Interim Results
Gulfsands Petroleum PLC
28 September 2006
28 September 2006
Gulfsands Petroleum plc
('Gulfsands' or 'the Company') and its Subsidiaries (together 'the Group')
Interim Results for the Six Months Ended 30 June 2006
Summary
• Gulf of Mexico production back to pre-hurricane levels
• Interest expense eliminated
• Oil hedges expired
• Record profits for June 2006 and continuing upward trend
• Probable reserves in Block 26 Syria at a NPV of $233 million
• Tigris 1 well drilling ahead at 830 metres
• Appointments of new Chairman, Non-executive Director and Nominated
Adviser / Broker
Gulfsands Petroleum plc (symbol GPX), the AIM listed oil and gas exploration,
development and production company with activities in the USA, Syria and Iraq
announces its interim results for the six months ended 30 June 2006.
Financial Highlights
• Production in the Gulf of Mexico returned to pre-hurricane production
levels of approximately 2,800 working interest barrels of oil equivalent
per day in June 2006. This is up from approximately 1,500 barrels of oil
equivalent per day in December 2005. Net turnover of $2,937,000 and gross
profit of $1,444,000 in fact made June the most profitable month in the
Group's history.
• The delays in restoring production to pre-hurricane levels, which were due
entirely to infrastructure constraints beyond the Group's control, has
inevitably resulted in overall financial results for the first six months
of 2006 which are lower than the same period for 2005. The Group
nonetheless recorded a gross profit of $3,781,000 (2005: $6,274,000), a
pre-tax profit of $1,462,000 (2005: $2,557,000), and a retained profit of
$874,000 (2005: $1,535,000) for the six month period.
• The Group also enjoyed interest expense savings of $1,452,000 for the six
months as interest expense was reduced to zero following the consolidation
of Gulfsands USA's interest in Northstar Gulfsands LLC in December 2005 and
the repayment in full of the indebtedness of the former (majority owned)
subsidiary.
• Looking forward there is cause for considerable optimism for the second
half of 2006. Subsequent to the end of the period, primarily as a result
of high oil prices and the expiration of oil hedges, the Group recorded a
new record monthly turnover of $3,233,406 for the month of August.
Operational Highlights
Syria
• Ryder Scott identified probable net revenue interest reserves of 102 BCFG
after Syrian tax net to Gulfsands in Block 26 on the Tigris structure with
a net present value of $233 million. There are no proved reserves yet for
Tigris, pending successful confirmation in the Tigris-1 well.
• First well on Block 26 known as Souedieh North was drilled and suspended
for further analysis to determine whether to stimulate the well through
chemical or mechanical stimulation, deepen or abandon the well. Detailed
reservoir, log and core analysis is ongoing.
• A rig was contracted for Tigris-1 well which commenced drilling on 10
September 2006 and is currently drilling ahead at 830 metres.
• Seismic acquisition and processing of 1,155 2D line kilometers was
completed on Block 26. Interpretation of the seismic is ongoing and being
integrated with previous 2D and 3D seismic data for finalizing the prospect
ranking for the current drilling campaign which commenced with the Tigris-1
well.
• Final negotiations on an additional drilling rig are ongoing and the Group
has made arrangements for a rig under contract by other operators in Syria
for a drilling slot during the first half of 2007.
Gulf of Mexico, USA
• Production returned to pre-hurricane 2005 levels of approximately
2,800 working interest barrels of oil equivalents per day by June 2006.
• Two additional wells commenced production in the Eugene Island 58 area.
The Eugene Island 58 #7 exploration well, drilled in late 2005, commenced
production in May. The Group owns a 12.9% interest in this well. The
Eugene Island 58 #8 exploration well, drilled in early 2006, also commenced
production in May. The Group owns a 25.6% interest in this well.
• Two new development wells were drilled in the West Delta 64 area.
Facilities installation commenced in May and production from the four wells
in this field is scheduled to commence in October. Gulfsands owns a 6.6%
interest in this field.
• All oil hedges expired at 30 June 2006. Second half oil sales will be
reflected at market oil prices.
Onshore Gulf Coast, USA
• Production at the Barb Mag Field commenced in the first quarter of 2006 at
approximately one million cubic feet of natural gas per day in which the
Group has a 37.5% working interest.
Corporate Development
• The Company appointed a Chairman, Andrew West, and a new Non-executive
Director, David Cowan, to the Board of Directors.
• Directors increased their ownership in the Company to 22.25% of the
issued share capital following the exercise of options in July 2006.
• Gulfsands appointed Teather & Greenwood as Nominated Advisor and
Broker.
Gulfsands' CEO, John Dorrier, said:
'In spite of the reductions of produced oil and gas volumes in the first six
months of 2006 due to pipeline repairs from the storms of 2005, the Company
produced a solid financial result during the half. The volume increases near
the end of the half-year combined with the expiration of all oil and most gas
hedges should result in a strong second half and full year financial result.'
Enquiries:
Gulfsands Petroleum (Houston) 001-713-626-9564
John Dorrier, Chief Executive Officer
David DeCort, Chief Financial Officer
College Hill (London) 020-7457-2020
Nick Elwes
Paddy Blewer
Teather & Greenwood (London) 020-7426-9000
James Maxwell (Corporate Finance)
Tanya Clarke (Specialist Sales)
These interim results can also be viewed on Gulfsands' website:
www.gulfsands.net
CHAIRMAN'S STATEMENT
In the first six months of 2006 the Group successfully brought its Gulf of
Mexico production back to pre-storm 2005 historic producing levels, recorded the
best financial month in the Group's history, announced significant probable
reserves in Syria, drilled the first exploration well in Syria, contracted a rig
for the drilling of the Tigris-1 well in Syria and commenced first production at
its Barb Mag field onshore U.S.
Financial
Turnover for the first six months of $12,143,000 and gross profit of $ 3 781 000
compare to turnover of $13,701,000 and gross profit of $ 6,274,000 for the same
period of 2005. This deterioration was due entirely to reduced production for
the period, costs of repair to facilities and increased insurance costs all
resulting from the hurricanes of 2005.
Interest expense was eliminated during 2006 following the partition of Northstar
Gulfsands LLC and the elimination of all debt net to the Group's interest in the
subsidiary. This resulted in a savings of $1,452,000 for the six months.
Overall profit before tax to the Group was $1,462,000 as compared to $2,557,000
for 2005 and the retained profit was $874,000 as compared to $1,535,000.
Production in the Gulf of Mexico however returned to pre-hurricane levels in
June 2006 which bodes well for the Group as we look forward to the second half
of 2006. This coincided with the expiration of all oil and most gas hedges by
the end of June 2006.
In June 2006, the Group recorded a new monthly record turnover of $2,937,000
resulting in a gross profit of $1,444,000 for the month which represented nearly
38% of the Group's gross profit for the entire first six months of the year.
Subsequent to June 2006 the Company posted a new monthly record turnover in
August 2006 of $3,233,406 which was a 10% increase from the record turnover seen
in June.
Syria
The Group completed the acquisition of 1,155 kilometres of 2D seismic on Block
26 and the first well, known as Souedieh North, commenced drilling in late April
2006 and was temporarily suspended in June for further analysis. The second
well, known as Tigris-1, commenced drilling in September of 2006 and has the
potential to contain in excess of 4 TCFG.
The Souedieh North exploration well was drilled during the second quarter of
2006 and while oil and gas shows were recorded during drilling and the
interpretation of the electric wireline logs identified potential hydrocarbon
zones, no hydrocarbons were recovered to surface during wireline testing. The
well has been suspended while all data is being reviewed and evaluated to
determine whether to stimulate the well through chemical or mechanical
stimulation, deepen or abandon the well. Detailed reservoir, log and core
analysis is ongoing.
The Tigris-1 well commenced drilling in September 2006 (currently drilling ahead
at 830 metres) and is targeted to a depth of some 4,500 meters and is expected
to take 90 to 120 days to drill and evaluate. The primary objective of this
well is the Carboniferous and Devonian aged reservoirs directly underlying the
Souedieh Oil Field, the largest known oil field in Syria. The Tigris-1 well is
the second well to target these reservoirs within the overall Tigris structure.
The S1100 well, drilled in 1994 by the Syrian Petroleum Company and located
approximately 1 kilometre northeast of Tigris-1 was the first well to intersect
these reservoirs within this structure. Independent interpretation of the
wireline logs from the S1100 well indicates a substantial hydrocarbon column.
Ryder Scott completed a reserves study on the Tigris structure in the first half
of 2006 and these reserves were classified as either oil or gas bearing until
such time as the Company drills and tests the Tigris structure. As of 1 July
2006 Ryder Scott determined that the Probable Reserves net to Gulfsands after
applying the terms of the Production Sharing Contract (net revenue interest
reserves) is 102 BCFG with a net present value discounted at 10% of $233 million
after Syrian taxes. For primarily a natural gas accumulation, an additional 75
BCFG of possible reserves net to the Group were estimated to have a 10%
discounted net present value of $261 million, for total probable and possible
reserves of 177 BCFG and a net present value of $494 million net to the Group.
Furthermore, the Group completed its own economic evaluation on the Prospective
Gas Resource and has estimated that Prospective Gas Resource net to the Group is
577 BCFG with a net present value of approximately $1.06 billion. In summary,
total gas reserves potential net to the Group when combined with the Prospective
Gas Resource totals 754 BCFG (126 MMBOE) with a net present value of
approximately $1.55 billion.
For primarily an oil accumulation, Ryder Scott determined the Possible Reserves
net to the Group after applying the terms of the Production Sharing Contract
(net revenue interest reserves) are 19.4 million barrels of oil having a net
present value discounted at 10% of $452 million after Syrian taxes.
Furthermore, the Group completed its own economic evaluation on the Prospective
Oil Resource and has estimated that Prospective Oil Resource net to the Group is
50.9 MMBO with a net present value of approximately $1.51 billion. In summary,
total oil reserves potential net to the Group among Possible and Prospective Oil
Resource for the oil case is 70.3 MMBO with a net present value of approximately
$1.96 billion.
The Tigris-1 well represents the first of a series of wells proposed to be
drilled by the Group in Block 26 over the next 12 months. Interpretation of new
seismic data is ongoing and being integrated with previous 2D and 3D seismic
data for finalizing the prospect ranking for the current drilling campaign which
commenced with the Tigris-1 well. Additionally, final negotiations on an
additional drilling rig are ongoing and the Group has made arrangements for a
rig under contract by other operators in Syria for a drilling slot during the
first half of 2007.
Capital expenditures net to the Group in Block 26 were $4.1 million during the
first six months of 2006.
USA
Production for the first six months of 2006 in the Gulf of Mexico and onshore
Gulf Coast totaled 373,700 working interest barrels of oil equivalent (2,076
barrels of oil equivalent per day as compared to approximately 2,800 barrels of
oil equivalent currently) and net revenue interest barrels (working interest
barrels less royalties) totaled 266,498. Turnover for the half year totaled
$12,143,000 resulting in a net price per barrel of oil equivalent equal to
$45.57, net of production hedges and royalties. Approximately 61% of the daily
production was in natural gas at a price of approximately $6.13 per mcf and 39%
in oil production which was priced at approximately $59.39 per barrel. At 30
June all hedge contracts on the oil had expired and approximately 14% of the
natural gas production remains currently hedged with those hedges declining to
approximately 10% of the gas volumes by year-end.
Two new wells commenced production in the Eugene Island 58 area of the Gulf of
Mexico. The Eugene Island 58 #7 exploration well, drilled in late 2005,
commenced production in May in which the Group owns a 12.9% interest. The
Eugene Island 58 #8 exploration well, drilled in early 2006 also commenced
production in May in which the Group owns a 25.6% interest. Additionally, two
new development wells were drilled in the West Delta 64 area. Facilities
installation commenced in May and production from the four wells in this field
is scheduled to commence in October. The Group owns a 6.6% interest in this
field.
Total capital expenditures in the U.S. during the first six months were $7.2
million.
Iraq
Discussions with the Iraqi Government have continued on the Misan Gas Project
and this will be a high priority for the Group in the coming months.
The Misan Gas Project is a midstream project that gathers gas currently being
flared at oil fields in Southern Iraq, brings the gas to a central processing
plant to clean it of impurities and remove the light hydrocarbon liquid fraction
(natural gas liquids), and then transmits the natural gas for further
distribution and use in Iraq. The extracted hydrocarbon liquids are then
transmitted to a southern port for storage, offloading and export.
Outlook
The outlook for the Group is exciting following a record month financially in
June and subsequently in August 2006. Production in the Gulf of Mexico
generates solid cash flows to support the capital expenditure program in the
U.S. and Syria while maintaining substantial cash reserves for future growth.
We will be drilling continuously in Syria over the coming twelve months having
in the past few weeks commenced the drilling of the Tigris-1 well with gross
probable reserves of 442 BCF and an overall gross potential prospective resource
of some 4.2 TCFG. I am also optimistic as to the prospects for moving forward
the negotiations on the Misan Project now that a new government has been formed
in Iraq.
Andrew West
Chairman of the Board
28 September 2006
Gulfsands Petroleum plc
Interim Financial Statements
SIX MONTHS TO 30 JUNE 2006
Unaudited
CONSOLIDATED PROFIT AND LOSS ACCOUNT
FOR THE SIX MONTHS ENDED 30 JUNE 2006
Six months ended 30 June Year Ended 31 December
2005 2005
Continuing Minority Continuing Minority
Group Share Total Group (see Total
2006 Share (see below) Operations Share below) Operations
(unaudited) (unaudited) (audited)
Notes $'000 $'000 $'000 $'000 $'000 $'000 $'000
Turnover 2,3 12,143 13,701 12,339 26,040 24,926 20,086 45,012
Cost of sales (8,362) (7,427) (6,690) (14,117) (13,866) (12,047) (25,913)
Gross profit 3,781 6,274 5,649 11,923 11,060 8,039 19,099
General and administrative expenses (2,560) (2,160) (972) (3,132) (4,923) (1,330) (6,253)
Amortization of goodwill - (54) - (54) - - -
Accretion of net present value (341) (443) (400) (843) (1,370) (1,234) (2,604)
decommissioning provision
Administrative expenses (2,901) (2,657) (1,372) (4,029) (6,293) (2,564) (8,857)
Operating profit (loss) 880 3,617 4,277 7,894 4,767 5,475 10,242
Exceptional items 2 (6,080) - (6,080)
Profit on activities before interest 880 3,617 4,277 7,894 (1,313) 5,475 4,162
Interest receivable 582 392 55 447 1,413 205 1,618
Interest payable - (1,452) (1,309) (2,761) (2,510) (1,822) (4,332)
Profit (loss) on ordinary activities
before taxation 1,462 2,557 3,023 5,580 (2,410) 3,858 1,448
Tax on profit (loss) on ordinary
activities 4 (582) (1,039) (1,039) (1,551) - (1,551)
Profit (loss) on ordinary activities
after taxation 880 1,518 3,023 4,541 (3,961) 3,858 (103)
Minority interests (6) 17 (3,023) (3,006) 13 (3,858) (3,845)
RETAINED PROFIT / (LOSS) FOR THE
PERIOD 874 1,535 - 1,535 (3,948) - (3,948)
Earnings(Loss) per share in $'s:
Basic 5 0.01 0.02 0.02 (0.05) 0.0 (0.05)
Diluted 5 0.01 0.02 0.02
The profit and loss account 'Continuing group share' for 30 June 2005 and 31
December 2005 consists of GP's 52.6 % of Northstar Gulfsands LLC ('NSGS') and
other GP activity, while the 'Minority share' column is the NSGS 47.4% partner
share. For comparative purposes compare the 'Continuing group share' column
with June 2006 results. See Note 2 in the accompanying notes for further
details.
The accompanying notes are an integral part of this consolidated profit and loss
account.
CONSOLIDATED BALANCE SHEET
AT 30 JUNE 2006
30 June 2006 30 June 2005 31 December 2005
(unaudited) (unaudited) (audited)
Notes $'000 $'000 $'000
Fixed assets
Tangible fixed assets 6 48,101 55,993 39,236
Intangible fixed assets 38 6,035 35
48,139 62,028 39,271
Current assets
Debtors: amounts falling due within one year 7 10,053 14,210 4,983
Cash at bank and in hand 30,457 78,023 36,561
40,510 92,233 41,544
Creditors: amounts falling due within one year 8 (8,679) (16,503) (3,436)
Net current assets 31,831 75,730 38,108
Total assets less current liabilities 79,970 137,758 77,379
Debtors: amounts falling due after one year - - -
Creditors: amounts falling due after more than one year - (34,144) -
Deferred Tax Liability (253) - (173)
Provision for liabilities and charges 9 (7,218) (17,270) (6,958)
Equity minority interests (266) (10,915) (260)
NET ASSETS 72,233 75,429 69,988
Share capital 10 10,019 9,971 9,971
Share premium account 54,680 53,651 53,651
Other reserve 11 12,003 11,709 11,709
Profit and loss account (4,469) 98 (5,343)
SHAREHOLDERS' FUNDS 72,233 75,429 69,988
The accompanying notes are an integral part of this consolidated balance sheet.
CONSOLIDATED CASH FLOW STATEMENT
FOR THE SIX MONTHS ENDED 30 JUNE 2006
Six months ended 30 June Year Ended 31 December
2005 2005
Continuing Minority Continuing Minority
Group Share Total Group (see Total
2006 Share (see below) Opera- Share below) Operations
(unaudited) (unaudited) tions (audited)
Notes $'000 $'000 $'000 $'000 $'000 $'000 $'000
Net cash inflow (outflow) from operating
activities 12 3,584 5,933 6,099 12,032 3,232 6,272 9,504
Interest received 582 447 - 447 1619 1619
Interest paid - (1,328) (1,196) (2,524) (1,732) (1,560) (3,292)
Net cash inflow (outflow) from returns on
investments and servicing of finance 582 (881) (1,196) (2,077) (113) (1,560) (1,673)
Capital expenditure
Payments to acquire tangible fixed assets 6 (11,336) (6,514) (1,541) (8,055) (11,266) (5,024) (16,290)
Payments to acquire intangible fixed assets (10) (35) - (35) (35) - (35)
Net cash outflow from capital expenditure (11,346) (6,549) (1,541) (8,090) (11,301) (5,024) (16,325)
Financing
Issues of ordinary share capital 10 1,076 56,608 - 56,608 56,651 - 56,651
Contributions in subsidiary undertaking - 37 - 37 101 - 101
Warrants exercised for cash - 1,689 - 1689 1,689 - 1689
Issue costs of share capital - (464) - (464) (464) - (464)
Receipts from new loans - 636 573 1,209 1,474 1,329 2,803
Repayment of loans - (1,315) (1,185) (2,500) (10,820) (9,751) (20,571)
Payments in respect of warrants -
restructuring cost - - - - (3,550) - -3550
Minority share - payment as a result of
disposal of a subsidiary undertaking - - - - (11,183) - -11183
Net cash inflow from financing 1,076 57,191 (612) 56,579 33,898 (8,422) 25,476
(Decrease)/increase in cash (6,104) 55,695 2,749 58,444 25,716 (8,734) 16,982
Cash at bank and in hand, beginning of period 36,561 10,845 8,734 19,579 10,845 8,734 19,579
Cash at bank and in hand, end of period 30,457 66,540 11,483 78,023 36,561 (0) 36,561
Non-cash investing and financing
Provision for decommissioning 341 - - - - - 2,603
Exceptional items:
Disposal of Subsidiary:
Loss on disposal 3 - - - - - - 1,244
Write off of goodwill 3 - - - - - - 1,286
The profit and loss account 'Continuing group share' for 30 June 2005 and 31
December 2005 consists of GP's 52.6 % of Northstar Gulfsands LLC ('NSGS') and
other GP activity, while the 'Minority share' column is the NSGS 47.4% partner
share. For comparative purposes compare the 'Continuing group share' column
with June 2006 results. See Note 2 in the accompanying notes for further
details.
The accompanying notes are an integral part of this consolidated cash flow
statement.
NOTES TO THE CONSOLIDATED ACCOUNTS
FOR THE SIX MONTHS ENDED 30 JUNE 2006
1. Basis of preparation
The consolidated accounts have been prepared in accordance with applicable
accounting standards in the United Kingdom and under the historical cost
convention. In addition, these accounts have been prepared in accordance with
the provisions of the Statement of Recommended Practice (SORP) 'Accounting for
Oil and Gas Exploration, Development, Production and Decommissioning Activities
', issued by the UK Oil Industry Accounting Committee on 7 June 2001.
The statements which are unaudited have been prepared on the basis of accounting
policies published in the statutory accounts for the year ended 31 December
2005, except that FRS 20 'Share-based payment' has been adopted for the first
time (see note 11 Reserves). The financial information set out in this interim
report does not constitute statutory accounts as defined in section 240 of the
Companies Act 1985. The figures for the year ended 31 December 2005 have been
extracted from the statutory accounts that have been filed with the Registrar of
Companies and which contain an unqualified audit report.
2. Minority share and exceptional items
In December 2005, one of the subsidiaries of the Company, Gulfsands Petroleum
USA, Inc. ('GP USA') redeemed its membership interest (52.6%) in Northstar
Gulfsands LLC (a limited liability company registered in Texas) ('NSGS') in
return for the partition of certain assets in NSGS. This was accomplished by a
conveyance of a certain undivided interest in its oil and gas properties to GP
USA and the retention of the remaining interest therein to NSGS together with
certain other assets. As a result of this partition and redemption agreement,
NSGS has ceased to be a subsidiary of GP USA.
As a result of this change in arrangement, the Group recognized in December 2005
exceptional items consisting of a loss on the disposal of $1,243,583, write off
the unamortised goodwill of $1,285,714, and restructuring costs of $3,550,000.
NOTES TO THE CONSOLIDATED ACCOUNTS
FOR THE SIX MONTHS ENDED 30 JUNE 2006
3. Segmental information
The Group operates a single class of business being oil and gas exploration.
All turnover in 2006 relates to income from the Group's oil and gas assets, and
arose in USA.
The Group profit before interest for the year is analysed by geographical area
as follows:
Year ended
Six Months ended 30 June 31 December
2006 2005 2005
$'000 $'000 $'000
USA 2,379 8,347 6,274
Syria (267) (159) (548)
Iraq (218) (614) (1,505)
Common costs (1,014) 320 (59)
Group's profit before interest 880 7,894 4,162
Net interest 582 (2,314) (2,714)
Tax on profit/(loss) on ordinary
activities (582) (1,039) (1,551)
Minority interests (6) (3,006) (3,845)
Profit/(loss) for the year 874 1,535 (3,948)
4. Tax on profit/(loss) on ordinary activities
Six Months ended 30 June Year ended
31 December
2006 2005 2005
$'000 $'000 $'000
Current tax:
UK corporation tax - - 340
US corporation tax 502 - -
502 - 340
Deferred tax - temporary differences 80 1,039 1,211
582 1,039 1,551
NOTES TO THE CONSOLIDATED ACCOUNTS
FOR THE SIX MONTHS ENDED 30 JUNE 2006
5. Earnings/(loss) per share
Six Months Ended 30 June Year ended 31 December
2006 2005 2005
US$'000 US$'000 US$'000
except per except per except per
share amounts share amounts share amounts
Profit (loss) 874 1,535 (3,948)
Basic earnings (loss) per share 0.01 0.02 (0.05)
Diluted earnings (loss) per share 0.01 0.02
# of shares # of shares # of shares
Weighted average number of shares:
For basic earnings per share 93,166,333 77,722,731 85,442,295
Options 9,830,215 11,633,795 10,631,133
For diluted earnings per share 102,996,548 89,356,526 96,073,428
6. Tangible Fixed Assets
Oil and gas Fixed assets Total
properties
$'000 $'000 $'000
At 31 December 2005 47,063 50 47,113
Additions 11,181 155 11,336
Disposals - - -
At 30 June 2006 58,244 205 58,449
Accumulated depreciation:
At 31 December 2005 (7,856) (21) (7,877)
Charge for the period (2,449) (22) (2,471)
Disposals - - -
At 30 June 2006 (10,305) (43) (10,348)
Net book value at 30 June 2006 47,939 162 48,101
NOTES TO THE CONSOLIDATED ACCOUNTS
FOR THE SIX MONTHS ENDED 30 JUNE 2006
7. Debtors
30 June 2006 30 June 2005 31 December 2005
$'000 $'000 $'000
Trade debtors 4,834 9,579 4,047
Other debtors 1,349 370 182
Underlift 919 1,748 919
Prepayments and accrued income 2,123 587 333
Prepaid Cash Calls 828 1926 (498)
10,053 14,210 4,983
Underlift at 30 June 2006 represents underlift acquired as a result of the
acquisition of oil and gas properties in May 2004. In accordance with FRS 5,
underlift represents a right to future economic benefit (through entitlement to
receive equivalent future production), which constitutes an asset. This amount
is due after more than one year.
8. Creditors
Amounts falling due within one year
30 June 2006 30 June 2005 31 December 2005
$'000 $'000 $'000
Trade creditors 4,484 12,965 236
Provision for liabilities and charges (see note 9) 3,352 3,538 2,860
UK and US Corporation tax payable 843 - 340
8,679 16,503 3,436
NOTES TO THE CONSOLIDATED ACCOUNTS
FOR THE SIX MONTHS ENDED 30 JUNE 2006
9. Provision for liabilities and charges
The provision for decommissioning relates to the expected future costs of
plugging and abandoning the oil and gas properties held by Gulfsands Petroleum
USA, Inc and Darcy Energy LLC. At 30 June 2006 the oil and gas properties have
estimated plugging and abandonment dates between 2006 and 2021. The portion of
the provision for decommissioning expected to be settled in 2006 totaling
approximately $3.3 million is included in creditors: amounts falling due within
one year (see note 8) and the remainder totaling approximately $7.2 million is
included in provision for liabilities and charges in the consolidated balance
sheet at 30 June 2006.
The provision for decommissioning is as follows: $'000
At 31 December 2005 9,818
Liabilities Settled During the period -
Additions 411
Current year accretion of net present value of decommissioning provision 341
At 30 June 2006 10,570
Less: current portion (classified within creditors: amounts falling due within one year) (3,352)
7,218
10. Share capital
At 30 June At 31 December
2006 2005
Authorised: Number Number
Ordinary Shares (par value 5.714p per share) 175,000,000 175,000,000
Allotted, called up and fully paid 93,481,250 ordinary shares
of 5.714p each
The share capital and share options at the beginning and the end of the period
are summarised below:
Number of
Ordinary Number of
Allotted, called up and fully paid Shares Options
At 31 December 2005 93,031,250 13,796,250
Share options granted - 550,000
Share options exercised 450,000 (450,000)
At 30 June 2006 93,481,250 13,896,250
NOTES TO THE CONSOLIDATED ACCOUNTS
FOR THE SIX MONTHS ENDED 30 JUNE 2006
10. Share capital (continued)
Share options:
During the first six months of the year 550,000 share options were granted under
the 2005 Stock Option Plan
• In January 2006, 170,000 share options were issued to two employees
with an exercise price of £1.30;
• In February 2006, 380,000 share options were issued to two Directors
of the Company and to four individuals relating to the project in
Block 26 in Syria with an exercise price of £1.44.
The share options are exercisable immediately unless there is a vesting
schedule. The term of each share option was 5 years from date of grant. The
exercise price of the share options were greater than or equal to the market
price of the shares as of the date of grant. The Board of Directors is
responsible for administering the Plan, determining the terms upon which options
may be granted, prescribing, amending and rescinding such interpretations and
determinations and granting options.
In April and May 2006, 450,000 share options were exercised by previous
Directors of the Company.
11. Reserves
Share Profit
Share premium Other and loss
capital account Reserve account Total
$'000 $'000 $'000 $'000 $'000
At 31 December 2005 9,972 53,651 11,709 (5,343) 69,989
Share Options Exercised 47 1,029 - - 1,076
Share Options Granted - - 294 - 294
Retained loss for the year - - - 874 874
At 30 June 2006 10,019 54,680 12,003 (4,469) 72,233
The Group has adopted FRS 20 'Share based payment' for the first time. FRS 20 '
Share based payment' requires the recognition of share based payments at fair
value at the date of grant. The share options granted (note 10) resulted in a
charge to share based compensation expense of $294,272 for the first half year
of 2006 and the offsetting credit was taken to Other reserve - share options.
NOTES TO THE CONSOLIDATED ACCOUNTS
FOR THE SIX MONTHS ENDED 30 JUNE 2006
12. Reconciliation of operating profit to net cash inflow from operating
activities
Six months ended 30 June Year Ended 31 December
2005 2005
Continuing Continuing
Group Minority Total Group Minority Total
2006 Share Share Operations Share Share Operations
$'000 $'000 $'000 $'000 $'000 $'000 $'000
Operating profit (loss) 880 3,617 4,277 7,894 4,767 5,475 10,242
Depreciation 2,479 2,458 2,215 4,673 3,239 2,918 6157
Accretion 341 443 400 843 1,370 1,234 2604
Non-cash charge for share
options 294 - - - - - -
Goodwill amortised - 54 - 54 - - -
(Increase)/Decrease in debtors
excluding deferred tax assets (5,070) (2,923) (2,850) (5,773) 1,339 3,387 4726
Increase in creditors,
excluding provision for
liabilities and charges 4,660 2,283 2,058 4,341 (7,482) (6,743) -14225
Net cash inflow from operating
activities 3,584 5,933 6,099 12,032 3,232 6,272 9,504
13. Post balance sheet events
In July 2006, various Directors of the Company exercised options of 3,893,750
ordinary shares of 5.714p each in the Company due to expire on 2 August 2006.
On the date of exercise, two Directors sold 385,000 new Ordinary Shares to cover
certain tax liabilities which were due in the third quarter of 2006 as a result
of the exercise. In total the Directors purchased 3,508,750 Ordinary Shares.
Also in July 2006, Andrew West, a Director of the Company, was appointed
non-executive Chairman of the Board and was granted 75,000 share options of
5.714p each at £1.04 per share with a term of 5 years.
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