 31 December 2004 and financial statements for the year ended 30 June 2005, the consolidated entity has adjusted amounts reported previously in financial statements prepared in accordance with its previous basis of accounting (previous GAAP). An explanation of how the transition from previous GAAP to AIFRS has affected the consolidated entity's financial position, financial performance and cash flows is set out in the following tables and the notes that accompany the tables. Only those balances where there has been a material impact have been disclosed below. Reconciliation of equity Note 30 June 31 Dec 1 July 2005*** 2004** 2004* $ $ $ Total equity under previous GAAP 26,948,866 27,878,189 22,824,220 Adjustments to reserves: Foreign currency translation reserve (a) 48,455 44,981 44,981 Accumulated losses: Exploration and evaluation expenditure (b) (223,733) (574,477) (367,403) -------- -------- -------- Total equity under AIFRS 26,773,588 27,348,693 22,501,798 -------- -------- -------- * This column represents the adjustments as at the date of transition to AIFRS. ** This column represents the cumulative adjustments as at the date of transition to AIFRS and those for the half-year ended 31 December 2004. *** This column represents the cumulative adjustments as at the date of transition to AIFRS and those for the year ended 30 June 2005. Notes to the reconciliation of equity (a) Under AASB 121 The Effects of Changes in Foreign Exchange Rates, the assets and liabilities of the consolidated entity's controlled foreign operations with a functional currency other than Australian currency are translated at the closing exchange rate at the balance date, with exchange differences arising on translation recognised as a separate component of equity. Under previous GAAP t he assets and liabilities of foreign operations that are integrated are translated using the temporal method whereby monetary assets and liabilities are translated into Australian currency at rates of exchange current at balance date, while non-monetary items are translated at exchange rates current when the transactions occurred, with exchange differences arising on translation brought to account in the statement of financial performance. The aggregate impact on the foreign currency translation reserve and exploration and evaluation expenditure carried in the balance sheet of the consolidated entity at 1 July 2004 and 31 December 2004 is an increase of $44,981. The aggregate impact on the foreign currency translation reserve and exploration and evaluation expenditure carried in the balance sheet of the consolidated entity at 30 June 2005 is an increase of $48,455. (b) Under AASB 6 Exploration for and Evaluation of Mineral Resources, costs incurred before an entity has legal right of access to an exploration area must be expensed. For the consolidated entity, at 1 July 2004 an amount of $367,403 was reclassified from exploration and evaluation expenditure carried in the balance sheet to accumulated losses. The adjustment to profit and loss for the half-year ended 31 December 2004 was $207,074 (increase in loss before tax) and decrease in capitalised exploration and evaluation expenditure as at 31 December 2004 of $207,074. The adjustment to profit and loss for the year ended 30 June 2005 was $143,670 (decrease in loss before tax) and decrease in capitalised exploration and evaluation expenditure as at 30 June 2005 of $223,733. An amount of $350,744 relating to Iraq had been written off under previous GAAP in the six months ended 30 June 2005. Under AIFRS, $318,687 of this amount was reclassified from exploration and evaluation expenditure carried in the balance sheet to accumulated losses at 1 July 2004, and the remaining $32,057 was written off in the six months ended 31 December 2004. Reconciliation of loss for 2005 Note For the year For the 6 months ended ended 30 June 2005 31 Dec 2004 $ $ Loss as reported under previous GAAP (1,772,832) (729,503) Exploration and evaluation expenditure (b) 143,670 (207,074) ----------- ----------- Loss under AIFRS (1,629,162) (936,577) ----------- ----------- Loss per share Basic loss per share and diluted loss per share for the six months ended 31 December 2004 under previous GAAP were both 0.46 cents. Under AIFRS the amount is 0.59 cents. Basic loss per share and diluted loss per share for the year ended 30 June 2005 under previous GAAP were both 1.08 cents. Under AIFRS the amount is 0.99 cents. Revenue - proceeds on sale of non-current assets Under AIFRS the gain or loss on the disposal of non-current assets is recognised on a net basis as a gain or loss rather than as under previous GAAP which separately recognised the consideration received as revenue. This resulted in a reduction in revenue of $50 and $850,745 for the consolidated entity for the financial year ended 30 June 2005 and the half-year ended 31 December 2004. Statement of cash flows There are no material differences between the statement of cash flows presented under AIFRS and the statement of cash flows presented under previous GAAP. 9. CHANGES IN ACCOUNTING POLICY Reconciliation of financial instruments as if AASB 139 was applied at 1 July 2005 In the current financial year the consolidated entity adopted AASB 132 Financial Instruments: Disclosure and Presentation and AASB 139 Financial Instruments: Recognition and Measurement. This change in accounting policy has been adopted in accordance with the transition rules contained in AASB 1, which does not require the restatement of comparative information for financial instruments within the scope of AASB 132 and AASB 139. The adoption of AASB 139 has resulted in the consolidated entity recognising available-for-sale investments as assets at fair value. This change has been accounted for by adjusting the opening balance of equity (fair value reserve) at 1 July 2005. Under previous GAAP, the consolidated entity recorded available-for-sale investments at cost. In accordance with AIFRS, they are recognised at fair value. The effect on the consolidated entity is to increase available-for-sale investments and fair value reserve by $39,188,153 at 1 July 2005, representing the excess of fair value over the previous GAAP carrying value of the investments in Falkland Oil and Gas Limited and Falkland Gold and Minerals Limited (refer note 5). Under previous GAAP, the consolidated entity classified prepayments as other assets. In accordance with AIFRS, prepayments of $63,033 at 31 December 2005 have been classified as trade and other receivables. The comparative of $72,710 for 30 June 2005 has not been restated. The transitional provisions will not have any effect in future reporting periods. DIRECTORS' DECLARATION In the opinion of the directors of Global Petroleum Limited ('the Company'): 1. the financial statements and notes, set out on pages 9 to 26, 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 2005 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 134 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 the directors. J D Armstrong Director Brisbane 9 March 2006 INDEPENDENT REVIEW REPORT TO THE MEMBERS OF GLOBAL PETROLEUM LIMITED Scope The financial report and directors' responsibility The financial report comprises the condensed consolidated interim statement of income, statement of changes in recognised income and expense, balance sheet, statement of cash flows, accompanying notes 1 to 9 to the financial statements, and the directors' declaration set out on pages 9 to 27 for the Global Petroleum Limited consolidated entity ('consolidated entity'), for the half-year ended 31 December 2005. 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. The directors are also responsible for preparing the relevant reconciling information regarding adjustments required under the Australian Accounting Standard AASB 1 First-Time Adoption of Australian equivalents to International Financial Reporting Standards. Review approach We conducted an independent review in order for the Company to lodge the financial report with the Australian Securities and Investments 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 134 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. 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 2005 and of its performance for the half-year ended on that date; and (ii)complying with Australian Accounting Standard AASB 134 Interim Financial Reporting and the Corporations Regulations 2001; and (b) other mandatory financial reporting requirements in Australia. KPMG Robert S Jones Partner Brisbane 9 March 2006 This information is provided by RNS The company news service from the London Stock Exchange
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