Preliminary Results

RNS Number : 9030M

Nostra Terra Oil & Gas Company PLC

02 June 2010

 



NOSTRA TERRA OIL AND GAS COMPANY PLC

("NTOG" or the "Company")

Preliminary Statement of Audited Results for the

Year Ended 31 December 2009

2 June 2010

Highlights

·   New growth strategy introduced and new CEO appointed in mid-year

·   Interests acquired in mature oil and gas assets in Kansas, with estimated total proved reserves (gross) of 4.75 million barrels of oil and 2.3 billion cubic feet of natural gas

·   JV formed with Hewitt Petroleum, Inc. to redevelop the leases

·   Operating loss of £0.6m (2008: £1.3m)

·   Additional capital of £3.925 million (pre-expenses) raised through three placings

·   First oil production from new assets announced in February 2010

·   Ukrainian assets transferred post year-end, with Nostra Terra retaining a right to 25% of any future net profits

For further information, please visit www.ntog.co.uk or contact:

Nostra Terra Oil and Gas Company plc                                              Telephone: [phone]

Matt Lofgran, CEO

[e-mail]

Religare Capital Markets                                                               Telephone: [phone]

Peter Trevelyan-Clark/Ben Jeynes

Alexander David Securities Ltd                                                      Telephone: [phone]

David Scott/Bill Sharp/Nick Bealer

Announcements made by the Company are available automatically by email to those who register at www.ntog.co.uk.

Chairman's Statement

I am pleased to present the annual report and accounts of Nostra Terra Oil and Gas Company plc for the year ended 31 December 2009.

It is no exaggeration to state that this was a transformational year for the Company. It began with little or no prospect of achieving viable production from our investment in the Oktyabrskoe field, following disappointing well results and the Ukrainian financial crisis that was prompted by the severe global economic downturn. The year ended with a new strategic direction for the Company, a new CEO and a new asset base from which we expect to grow significantly in both scale and profitability in the future.

The new strategy was adopted following the appointment of Matt Lofgran as Chief Executive Officer in July 2009. Our goal now is to generate above-average, sustainable returns for our shareholders by acquiring and managing a carefully targeted portfolio of oil and gas assets to which we can add further value through innovative technology and commercial expertise.

Our initial focus in pursuing that objective has been the mature hydrocarbon region of the US mid-continent, where we acquired and commenced redevelopment of a number of properties in the second half of the year. Matt Lofgran's review below provides details of the acquired assets and the work that has been accomplished on them to date.

Financially too, the Company is now on a much sounder footing than it was at the start of the reporting period. Net cash at the year-end amounted to £1.895m following a series of three share placings during the second half of 2009, while the debt reconstruction announced in July and the sale of the Ukrainian assets extinguished all debt in Nostra Terra Oil and Gas Company plc.

The financial results for the 12-month period reflect the disappointing outcome in the Ukraine, together with costs incurred as the Company began to acquire and develop its North American assets. The Board also considered it prudent to write down the value of its investment in the Ukraine, resulting in an exceptional charge of £3.268m. The company recorded an Operating loss of £0.6m for the 12 months period compared to an operating loss of £1.3m in 2008. Overall the Company generated a loss during 2009 of £3.841m.

The Board is greatly encouraged by the progress that has been made in implementing Nostra Terra's ambitious new strategy. I look forward to updating you in future reports on our continuing transformation into a growing and profitable exploration and production company.

Sir Adrian Blennerhassett

Chairman

Chief Executive's Review

The year ended 31 December 2009 was one of major change for Nostra Terra Oil and Gas Company plc.

The impact of the severe global downturn was felt by virtually every company in every industry. Investment in the development of oil and gas resources, and consequently the market value of such assets, fell sharply around the world. For Nostra Terra, which began the year focused entirely on the redevelopment of the large but geologically complex Oktyabrskoe field in Ukraine, the situation became unsustainable after the Ukrainian financial crisis left the Company facing significantly higher royalties and a much lower selling price for any oil it was able to produce.

Yet even the severest crisis brings with it opportunity - in this case the possibility of acquiring assets that would have been prohibitively expensive prior to the worldwide recession. Following my appointment, the Board embarked on a new strategy to identify, evaluate and acquire oil and gas assets in the US mid-continent, and potentially other mature hydrocarbon-bearing regions, where operating costs and geological risk are relatively low, and where production can be enhanced using advanced recovery technologies.

In order to begin implementing this new growth strategy, Nostra Terra raised £390,000 (before expenses) in June 2009 through a placing of 390,000,000 new ordinary 0.1p shares at par value. This was followed in August 2009 by a placing of 233,333,333 shares at 0.15p, raising £350,000 pre-expenses. Shortly before the financial year end, the Company raised a further £3.185 million pre-expenses through a placing of 318,500,000 shares at 1p per share.

In July 2009, we entered into definitive agreements with Hewitt Petroleum, Inc. (HPI), an established operator in the US mid-continent, for the purchase and development of the Hoffman and Bloom oil and gas properties in the Central Kansas Uplift (CKU), with an option (subsequently exercised post year-end) to acquire an interest in a third property, Koelsch.

Each of these mature properties contains existing infrastructure and, more importantly, proven reserves with significant upside potential. Nostra Terra and HPI formed a joint venture company to hold and manage the leases, with HPI continuing to act as operator and Nostra Terra providing funding for the agreed development plan.

The Company added to its new US portfolio in August 2009, with the acquisition of a 50% interest in the Boxberger property, also located within the CKU. Details of the Hoffman, Bloom and Boxberger properties are included in the table below.

Property	Hoffman	Bloom	Boxberger
Nostra Terra working interest	25%	50%	50%
Location	Barton County and Russell County, Kansas	Rice County, Kansas	Russell County, Kansas
Field	Trapp	Chase-Silica	Gorham
Existing infrastructure	5 production wells (2 plugged), 1 salt water disposal (SWD) well	9 production wells, 2 SWD wells	11 wells, including at least 2 SWD wells
Estimated gross reserves	Total proved reserves of 834,000 barrels of oil and 404.5 million cubic feet of gas, excluding any probable reserves	Total proved reserves of 2.26 million barrels of oil and 1.1 billion cubic feet of gas, excluding any probable reserves	Total proved reserves of 1.66 million barrels of oil and 804.7 million cubic feet of gas, excluding any probable reserves

Field work on the Boxberger property began immediately following its acquisition. In October 2009, the first of the existing production wells to be re-entered encountered commercially significant quantities of additional oil in two zones that had not previously been produced. The following month, HPI completed its funding requirements for redevelopment of Hoffman, enabling field work to commence on that property also.

Post year-end

Kansas suffered its worst winter for many years, and the extreme weather conditions throughout January and much of February 2010 severely hampered our development activity, as they did for other oil and gas operators in the region.

As the weather slowly improved towards the end of March, the number of rigs on the Company's properties was increased to five in order to make up for the unavoidable downtime. At the time of writing this review, two producing wells have been brought on stream on the Boxberger property, two on Hoffman and three on Bloom and combined production rates are currently 73 bopd (gross).

Since the end of the reporting period, we have also been able to further upgrade our asset portfolio.

In February 2010, we signed an agreement with Crimea Nadra Invest (CNI) relating to our original assets in Ukraine, whereby CNI assumed all rights and obligations associated with the Joint Activity Agreement (JAA) of 27 January 2001 covering Nostra Terra Overseas Ltd's (NTOL's) operations in Ukraine and in particular the Oktyabrskoe field licence, while NTOL retains a right to 25 per cent. of any net profits generated by CNI from the JAA, which runs for a period of 25 years from 27 January 2001.

We believe this is an excellent outcome for Nostra Terra: CNI, with its local expertise and relationships, is well positioned to unlock additional value from the Oktyabrskoe reservoir, while we are now able to focus all of the Company's management and financial resources on our primary objective of achieving profitable and sustainable growth in regions of relatively low geological and political risk.

Also in February 2010, the Company doubled its gross acreage within the Trapp field with the acquisition of an additional 160 acres close to the Hoffman property. This new lease was acquired jointly with HPI, with each party owning 50%.

Finally, in March 2010, Nostra Terra extended its search for oil and gas in prospective regions of the US when it acquired a 7% working interest (WI) before payout and 5% WI after payout in the Liberty #1 exploratory well in Juab County, Utah. Other participants in the Liberty #1 well are HPI, which is also operator of the well, and Freedom Oil & Gas Inc. The prospect lies on the Paxton thrust, six miles west of the Gunnison thrust where Wolverine Gas & Oil Corp. has made two major overthrust oil discoveries.

The Company had net cash balances on 28 May 2010 of £1.215 million.

Outlook

Despite the severe weather delays incurred since year-end, and the fact that there is still considerable work to be done before Nostra Terra achieves significant and sustainable oil production, I am confident that our new direction will deliver substantial long-term value for our shareholders. The Company is now cash flow positive operationally on the basis of current production and pay-out levels.

During 2009, I believe we laid the foundations on which to build a very profitable oil and gas exploration and production company. In the year ahead, we will continue to enhance the performance and value of our assets in the CKU, while maintaining the tightest possible cost control across all our activities.

With cash reserves available for further selective expansion, Nostra Terra is well positioned to take advantage of the ongoing and exciting opportunities we see to acquire additional assets and to develop mutually beneficial relationships with other proven operators in areas of relatively low geological and economic risk.

Matt Lofgran

Chief Executive Officer

Consolidated Income Statement

for the year ended 31 December 2009

                                                                                                                      2009                  2008

                                                                        Notes                                      £000                 £000

Revenue                                                                                                             33                      88

Cost of sales                                                                                                   (247)                  (203)

GROSS LOSS                                                                                                 (214)                   (115)

Administrative expenses                                                                                   (445)                (1,228)

OPERATING LOSS                                                                                         (659)                (1,343)

Impairment of goodwill                                                                                    (3,268)                  (943)

Loan notes waived                                                                                               25                  1,262

Other income                                                                                                      61                         -

Finance costs                                                                                                       -                       31

Finance income                                                                                                     -                        1

LOSS BEFORE TAX                                                                                     (3,841)                  (992)

Tax (expense) recovery                                                                                          -                        7

LOSS FOR THE YEAR                                                                                  (3,841)                  (985)

Attributable to:

Owners of the Company                                                                              (3,841)                  (985)

Earnings per share expressed

in pence per share:                                             

Basic (pence)                                                           2                                    (0.46)                  (0.24)

Diluted (pence)                                                      2                                        (0.41)                  (0.22)

Consolidated Statement of Comprehensive Income

for the year ended 31 December 2009

				2009		2008
				£000		£000
Loss for the year				(3,841)		(958)
Other comprehensive income:
Currency translation differences				-		-
				────────		────────
Total comprehensive income for the year				(3,841)		(958)
				────────		────────
Total comprehensive income attributable to :
Owners of the company				(3,841)		(958)
				═══════		═══════

Consolidated Statement of Changes in Equity

for the year ended 31 December 2009

	Share	Share	Translation	Retained	Total
	Capital	Premium	Reserves	Losses
	£000	£000	£000	£000	£000
As at 1 January 2008	346	3,506	-	(492)	3,360
Shares issued	78	421	-	-	499
Translation reserves	-	-	12	-	12
Loss after tax for the year	-	-	-	(985)	(985)
	────────	───────	───────	────────	───────
As at 31 December 2008	424	3,927	12	(1,477)	2,886
Shares issued	1,126	3,162	-	-	4,288
Shares issued costs	-	(247)	-	-	(247)
Loss after tax for the year	-	-	-	(3,841)	(3,841)
	────────	───────	───────	────────	───────
As at 31 December 2009	1,550	6,842	12	(5,318)	3,086
	═══════	══════	══════	═══════	══════

                     Share capital is the amount subscribed for shares at nominal value.

                     Retained loss represents the cumulative losses of the Group attributable to owners of the Company

Share premium represents the excess of the amount subscribed for share capital over the nominal value of those shares net of share issue expenses. Share issue expenses in the year comprise costs incurred in respect of the issue of new shares on the London Stock Exchange's AIM market.

Translation reserves occurs on consolidation the translation of the subsidiary's balance sheet at the closing rate of exchange and its income statement at the average rate.

Consolidated Statement of Financial Position

31 December 2009

		2009	2008
	Notes	£000	£000
ASSETS
NON-CURRENT ASSETS
Goodwill	3	-	3,268
Other Intangibles	4	1,806	153
Property, plant and equipment
-       oil and gas assets		-	47
-       others		4	-
		────────	────────
		1,810	3,468
CURRENT ASSETS
Trade and other receivables		30	255
Cash and cash equivalents		1,895	11
		────────	────────
		1,925	266
LIABILITIES
CURRENT LIABILITIES
Trade and other payables		292	170
Financial liabilities - borrowings		-	257
		────────	────────
		292	427
		────────	────────
NET CURRENT ASSETS		1,633	(161)
		────────	────────
NON-CURRENT LIABILITIES
Financial liabilities - borrowings		357	421
		────────	────────
NET ASSETS		3,086	2,886
		═══════	═══════
EQUITY AND RESERVES
Called up share capital		1,550	424
Share premium	5	6,842	3,927
Translation reserves	5	12	12
Retained losses	5	(5,318)	(1,477)
		────────	────────
		3,086	2,886
		═══════	═══════

Consolidated Statement of Cash Flows

for the year ended 31 December 2009

                                                                                                                       2009                 2008

                                                                                                                       £000                 £000

Cash flows from operating activities

Cash (consumed) by operations                                                                         (485)                  (519)

Net cash (consumed) by operating activities                                                        (485)                  (519)

Cash flows from investing activities

Purchase of intangibles - new oil properties                                                      (1,551)                       -

Purchase of plant and equipment                                                                           (5)                  (123)

Interest received                                                                                                     -                       1

Net cash from investing activities                                                                     (1,556)                  (122)

Cash flows from financing activities

Issue of new shares                                                                                        3,925                     499

Net cash from financing activities                                                                     3,925                      499

Increase/(Decrease) in cash and cash equivalents                                             1,884                    (142)

Cash and cash equivalents at beginning of year                                                      11                    153

Cash and cash equivalents at end of year                                                    1,895                       11

Represented by:

Cash at bank                                                                                                  1,895                       11

Notes to the Consolidated  Statement of Cash Flows

for the year ended 31 December 2009

1.	RECONCILIATION OF LOSS BEFORE TAX TO CASH GENERATED FROM OPERATIONS

                                                                                                                                                                                                                                                                             2009                 2008

                                                                                                                       £000                 £000

         Loss before tax for the year                                                                    (3,841)                 (992)

         Depreciation of property, plant and equipment                                               48                    152     

         Amortisation of intangibles                                                                         153                    357         

         Foreign exchange loss/(gains) non-cash items                                                3                    471

         Loan notes waived                                                                                     (25)               (1,262)

         Impairment of goodwill                                                                            3,268                    943

         Loan from participating interest written off                                                    168                        -

         Expenses settled in shares                                                                         83                        -

         Contribution from director                                                                           (61)                       -

         Operating cash flows before movements in working capital                          (204)                  (331)

         (Increase)/ Decrease in receivables                                                              57                    (62)

         (Decrease) in payables                                                                            (338)                  (126)

         Cash (consumed) by operations                                                            (485)                 (519)

2.      MAJOR NON CASH TRANSACTIONS

    On 30 June 2009, the Company reached an agreement with all holders of outstanding loan notes issued in 2007, whereby the outstanding £252,951  (together  with an additional £4,000 owing to one  of  the  loan  note holders) was settled  by  the payment of £35,131  in  cash  and  the  issue  of 110,910,200  new ordinary shares at an effective issue price of  0.2  pence  per ordinary share.

    On 30 June 2009, the directors and management of the Company agreed to convert £125,682 of  outstanding directors' and management fees and travel expenses into new  ordinary shares in the Company - at an effective issue price  of  0.2p per ordinary share. Consequentially, the Company issued a further 62,841,000 new ordinary shares in satisfaction of this outstanding debt.

Notes to the Financial Statements

for the year ended 31 December 2009

GENERAL INFORMATION

The financial information set out in this announcement does not constitute the Company's financial statements for the years ended 31 December 2009 or 2008. The financial information for 2008 is derived from the financial statements for 2008 which have been delivered to the Registrar of Companies.

The auditors have reported on the 2008 statements; their report was unqualified and did not contain a statement under section 237(2) or (3) of the Companies Act 1985. The financial statements for 2009 have been audited and will be delivered to the Registrar of Companies following the Company's Annual General Meeting on 30 June 2010. The auditors have reported on the 2009 statements; their report was unqualified and did not contain a statement under section 498 of the Companies Act 2006.

The preliminary announcement has been prepared on the basis of the accounting policies as stated in the financial statements for the year ended 31 December 2009.

Whilst the financial information included in this preliminary announcement has been computed in accordance with International Financial Reporting Standards (IFRSs), this announcement does not itself contain sufficient information to comply with IFRSs. 

A copy of the Company's annual report and accounts for 2009 are expected to be posted to shareholders on 7 June 2010 and will be available on the Company's website (www.ntog.co.uk) shortly thereafter.

1.   SEGMENTAL ANALYSIS

In prior years, segment information reported externally was analysed on the basis of one class of business, being oil and gas exploration, development and production and the sale of hydrocarbons and related activities; and in only one geographical area, the Ukraine. However, information reported to the Group's chief operating decision maker for the purposes of resource allocation and assessment of segment performance is now more specifically focussed on the different geographical location of the oil properties. The Group's reportable segments under IFRS 8 are therefore as follows:

       Ukraine: a 25 per cent. profit share in the onshore Oktyabrskoe oil field in the Ukraine.

US mid-continent properties are mainly located in the Central Kansas Uplift (CKU), which include the following:

(i)  Hoffman: a 25 per cent. working interest in five production wells  and one  salt water disposal well on the Hoffman property, located within the  Trapp field  in  Barton  County and Russell County, Kansas, and  a  50  per  cent. interest  in an additional undeveloped 160 acres nearby, also within  the  Trapp field.

(ii)  Bloom: a 50 per cent. working interest in nine production wells and two salt water disposal wells on the Bloom property, located within the Chase- Silica field in Rice County, Kansas.

(iii)     Boxberger: a 50 per cent. working interest in eleven wells, including at least two salt  water  disposal wells, on the Boxberger property,  located  in Russell County, Kansas within the Gorham field.

         (iv)     Koelsch: a 50 per cent working interest in two production wells and one salt water  disposal  well in the Koelsch property,  located  in Stafford County, Kansas.

Liberty #1: a 7 per cent working interest (WI) before payout and 5 per cent WI after payout in the Liberty #1 exploratory well in Juab County, Utah (acquired in 2010).

The chief operating decision maker's internal report is based on the location of the oil properties as disclosed below.

	US mid-continent	Ukraine	Head office	Total
Segment Results - 2009	2009	2009	2009	2009
	£	£	£	£
Revenue
Total	-	33	20	53
Inter company	-	-	(20)	(20)
	───────	───────	───────	───────
Revenue	-	33	-	33
Operating loss before depreciation, amortisation share based payment charges and restructuring costs:	-	(248)	(210)	(458)
Depreciation of tangibles	-	(48)	-	(48)
Amortisation of intangibles	-	(153)	-	(153)
	───────	───────	───────	───────
Operating loss	-	(449)	(210)	(659)
Impairment of goodwill	-	-	(3,268)	(3,268)
Loan notes waived	-	-	25	25
Other income	61	-	-	61
	───────	───────	───────	───────
Net finance expense				-
				───────
Loss before taxation				(3,841)
				───────
Segment Assets
Property, plant and equipment	-	4	-	4
Intangible assets	1,806	-	-	1,806
Other assets	-	25	1,900	1,925
	───────	───────	───────	───────
	1,806	29	1,900	3,735
	══════	══════	══════	══════

        The 2008 segment reporting information relate solely to exploration in Ukraine.

2.   EARNINGS PER SHARE

      The calculation of earnings per ordinary share is based on earnings after tax and the weighted average number of ordinary shares in issue during the year. For diluted earnings per share, the weighted average number of ordinary shares in issue is adjusted to assume conversion of all dilutive potential ordinary shares. The Group has two classes of dilutive potential ordinary shares being those share options granted to employees and suppliers where the exercise price is less than the average market price of the Group's ordinary shares during the year and in 2008 Convertible Loans.

      Details of the adjusted earnings per share are set out below:  

                                                                                                                       2009                 2008

      EPS-Loss

      Loss attributable to ordinary shareholders (£000)                                         (3,841)                 (985)    

      Weighted average number of shares                                                   827,205,057      401,890,097

      Weighted average number of shares on diluted basis                           943,415,767      433,204,314

      Basic EPS- Loss (pence)                                                                           (0.46)                (0.24)    

      Diluted EPS- Loss (pence)                                                                        (0.41)                (0.22)    

3.   GOODWILL

                                                                                                                                               £000

      COST

      At 1 January 2008 and 31 December 2008                                                                           4,211

      Additions                                                                                                                                 -

      At 31 December 2009                                                                                                         4,211

 PROVISION

At 1 January 2008                                                                                                                      -

Charge for the year                                                                                                                 943

At 31 December 2008                                                                                                             943

Charge for the year                                                                                                              3,268

      At 31 December 2009                                                                                                         4,211

      CARRYING VALUE

      At 31 December 2009                                                                                                                -

      At 31 December 2008                                                                                                         3,268

      Goodwill arose on the acquisition of Nostra Terra (Overseas) Limited in 2007.

      The Group assesses at each reporting date whether there is an indication that the goodwill may be impaired, by considering the net present value of discounted cash flows forecasts. If an indication exists an impairment review is carried out.  At the year end, the directors are of the opinion that there was an indication of impairment of the value of goodwill due to the unsuccessful exploration of the wells in Ukraine. The impairment has been provided on the basis of the value in use for the Ukraine operations.

      Below are the changes to the hydrocarbons reserve from Competent Person's Report prepared by Trimble Engineering Associates Limited, dated 2 April 2007 compared to 31 December 2009:

Oktyabrskoe Field		December 2008	December 2009	Difference
		Group's interest net AR	Group's interest net AR	Group's interest net AR
Oil		Mbbl	Mbbl	Mbbl
Oktyabrskoe #24		-	-	-
Oktyabrskoe #10		-	-	-
Oktyabrskoe #1		34	34	-
Oktyabrskoe #50		-	-	-
		─────────	─────────	─────────
		34	34	-
		─────────	─────────	─────────

      Based on the exploration performed by the Group as at 31 December 2009, only Oktyabrskoe #1 field has expectation to produce oil. The other oil fields above have not or are unlikely to be successful. Hence, the directors have provided for an impairment of the goodwill.

      On 18 February 2010, the Group via its wholly- owned  subsidiary, Nostra Terra Overseas Ltd  ("NTOL"), entered into a contract with Crimea Nadra Invest (CNI) relating to its assets in Ukraine.

      Under the terms of the contract, CNI acquired all the rights and obligations associated  with  the Joint Activity Agreement of 27 January  2001  (the  "JAA") covering  NTOL's  operations in Ukraine and in particular the Oktyabrskoe  field licence,  while NTOL retains a right to payment of 25 per cent.  of  any  net profits generated by CNI from the JAA, which runs for a period of 25 years  from 27 January 2001. The consideration for the transaction is to be settled by the deferred payment from future oil sale proceeds of 360,000 Ukraine hryvnia (approximately £29,000), which will be applied towards general working capital.

4.      OTHER INTANGIBLES

COST		License £000	Exploration and evaluation assets £000	Total £000
At 1 January 2008 and 31 December 2008		-	510	510
Additions		621	1,185	1,806
		──────	──────	──────
At 31 December 2009		621	1,695	2,316
		──────	──────	──────
PROVISION
At 1 January 2008		-	-	-
Charge for the year		-	(357)	(357)
		──────	──────	──────
At 31 December 2008		-	(357)	(357)
Charge for the year		-	(153)	(153)
		──────	──────	──────
At 31 December 2009		-	(510)	(510)
CARRYING VALUE
At 31 December 2009		621	1,185	1,806
		═════	═════	═════
At 31 December 2008		-	153	153
		═════	═════	═════

         US mid-continent acquisition

         On 15 July 2009 the Company entered into definitive agreements with Hewitt  Petroleum, Inc. ("HPI") for the purchase and exploration of three properties in Kansas, USA for an initial consideration of US$235,000 which, has been paid in cash with US$25,000 of the balance due within 60 days of execution of definitive agreements ("Execution"), US$425,000 within 90 days     of Execution and US$100,000 to be satisfied by the assignment by Mr Lofgran to  HPI of his working interest in another property known as the Perth field where  HPI is also a partner.  Under the agreements between Company and HPI, in the event that either party elects not  to  participate in the drilling, deepening, reworking or completion attempt on  an  additional well,  such  party will  be  deemed  to  have  released  and relinquished to the other participating party or parties all its  right,  title and interest  in  and to that well and the participating party  shall  own  the  relinquished interest free and clear of all obligations to the non-participating party. Following the Boxberger Field transaction noted below the Company has secured an extension on all development funding commitments to focus initial efforts on the Boxberger Field - with the     intention of delivering revenues sooner.

On 21 August 2009 the Company acquired a 50 per cent. working  interest  in ten  production   wells  and  one salt water  disposal  well  (together  the "Boxberger  Wells") located in the Boxberger field, Russell County,  Kansas, USA  (the  "Boxberger  Field"). The consideration was US$230,000 of which US$50,000  has  been paid  in  cash.  The  remaining  US$180,000  of   the acquisition  cost  is  to be paid after the initial development  costs  have been  completed  or within twelve months of the execution of the  definitive  agreement ("Execution") whichever is earlier.

The Company and HPI have agreed that initial production shall place at least two wells into production.  The costs of production are to be agreed between the Company and  HPI however, the Company is committed to paying US$350,000  towards such costs, which shall be paid  within two  weeks of Execution.  The remainder of the development costs will be paid over the    life of the development process. The Company has also agreed to assign its proceeds from production from the Boxberger Wells to pay for its obligation to pay for the development costs of the Boxberger Wells until all eleven wells have been developed.

HPI   and   the Company shall bear the revenue and operating costs for the wells on the basis of 75 per cent to the Company and 25 per cent.  to HPI  until  such  time as the  Company  has  received  revenue  from  the production  revenue of the Boxberger Wells equal to 100  per  cent of  its initial development costs.  Upon the Company receiving its initial development   costs from the production revenue, the revenue and operating costs shall be divided equally between the Company and HPI.

In   the  event  either  party elects not to participate  in  the  drilling, deepening,  reworking,  or  completion attempt on an additional well, such party will be deemed to have released and relinquished to the  other participating party  or parties all its right, title and interest  in  and to  that  well; and the participating  party shall own the  relinquished interest  free  and clear of  all  obligations under this Agreement  to  the non-participating party.

The status of payments made in respect of the acquisition of the licences in the US mid-continent oil properties is shown below:

Oil Property		Boxberger	Bloom	Hoffman
Interest		50%	50%	25%
Total Acquisition costs - (US$)		230,000	325,000	400,000
		═════	═════	═════
Total Acquisition costs - (£)		139,242	199,680	245,760
Amount paid up to 31 December 2009- (£)		103,366	199,680	78,271
		──────	──────	──────
Amount unpaid at 31 December 2009- (£)		35,876	-	167,489
		═════	═════	═════

The Group assesses at each reporting date whether there is an indication that the intangible assets may be impaired, by considering the net present value of discounted cash flows forecasts. If an indication exists an impairment review is carried out.  At the year end, the directors are of the opinion that there was an indication of impairment of the value of intangibles relating to Ukrainian assets due to the unsuccessful exploration of the wells in Ukraine. Full impairment has been provided for the Ukraine operations resulting to £nil carrying value as at 31 December 2009.

Exploration and evaluation assets are assessed for impairment when circumstances suggest that the carrying value may exceed its recoverable value.  The intangible asset include the purchase of 25% interest in the Oktyabrskoe field Licence for US$1,012,500 from Anglo Crimean Oil Company, the vendor of Nostra Terra (Overseas) Limited. The impairment in 2008 was as a result of the unsuccessful exploration on the Oktyabrskoe #10, Oktyabrskoe #24 and Oktyabrskoe #50 oil fields. While the impairment in 2009 was as a result of the unsuccessful exploration on the Oktyabrskoe #1

The review of impairment for US mid-continent oil properties is based on Competent Person's Reports on the hydrocarbons reserves prepared by W.A. Alexander Jr. Oil and Gas Consulting:

Oil Property		Boxberger	Bloom	Hoffman
Interest		50%	50%	25%
Gross:
Oil - bbl		1,659,191	2,260,800	834,000
Sales Gas - MMcf		805	1,096	405
Net:
Oil - bbl		676,762	1,019,290	162,630
Sales Gas - MMcf		328	494	79
Expected net value		$35.8m	$45.9m	$6.2m
NPV at 10%		$18.5m	$23.8	$3.3m
Date of report		20/08/09	15/10/09	05/12/09

Glossary of terms:

bbl  - barrels

MMCF - One million cubic feet

Reserves - the estimate quantities of oil and gas that geological and engineering data indicate, with reasonable certainty, to be recoverable in future years from known reservoirs under existing economic and operating conditions.

NPV - Net present value

The total assets in the US mid-continent were £1.8m as at 31 December 2009. There were no liabilities, revenue nor expenses at 31 December 2009.

         Oktyabrskoe field Licence

         On 18 February 2010, the Group assigned its interest to CNI.

         An agreement between the State Geological Enterprise Krymgeologia and the Nostra Terra (Overseas) Limited representation (the Ukranian permanent representation office of the NTOL) dated 27 January 2001, as amended pursuant to which the parties agreed jointly to explore and exploit the hydrocarbon fields included in the Tatyanovskoe Licence, Oktyabrskoe Licence and Kovylnenskaya Licence (together the "Licences") including drilling of new wells as well as completion of wells, along with production, transportation and sale by both parties. The Joint activity arrangement is managed by a management committee, which approves the work programme and budgets. Fulfilment of the programme is to be subcontracted to Krymgeologia and the financing provided by the representation.

         The parties have the right to obtain their share of the production either in natural or in monetary form. Earnings derived from the hydrocarbons extracted under the license(s), after payment of taxes and all other fees, are to be used sixty per cent to recover the capital expenses of the Representative and Krymgeologia in proportion to their investment; and the remaining forty per cent to be distributed before recovery of capital expenses as seventy per cent. to the Representative and thirty per cent to Krymgeologia and after recovery sixty per cent to the Representative and forty per cent to Krymgeologia.

         The JAA is for the term of 25 years from the date of execution on 27 January 2001.

         The Group has a 60% interest in a Joint Activity Agreement ("JAA") dated 27 January 2001 to explore for and pilot production develop the hydrocarbons of the Oktyabrskoe License, Kovylnenskaya License and Tatyanovskoe License. The following amounts represent the Group's 60% share of the assets and liabilities, and sales and results of JAA. They are included in the balance sheet and income statement.

	2009 £000	2008 £000
Assets
Non-current assets	-	47
Current assets	18	128
	─────────	─────────
	18	175
Liabilities
Current liabilities	(280)	(1)
	─────────	─────────
Net assets	(262)	174
	═══════	═══════
Income	32	88
Expenses	(96)	(260)
	─────────	─────────
Loss after tax	(64)	(172)
	═══════	═══════

There are no commitments, contingent liabilities relating to the Group's interest in JAA.

5.      RESERVES

         Group                                         Translation       Retained              Share       
                                                                  reserve           losses          premium                 Total

                                                                      £'000              £000                 £000                  £000

         At 1 January 2008                                         -                (492)               3,506                3,014

         Shares issued in the year                              -                     -                   421                   421

         Translation reserve                                      12                     -                      -                     12

         Loss for the year                                           -                (985)                     -                  (985)

         At 31 December 2008                                 12            (1,477)                3,927                2,462

         Shares issued in the year                              -                     -                3,162                3,162

         Shares issued costs                                     -                     -                  (247)                 (247)

         Loss for the year                                           -             (3,841)                      -               (3,841)

         At 31 December 2009                                 12            (5,318)                6,842               1,536

6.      FINANCIAL COMMITMENTS

         Operating lease commitments

         There are no significant operating lease obligations at the year end.

         Capital commitments

The capital expenditure contracted for each oil property at the reporting period date but not yet incurred is as follows:

			2009	2008
			£	£
Oil Properties Name
Koelsch			145,045	-
Hoffman			211,916	-
Bloom			638,764	-
Boxberger			-	-
			────────	────────
			995,725	-
			═══════	═══════

7.       EVENTS AFTER THE REPORTING PERIOD

On 18 February 2010, the company's wholly-owned  subsidiary,  Nostra  Terra Overseas Ltd  ("NTOL"),  entered  into  a contract with Crimea Nadra Invest ("CNI") relating to its assets in Ukraine. Under the terms of the contract, CNI acquired all the rights and obligations associated  with  the Joint Activity Agreement of 27 January  2001  (the  "JAA") covering  NTOL's  operations in Ukraine and in particular the Oktyabrskoe  field licence,  while NTOL retains a right to payment of 25 per cent.  of  any  net profits generated by CNI from the JAA, which runs for a period of 25 years  from 27  January 2001. The consideration for the transaction is to be settled by the deferred payment from future oil sale proceeds  of  360,000  Ukraine  hryvnia (approximately £29,000), which will be applied towards general working capital.

On 22 February 2010, the  Company's Remuneration  Committee  determined that the conditions  attaching  to  the warrants  granted  to  Mr Lofgran had been satisfied in respect  of  62,500,000 warrants.  These are accordingly now capable of exercise at a price of 0.1p  per ordinary share.  Warrants to subscribe for a further 217,842,506 ordinary shares at  a  price  of 0.1p per share have not yet vested.  Warrants once  vested  are capable  of exercise at any time, subject to any restrictions contained  in  the AIM  Rules  for  Companies  and the Company's Code  on  Dealings  in  Securities (amongst  others), until 30 June 2012, subject to extension if  the  Company  is then in a close period as defined in the AIM Rules.

On 31 March 2010, the company acquired a 7% working  interest (WI) before payout and 5% WI after payout in the Liberty #1 exploratory well in Juab County, Utah, for an initial consideration of US$125,000, with an estimated additional contribution of US$87,500 should the Liberty #1 be deemed capable  of producing  commercial quantities of hydrocarbons. The Company has the right to participate in the wider prospect area.

 

END

 

 

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