Final Results
Sterling Energy PLC
11 May 2005
11 MAY 2005
STERLING ENERGY PLC
2004 PRELIMINARY RESULTS
ANOTHER YEAR OF SIGNIFICANT ACHIEVEMENT
Sterling Energy, the AIM listed (symbol: SEY) independent oil & gas exploration
and production company, today announces its Preliminary Results for the year
ended 31 December 2004 together with an update on progress since the year end
and the outlook.
2004 Highlights:
• Revenue more than doubled to £11.5 million
• Pre-tax profit up 130% to a record £4.2 million
• Operating cash flow increased 144% to £8.1 million
• Production doubled with year-end rate of 10.2 mmcfge/d
• Successful placing of shares at 17p per share raising £97 million
• Funds principally used to acquire c.8% economic interest in the 75,000 bpd
(gross) Chinguetti development, offshore Mauritania
• Net proven and probable reserves up 450% to over 21.6 million barrels
equivalent
• Life of US interests extended to 15 years
• New exploration acreage acquired in Madagascar
2005 Progress and Outlook:
• Chinguetti development on track for first production in Q1 2006
• Agreement reached to sell non-core Philippines interest to new company
intending to float on AIM in 2005
• Virtually carried through an 8-10 well programme in Africa
• Farmout completed in AGC, retaining 30% interest in 800-1,000 million bbl
of in place heavy oil discoveries
• Further farmout activity expected
• New licence, exploration and production interests being sought ahead of
anticipated significant increase in cash flow when Chinguetti enters
production
• US drilling and workovers programme aims to double production there by
year-end
Harry Wilson, Chief Executive of Sterling Energy Plc, said:
'This has been another year of significant achievement for Sterling. We have
moved strongly forward on both an operational and a strategic front. The next
few years offer many further exciting opportunities including the anticipated
significant increase in cash flow from our Mauritanian interests and the
prospects from a substantially increased exploration programme. These will
ensure that Sterling is well placed to continue to exploit the growing
opportunities in our industry.'
Enquiries
Sterling Energy (01582 462 121) Web site: www.sterlingenergyplc.com
Harry Wilson
Graeme Thomson
Citigate Dewe Rogerson (020 7638 9571)
Media: Martin Jackson / Rachel Lankester
Analyst: Nina Soon
Evolution Securities (020 7071 4300)
Rob Collins / Henry Turcan
STERLING ENERGY PLC
2004 PRELIMINARY RESULTS
Joint Chairman and Chief Executive Statement
We are delighted to report another year of significant achievement for your
company which has again exceeded all of our expectations in terms of growth,
consolidation, and future prospectivity.
Revenues doubled to £11.5 million and pre-tax profit increased 130% to £4.2
million, whilst proven and probable reserves rose by 450% to 21.6 million boe.
One of the highlights was the successful acquisition of an approximate 8%
economic interest in the Chinguetti field offshore Mauritania which lays the
foundation for a quantum leap in production and cash flow in the first quarter
of 2006. This firmly places your company in an enviable position to exploit the
growing opportunities within our industry.
With an active exploration programme of up to ten wells in Africa, largely
funded by third parties and up to six exploration, appraisal and development
wells in the US, we are very well placed to make further significant progress in
the year ahead.
Financial
The year 2004 has been marked by the achievement of the following significant
milestones:
• A doubling of production and gross profit from US operations following the
$39.5 million Mustang Island acquisition, bringing operatorship of five
fields and related pipeline systems.
• Cash flow from operations increased by 144% to £8.1 million.
• Extension of average US reserves life from approximately 11 years to 15
years.
• Successful £97 million share issue to fund the Chinguetti participation in
Mauritania.
• Inclusion of the Company in the new 'AIM 50' index with a market
capitalisation of approximately £240 million.
• A balancing of reserves, now split almost equally between Africa and the US,
as well as between oil and gas.
Development
Through its well programme in the US the company intends to increase its
production to 20 mmcfge/d by the end of 2005.
The Chinguetti development is presently on course to commence production during
the first quarter of 2006, when it is forecast to markedly increase Sterling's
production.
Exploration
Your company's exploration activity continues to grow with an exciting programme
planned for 2005 and beyond, including:
Africa
• Further evaluation work on the Tiof and Tevet discoveries in
Mauritania which we anticipate will lead to both being declared commercial
during 2005/6.
• The recently announced farm-down to 30% of our interest in the
Dome Flore licence in AGC. Subject to the outcome of detailed technical
studies, this may lead to the company being carried for an exploration well. We
will also participate at no cost in the review of the possible development of
the 800-1,000 million barrels of heavy oil in place within the licence and of
its further exploration potential.
• The Ambilobe and Ampasindava licences in Madagascar, acquired
during the year, are already attracting significant industry attention.
• The completion of the farm out of our two blocks in Gabon which
provides the company with an 18% carry out of a 20.57% working interest in a
minimum of two and possibly four wells.
• The farm-out of our Ntem licence in Cameroon has received
significant industry interest. We have, however, delayed the process until a
border demarcation issue with neighbouring Equatorial Guinea is resolved.
Gulf of Mexico, USA
• We expect to drill up to six exploration and appraisal wells
during 2005 and intend to double production by the year-end.
• Sterling qualified to become an operator in 2004 and took over
as operator on a majority of its US licences.
• A bank loan of $27.5 million has been extended until mid-2007.
Other Areas
• The conditional disposal of the Philippines licence GSEC101 for
23% of a new company intending to list on AIM later this year will allow
Sterling to focus its resources on its core activities, while retaining upside
potential.
Human Resources
The year has seen significant changes in the structure of your company. It now
has offices on four continents, Europe, America, Africa and Australasia. On
behalf of shareholders we thank all of the staff and directors for their
unstinting efforts in a year of huge change. The year saw the departure of a
founder director Nigel Quinton who we would like to thank for his contribution
over the years and the appointment of two new directors Andrew Grosse and Paul
Griggs. We wish them well as they face new challenges.
Outlook
Your company looks forward to exciting challenges and opportunities over the
next couple of years. The anticipated significant increase in future cash flow
from our Mauritanian interests, coupled with our skilled and motivated staff
and a substantially increased exploration programme, will ensure that Sterling
is well placed to continue to exploit the growing opportunities in our industry.
Richard O'Toole Harry Wilson
Chairman Chief Executive
10 May 2005
OPERATIONS REPORT
GULF OF MEXICO: MORE THAN DOUBLED RESERVES AND PRODUCTION
With production and reserves more than doubled in the year, Sterling has laid
the foundation for continued growth in the US. The key target for 2005 is to
again double daily production by year-end.
2004 represented a period of considerable growth for the Houston office and its
portfolio. From the two people at the end of 2003, a highly capable staff of ten
experienced industry professionals was assembled to handle commercial, legal,
engineering, geoscience, and accounting functions for the Gulf of Mexico. The
staff operates at the highest skill level and effectiveness, drawing management
and other support from the Group and when needed, from top industry consultants.
It is this skill base that has permitted Sterling to become operator on most of
its production.
The major boost to production and reserves came in February 2004, when Sterling
closed the purchase of the Mustang Island (Osprey) properties, pipelines and
facilities in the state waters of Texas. Sterling became an operator in this
area for the first time, with its many advantages. This $39.5 million
acquisition more than doubled the US proven and probable ('2P') reserve base.
Based on an independent consultants' report these 2P reserves increased from
23.3 bcfge at the end of 2003 to more than 59.6 bcfge at the close of 2004.
Whilst about 35 bcfge of this increase was due to the Mustang Island deal, a
programme of works to enhance and optimise production also added 4.0 bcfge to
the 2P reserves.
Production virtually doubled in 2004, rising to 8.5 mmcfge/d in the first half
and increased again to 10.2 mmcfge/d in the second half of the year. In the
second half of 2003 Sterling's average daily production was 5.3 mmcfge/d, with
4.2 mmcfge/d in the first half. Total production was 3.4 bcfge in 2004. Based on
end 2004 production levels and 2P reserves, Sterling's US producing interests
have an average life of 15 years, up nearly 4 years from 2003.
Portfolio development in 2005
With this production base and with the cost of most production deals having
increased markedly, Sterling is currently focused on realising value from its
portfolio of in-house generated appraisal and development prospects. It is
scheduled to participate in 3-6 new wells and workovers during 2005 on its
fields, whilst also continuing to seek new drilling opportunities and,
selectively, production purchases.
As a result of the Mustang Island purchase, the necessary assembly of its staff
and also due to becoming operator on most of its other fields, Sterling's
drilling programme was largely deferred into 2005. This enabled a great deal of
review and confirmation to be carried out during the second half of 2004, with a
focused re-mapping effort being implemented, assisted by 3-D purchases. This
helped to rank the workover and drilling opportunities to be pursued in 2005.
With the growth of the Sterling group and its US success in 2004, the Houston
office is now able to consider larger drilling opportunities than before.
The two active areas for Sterling Energy in 2005 are Mustang Island and
Matagorda Island Areas of Texas state waters. These are areas in which Sterling
has excellent records, strong operations, engineering and geosciences expertise.
The targeted reservoirs in these areas are lower Miocene and Oligocene in age.
These are in the most prolific trends along the Texas gulf coast with typical
fields ranging from 5 to 200+ bcfge.
These fields have long 10 to 20 year well lives which are much longer then the
majority of the younger Gulf of Mexico producers. Contribution from these
reservoirs should assist in balancing Sterling's production base with steady
long life reserves.
Sterling has identified extensive undeveloped reserve potential within its
existing producing assets, especially in both Mustang and Matagorda Islands.
This drilling programme is underway. The Mustang Island 749 GU No. 2 (Sterling:
100% working interest) is expected to reach target in mid-May. This well targets
5+ bcfge gross, proven undeveloped reserves in the Oligocene, Cib Haz sands at
an approximate depth of 11,500', with upside potential of 15 bcfe gross
reserves.
Sterling will shortly begin a work-over operation on the Eugene Island 268 No. 1
well. This re-completion is targeting 3+ bcfge (gross) of proven behind pipe
reserves in two sands at an approximate depth of 4,800'. Sterling has a 60% WI
in this well.
2004 & first quarter 2005 operational highlights
Sterling ended 2004 with exciting results in both the Mustang Island and
Matagorda Areas. Following Sterling becoming operator of Sherman field in August
2004, Sterling made facility repairs which increased the net daily production by
a third to 0.5 mmcfge/d. At the same time Sterling upgraded certain field
facilities as part of its ongoing review of its operated fields aimed at
ensuring compliance with best practice and with safety as a top priority.
In December 2004, work-over operations were completed on the Mustang Island 904
#5 well which initially doubled the net daily gas production to1.940 mmcfge/d.
This has helped to increase average net production in the first quarter of 2005
to 10.5 mmcfge/d. Sterling expects there will be some normal maintenance work on
some of the pipelines taking its product to market over the coming months, with
consequent production interruptions; accordingly, this time will also be used to
perform routine work on the platforms and facilities.
Field operations
In the offshore US Sterling has an interest in 12 fields, 8 of which are
operated. Nine of these properties are in Texas State Waters and three are in
Federal Waters. The operated fields account for approximately 64% of current net
production.
Early in 2004 Sterling became an operator in the Texas, State Waters and in the
second half became operator in the Federal Waters of the Gulf of Mexico.
Currently, Sterling operates:
• 21 Offshore Structures
• Over 68 miles of pipeline
• 5 Compressor Stations
• 2 Onshore Bases With 7,500 Bbls of Oil Storage Capacity
As an operator in the Gulf of Mexico it prides itself in operating at the
highest standards, with an emphasis on:
• Optimising Production Performance
• Minimising Cost
• Safety and Compliance
• Protection of the Environment
Having the ability to operate in both State and Federal Waters exposes Sterling
to a wider array of business opportunities and has assisted in defining Sterling
Energy, Inc. as a highly regarded partner and operator.
Pipelines and facilities
Sterling now has ownership in over 68 miles of pipeline. The most recent
addition was 43 miles of the Mustang Island gathering systems and in two onshore
facilities located on Mustang Island near the city of Corpus Christi. This
gathering system and facilities had considerable unused capacity to transport
and process at the time of acquisition.
Recent third party drilling success in Mustang and Matagorda Islands has
increased the demand for usage of Sterling's gathering system and facilities.
This transportation and processing of additional third party hydrocarbons is
expected to add further to the monthly cash flow, especially since the addition
of additional compression in the North system in November 2004. This has dropped
the line pressure and will allow Sterling and other third party users to produce
at lower pressures and increase per well recoveries. Sterling expects to
markedly increase throughput in these lines in the second half.
AFRICAN OPERATIONS TRANSFORMED
Following the acquisition in late 2003 of Fusion, 2004 was a transforming period
for Sterling in Africa and this has continued into 2005. In particular,
Sterling was able to apply knowledge from Fusion's Mauritanian assets to acquire
an economic interest in the Chinguetti development. This field, due onstream in
early 2006, is expected to bring Sterling its first African production,
transform the company's cashflow and enable it to continue to build its asset
base in this core area.
Meanwhile, considerable time has been spent tidying up and further developing
the African portfolio. Sterling expects to participate in some 8-10 exploration
wells up to mid-2006, with most of its costs met by other companies through
farmouts. The company has also taken on new exploration interests in Madagascar
and continues to search for new opportunities in the region. In line with its
policy to drop areas which do not offer sufficient near/medium term returns,
Sterling also relinquished its licence interest in Cheval Marin, AGC and in the
technical cooperation agreement in SADR during 2004. Activity on the Ntem
licence in Cameroon has been suspended pending resolution of a territorial issue
with neighbouring Equatorial Guinea.
Mauritania: production due in early 2006 and new discoveries made
Chinguetti field development on track for production in early 2006
In October 2004, Sterling announced a ground-breaking deal to fund the
Mauritanian government's exercising of its back-in rights over 12% of the
Chinguetti field. This is the first field to be developed in this fast-emerging
and highly prospective country. Sterling's innovative approach has given it an
approximately 8% economic interest in the field. The company will further
benefit from Chinguetti, as well as other developments in the area, through the
previously held sliding scale royalty arrangement with Premier.
Sterling paid a signature bonus of $15.5 million to the government and made a
$130 million letter of credit available to Groupe Projet Chinguetti (GPC), the
newly formed state oil company, to refund its share of past costs and pay future
development costs up to commencement of production. The financing agreement was
a key factor in enabling the government to exercise its back-in rights. Sterling
will also help to train personnel and give advice as part of the development of
GPC and are pleased to be recognised as a strategic partner of the government.
Under the agreement, Sterling will be entitled to recover its costs from GPC's
share of 'cost oil' from the field and will receive a significant proportion of
GPC's share of 'profit oil', according to cumulative production thresholds. If
additional discoveries are tied-back into the field facilities, Sterling will
also receive income to take account of the benefits received.
The Chinguetti field is on target for first oil in the first quarter of 2006 and
is planned to rapidly reach peak field production levels of 75,000 bpd.
Development drilling commenced in October 2004 and is now nearly complete. Work
on the subsea facilities and FPSO is now estimated to be some 66% complete and
within Sterling's cost estimate at the time of the November 2004 placing.
Exploration yields new discoveries and more activity planned in 2005
Drilling in Mauritania PSC's A and B commenced in September 2004 with two
dedicated deepwater vessels, Stena Tay and Western Navigator. Activity has
included exploration, appraisal and Chinguetti development wells and is set to
continue from at least one rig through late 2005 with 5-6 exploration wells and
the final development wells on Chinguetti.
Of the three new exploration wells drilled to test the established Miocene
reservoir, Merou and Capitaine were dry but Tevet, located between Chinguetti
and Banda, was a new discovery. Sterling estimates Tevet could contain 60-75
million bbls and expects it to be tied-back ultimately into Chinguetti.
Tiof Appraisal Drilling indicates largest field in Mauritania to date
Six wells have now been drilled on Tiof 25km north of Chinguetti in PSC B. Key
amongst these was the Tiof-6 well production test for which the results were
very encouraging. Options for developing this complex field are being
considered. Provisional recoverable reserve estimates of 300-400 million barrels
are being suggested which would make it the largest Mauritanian discovery so
far. Sterling pays no costs towards the exploration, appraisal or development of
Tiof but will benefit through the royalty arrangement and, on declaration of
commerciality, will also receive a bonus of $2 million.
AGC: Dome Flore farmed-out in 2005
Sterling is currently operator of two licences in AGC, the joint zone between
Senegal and Guinea-Bissau. In early 2005, the company farmed out 55% of its
interest in Dome Flore (retaining 30%) and also secured an extension of the
Croix de Sud licence (85% interest) where discussions continue with several
companies regarding potential farm-out. Sterling's 10% interest in Cheval Marin
was relinquished in January 2005 as it was not considered to have adequate
commercial potential.
Dome Flore activity
The Dome Flore permit lies in the shallow waters of the AGC. The block contains
two significant heavy oil discoveries from the late sixties and early seventies
which Sterling estimates at around 800-1,000 million barrels in place. High
resolution 3D seismic over the Dome Flore and Dome Gea salt diapirs, delivered
in June 2004, is enabling this substantial heavy oil resource to be well
defined.
In March 2005, Sterling announced the farm-out of 55% of its interest in Dome
Flore to Markmore, a Malaysian industrial company with interests in, amongst
others, a bitumen refinery being built in Malaysia and a major housing project
in Senegal. Markmore will become operator and will fund a heavy oil feasibility
study, a study of exploration potential, the cost of a possible exploration well
with a bonus on success, and a small signature bonus. Sterling retains a 30%
interest in the licence.
A one year study is planned for the heavy oil, with particular emphasis on steam
assisted gravity drainage to facilitate the production of the heavy oil. In
Canadian tar sands such technology has achieved recovery rates above 40% and
with current oil prices this may have significant commercial potential.
Initial interpretation of the 3D seismic is also confirming the exploration
potential for light oil reservoirs within the Cretaceous section. With this
background, a new exploration well could be drilled in 2006/7, fulfilling the
requirements for licence renewal due in January 2006.
Croix Du Sud extended
The AGC approved a one year extension to the Croix du Sud licence to January
2006 to allow Sterling to properly complete the evaluation of an extensive
reprocessing programme and seismic interpretation project and to continue its
efforts to bring in new parties with a view to drilling.
Cameroon work delayed
During 2004 the entire 3D seismic survey, covering some two thirds of the
deepwater Ntem concession area, was reprocessed. A dramatic improvement in data
quality has resulted, facilitating the generation of a high-graded prospect
inventory. Initial results are encouraging. Many of the stratigraphic features
which form the basis of success in other regional successes are observed in
Ntem.
Sterling had planned to farm-out this licence, and had attracted a good level of
industry interest, but the award in late 2004 by Equatorial Guinea of a
partially overlapping licence to the South of Ntem has delayed this plan.
Discussions are presently being held with the government of Cameroon with a view
to resolving this territorial issue. Until that time the proposed drilling
activity is suspended.
Gabon farmouts and exploration well due in mid-2005
Sterling currently operates two shallow water permits, Iris Marin and Themis
Marin, in southern Gabon. Following completion of successful farmouts of its
interests in both permits, Sterling holds a 20.57% working interest on each
licence but will pay only 2.57% of two wells with the remaining costs being
carried by Premier.
2004 marked the completion of two 3D seismic processing projects, most notably
on Iris. Pre-stack depth migration has helped to define sub-salt depth closures
at the prolific target Gamba reservoir level, yielding an inventory with several
high-graded prospects. Strong new partners have joined the licence, the location
for the first well, Iboga-1, has been chosen and a rig commissioned for drilling
around July 2005.
In December 2004, Sterling participated in a joint 3D seismic survey with
adjacent operators Forest Oil & Vaalco Energy covering three contiguous permit
areas including the southern part of Themis Marin and the adjacent Etame area
oil discoveries. The Themis survey covers some 240 km2 and will undergo similar
intensive processing. Future drilling activity in Themis Marin will be based on
the results of this survey.
Guinea-Bissau option exercised
In April 2004 the Sinapa-2 well established a potential oil column in excess of
500m on the flank of a salt diapir in a play type similar to those being
explored in Dome Flore. Reservoir quality and structural issues mean
commerciality of the find remains uncertain, but it has established the presence
of a petroleum system in the shallow waters. Sterling exercised its option to
acquire 5%, which requires only future costs be paid.
Sterling also retains a similar 5% option to participate in the adjacent
Esperanca permit, to be exercised after the first well in that permit, expected
in the next year.
Madagascar licence awarded
Sterling signed PSC's for the Ambilobe and Ampasindava Blocks covering an area
of 34,000 sq km offshore northern Madagascar on the 15th July 2004 and both
contracts were officially awarded on the 29th November 2004 following
ratification by the President of Madagascar. These blocks are an exciting
addition to Sterling's exploration portfolio in a country which following our
acquisition of the licenses has also seen the recent entry of ExxonMobil and
Norsk Hydro.
Madagascar has been known to possess excellent oil source rocks since the early
20th Century when two giant exhumed oilfields were found onshore. Subsequent
drilling onshore has also found numerous oil shows, making Madagascar a uniquely
oil-prone province in East Africa. Until recently the majority of exploration
has been focused onshore, but due to unfavourable geology it has failed to yield
commercial discoveries. Today, exploration has refocused offshore where
ExxonMobil, Norsk Hydro and Vanco are all actively exploring.
The first exploration phase for the Ambilobe and Ampasindava Blocks is
geological and geophysical studies which will be used to high-grade areas for
seismic acquisition which is planned for 2006.
In a world with very few unexplored exploration provinces remaining, the
Ambilobe and Ampasindava licenses offer an increasing rare opportunity to
explore undrilled offshore basins with significant petroleum potential.
Other areas
In May 2005, Sterling conditionally disposed of its interest in GSEC 101
offshore Philippines to a newly-formed company, Forum Energy plc in return for a
23% stake. Forum has a range of energy interests in that country, with small oil
producing fields and funding of £3.3 million. Forum intends to carry out a 3-D
seismic programme on GSEC101 in June and to list on AIM in 2005. At the price
of the fund raised to date, Sterling's interest has an implied value of £4
million. Other residual interests in Holland, onshore UK and North America are
progressively being disposed of.
New Ventures
Sterling has an active new ventures programme searching for both production and
exploration opportunities to add to our portfolio. For exploration, its primary
focus area is Africa where it sees the potential to add high impact projects,
whereas for production the focus in on both of its core areas, Africa and in the
Gulf of Mexico. An increasing level of resources is being committed to these new
ventures.
Proven and Probable Reserves
a. Volumes: (1) Oil Gas Attributable
reserves
('000 barrels) (million cubic ft) ('000 equivalent)
At 1st January 2004 99 22,752 3,891
Asset Acquisitions (2) 12,428 27,110 16,946
Upwards/(Downwards) revision from previous (3) 800 3,380 1,363
Production (96) (2,849) (571)
At 31st December 2004 13,231 50,393 21,629
b. Location of reserves:
The geographical location of the end 2004 reserves were:
North America 1,531 50, 393 9,929
West Africa 11,700 - 11,700
c. Categorisation of proven and probable reserves:
1) At the end of the year:
Proven reserves 61% 60% 56%
Probable reserves 39% 40% 44%
2) At the start of the year
Proven reserves 70% 55% 55%
Probable reserves 30% 45% 45%
NOTES
1. The proven and probable reserves movements in 2004 are based on:
a. US: evaluation reports by independent petroleum engineers as of 1st July 2004
for the offshore assets, with certain downward or upward adjustments by the
directors at the year-end where, in their opinion, subsequent performance of
assets or further evaluation through drilling or workovers or through the impact
of changes in prices, requires adjustments. The net reserves for the onshore
North American assets have been estimated by directors and account for less than
0.01% of year-end 2004 reserves.
b. West Africa: the reserves are based on an independent consultant's evaluation
on the Chinguetti field contained in the circular to shareholders dated 26
October 2004, updated by the directors to reflect their estimate of Sterling's
share of reserves based on its expected share of the economic entitlement from
the field arising from its overriding royalty interest and from its funding to
GPC, rather than by direct ownership of the interest in the field.
2. The acquisitions during the year were principally of:
a. a variety of working interests (up to 100%) in the Mustang Island properties
offshore US in February 2004 and;
b. an economic interest in the Chinguetti field through the entering into of a
funding agreement with GPC, a company owned by the government of Mauritania, as
set out in a circular to shareholders dated 26 October 2004.
3. The oil revisions principally relate to the recognition of reserves
arising from the approval of a development plan for the Chinguetti oil field
offshore Mauritania attributable to Sterling through its royalty interest. The
gas revisions principally relate to working-overs, installation of additional
compression and other facilities, reprocessing of seismic data, well control and
production history. The major revisions relate to the Mustang Island properties.
4. Sterling has not booked reserves in West Africa relating to other
discoveries made before or during the year such as Tiof, Tevet and Banda, on the
basis that no firm development plan has as yet been approved by the partners.
5. Definitions: Proven reserves have a 90% level of confidence that the
stated quantities will be equalled or exceeded. Probable reserves have a 50%
level of confidence that the stated quantity will be equalled or exceeded. Oil
includes condensates.
FINANCIAL REPORT AND OUTLOOK
Sterling had a record year in 2004.
Net profit increased by 87% to £2.97 million and its proven and probable reserve
base increased by more than 450% to over 21 million boe. Production increased
by 97% to 9.3 mmcfge/d and the foundations for future exploration and
development in the USA and Africa have now been established. A successful £97
million placing in November 2004 enabled the Group to fund an approximately 8%
economic interest in the offshore Chinguetti field development in Mauritania,
expected onstream in early 2006 with production of up to 75,000 bpd. This will
greatly add to attributable production and give a major increase in cash flow.
Turnover more than doubled to £11.5 million in 2004. Average realised prices
were approximately $5.68/mmcfge (2003:$5.22/mmcfge), although the fall in the
sterling exchange rate from $1.79:£ at the start of 2004 to $1.92:£ by year-end,
has partly masked the actual improvement in underlying performance when measured
in US dollars.
Gross profit increased by 112% to £6.8 million from £3.19 million in 2003.
Of the totals, the average production for the first half was 8.5 mmcfge/d, with
average sales price of $5.76/mmcfge (2003: $5.55/mmcfge). Second half 2004
production averaged 10.2 mmcfge/d with an average price of $5.62/mcfge. About
83% of production in the year was gas.
Unit costs of sales rose 85% to $2.51/mmcfged. Of these, direct production costs
were equivalent to $0.99/mcfge (2003:$0.95/mcfge) and a depletion charge of
$1.52/mmcfge (2003:$1.15/mcfge). The change over the prior year levels was
mainly due to the impact of the $39.5 million Osprey asset purchase in February,
which accounted for 57% of 2004 year-end US proven and probable reserves and 59%
of gross profit.
Sterling's end 2004 US proven and probable reserve base of 59.6bcfge was up 255%
in the year. Our share of US reserves in the proven category jumped from 55% to
61% in the year, whilst the US reserve life based on year-end production rates
has risen to 15.0 years at the end of the year from 11.4 years at the start of
2004. Sterling's implied US finding and acquisition costs for the year was $1.3/
mcfe.
Our Mauritanian interests accounted for 54% of the year-end proven and probable
reserves, being 11.7 mmbbls of oil reserves: first production is expected in
early 2006. Including the attributable share of expected development costs the
estimated purchase and development cost of these reserves is approximately $8/
bbl.
As forecast, with the impact of the planned Houston office expansion to become
operator of the majority of its production interests, the costs of the Perth
office acquired with Fusion in December 2003 and the UK's expanded new ventures
team and Group support staff, our charged overheads increased to approximately
£2.05 million. Approximately 15% of these were reorganisation and termination
costs.
There was again an increase in the operating profit of 177% to £4.73 million in
2004. With net financial income, mainly from interest on cash deposits, profit
before tax was up 130% at £4.16 million (2003:£1.81 million).
The taxation charge of £1.2 million arose in the USA and is, as explained
previously, much higher than in 2003 as the majority of the available tax losses
were utilised in that year. Because of the use of remaining US tax losses and of
accelerated depletion for tax purposes for certain US drilling costs, Sterling
has provided a deferred tax charge of £0.97 million reflecting the expectation
that in the future certain of these timing differences are expected to reverse.
Fully diluted earnings per share, which reflects the potentially dilutive impact
of options, was 0.33p per share (2003: 0.33p). This is despite the impact of the
shares issued for the Fusion takeover in late 2003 which was exploration focused
and the £97million placing in November 2004, the shares for which affected the
computation since their issue.
Operating Cash Flow up 144%
Operating cash flow up by 144%
Cash inflows:
The 2004 cash inflow from operations rose 144% to £8.1 million compared with
£3.3 million in 2003. A total of £97 million was raised from the issues of
shares for cash with the November 2004 placing at 17p per share (£92.6 million
net of direct expenses).
Cash outflows:
A total of £11.6 million was spent in 2004 in connection with the investment
associated with the Chinguetti field in Mauritania described earlier. This
included a signature bonus to the Mauritanian Government of $15.5 million. At
the end of the year no draw-downs had been made under the cash-backed $130
million letter of credit provided by Sterling to the GPC, nor had any drawings
been made as of the date hereof. Funds are expected to be progressively
drawn-down to meet the future and past costs associated with the Government's
direct 12% interest in this field, in which Sterling has an approximate economic
interest currently estimated at 8%. With first oil production expected in early
2006 building to 75,000 bpd (gross), 2005 will see a major outflow of funds to
meet the GPC's share of costs. During the first half of 2006 this is expected to
see a sharp turnaround into a strong cash inflow.
The $39.5 million Osprey purchase was completed in late February 2004. The funds
for this deal came from a $25.5 million bank funding from Hibernia National
Bank, with the whole of the $27.5 million then outstanding under the facility
being repayable in June 2006. The remainder of the consideration was met from
cash resources, after deducting a $2.5 million closing adjustment due to cash
generated from these assets between effective date and completion.
The loan from Hibernia includes a number of financial covenants which, amongst
other matters, limits the level of funds that can be repatriated from the US to
the rest of the Group. Following a recent review the loan has been extended by a
year and does not require any repayments before 30 June 2007, save on a
voluntary basis or as a result of a standard twice-yearly borrowing base
re-determination, the next of which is currently in progress. The amount of the
funds that can be repatriated has also increased.. The current interest rate
payable is approximately 5.75%, with payments made quarterly.
After other cash capital expenditures of £4.5 million, of which £1.0 million
related to the drilling, appraisal and development of reserves in the Gulf of
Mexico and £3.5 million to other activities, mainly in Africa, cash resources
increased to an unrestricted £20.3 million at the end of 2004, with a further
$130 million held as collateral for the letter of credit set out above.
Strengthened Balance Sheet
Net current assets rose to £88.8 million at the end of 2004 from £10.4 million
at the end of 2003. At the date of this report the Group's unrestricted cash
balances were equivalent to over £10 million and there was the full $130 million
remaining undrawn under the Chinguetti letter of credit .
Sterling's equity shareholders' funds increased to £148.4 million at the end of
2004 (2003: £56.6 million). This principally reflected the approximately £97
million placing. The issued share capital had risen by the end of 2004 to
approximately 1,393 million shares, as set out in the Directors' Report. The
adverse movement in exchange rates produced an unrealised translation loss of
£6.4 million when dollar assets were converted into sterling, being the
reporting currency, at the end of the year.
The balance sheet at the end of 2003 included an £11.6 million minority
interest, being the fair value of the approximately 30% interest held by Premier
in the two subsidiaries of Fusion which hold the working interests in the
Mauritania contract areas. During 2004, £10.6 million of this was released from
minority interest and from intangible fixed assets on completion of the deal
relating to the sale of the Group's remaining interest in one of these
subsidiaries to Premier. This disposal, in substance, exchanged Fusion's working
interests in PSC B for a royalty interest which bears no further drilling or
development costs, together with further 'success' payments to Sterling related
to the size and number of further discoveries. The directors currently expect
the remaining conditional deal will be substantially completed in 2005.
Financial Outlook
The financial outlook remains strong.
With an increased level of drilling and exploration activity expected in the USA
in 2005, and a target to double reserves and production by the year-end,
Sterling expects sustained further improvement in its US financial performance.
If the programme of development drilling is successful this could further
increase our commercial reserves and could assist in further financial
flexibility in these operations. As we did in 2004, for 2005 we have used the
futures markets to 'sell' approximately $10 million of gas at prices averaging
$6.20/mcfge. We intend to continue to use such contracts to cover part of our
forecast production as part of our risk management.
The development of the Chinguetti field offshore in Mauritania is expected to
continue the growth of the Group once first production arises, expected in early
2006. This has, as envisaged, required cash utilisation, not least to 'lock-in'
prices for approximately 2.1 mmbbls covering 2006/07. In essence, Sterling has a
floor price of approximately $38/bbl and will receive actual prices up to
approximately $46/bbl. From then until approximately $50/bbl that part of the
selling price is forfeit but the excess over $50/bbl is all retained by
Sterling. Development and any repayment of 'past' costs until production will
be principally be met through draws on the $130 million letter of credit. The
directors expect the development of the Tiof field and possibly Tevet, offshore
Mauritania, will be announced in the year from which it is entitled to a royalty
income stream and bonus payments of $2 million where each fields reserves exceed
50 million barrels. Sterling makes no payment to the exploration or development
costs for these or any other fields that may be discovered here.
The planned increased exposure to exploration in West and East Africa, not least
continued exploration and appraisal activity in Mauritania, is largely cost-free
due to farmouts or royalty interests. However, any cash requirement for
exploration will also be highly dependent on the results, inter alia, of
interpretation work, any potential farm-outs, the result of current and proposed
drilling and licences acquired. New licence additions are also planned. Sterling
plans to carefully increase its exploration activity to include an increasing
upside, and possibly cost, exposure, whilst also diversifying its portfolio.
The Group is included in the new 'AIM 50' index for the largest companies, has
seen sustained and increased liquidity in its share trading, has over 60
well-known institutions on its share register and is approaching 3,000
shareholders. The directors primary aim remains to enhance shareholder value.
With its vastly improved financial condition and balanced reserve base, a major
growth in cash flow when Chinguetti comes onstream, exciting exploration and
appraisal projects and with the belief that the outlook for energy remains
excellent, the directors are extremely confident for the outlook for 2005/6.
Definitions
bbls barrels of oil
bcf billion cubic feet of gas
bcfge billions of cubic feet gas equivalent
boe barrels of oil equivalent
bopd barrels of oil per day
mcf thousand cubic feet of gas
mcfge/d thousand cubic feet of gas equivalent per day
mmbbl millions of barrels
mmcfg/d million cubic feet of gas per day
mmcfge/d millions of cubic feet of gas equivalent per day
tcf trillion cubic feet of gas
Sterling Energy plc and subsidiary undertakings
Consolidated profit and loss account
Year ended 31 December 2004
Note 2004 2003
£'000 £'000
Turnover 2
Existing operations 5,138 5,533
Acquisitions 6,319 -
11,457 5,533
Cost of sales
Existing operations (2,354) (2,348)
Acquisitions (2,316) -
(4,670) (2,348)
Gross profit
Existing operations 2,784 3,185
Acquisitions 4,003 -
6,787 3,185
Administrative expenses
Existing operations (1,396) (1,481)
Acquisitions (656) -
(2,052) (1,481)
Operating profit
Existing operations 1,388 1,704
Acquisitions 3,347 -
4,735 1,704
Interest receivable and similar income 312 219
Interest payable and similar charges (883) (114)
Profit on ordinary activities before taxation 4,164 1,809
Taxation on profit on ordinary activities 3 (1,197) (228)
Profit on ordinary activities after taxation 2,967 1,581
Minority interest 2 5
Profit for the financial year 2,969 1,586
Earnings per share : Basic 4 0.34p 0.38p
: Diluted 4 0.33p 0.33p
Sterling Energy plc and subsidiary undertakings
Consolidated balance sheet
31 December 2004
Note 2004 2003
£'000 £'000
Fixed assets
Intangible assets 6 30,629 49,957
Tangible assets 7 51,754 10,433
82,383 60,390
Current assets
Debtors 2,968 1,512
Cash at bank and in hand 8 89,556 14,485
92,524 15,997
Creditors: amounts falling due (3,762) (5,600)
within one year
Net current assets 88,762 10,397
Total assets less current liabilities 171,145 70,787
Creditors: amounts falling due after more than one (15,014) -
year
Provisions for liabilities and charges (6,671) (2,626)
Net assets 149,460 68,161
Capital and reserves
Called up equity share capital 9 13,933 7,806
Share premium account 10 141,600 50,753
Equity shares to be issued - 1,716
Currency translation reserve 10 (8,271) (1,882)
Profit and loss account 10 1,166 (1,803)
Equity shareholders' funds 148,428 56,590
Equity minority interest 1,032 11,571
Total capital employed 149,460 68,161
Sterling Energy plc and subsidiary undertakings
Consolidated statement of total recognised gains and losses
Year ended 31 December 2004
2004 2003
£'000 £'000
Profit for the financial year 2,969 1,586
Currency translation adjustments (6,389) (1,709)
Total recognised losses relating to the year (3,420) (123)
Reconciliation of movements in Group shareholders' funds
Year ended 31 December 2004
2004 2003
£'000 £'000
Profit for the financial year 2,969 1,586
Other recognised losses for the year (6,389) (1,709)
Shares issued (net of expenses) 96,974 41,687
Movement in shares to be issued (1,716) 116
Total movement in the year 91,838 41,680
Shareholders' funds at 1 January 56,590 14,910
Shareholders' funds at 31 December 148,428 56,590
Consolidated cash flow statement
Year ended 31 December 2004
Note 2004 2003
£'000 £'000
Net cash inflow from operations 13a 8,145 3,340
Returns on investments and servicing of finance 13b (290) 168
Capital expenditure 13b (16,109) (5,660)
Acquisitions and disposals 13b (18,763) (690)
Cash outflow before financing (27,017) (2,842)
Financing 13b 34,818 10,925
Increase in cash in the year 13c 7,801 8,083
Sterling Energy plc and subsidiary undertakings
Notes to the financial information
Year ended 31 December 2004
1. Basis of accounting
The preliminary accounts have been prepared in accordance with applicable United
Kingdom Accounting Standards and under the historical cost convention. There
are no changes to the accounting policies as set out in the Annual Report for
the year ended 31 December 2003.
The preliminary accounts have also been prepared in accordance with the
Statement of Recommended Practice 'Accounting for Oil and Gas Exploration,
Development Production and Decommissioning Activities'.
The financial information set out above does not constitute statutory accounts
within the meaning of section 240 of the Companies Act 1985. Statutory accounts
for 2003 have been delivered to the Registrar of Companies, and those for 2004
will be delivered following the Company's Annual General Meeting. The statutory
accounts for 2004 were approved by the Board on 9 May 2005. The auditors have
reported on the accounts for both 2003 and 2004; their reports were unqualified
and did not contain statements under s237(2) and (3) of the Companies Act 1985.
2. Segment information
The Group operates in one business segment, the exploration for and production
of oil and gas. The Group has interests in four geographical segments, Western
Europe, North America, South East Asia and Africa as follows:
Western Europe North America South East Asia Africa Total
2004 2003 2004 2003 2004 2003 2004 2003 2004 2003
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
Turnover* - - 5,138 5,533 - - - - 5,138 5,533
- existing operations
- acquisitions** - - 6,319 - - - - - 6,319 -
Profit/(Loss) before (220) (237) 4,747 2,063 - - (363) (17) 4,164 1,809
taxation
Net assets*** 17,317 1,956 26,419 14,955 564 211 105,160 51,039 149,460 68,161
* All turnover is sold to third parties within the segment of origin
** Acquisitions in 2004 relate to the Group's purchase of the Osprey
interests (see note 12)
*** Net assets exclude intra-group financing.
3. Taxation
The Group tax charge comprises:
2004 2003
£'000 £'000
Current tax 226 -
Deferred tax - origination and reversal of timing differences 971 228
1,197 228
The difference between the current tax charge of £226,000 and the amount
calculated by applying the applicable standard rate of tax is as follows:
2004 2003
£'000 £'000
Profit on ordinary activities before tax 4,164 1,809
Tax on profit on ordinary activities at standard US corporation tax rate of 34% 1,416 615
(2003: 34%)
Effects of:
Expenses not deductible for tax purposes 87 64
Capital allowances in excess of depreciation (136) (791)
Other temporary differences (245) 12
Difference in non-US tax rates 33 1
Adjustment for tax losses (929) 99
Current tax charge for the year 226 -
During 2003 and 2004, the Group generated its results primarily in the US.
Therefore the tax rate in the above reconciliation for 2003 and 2004 is the
standard rate for US corporation tax.
4. Earnings per share
The calculation of basic earnings per share is based on the profit for the
financial year of £2,969,000 (2003 - £1,586,000) and on 884,788,687 (2003 -
417,759,246) ordinary shares, being the weighted average number of ordinary
shares in issue. The calculation of diluted earnings per share is based on the
profit for the financial year as for basic earnings per share. The number of
shares outstanding is adjusted as follows:
2004
Number of shares
For basic earnings per share 884,788,687
Exercise of options 26,078,893
For diluted earnings per share 910,867,580
5. Dividend
No dividend has been declared or is to be paid in respect of the year ended 31
December 2004.
6. Intangible fixed assets - unevaluated oil and gas interests
£'000
At 31 December 2003 49,957
Disposal (10,539)
Transfers to tangible fixed assets (9,841)
Additions 3,619
Currency translation adjustment (2,567)
At 31 December 2004 30,629
The disposal relates to the fair value of a minority interest held in a
subsidiary company that was acquired in the prior year. The company in which
the minority interest was held has been fully disposed of during the year.
Group net book value at 31 December 2004 comprises £1,678,000 for North America,
£33,000 for Western Europe, £564,000 for South East Asia, and £28,354,000 for
Africa. Group net book value at 31 December 2003 comprised £3,765,000 for North
America, £62,000 for Western Europe, £211,000 for South East Asia, and
£45,919,000 for Africa.
7. Tangible fixed assets
Oil and gas Computer &
Interests office Total
equipment
£'000 £'000 £'000
Cost
At 1 January 2004 11,655 307 11,962
Transfers from intangible fixed assets 9,841 - 9,841
Acquisition (see note 12) 21,790 - 21,790
Additions 12,900 378 13,278
Currency translation adjustment (788) - (788)
At 31 December 2004 55,398 685 56,083
Accumulated depreciation
At 1 January 2004 1,491 38 1,529
Charge for the year 2,856 201 3,057
Currency translation adjustment (257) - (257)
At 31 December 2004 4,090 239 4,329
Net book value
At 31 December 2004 51,308 446 51,754
At 1 January 2004 10,164 269 10,433
The net book value of oil and gas interests at 31 December 2004 comprises
£31,602,000 (2003: £10,140,000) relating to North America, £109,000 (2003:
£24,000) relating to Western Europe and £19,598,000 (2003: nil) to the West
Africa cost pools respectively. Additions include £11,600,000 relating to the
Mauritania transaction (see note 11c), including an £8,100,000 signature bonus
paid to the Mauritania government.
8 Cash at bank and in hand
Included in cash at bank and in hand for the Group is an amount of approximately
£1,566,000 (2003 - £856,000) held in a restricted account to be used for the
sole purpose of the payment of decommissioning costs on three US producing
licences.
There is additionally a deposit held in escrow for an amount of US$130,000,000
(£67,757,000) held by the parent company. These funds are to be utilised to pay
for past and ongoing costs with regard to the Group's participation in the
Chinguetti field development (see note 11c).
9. Called up equity share capital
2004 2003
£'000 £'000
Authorised:
2,400,000,000 (2003: 1,250,000,000) ordinary shares of 1p 24,000 12,500
Called up, allotted and fully paid:
1,393,325,558 ordinary shares of 1p each (2003 - 780,626,248 ordinary shares of 13,933 7,806
1p each)
Movements during the year were as follows:
a. A further 42,086,032 ordinary shares with a nominal value of
£420,869 were issued at 10.5p a share in connection with the acquisition of
Fusion Oil & Gas plc in 2003 (see note 12). This includes the conversion of
16,345,781 shares, with a fair value of £1,716,000, that were classified as '
Shares to be issued' at 31 December 2003. The compulsory purchase procedure has
now been completed, thereby acquiring all of the issued share capital of Fusion.
b. 25,000 new ordinary shares with a nominal value of £250 were issued
to an ex-employee who exercised share options in the year.
c. 570,588,235 new ordinary shares with a nominal value of £5,705,882
were issued on 18th November at 17p per share under a placing of new ordinary
shares described in a circular dated 26th October 2004.
The placing raised a total of £97,000,000 before expenses principally in order
to provide funds to meet the costs of the Group's development activities in
Mauritania.
d. On the 18th November 2004 a Special Resolution was passed conferring
authority on the directors of the company to allot new equity securities to a
maximum nominal amount of £11,500,000.
10. Reserves
Share Currency Profit and
Premium Translation Loss
Account Account Account Total
£'000 £'000 £'000 £'000
At 1 January 2004 50,753 (1,882) (1,803) 47,068
Premium on shares issued 95,293 - - 95,293
Expenses of share issues (4,446) - - (4,446)
Currency translation adjustments - (6,389) - (6,389)
Profit for the year - - 2,969 2,969
At 31 December 2004 141,600 (8,271) 1,166 134,495
11. Financial commitments
(a) Annual commitments under non-cancellable operating leases are as
follows:
Land and Land and
Buildings Buildings
2004 2003
£'000 £'000
Operating leases with an option to terminate between two and five years 395 107
(b) Exploration expenditure commitments are as follows:
Group
2004 2003
£'000 £'000
Due within one year 3,171 3,477
Due later than one year but within two years 5,497 1,017
8,668 4,494
In acquiring its oil and gas interests the Group has pledged that various work
programmes will be undertaken on each permit/interest. The exploration
commitments above are an estimate of the cost of performing these work
programmes. Commitments shown as due within one year include £2,083,000 of
costs relating to obligations under licence GSEC101 in the Philippines that has
subsequently been conditionally transferred to a company, Forum Energy plc (see
note. 14).
(c) Mauritania transaction
On 26 October 2004 the Group entered into a Funding agreement with the Islamic
Republic of Mauritania (the 'Government') and Groupe Projet Chinguetti ('GPC')
in relation to the funding of the Government's share of the Chinguetti oil field
development ('Chinguetti Development'). GPC is a state owned special purpose
vehicle formed by the Government to hold its interest in the Chinguetti
Development.
The Group has agreed to reimburse GPC the past costs payable by the Government
as a result of the exercise of its option to acquire 12 per cent of the
Chinguetti Development. The Group has further agreed to fund GPC's share of all
future petroleum costs (being exploration, appraisal and development costs)
relating to the Chinguetti Development up to the commencement of production.
Upon commencement of production GPC will pay a share of its operating
expenditure commitments, with the remainder being met by the Group.
The Group has put in place a letter of credit for US$130,000,000 under which the
past and ongoing petroleum costs will be paid to GPC. This figure represents the
maximum amount that the Group will be required to pay under the terms of the
Funding agreement.
Under the Funding agreement the Company will become entitled to a portion of
GPC's share of profit oil produced from the Chinguetti Development. In addition,
the Group will be entitled to recover its costs from GPC's share of cost oil.
12. Acquisitions
(a) Osprey
On 27 February 2004, the Group acquired five producing gas fields in the Gulf of
Mexico, USA, together with certain additional gas gathering and onshore
facilities from Osprey Petroleum Partners LP for US$39.5 million in cash. The
effective economic date of this transaction was 1 November 2003 and the net
amount paid, after taking into consideration working capital and post effective
date adjustments, was US$36.02 million (£18.76 million).
(b) Prior year
During 2003 the Group acquired Westmount Resources Limited for £8.2 million and
Fusion Oil & Gas plc for £39.5 million.
13. Notes to the cash flow statement
(a) Reconciliation of operating profit to net cash inflow
from operations
2004 2003
£'000 £'000
Operating profit 4,735 1,704
Depreciation and depletion 3,057 1,384
Intangible Assets written off 50 -
Increase in debtors (1,455) (726)
Increase in creditors 1,758 978
Net cash inflow from operations 8,145 3,340
(b) Gross cash flows
2004 2003
£'000 £'000
Returns on investments and servicing of finance
Interest received 309 209
Interest paid (599) (41)
Net cash inflow/(outflow) (290) 168
Capital expenditure
Purchase of intangible fixed assets (3,618) (498)
Purchase of tangible fixed assets (12,491) (5,162)
Net cash outflow (16,109) (5,660)
Acquisitions (see note 12)
Purchase of subsidiary undertakings - (5,928)
Cash acquired with subsidiary undertakings - 5,238
Other acquisitions (18,763) -
Net cash/(outflow) (18,763) (690)
Financing
Issue of ordinary shares, net of expenses 92,557 10,925
Drawdown under bank loan facility 13,191 -
Payments into restricted accounts (70,930) -
34,818 10,925
13. Notes to the cash flow statement (continued)
(c) Analysis and reconciliation of net funds
1 January Cash flow Other non- Exchange 31
2004 cash changes movement December
2004
£'000 £'000 £'000 £'000 £'000
Cash in hand and at bank* 13,629 7,801 - (1,197) 20,233
Debt due after 1 year - (13,191) (1,117) 75 (14,233)
Debt due within 1 year (1,117) - 1,117 - -
Net funds 12,512 (5,390) - (1,122) 6,000
* The cash balance at 31 December 2004 excludes £69,323,000 of restricted cash
(2003 - £856,000) as described further in note 8.
2004 2003
£'000 £'000
Increase in cash in the year 7,801 8,083
Cash inflow from increase in debt (13,191) -
Translation difference (1,122) (804)
Movement in net funds in year (6,512) 7,279
Net funds at 1 January 12,512 5,233
Net funds at 31 December 6,000 12,512
14. Post balance sheet events
Since the year end the Company has issued further options over 10.5 million
ordinary shares at prices of not less than 17p per share.
In April 2005 the Group conditionally exchanged its interests in the intangible
asset in South East Asia, set out in note 6, for an approximately 23%
shareholding in Forum Energy plc, a private UK company. The assets to be
transferred are the Group's 100% interest in licence GSEC101 in the Philippines.
This transaction is subject to approval by the shareholders of Forum Energy
Corporation, the other shareholder of Forum Energy plc, at its EGM to be held on
18 May 2005.
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