Year End Results

RNS Number : 1688G

Island Oil and Gas PLC

27 January 2010

 



ISLAND OIL & GAS PLC

("ISLAND" or the "COMPANY") 

Results for the year ended 31 July 2009

Operational highlights:

• Two new offshore petroleum agreements for contiguous areas of Sidi Moussa and Foum Draa, Morocco

• Encouraging preliminary results from 2D seismic reprocessing on Tarfaya, Morocco

• Zag reconnaissance licence, Morocco, advanced to full exploration licence by the operator

• Studies carried out by Island show that Old Head of Kinsale Field could be developed as a profitable gas storage facility

• Operations expected to recommence post approval of revised work programme offshore Albania by the Council of Ministers

Corporate activities:

• Decision taken during the period to monetise the Company's Celtic Sea assets - pre-empted by San Leon Energy approach

• Significant write downs to intangible assets effected - cost saving programme implemented

• Approach from San Leon Energy to create a strong Irish based oil and gas exploration and development company

• Negotiations are close to conclusion on a merger which, if successful, would be recommended by the Island Board

Paul Griffiths, CEO of Island Oil & Gas PLC commented

"In what were distinctly testing times Island has continued to seek ways to deliver value to shareholders and develop its portfolio; an exciting asset base with significant potential. During the year under review we have managed to protect, and maintain and mature the assets in our portfolio thereby preserving the core value for shareholders.

Whilst we looked at every option available to us to develop these assets ourselves, it became obvious that the best way forward for Island and its shareholders was the merger which was tabled by San Leon, post the year end. The businesses are an excellent fit and the enlarged group will have the ability to develop a material energy business.  

Negotiations are close to conclusion and the board is optimistic, but cannot guarantee, that an agreement can be reached shortly."

27th January 2010

Enquiries:

Island Oil & Gas plc	Tel: [phone]
Paul Griffiths
Carl Kindinger
www.islandoilandgas.com
Davy (NOMAD and Broker)	Tel: [phone]
Anthony Farrell
College Hill (Public Relations)	Tel: [phone]
Nick Elwes

Chairman's Statement

The year under review has proved to be a very difficult year for Island Oil & Gas Plc ('Island' or 'the Company'). Global business conditions, capital funding restrictions and lower gas prices have largely resulted in the Company being unable to progress its asset base to the level expected.

The global financial crisis, coupled with a sharp fall in oil and gas prices, made risk capital funding extremely difficult for small oil and gas companies like Island. The Board pursued a number of alternative options for the Company, including some innovative financing opportunities, the sale of assets, and possible mergers. Island was not successful in its attempts to raise fresh equity capital during and after the end of its fiscal year. Largely through the support of two of the Directors, additional capital was raised in 2009.

Island was fortunate that it had eliminated most of its indebtedness prior to the financial crisis. In response to the economic downturn, the Company introduced a series of cost-cutting measures to reduce significantly the administrative overheads as well as its exploration activities.

Furthermore, current economic circumstances have contributed to the necessity for the Company to write down a significant part of the carrying value of certain of its assets, thus incurring a substantial loss for the year.

Transactions with Directors

The Board announced that it had agreed terms with Longreach Oil and Gas Ventures Limited[1] ("Longreach") and Celtex Exploration Services Limited[2] ("Celtex") for the provision of USD$ 833,334 to cover certain bank guarantees given to the government of the Kingdom of Morocco to secure Island's position in the Sidi Moussa and Foum Draa Exploration Licenses. Celtex subsequently converted Stg£150,000 of its loan into shares in the Private Placing detailed below. In addition, I, as Chairman of the Company, agreed to provide a further loan of Stg£300,000 to the Company, Stg£200,000 of which was advanced in July 2009.

Post Balance Sheet Events

Immediately post the period under review, the Board announced the completion of a placing to raise Stg£762,417, before expenses, to assist the Company whilst the monetisation of the Old Head of Kinsale and Schull assets was pursued through a partial or full sale.

An event of significant potential for Island's shareholders was San Leon Energy Plc's ("San Leon") announcement on 15 October 2009 of its proposal to acquire 100% of Island's equity for the issue of shares in San Leon and that it had received irrevocable undertakings to accept an offer from 29.62% of shareholders. The San Leon proposal entails a combination of the two companies with a view to building a strong Irish-based oil and gas exploration business. The proposal valued Island at Stg£13.6 million. Considering the limited options facing the Company and the benefits that could be derived by a larger merged entity, the Board felt it had to treat the proposal with utmost attention. On 23 December 2009, San Leon advanced a loan facility to Island of €500,000 to provide working capital to the Company. In the event that San Leon's proposal becomes a firm intention to make an offer, the Board intends to recommend such an offer to the shareholders.

Morocco

The Board is of the opinion that much has been achieved in Morocco. Despite the constraints, the Company was able to announce that its wholly owned subsidiary, Island International Exploration B.V. ("IIEBV"), signed with the Morocco Office National des Hydrocarbures et des Mines ("ONHYM") two new offshore Petroleum Agreements for the contiguous areas of Sidi Moussa and Foum Draa.

The Board is very excited by the value potential these new agreements offer shareholders and the award is a result of the Company's hard work and relationship building in the region. The new licences are valid for up to 8 years and together cover a total area of approximately 12,700 square kilometres in the sparsely explored Agadir Basin, about 100 kilometres south west of the Moroccan city of Agadir. Serica Energy Plc is the Group's co-licence holder in these new licences and is an outstanding partner to have.

The work programmes during the first 30 month period of the Foum Draa agreement and first 18 month period of the Sidi Moussa agreement comprise seismic reprocessing and geological studies. The areas of Sidi Moussa and Foum Draa are covered by over 5,200 square kilometres of modern 3D seismic data and over 2,000 kilometres of 2D seismic data. A drill or drop decision will be made at the end of the initial phases of the agreements. The Agadir Basin lies offshore in the Atlantic margin and is geologically analogous to and on trend with the oil producing salt basins of West Africa. Based on the extensive grid of existing seismic data, over 40 undrilled prospects and leads were identified in Sidi Moussa and Foum Draa by previous operators. The areas extend from the Moroccan coastline into water depths reaching a maximum of 2,000 metres.

During the year under review, Island progressed its activities onshore Morocco through a programme of 2D seismic reprocessing in its Tarfaya Exploration Permits. Post year end the preliminary results are proving to be encouraging with a marked improvement in seismic data quality over the previously identified prospective structures. The project is expected to be completed in early 2010 and will be followed by the acquisition of new 2D seismic data to high-grade, de-risk and mature structures for drilling.

The Zag Reconnaissance Permit was advanced to Full Exploration Licence status by the operator San Leon during the year under review. Initial work completed by the operator included the acquisition and interpretation of an aeromagnetic survey. The interpretation of the results indicated promising structures, one of which extends for up to 60 kilometres into the adjoining PetroCanada acreage, recently the subject of a farm out to RWE. This structure has the potential for significant hydrocarbon resources should future drilling prove to be successful.

Celtic Sea

At the beginning of the year under review, Island had hoped to build on its successful gas discoveries in the Celtic Sea. Our subsequent studies showed that the Old Head of Kinsale field could be developed and a profitable gas storage facility established. Schull also offers future development potential.

However, the prolonged Marathon asset sale to Petronas hampered the Company's progress during the period under review, and once that sale was completed in April 2009, Island faced a financial market that proved unwilling to fund the remaining work necessary to move the project forward in the timescale we had hoped.

Given the market conditions, the Board took the decision to monetise the Celtic Sea gas assets through a formal sales process conducted by Davy Corporate Finance. At the same time, the Company explored other avenues to potentially finance the development of the Celtic Sea gas discoveries through, for example the creation of a special purpose vehicle to hold the Celtic Sea gas assets, a corporate merger or a takeover of Island by a company with potential access to alternative sources of finance necessary to develop the Celtic Sea gas assets.

Davy Corporate Finance handled the sales process which was nearing its close date when, on 15th October 2009, San Leon announced its intention to acquire Island.

We expect that value can be gained from the Celtic Sea assets and while the costs previously capitalised in relation to the West Seven Heads 48/23-3 gas well have been written off, the Company still has a claim against Kinsale Energy (formerly Marathon) to recoup some value for gas we contend was drained from that area by the nearby 48/24-6 well.

With both gas prices falling and a further increase in the decommissioning costs been recorded in 2009, the pending decommissioning liability for Seven Heads has become a serious issue for the Company. Potential unperforated gas sand intervals below the main producing horizons offer the possibility of postponing the decommissioning.

Atlantic Margin

While Island's Atlantic Margin licences offer significant upside potential, the international environment has again meant that we have been unable to move forward the development of these assets as we would have liked.

A wide ranging farm-out effort was attempted during and since the period under review. While we gained serious interest from a number of large industry companies, we believe Ireland's poor drilling success rate relative to other Atlantic Basin oil and gas provinces and the Corrib delays did not help in the final decision making process.

The Company was able to secure extensions to its licences where necessary and we are confident now that, through the San Leon agreement with PGS Ventures AS ("PGS"), the Company will be able to carry out an extensive seismic gathering programme in the coming year and again go to the market in the future to obtain farm-in interest in a drilling campaign. PGS has reached an agreement with San Leon on providing funding for seismic activity over selected San Leon licences.

Albania

Island continues to maintain in good order its acreage position offshore Albania in the Durresi Production Sharing Contract. The Company anticipates that the Amendment to the Production Sharing Agreement, incorporating revised fiscal terms and a revised work programme, will be approved in early 2010 and that operations will recommence shortly thereafter.

Financial Review

Island recorded an operating loss before taxation and finance income and finance expense of Stg£43.885 million for the current year compared to a profit before taxation and finance income and finance expense of Stg£13.115 million in the year ended 31 July 2008. The loss relates mainly to write downs due to the impairment of exploration and evaluation assets in the Celtic Sea.

The main write downs of exploration and evaluation assets were: West Seven Heads Sub-Equity Area from a prior year valuation of Stg£20.482 million to a zero current year valuation due to an inability to move the project forward at this time, and the Old Head of Kinsale and Schull licences from a prior year valuation of Stg£35.223 million to a current year valuation of Stg£17.2million reflecting current economic circumstances in the gas industry. These write offs have been effected in accordance with IAS 36, Impairment of Assets.

Gross revenue from our interest in the Seven Heads gas field was Stg£1.879 million compared to Stg£2.251million in the previous year. Gas revenue declined due to both lower gas prices received and lower volumes of production, and represented a 16.5% decrease year-on-year.

Cost of sales at Stg£2.602 million compared to Stg£1.143 million represents a 127% increase over the previous accounting year and was mainly related to an increase in depreciation as resulted by the increased decommissioning liability.

A gross loss of Stg£0.723 million was recorded compared to a gross profit Stg£1.108 million in the previous year. The field's production in the year under review averaged 7.6mm scfpd declining from about 10 mm scfpd in August 2008 to 6mm scfpd in July 2009. Currently, production is averaging 3mm scfpd at which levels revenue does not exceed the cost of sales in some months. 

PSE Kinsale Energy Limited, the operator of the field, anticipate that due both to falling production levels and lower gas prices the field will become uneconomical sooner than previously projected with abandonment likely to be effected in 2014.

Administration expenses were Stg£1.908 million compared to Stg£2.306 million in the previous year, representing a 17% decrease year on year. A programme of cost reduction implemented during the period under review produced significant savings in overheads. 

Finance income was recorded at Stg£0.456 million or 296% greater than the Stg£0.115 million of the corresponding prior year period. This increase mainly was occasioned by foreign exchange gains realised through effective treasury management of cash resources. Finance expenses at Stg£1.697 million were 108% higher than the Stg£0.816 million recorded in the previous year mainly due to unrealised foreign exchange losses and interest on the loan due to Delta Hydrocarbons B.V. The foreign exchange losses were due to by the 14.5% decline in the value of GBP Sterling against the US Dollar in the period under review. 

Cash balances at the year end amounted to Stg£0.416 million.

Non-current loans outstanding as at 31 July 2009 amounted to Stg£6.870 million, an increase of 32% over the level of Stg£5.187million recorded as at 31 July 2008. This increase represented accrued interest and foreign exchange losses. Included in the trade and other payables balance outstanding as at 31 July 2009 were amounts due to related parties in the sum of Stg£1.102 million. 

Negotiations are currently underway for the early retirement of the US$10million loan received from Delta Hydrocarbons BV in 2008. The future overriding production royalties (ORRI) over the Amstel field which are due to the Company would be partially or fully offset against the value of the loan if a successful negotiation were to be concluded in this regard. There has been no recognition in the Company's financial statements of the potential value of the ORRI. 

Outlook and Prospects

In the view of the Board, the Company's proposed merger with San Leon offers the most realistic chance of increasing value for shareholders. The combined interests in Morocco, the Atlantic margin synergies, and the larger overall entity will increase the chances of raising the significant capital required to increase shareholder value. Monetisation of the Celtic Sea assets remains a key priority.

While the year under review has been most difficult, the Board feel it did everything possible in the circumstances, including providing loans and funding, to allow the Company to find a resolution to its difficulties.

The potential combination of Island and San Leon is an exciting development for shareholders as it would create a strong Irish-based oil and gas exploration and development company with the financial network to access the resources to accelerate the development and monetisation of the combined portfolio.

The synergies are compelling, particularly in Morocco, on the Irish Atlantic Margin (through access to an expanded PGS seismic funding facility), and in assembling a basket of development projects capable of generating significant future cash flow from production.

The combination of the assets would increase Island's shareholders' exposure to San Leon's potential oil projects in Italy and Iraq thus providing a counter-balance to Island's portfolio, which currently emphasises gas projects. Broadening the portfolio across the spectrum of hydrocarbon commodity type is important to hedge against differential price falls between gas and oil, as has been observed post year end.

The San Leon asset base includes unconventional hydrocarbons, for example shale gas and oil shales. Post year end there has been a marked move by the industry majors towards acquiring unconventional hydrocarbon assets, particularly shale gas assets. Broadening Island's shareholders' exposure to such trends is therefore a logical step at this time. Island's portfolio of potential gas storage projects in the Celtic Sea provides another core business that can form an integral part of developing a material energy business should the proposed combination of assets with San Leon proceed.

Negotiations with San Leon are close to conclusion. The Board is optimistic that an agreement with San Leon will be reached shortly on takeover terms.

We would hope that the worst is now behind us and with fresh impetus from the possible San Leon merger, the future will reward our shareholders for their continued support and loyalty. 

Bryan Benitz

Chairman

[1] A company in which Bryan Benitz, Chairman, has an interest

[2] A company in which Paul Griffiths, Director, has a beneficial interest

Consolidated Income Statement 

For the year ended 31 July 2009

	Note	Year ended	Year ended
		31-Jul	31-Jul
		2009	2008
		Stg£'000	Stg£'000
Revenue		1,879	2,251
Cost of sales		(2,602)	(1,143)
Gross (loss)/ profit		(723)	1,108
Profit on sale of subsidiary undertaking		-	11,001
Gain on sale of license		-	3,465
Administration expenses		(1,908)	(2,306)
Costs associated with uncommercial projects	2	(127	(153)
Impairment of exploration and evaluation assets	2	(41,127)	-
Operating (loss)/profit - continuing operations		(43,885)	13,115
Finance income		456	115
Finance expense		(1,697)	(816)
(Loss)/profit before taxation		(45,126)	12,414
Taxation on (loss)/profit for year
(Loss)/profit for the financial year attributable to equity holders of the parent		(45,126)	12,414
(Loss)/earnings per share (Stg£)
Basic		(0.3865)	0.1082
Diluted		(0.3865)	0.1082

On behalf of the board

Bryan Benitz	Paul Griffiths
Director	Director

Consolidated statement of total recognised income and expense

For the year ended 31 July 2009

	Year ended	Year ended
	31-Jul	31-Jul
	2009	2008
	Stg£'000	Stg£'000
(Loss)/profit for the financial year	(45,126)	12,414
Surrender of warrants in return for shares	-	262
Total recognised income and expense for the year attributable to equity holders of the parent	(45,126)	12,676

Consolidated Balance Sheet 

At 31 July 2009  

	Note	Year ended	Year ended
		31-Jul	31-Jul
		2009	2008
		Stg£'000	Stg£'000
Assets
Non current assets
Intangible exploration and evaluation assets		23,737	61,212
Property, plant and equipment		2,637	1,403
		26,374	62,615
Current assets
Other receivables		1,656	1,159
Cash and cash equivalents		416	3,407
		2,072	4,566
Total assets		28,446	67,181
Equity and liabilities
Equity attributable to equity holders of the parent
Called up share capital		809	798
Share premium		51,394	51,167
Shares to be issued		-	238
Share based payment reserve		1,443	1,185
Unrealised revenue reserve		47	47
Retained earnings		(38,421)	6,705
Total equity		15,272	60,140
Non current liabilities
Provisions		3,815	704
Loans	3	6,870	5,178
		10,685	5,882
Current liabilities
Trade and other payables		2,489	1,159
		2,489	1,159
Total liabilities		13,174	7,041
Total equity and liabilities		28,446	67,181

On behalf of the board

Bryan Benitz	Paul Griffiths
Director	Director

Consolidated Cash Flow Statement 

For the year ended 31 July 2009

	Year ended	Year ended
	31- Jul	31- Jul
	2009	2008
	Stg£'000	Stg£'000
Cash flow from operating activities
(Loss)/profit before taxation	(45,126)	12,414
Finance income	(456)	(115)
Finance expense	1,697	816
Operating (loss)/Profit	(43,885)	13,115
Adjusted for:
Depreciation	1,859	402
Gain on disposal of licence	-	(3,465)
Gain on disposal of subsidiary	-	(11,001)
Costs associated with uncommercial projects	127	153
Impairment of exploration and evaluation assets	41,127	-
Cost of share awards	258	530
Foreign exchange loss	72	156
	(442)	(110)
Decrease in other receivables	341	1,458
Increase in trade and other payables	228	881
Net cash from operating activities	127	2,229
Cash flows from investing activities
Disposal of oil and gas assets	-	3,764
Disposal of subsidiary	-	12,654
Expenditure on intangible exploration and evaluation assets	(5,087)	(26,818)
Contribution from partners for exploration and evaluation assets	1,308	1,042
Purchase of property, plant and equipment	(12)	(44)
Finance income	479	56
Net cash used in investing activities	(3,312)	(9,346)
Cash flows from financing activities
Net proceeds from issue of share capital	-	2,243
Debt arrangement fees	-	(344)
Drawdown of bank loans	-	4,500
Drawdown of other loans	200	5,178
Repayment of bank loan	-	(12,000)
Finance expenses	(6)	(655)
Foreign exchange loss on loan	-	-
Net cash from/(used by) financing activities	194	(1,078)
Net (decrease) in cash and cash equivalents	(2,991)	(8,195)
Cash and cash equivalents at beginning of period	3,407	11,602
Cash and cash equivalents at end of period	416	3,407

1. Basis of preparation of the financial statements

Considerable uncertainty emerged, in the second half of 2009, over the Group's ability to raise adequate financial resources to continue in operational existence through the course of 2010 and to realise the value of its exploration and evaluation assets. However, the Directors are of the opinion, having considered the potential oil and gas prospects in the various sites underlying those assets, that there is a reasonable prospect of achieving profitable returns from their development. To achieve that result, the Directors have actively sought additional sources of funding to support ongoing development and operational existence and on 15 October 2009, San Leon Energy Plc announced a bid for the Group that, if it proceeds, is likely to ensure that the Group will gain access to sufficient financial resources to continue in operational existence and to support the ongoing development of its exploration and evaluation assets. The Directors have concluded that the combination of these circumstances represents a material uncertainty that casts significant doubt upon the Group's ability to continue as a going concern and therefore, the company may be unable to realise its assets and discharge its liabilities in the normal course of business.

Negotiations with San Leon Energy Plc are at an advanced stage. San Leon Energy Plc has entered into a working capital facility agreement whereby it has provided the Group with a working capital facility in the sum of €500,000 pending a 'rule 2.5' announcement of the take over of the Group. Whilst the outcome of negotiations cannot be predicted with complete certainty, the Directors have concluded that there is a reasonable expectation that the outcome of negotiations with San Leon Energy Plc is likely to result in an announcement confirming a bid for the Group by San Leon Energy Plc and, if concluded, would result in the Group gaining access to adequate resources to continue in operational existence for the forseeable future. As a result, the Directors continue to adopt the going concern basis of accounting in preparing the financial statements.

2. Costs associated with uncommercial projects and impairment of exploration and evaluation assets

During the year, Stg£0.127 m (2008: Stg£0.153m) was written off in relation to projects that the company considered to be uncommercial. 

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

Following a review of intangible asset values, write offs were effected in accordance with IAS36 "Impairment of Assets". 

1. West Seven Heads Sub-Equity Area was written down from a prior year valuation of Stg£20.482million to a zero current year valuation due to a long running dispute with the co-equity holders regarding ownership of gas drained off into the neighbouring Seven Heads licence area.

 

2. Old Head of Kinsale and Schull licences were written down from a prior valuation of Stg£35.445 million to a current year residual valuation of Stg£17.2million due to the inability of the Company to realise value for these assets in a formal sales process. The residual value has been imputed on the basis of the San Leon Energy Plc’s (San Leon) announced bid for the Group.

 

3. Moldova written down to zero from a valuation of Stg£0.44million due to the expiry of the memorandum of understanding with the Group’s prospective partners.

 

4. Albania written due to zero from a valuation of Stg£1.787million due to the suspension of the licence.

 

5. Donegal written down from Stg£0.173million to zero.

3. Loan 

	31-Jul	31-Jul
	2009	2008
	Stg£'000	Stg£'000
Delta Loan	6,870	5,178

Delta Loan

In May 2008, the entire share capital of Island Netherlands B.V. ('INBV'), a wholly owned subsidiary of Island Oil & Gas B.V. ('IOGBV') was sold to Delta Hydrocarbons B.V. ('Delta').

As part of the transaction, Delta advanced to Island US$10m. It is intended that the Loan will be repaid from 95% of the gross proceeds of an Overriding Royalty Interest ('ORI') granted to IOGBV of 2.5% of the gross export production from the Amstel Oil Field and 2% and 1.5% respectively of the gross export production from the Zaan oil field and any tie-backs via the future Amstel facilities or any other operated tie-backs resulting from any of the licence areas that are the subject of the transaction. There is no fixed repayment period for the loan, but it will approximate the life of the Amstel field. If at any time it is determined that the ORI proceeds will not repay the loan in full including interest, then Delta can call for repayment in cash or, at Delta's discretion, on seven days notice, require conversion of such amount into ordinary shares in the company at the average weighted 20 day trading price prior to conversion.

In the event that Delta elects not to proceed with the development of the Amstel field, the Loan will be repayable in equal monthly installments over 30 months commencing six months after the date of notice provided by Delta.

The movement since the prior financial year end consists of a foreign exchange translation loss and accrued interest. 

4. Related party transactions

Paul Griffiths, a Director of the Company, is also a Director and owner of Petro-Celtex Consultancy Limited ('Petro Celtex'). At 31 July 2009, Petro-Celtex own 1,219,755 ordinary shares in the Company.(2008 1,219,755)

Paul Griffiths also owns more than 20% of the issued share capital of Celtex Exploration Services Limited ('Celtex'). At 31 July 2009, Celtex own 2,225,456 ordinary shares in the Company. (2008: 2,225,456)

John Hamilton is Company Secretary and is also a Partner with LHM Casey McGrath. The Group uses the accounting, administrative and consultancy services of LHM Casey McGrath on an arms length basis. During the year, LHM Casey McGrath were paid Stg£17,280 (2008: Stg£19,136) for services rendered to the Group.

John Hamilton is also a Director of CMG Interactive Limited, a company incorporated in Ireland. The Group uses CMG Interactive for IT outsourcing, consultancy and the purchasing of hardware and software on an arms length basis. During the year, CMG Interactive Limited were paid Stg£Nil (2008: Stg£9,955) for services rendered to the Group.

The company entered into a number of loan agreements with certain directors and companys connected with certain directors details of which are set out below. The total value of these loans amounts to Stg£1,102,000 (note15). Stg£200,000 of these loans was received by the company prior to 31 July 2009. The balance of Stg£902,000 is reflected in other receivables at 31 July 2009.

Longreach Loan in respect of Moroccan Licences 

Bryan Benitz is a shareholder and Director of Longreach Oil and Gas Ventures Limited ("Longreach"). In July 2009, Longreach agreed to advance a loan of US$208,334 to Island International Exploration BV (IIEBV). The principal terms of the detailed loan agreement are summarized below. The Longreach Loan shall bear interest at 4 per cent over LIBOR accruing daily. In the event of the Longreach Loan not being repaid out of a Company sale of assets or fundraising within 6 months, or a change of control in Island, Longreach may, at its absolute discretion, elect to have the Longreach Loan converted into ordinary shares in Island at a conversion price calculated as the volume weighted average of the closing price of Island's ordinary shares on the AIM market of the London Stock Exchange for the 20 days prior to service of notice by Longreach. Island and IIEBV will hold a 42.5 per cent interest in each of the Sidi Moussa and Foum Draa Licences in trust for Longreach and Celtex (see below) as security for the loans which interests or part thereof are transferable to the lender if IIEBV defaults under the terms of the licence agreement with ONHYM (the Moroccan state oil and gas agency). Island and IIEBV will hold additional 7.5 per cent interests in the Licences in trust for Longreach in respect of an agreement to assign such interests to Longreach. 

In July 2009, Longreach also advanced a loan of US$150,000 to IIEBV in order to provide a guarantee to secure a licence over the Zag Basin. The principal terms of the loan agreement are the same as for the loan effected to secure the Sidi Moussa and Foum Draa Licences. A charge over the Licences of the Company has been given in favour of Longreach as security for the loan. The loan is to cover a bank guarantee, relating to the Zag Exploration Licence, onshore Morocco.

In January 2008, Longreach advanced a loan of US$420,000 to IIEBV in order to provide a guarantee to secure the Tarafaya Licence. This loan has no fixed repayment term. This loan bears interest at the federal reserve rate plus 2%.

At 31 July 2009 the amount due to Longreach was Stg£522,000. 

Celtex Loan in respect of Sidi Moussa and Foum Draa Licences

In July 2009, Celtex agreed to advance a loan of US$625,000 to IIEBV ("the Celtex Loan"). The principal terms of the detailed loan agreement are summarised below. The Celtex Loan shall bear interest at 4 per cent over LIBOR accruing daily. In the event of the Celtex Loan not being repaid out of a sale of assets or fundraising within 6 months, or a change of control in Island, Celtex may, at its absolute discretion, elect to have the balance outstanding of the Celtex Loan converted into ordinary shares in Island at a conversion price calculated as the volume weighted average of the closing price of Island's ordinary shares on the AIM market of the London Stock Exchange for the 20 days prior to service of notice by Celtex. Island and IIEBV will hold a 42.5 per cent interest in each of the Sidi Moussa and Foum Draa Licences in trust for Longreach and Celtex as security for the loans which interests or part thereof are transferable to the Lenders if IIEBV defaults under the terms of the licence agreement with ONHYM. In the event of non repayment of the Celtex Loan, Celtex shall also be entitled to convert its loan into shares in IIEBV at a valuation agreed by an independent chartered accountant.

At 31 July 2009 the amount due to Celtex was Stg £380,000.

Bryan Benitz/Gascoigne loan

The Gascoigne Trust ("Gascoigne") is a family trust connected to Mr. Benitz . Mr Benitz and Gascoigne ("the lenders") advanced a loan of £300,000 to Island, [comprised of £100,000 from Mr Benitz in his personal capacity and £200,000 from Gascoigne] (the "Chairman Loan"). The principal terms of the detailed loan agreement are summarised below. The Chairman Loan is repayable on 31 March 2010 (the "Repayment Date") and shall bear interest at 10 per cent per annum, accruing daily. At any time during the period of the Chairman Loan, or in the event of any non-repayment out of a Company sale of assets or fundraising by the Repayment Date, or a change of control of Island, the Lenders may, at their absolute discretion, elect to have the Chairman Loan converted into ordinary shares in Island at a conversion price calculated as the volume weighted average of the closing price of Island's ordinary shares on the AIM market of the London Stock Exchange for the 20 days prior to service of notice by the Lenders. A fixed and floating charge over the assets of the Company has been given in favour of the Lenders as security for the Chairman Loan. Mr Benitz, on account of his personal interest in this transaction and his connection with Gascoigne, absented himself from board consideration of the Chairman Loan. £200,000 of this was paid to the Company in July 2008 and £100,000 in August 2009.

At 31 July 2009 the amount outstanding to Bryan Benitz/Gascoigne trust was Stg £200,000.

Celtex conversion (post balance sheet event) 

In accordance with the terms of the Celtex Loan, in August 2009 Celtex converted a £150,000 portion of the Celtex Loan into 3,000,000 ordinary shares ("Conversion Shares") in the Company at the Placing Price ("the Conversion"). 

A summary of the guarantees is set out below:

	31-Jul	31-Jul
	2009	2008
	Stg£'000	Stg£'000
Longreach/Tarafaya	294	-
Longreach/Zag	102	-
Celtex/Sidi Moussa & Foum Draa	380	-
Longreach/Sidi Moussa & Foum Draa	126	-
Total	902	-

IAS 19 also requires the disclosure of compensation paid to the groups key management personnel. This comprises it's Executive and Non-Executive Directors together with other persons discharging managerial responsibilities. In the opinion of the Directors, persons discharging managerial responsibilities are limited to Executive and Non-Executive Directors.

 

END

 

 

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