Final Results

RNS Number : 5255A

Bahamas Petroleum Company PLC

02 April 2012

 



2 April 2012

Bahamas Petroleum Company plc

("Bahamas Petroleum" or the "Company")

Final Results for the year ended 31 December 2011

Bahamas Petroleum Company, the oil and gas exploration company with licences in The Commonwealth of the Bahamas, is pleased to announce its final results for the year ended 31 December 2011. 

Highlights:

·      Successfully raised £45.6m through an equity placing;

·      1,120km line2D seismic survey and competent persons report completed, concluding:

·       Multiple structures over the southern licences with unrisked recoverable prospective resources (EUR) in excess of 500 million barrels at a number of different reservoir horizons;

·       Several individual structures with an EUR in excess of 1 billion barrels of oil;

·       Assessment was restricted to the Cretaceous interval only which leaves the shallower Tertiary strata and the deeper Jurassic strata still to be evaluated;

·       The average Chance of Success (CoS) was assessed at 25%.

·      3,075 km² Pearl 3D seismic survey conducted by CGG Veritas

·       Initial processing has been completed - detailed interpretation underway;

·      High resolution seabed survey undertaken by Fugro N.V.

·      Appointment of Simon Potter as Chief Executive Officer

Simon Potter, Chief Executive of Bahamas Petroleum Company, said:

"2011 has been a transformational year for Bahamas Petroleum Company.  Additional funding has seen the acquisition of data that will determine the location of the first exploratory well in Bahamian petroleum exploration licenses in 25 years.  Over $50 million has been spent to date on de-risking activities to ensure the future success of this endeavour.

As the Company enters 2012 there are a number of major catalysts that will underpin and sustain future growth.  These include the outcome of regional drilling activities, principally in Cuban waters adjacent to the Company's Bahamian licences, completion of the Bahamian elections and timely progress towards realising a partner to participate in the drilling of a deep well. The Company is seeking to further imbed the business in The Bahamas with the appointment of resident Bahamian directors and the application for a listing on the Bahamas International Stock Exchange (BISX).  The Board continues to look to the future with confidence".

The full audited financial statements are available to view on the Company's website www.bpcplc.com.

Presentation

The Company will be hosting a presentation for analysts and investors on 15 June 2012, details of which can be obtained from FTI Consulting.

- Ends -

Enquiries:

Bahamas Petroleum Company plc Simon Potter, Chief Executive Officer	Tel: [phone]
Strand Hanson Limited - Nomad Rory Murphy / Liam Buswell	Tel: [phone]
FTI Consulting Billy Clegg / Edward Westropp / Alex Beagley	Tel: [phone]

Chairman's Report

This is my first report to shareholders as the non-executive chairman of Bahamas Petroleum Company following my appointment in October 2011.  Sadly, as many will already know, Alan Burns, from whom I took over the Chairmanship, died on 28 December 2011 after a gruelling and cruel illness.  He was the inspiration behind the formation of this Company and his DNA is embedded in it.  It is therefore incumbent upon the Board and management to see that his vision and inspiration becomes a reality and a great commercial success.  In this regard I have every confidence in Simon Potter, who succeeded Paul Crevello as the Chief Executive on 17 October 2011.

I am very pleased to welcome Simon to the Company at this stage in its development, his technical and commercial skills mix are the perfect combination to lead the business.  Simon enjoyed a successful 20 year career at BP where he held operational and executive positions in the North Sea, Alaska, Australia, Indonesia and Russia.  He left BP to become CEO of Hardman Resources plc, ("Hardman"), an AIM listed company, founded by Alan Burns, which was acquired by Tullow in 2007.  During Simon's tenure at Hardman, licences in Mauritania came into oil production, a brand new hydrocarbon province was discovered under Hardman's operatorship in Uganda and a seismic exploration programme was commenced that led to recent discoveries in French Guyane.  While working alongside Alan and the previous Bahamas Petroleum Company management team, Simon became familiar with the current licences and the technical and commercial environment of the Bahamas.  It is this experience and familiarity that has assured myself and the Board of a level of seamless continuity and expertise that will benefit shareholders going forward.  We are also very fortunate to welcome Paul Gucwa as Chief Operating Officer.  Similarly to Simon, Paul has a wealth of experience across a wide breath of the oil industry that will be of significant benefit to the Company going forward.

Much has happened over the last twelve months; most notably we have completed shooting the 3D seismic survey over 3,075 km² of our Southern licence areas and these data are being processed.  Whilst we are very pleased with the results so far; we are focused on maturing the licence area in preparation for an exploration well, which will be critical to ascertaining the full extent of our resource base.

With a major fundraising in 2011 through the placement of additional equity; significant increases in the capital spending profile of the Company; changes to personnel; and material additions to the prevailing legislative framework in the UK, it has been incumbent on the Company to make a significant effort in the latter half of 2011 to establish considerable improvements in compliance standards with best practices of corporate governance.  To that end, significant changes are being made to the operating of internal controls, inclusion of new policies, and compliance monitoring.  Further, additional activities during the course of 2012 will mean a continual improvement and derisking to the risk profile of the Company.

One of the key risks for the Company to manage effectively in the run up to drilling is the maintenance of its 'licence-to-operate' and in this regard the Company must ensure that activities and planned operations are in compliance with internationally recognised standards pending the Bahamian Government establishing a regulatory environment.  We, as a company, are more than aware of the environmental risks which need to be adequately managed during the exploration for and subsequent production of oil in the environmentally sensitive Bahamian waters and will ensure defined standards are met or exceeded. 

The scale of exploration activities that is currently being undertaken in adjacent Cuban waters clearly demonstrates that others share our conviction about the region being highly prospective for oil and we note with interest the recent announcement in January 2012 by Zarubezhneft of Russia that it will be looking to drill in Cuban waters, abutting our acreage, during 2012.

In parallel with all this activity, we are aware that a Bahamian Government election is imminent.  We greatly look forward to working with which ever government is elected, to help set down a formal oil and gas regulatory framework; satisfy the concerns of all parties; and overcome the numerous challenges ahead.

We must not lose sight of the fact that should we discover what Alan Burns referred to as the "best prospect" he had seen in 40 years in the oil business, it has the potential to transform the Bahamian economy, bringing untold benefits to future generations of Bahamians and significant gains to our shareholders.

A number of changes have taken place at Board level and I would like to take this opportunity to thank the departing directors for their contribution over the previous years.

I should also like to thank our staff both in the Isle of Man and the Bahamas for their hard work and diligence over the last year in some trying circumstances.    Finally, I would of course like to thank our shareholders for remaining supportive and the Board continues to look to the future with confidence.

Adrian Collins

Non-Executive Chairman

Chief Executive's Report

Throughout 2011, Bahamas Petroleum Company has undergone a significant transformation.  The Company is financially robust; has assembled a quality team of experienced individuals; upgraded processes and systems; accumulated technical data to more fully delineate prospectivity; and is making all preparations necessary to drill its first well as required under the terms of our licences.

For me personally it has been a year of change.  Having worked with the Company founder, Alan Burns, during the initial stages of setting up the Company in 2006 and 2007, I have now returned to this endeavour with the significant opportunity to create a brand-new hydrocarbon province in the waters of The Bahamas.  Consequently, it is with huge sadness and regret that I now take on this task without Alan's daily support, following his untimely death at the end of the year.  It was his vision that led to the creation of this opportunity for shareholders, but it now beholds us to realise delivery against his insight.

During the latter half of 2011 there have been significant changes to management personnel, however these have now been completed, bringing with them a restructured approach to corporate governance; revised and additional Company policies; and new processes and systems to ensure compliance and enhanced performance management.

Following a raising of $73.9 million in an oversubscribed equity placing in February 2011, the Company executed a 1,120 line kilometre 2-D seismic survey and subsequent 3,075 km² 3-D seismic survey.  The 2-D seismic survey underpinned a Competent Persons Report ("CPR") conducted by Ryder Scott out of Houston which concluded:

·   Multiple structures over the southern licences with unrisked recoverable prospective resources (EUR) in excess of 500 million barrels at a number of different reservoir horizons;

·   Several individual structures with an EUR in excess of 1 billion barrels of oil;

·   Assessment was restricted to the Cretaceous interval only which leaves the shallower Tertiary strata and the deeper Jurassic strata still to be evaluated;

·   The average Chance of Success (CoS) was assessed at 25%.

Structurally, the identified features retain integrity at depth and appear continuous over several tens of kilometres.  This offers huge encouragement for there being multiple targets at individual potential well locations.

Based upon the excellent data quality of the 2-D survey, the desire to minimise identified risks pertaining to source maturity, migration pathways and seal and the need to design the safest and best placed well possible, the Company decided to shoot the Pearl 3-D seismic survey using the most up-to-date CGG BroadSeis™ technology.  Data acquisition was completed in September 2011 with the initial processing having been completed by the year end.  Data quality is again excellent and further processing, analysis and interpretation remains ongoing for specific potential well targets, the mapping of seismic facies and attributes analysis, with detailed results anticipated during Q1 and early Q2 2012.  Significantly, results to date seem to mitigate some of those key remaining risks. The 3-D indicates the "basement" to be deeper than interpreted previously implying a thicker, deeper, more mature Jurassic (source rock) section. Furthermore, the interpretation indicates a uniform south-west dip under the Cretaceous platform indicating access to a large fetch area below the Cuban mainland.

As the Company has matured, the focus of its operations has moved significantly towards The Bahamas.  To that end, the Board has decided to appoint two new directors based permanently in The Bahamas.  This further demonstrates our clear commitment to a future embedded within the communities surrounding our resource base.  Furthermore, the Company has resolved to seek a listing on the Bahamas International Stock Exchange in the form of Bahamian Depositary Receipts ("BDR").  These instruments represent tradable, listed securities which will provide Bahamians, currently precluded from purchasing shares via the existing London Stock Exchange AIM listing, with access to any capital growth in the stock of the Company as it proceeds towards drilling.  Furthermore, the Company looks forward to the outcome of the Bahamian Government elections scheduled to be conducted before May 2012.  Notwithstanding the political outcome, we anticipate a refreshed mandate that supports exploration activity and seeks to drive growth and wealth creation.

In support of future drilling activity the Company has submitted to the Government, in the form of the Bahamas Environment, Science and Technology Commission ("BEST"), an Environmental Impact Assessment ("EIA").  This report determines the most likely impacts any exploration activities may have on the environment and seeks to illustrate mitigating actions the Company could undertake.  Significantly, this report includes a very sophisticated, long-term simulation study designed to assess the transport of oil away from any potential spill site, undertaken as part of the Company's oil spill contingency planning.  The key conclusion from this study is that regardless of the spill size, ocean current, wind direction or sea state pertaining over the last seven years, Mother Nature is looking out for The Bahamas as an insignificant fraction of the likely spilled oil, even in the worst possible event, will ever make it to shore in Bahamian territorial waters, although cooperation with neighbouring territories would be a clear priority.  This work will be progressed through the coming year up to and during the course of the drilling of our first exploration well.

The Company will further benefit during the course of the coming months from the results of drilling activity currently taking place in Cuban waters.  Recently, the Scarabeo-9 drilling rig commenced activities under contract to Repsol, with a minimum of five wells anticipated to be drilled by the rig through 2012/3.  In addition, Zarubezhneft, the operator of the Cuban licence immediately adjacent to our Southern blocks, has indicated that they will commence drilling in August following their recent 3-D seismic survey.

Bahamas Petroleum Company continues to seek third-party farminees to share the costs of future exploration activities and remains in active negotiations with a number of companies.  As these negotiations remain commercial in confidence, no update or announcement is anticipated until a successful outcome has been achieved, nominally expected in the summer of 2012.

Outlook

As the Company enters 2012 there are a number of major catalysts that will underpin and sustain future growth.  These include the outcome of regional drilling activities, principally in Cuban waters adjacent to the Company's Bahamian licences, completion of the Bahamian elections ahead of their May 2012 deadline and timely progress towards seeking a partner to participate in the drilling of a deep well.

Provision is being put in place for Bahamians to benefit from the potential wealth creation of the Company's capital growth, thus allowing them to enjoy the benefits of successful oil exploration in their native waters.  All indications suggest the presence of potentially giant fields within the licence area, however all exploration activities must be conducted with due regard to minimising any environmental impact and with a view to future sustainability. 

The Company is committed to moving forward with this objective during 2012 and we look forward to updating shareholders in due course.

Simon Potter

Chief Executive Officer

Consolidated statement of comprehensive income for the year ended 31 December 2011

	Note	2011 Group $		2010 Group $
Continuing operations
Employee benefit expense	5	(4,970,950)		(2,006,305)
Depreciation expense		(156,153)		(38,779)
Other expenses	6	(5,078,092)		(3,335,161)
Operating loss		(10,205,195)		(5,380,245)
Finance income		66,050		-
Loss before income tax		(10,139,145)		(5,380,245)
Income tax credit		-		61,787
Loss for the year		(10,139,145)		(5,318,458)
Other comprehensive income:
Currency translation differences		-		106,615
Other comprehensive income for the year, net of tax		-		106,615
Total comprehensive income for the year		(10,139,145)		(5,211,843)
Loss per share for loss attributable to owners of the Company:
Basic and diluted loss per share (expressed in cents per share)	7	(0.87)		(0.61)

Consolidated balance sheet as at 31 December 2011

	Note	2011 Group $		2010 Group $
ASSETS
Non-current assets
Property, plant and equipment		491,342		189,779
Intangible exploration and evaluation assets	8	38,927,378		5,024,331
Restricted cash		239,654		325,046
		39,658,374		5,539,156
Current assets
Other receivables	9	967,794		896,246
Restricted cash		231,995		-
Cash and cash equivalents		34,976,049		6,068,558
Total assets		75,834,212		12,503,960
LIABILITIES
Current liabilities
Trade and other payables	10	2,680,478		364,980
Total liabilities		2,680,478		364,980
EQUITY
Share capital	11	37,253		29,359
Share premium reserve	11	78,185,102		8,037,595
Merger reserve	11	77,130,684		77,130,684
Reverse acquisition reserve		(53,846,526)		(53,846,526)
Share based payment reserve	12	1,424,164		425,666
Retained earnings		(29,776,943)		(19,637,798)
Total equity		73,153,734		12,138,980
Total equity and liabilities		75,834,212		12,503,960

Consolidated statement of changes in equity for the year ended 31 December 2011

	Note	Share capital $	Share premium reserve $	Merger reserve $	Reverse acquisition reserve $	Share based payment reserve $	Currency translation reserve $	Retained earnings $	Total equity $
Balance at 1 January 2010		23,242	-	73,639,708	(53,846,526)	347,361	(106,615)	(14,319,340)	5,737,830
Comprehensive income
Loss for the year		-	-	-	-	-	-	(5,318,458)	(5,308,458)
Other comprehensive income
Currency translation differences		-	-	-	-	-	106,615	-	106,615
Total comprehensive income for the year		-	-	-	-	-	106,615	(5,318,458)	(5,211,843)
Transactions with owners
Share options - value of serves	12	-	-	-	-	78,305	-	-	78,305
Issue of ordinary shares	11	6,117	8,037,595	3,490,976	-	-	-	-	11,534,688
Total transactions with owners		6,117	8,037,595	3,490,976	-	78,305	-	-	11,612,993
Balance at 31 December 2010		29,359	8,037,595	77,130,684	(53,846,526)	425,666	-	(19,637,798)	12,138,980
Balance at 1 January 2011		29,359	8,037,595	77,130,684	(53,846,526)	425,666	-	(19,637,798)	12,138,980
Comprehensive income
Total comprehensive income for the year		-	-	-	-	-	-	(10,139,145)	(10,139,145)
Transactions with owners
Share options - value of services	12	-	-	-	-	998,498	-	-	998,498
Issue of ordinary shares	11	7,894	70,147,507	-	-	-	-	-	70,155,401
Total transactions with owners		7,894	70,147,507	-	-	998,498	-	-	71,153,899
Balance at 31 December 2011		37,253	78,185,102	77,130,684	(53,846,526)	1,424,164	-	(29,776,943)	73,153,734

The Reverse acquisition reserve balance arose from the issue of shares in BPC (Falklands) Limited (Formerly Falkland Gold and Minerals Limited) as part of the reverse takeover of BPC Falklands by the shareholders of BPC Jersey in September 2008.

Consolidated cash flow statement for the year ended 31 December 2011

	Note	2011 Group $		2010 Group $
Cash flows from operating activities
Cash used in operations	19	(8,359,760)		(5,422,619)
Net cash used in operating activities		(8,359,760)		(5,422,619)
Cash flows from investing activities
Purchase of property, plant and equipment		(457,716)		(209,852)
Payments for exploration and evaluation assets	13	(32,045,332)		(960,507)
Increase in restricted cash	11	(154,398)		(205,491)
Interest received		66,050		-
Net cash used in investing activities		(32,591,396)		(1,375,850)
Cash flows from financing activities
Proceeds from issuance of ordinary shares	17	70,155,401		11,534,688
Net cash generated from financing activities		70,155,401		11,534,688
Net increase in cash and cash equivalents		29,204,245		4,736,219
Cash and cash equivalents at the beginning of the year		6,068,558		1,337,885
Effects of exchange rate changes on cash and cash equivalents		(296,754)		(5,546)
Cash and cash equivalents at the end of the year		34,976,049		6,068,558

1          Summary of significant accounting policies

The principal accounting policies applied in the preparation of these consolidated financial statements are set out below.  These policies have been consistently applied to all the years presented, unless otherwise stated.

1.1        Basis of preparation

The consolidated financial statements of Bahamas Petroleum Company plc reflect the results and financial position of the Group for the year ended 31 December 2011, have been prepared in accordance with International Financial Reporting standards ("IFRS") as adopted by the European Union ("EU") and have been prepared under the historical cost convention and the requirements of the Isle of Man Companies Acts 1931 to 2004.

The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates.  It also requires management to exercise its judgment in the process of applying the Group's accounting policies.  The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the financial statements are disclosed in note 4.

2          Summary of significant accounting policies (continued)

2.1        Basis of preparation (continued)

Going concern

These financial statements have been prepared on a going concern basis, which assumes that the Group will be able to meet its liabilities as and when they fall due.  See note 4 for further information.

Changes in accounting policy and disclosures

a)         New and amended standards adopted by the Group

IAS 24, 'Related party disclosures' (revised 2009).  The new standard replaces IAS 24, 'Related party disclosures' issued in 2003 and it amends the definition of a related party; and modifies certain related-party disclosure requirements for government-related entities.  This has not affected the Group significantly.

Annual improvements 2010 (issued May 2010), effective 1 January 2011, were issued by the IASB as part of the 'annual improvements process' resulting in amendments to 7 standards.  The improvements have not had a significant effect on the Group.

b)         Standards, amendments and interpretations to existing standards that are relevant to the Group but not yet effective and have not been early adopted

IAS 1, 'Financial statement presentation' regarding other comprehensive income, issued in June 2011. The amendment changes the disclosure of items presented in other comprehensive income ('OCI') in the statement of comprehensive income on the basis of whether they are potentially recycled to profit or loss (reclassification adjustments).  This standard is applicable for periods beginning on or after 1 July 2012. However the standard has not yet been endorsed by the EU. The Group is yet to fully assess IAS 1's impact.

IFRS 9, 'Financial instruments', addresses the classification, measurement and recognition of financial assets and financial liabilities.  IFRS 9 was issued in November 2009 and October 2010. It replaces the parts of IAS 39 'Financial instruments: recognition and measurement' that relate to the classification and measurement of financial instruments.  IFRS 9 requires financial assets to be classified into two measurement categories: those measured as at fair value and those measured at amortised cost.  The determination is made at initial recognition.  The classification depends on the entity's business model for managing its financial instruments and the contractual cash flow characteristics of the instrument.  For financial liabilities, the standard retains most of the IAS 39 requirements.  The main change is that, in cases where the fair value option is taken for financial liabilities, the part of a fair value change due to an entity's own credit risk is recorded in other comprehensive income rather than the income statement, unless this creates an accounting mismatch.  The Group is yet to fully assess IFRS 9's impact and intends to adopt IFRS 9 no later than the accounting period beginning on or after 1 January 2013, subject to endorsement by the EU.

IFRS 10, 'Consolidated financial statements' builds on existing principles by identifying the concept of control as the determining factor in whether an entity should be included within the consolidated financial statements of the parent company.  The standard provides additional guidance to assist in the determination of control where this is difficult to assess.  The Group is yet to fully assess IFRS 10's impact and intends to adopt IFRS 10 no later than the accounting period beginning on or after 1 January 2013, subject to endorsement by the EU.

IFRS 11, 'Joint arrangements', is a more realistic reflection of joint arrangements by focusing on the rights and obligations of the arrangement rather than its legal form.  There are two types of joint arrangement: joint operations and joint ventures.  Joint operations arise where a joint operator has rights to the assets and obligations relating to the arrangement and hence accounts for its interest in assets, liabilities, revenue and expenses.  Joint ventures arise where the joint operator has rights to the net assets of the arrangement and hence equity accounts for its interest.  Proportional consolidation of joint ventures is no longer allowed.  The Group is yet to fully assess IFRS 11's impact and intends to adopt IFRS 11 no later than the accounting period beginning on or after 1 January 2013, subject to endorsement by the EU.

IFRS 12, 'Disclosures of interests in other entities' includes the disclosure requirements for all forms of interests in other entities, including joint arrangements, associates, special purpose vehicles and other off balance sheet vehicles.  The Group is yet to fully assess IFRS 12's impact and intends to adopt IFRS 12 no later than the accounting period beginning on or after 1 January 2013, subject to endorsement by the EU.

(b)                    Standards, amendments and interpretations to existing standards that are relevant to the Group but not yet effective and have not been early adopted (continued)

IFRS 13, 'Fair value measurement', aims to improve consistency and reduce complexity by providing a precise definition of fair value and a single source of fair value measurement and disclosure requirements for use across IFRSs. The requirements, which are largely aligned between IFRSs and US GAAP, do not extend the use of fair value accounting but provide guidance on how it should be applied where its use is already required or permitted by other standards within IFRSs or US GAAP. The Group is yet to fully assess IFRS 13's impact and intends to adopt IFRS 13 no later than the accounting period beginning on or after 1 January 2012, subject to endorsement by the EU.

2.2        Basis of consolidation

The consolidated financial statements incorporate the financial statements of the Company and entities controlled by the Company (its subsidiaries) made up to 31 December each year.  Control is achieved where the Company has the power to govern the financial and operating policies of an investee entity so as to obtain benefits from its activities.

The results of subsidiaries acquired or disposed of during the year are included in the consolidated statement of comprehensive income from the effective date of acquisition or up to the effective date of disposal, as appropriate.

Where necessary, adjustments are made to the financial statements of subsidiaries to bring the accounting policies used in line with those used by the Group.

All intra-group transactions, balances, income and expenses (including unrealised gains and losses on transactions between group companies) are eliminated on consolidation.

Changes in the Group's interest in a subsidiary that do not result in a loss of control are accounted for as equity transactions.  Any difference between the amount by which the non-controlling interests are adjusted and the fair value of the consideration paid or received is recognised directly in equity and attributed to the Group.

The financial statements consolidate the results, cash flows and assets and liabilities of the Company and its wholly owned subsidiary undertakings.

2.3 Operating segments

All of the Group's business activities relate to oil and gas exploration activities in the Commonwealth of The Bahamas.  The business is managed as one business segment by the chief operating decision maker ("the CODM"), who has been identified as the Chief Executive Officer ("the CEO").  The CODM receives reports at a consolidated level and uses those reports to assess business performance.  It is not possible to assess performance properly using the financial information collected at the subsidiary level.

2.4        Foreign currency translation

(i)         Functional and presentation currency

Items included in the financial statements of each of the Group's entities are measured using the currency of the primary economic environment in which the entity operates ("the functional currency").  The consolidated financial statements are presented in United States Dollars, which is the Company's functional and the Group's presentation currency.

(ii)        Transactions and balances

Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions.  Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the consolidated statement of comprehensive income.

(iii)       Group companies

The results and financial position of all the Group entities (none of which has the currency of a hyperinflationary economy) that have a functional currency different from the presentation currency are translated into the presentation currency as follows:

·        assets and liabilities for each balance sheet presented are translated at the closing rate at the date of that balance sheet;

·        income and expenses for each statement of comprehensive income are translated at average exchange rates (unless this is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the dates of the transactions); and

·        all resulting exchange differences are recognised as other comprehensive income.

2.5        Property, plant and equipment

Property, plant and equipment is stated at historical cost less depreciation.  Historical cost includes expenditure that is directly attributable to the acquisition of the items. 

Subsequent costs are included in the asset's carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably.  The carrying amount of the replaced part is derecognised.  All other repairs and maintenance are charged to the consolidated statement of comprehensive income during the reporting period in which they are incurred.

Depreciation on assets is calculated using the straight‑line method to allocate their cost, net of their residual values, over their estimated useful economic lives, as follows:

- Computer equipment	3 years
-  Furniture, fittings and equipment	4 years
-  Motor vehicles	5 years
-  Leasehold improvements	Over the life of the lease

The assets' residual values and useful lives are reviewed, and adjusted if appropriate, at each balance sheet date.

An asset's carrying amount is written down immediately to its recoverable amount if the asset's carrying amount is greater than its estimated recoverable amount with any impairment charge being taken to the consolidated statement of comprehensive income.

Gains and losses on disposals are determined by comparing proceeds with carrying amount and are recognised in the consolidated statement of comprehensive income. 

2.6        Intangible assets - exploration and evaluation assets

Exploration and evaluation expenditure incurred which relates to more than one area of interest is allocated across the various areas of interest to which it relates on a proportionate basis.  Exploration and evaluation expenditure incurred by or on behalf of the Group is accumulated separately for each area of interest.  The area of interest adopted by the Group is defined as a petroleum title.

Expenditure in the area of interest comprises direct costs and an appropriate portion of related overhead expenditure, but does not include the general overheads or administrative expenditure not having a specific nexus with a particular area of interest.

As permitted under IFRS 6, exploration and evaluation expenditure for each area of interest, other than that acquired from the purchase of another entity, is carried forward as an asset at cost provided that one of the following conditions is met:

·      the costs are expected to be recouped through successful development and exploitation of the area of interest, or alternatively by its sale; or

·      exploration and/or evaluation activities in the area of interest have not, at the reporting date, reached a stage which permits a reasonable assessment of the existence or otherwise of economically recoverable reserves, and active and significant operations in, or in relation to, the area of interest are continuing.

Exploration and evaluation expenditure which fails to meet at least one of the conditions outlined above is taken to the consolidated statement of comprehensive income.  Costs incurred in drilling exploration wells that fail to encounter significant hydrocarbons are written off in the year of failure.

Expenditure is not capitalised in respect of any area of interest unless the Group's right of tenure to that area of interest is current.

Intangible exploration and evaluation assets in relation to each area of interest are not amortised until the existence (or otherwise) of commercial reserves in the area of interest has been determined.

2.7        Impairment

Exploration and evaluation assets are regularly reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.  An impairment loss is recognised for the amount by which the asset's carrying value exceeds its recoverable amount.  The recoverable amount is the higher of an asset's fair value less costs to sell and value in use.  For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash inflows which are largely independent of the cash inflows from other assets or groups of assets (cash-generating units). 

2.8        Financial instruments

The Group classifies its financial assets in the following categories: at fair value through profit or loss, loans and receivables and available for sale.  The classification depends on the purpose for which the financial assets were acquired.  The classification of financial assets is determined at initial recognition.

At 31 December 2011 and 2010 the Group did not have any financial assets held at fair value through profit or loss or classified as available for sale.  Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in any active market.  They are included in current assets, except for those with maturities greater than 12 months after the balance sheet date which are classified as non‑current assets.  Loans and receivables are stated initially at their fair value and subsequently at amortised cost using the effective interest rate method.  The Group's loans and receivables consist of 'cash and cash equivalents' at variable interest rates, 'restricted cash' and 'other receivables' excluding 'prepayments'.

The Group assesses at the end of each reporting period whether there is objective evidence that a financial asset or group of financial assets is impaired. A financial asset or a group of financial assets is impaired and impairment losses are incurred only if there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset (a 'loss event') and that loss event or events has an impact on the estimated future cash flows of the financial asset or group of financial assets that can be reliably estimated.

The Group classifies its financial liabilities in the following categories: at fair value through profit or loss and other liabilities.  As at 31 December 2011 and 2010 the Group did not have any financial liabilities at fair value through the profit or loss.  Other liabilities are recognised initially at fair value and are subsequently measured at amortised cost using the effective interest method.  Other liabilities consist of 'trade and other payables'. These amounts represent liabilities for goods and services provided to the Group prior to the end of financial year which are unpaid.  The amounts are unsecured and are usually paid within 30 days of recognition.

2.9        Cash and cash equivalents

In the cash flow statement, cash and cash equivalents includes cash on hand, deposits held at call with financial institutions, other short‑term, highly liquid investments with original maturities of three months or less that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value, and bank overdrafts.  Bank overdrafts, where applicable, are shown within borrowings in current liabilities on the balance sheet.

2.10          Share capital

Ordinary shares are classified as equity.  Incremental costs directly attributable to the issue of new shares or options are deducted, net of tax, from the proceeds.  Net proceeds are disclosed in the statement of changes in equity.

2.11      Employee benefits

(i)         Wages and salaries, annual leave and sick leave

Liabilities for wages and salaries, including non‑monetary benefits, expected to be settled within 12 months of the

reporting date are recognised in other payables in respect of employees' services up to the reporting date and are measured at the amounts expected to be paid when the liabilities are settled.

(ii)        Share-based payments

Where equity settled share options are awarded to employees or directors, the fair value of the options at the date of grant is charged to the consolidated statement of comprehensive income over the vesting period.  Non-market vesting conditions are taken into account by adjusting the number of equity instruments expected to vest at each balance sheet date so that, ultimately, the cumulative amount recognised over the vesting period is based on the number of options that eventually vest.  Market vesting conditions are factored into the fair value of the options granted.  As long as all other vesting conditions are satisfied, a charge is made irrespective of whether the market vesting conditions are satisfied.  The cumulative expense is not adjusted for failure to achieve a market vesting condition.

Where equity instruments are granted to persons other than employees, the consolidated statement of comprehensive income is charged with the fair value of goods and services received.

The charge for share-based payment is calculated in accordance with the analysis described in note 18.  The option valuation models used require highly subjective assumptions to be made including the future volatility of the Company's share price, expected dividend yield, risk-free interest rates and expected staff turnover.  The directors draw upon a variety of external sources to aid in the determination of the appropriate data to use in such calculations.

(iii)       Bonuses

The Group recognises a liability and an expense for bonuses.  Bonuses are approved by the Board and a number of factors are taken into consideration when determining the amount of any bonus payable, including the recipient's existing salary, length of service and merit.  The Group recognises a provision where contractually obliged or where there is a past practice that has created a constructive obligation.

(iv)        Pension obligations

For defined contribution plans, the Group pays contributions to publicly or privately administered pension insurance plans on a mandatory, contractual or voluntary basis. The Group has no further payment obligations once the contributions have been paid. The contributions are recognised as an employee benefit expense when they are due.

(v)         Termination benefits

Termination benefits are payable when employment is terminated by the Group before the normal retirement date, or whenever an employee accepts voluntary redundancy in exchange for these benefits. The Group recognises termination benefits when it is demonstrably committed to a termination when the entity has a detailed formal plan to terminate the employment of current employees without possibility of withdrawal. Benefits falling due more than 12 months after the end of the reporting period are discounted to their present value.

2.12      Interest Income

Interest income is recognised on a time proportion basis using the effective interest method.

2.13      Leases

Leases in which a significant portion of the risks and rewards of ownership are not transferred to the Group as lessee are classified as operating leases.  Payments made under operating leases (net of any incentives received from the lessor) are charged to the statement of comprehensive income on a straight‑line basis over the period of the lease.

2.14      Taxation

Income tax expense or credit represents the sum of the current tax and deferred tax charge for the period.

3          Financial risk management in respect of financial instruments

3.1        Financial risk factors

The Group's activities expose it to a variety of financial risks: liquidity, market and credit risk.  The Group's overall risk management program focuses on minimising potential adverse effects on the financial performance of the Group.

Risk management is carried out by the Chief Executive Officer under policies approved by the Board of Directors.  The Chief Executive Officer identifies, evaluates and addresses financial risks in close co‑operation with the Group's management.  The Board provides written principles for overall risk management, as well as written policies covering specific areas, such as mitigating foreign exchange risk, interest rate risk, credit risk and investing excess liquidity.

(i)         Liquidity risk

The Group monitors its rolling cashflow forecasts and liquidity requirements to ensure it has sufficient cash to meet its operational needs.  Surplus cash is invested in interest bearing current accounts and money market deposits.

No profit to date 

The Group has incurred losses since its inception and it is therefore not possible to evaluate its prospects based on past performance.  Since the Group intends to continue investing in the exploration licences it currently holds an interest in, the directors anticipate making further losses.  There can be no certainty that the Group will achieve or sustain profitability or achieve or sustain positive cash flows from its activities.

Future funding requirements

The Group intends to raise funding through the placing of ordinary shares and farm-outs of its licences.  There is no certainty that the Company will be able to raise funding on the equity markets or that the raising of sufficient funds through future farm-outs will be possible at all or on acceptable terms.  This could substantially dilute the Group's interest in the licences, however, given the size of the Group's existing holding it would be expected, although there is no guarantee, that the Group will retain a significant equity interest in the licences.

Financial liabilities

The Group's financial liabilities comprise entirely its trade and other payables which all fall due within 1 year.  The Group's payment policy is to settle amounts in accordance with agreed terms which is typically 30 days.

(ii)        Market risk

Foreign exchange risk

The Group operates internationally and therefore is exposed to foreign exchange risk arising from currency exposures, primarily with regard to the UK pound.  The exposure to foreign exchange risk is managed by ensuring that the majority of the Group's assets, liabilities and expenditures are held or incurred in US Dollars. At 31 December 2011 the Group held $6,811,742 of cash in UK Sterling (2010: $945,777) and had an immaterial amount of trade and other payables denominated in UK Sterling.

At 31 December 2011, if the US Dollar currency had weakened/strengthened by 10% against UK Sterling with all other variables held constant, post-tax losses for the year would have been reduced/increased by approximately $681,000 (2010: reduced/increased by $95,000), mainly as a result of foreign exchange gains/losses on translation of UK Sterling denominated bank balances.  Losses are more sensitive to movement in currency exchange rates in 2011 than 2010 due to larger amounts of UK Sterling currency held for corporate working capital purposes.

The Group also has operations denominated in the Bahamian dollar.  As the Bahamian dollar is pegged to the US dollar on a one for one basis these operations do not give rise to any currency exchange exposures.

Interest rate risk

The Group's exposure to interest rate risk relates to the Group's cash deposits which are linked to short term deposit rates and therefore affected by changes in bank base rates.  At 31 December 2011 and 2010 short term deposit rates were in the range of 0% to 1% and therefore the interest rate risk is not considered significant to the Group.  An increase in interest rate of 0.25% in the year would have had an immaterial effect of the Group's loss for the year.

(iii)       Credit risk

Credit risk is managed on a Group basis.  Credit risk arises from cash and cash equivalents and deposits with banks and financial institutions.  For banks and financial institutions, only independently rated parties with a minimum rating of 'A' are accepted.  In order to mitigate credit risk arising from cash balances the Group holds cash reserves with more than one counterparty.

3.2        Capital risk management

Capital is defined by the Group as all equity reserves, including share capital and share premium.

The Group's objectives when managing capital are to safeguard the Group's ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to support the Group's business operations and maximise shareholder value.

4          Critical accounting estimates and assumptions

The Group makes estimates and assumptions concerning the future.  The resulting accounting estimates will, by definition, seldom equal the related actual results.  The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below.

(a)        Going concern

These financial statements have been prepared on a going concern basis, which assumes that the Group will be able to meet its liabilities as and when they fall due.

As at the date of this report, the 3D seismic acquisition program over the Group's southern licence areas has been completed with final processing of the results remaining ongoing. The directors are of the opinion that the Group has more than adequate financial resources to enable it to complete this work program and provide sufficient working capital over the forthcoming twelve months based on cash flow forecasts and the Group's existing liquid cash resources.

Additional cash resources may become available to the Group following the granting of three new exploration licences in the Bahamas which would result in the completion of the farm in agreement with Statoil and the receipt of consideration funds.

The Group's ability to meet its obligations beyond 2012 is dependent on the level of exploration and appraisal activities undertaken.  The Group has given notice to the Government of the Commonwealth of the Bahamas of its intention to renew the licences for a further three year period, precipitating the requirement that the Group spud a well by 26 April 2013 in order that these licences remain valid.  The ability of the Group to discharge this obligation is contingent on the successful completion of a farm in arrangement or a further equity raise.

(b)        Carrying value of exploration expenditure

Expenditure of $38,927,378 relating to the cost of exploration licences, geological and geophysical consultancy and seismic data acquisition and interpretation has been capitalised as at 31 December 2011 (31 December 2010: $5,024,331). 

Ultimate recoupment of exploration and evaluation assets capitalised is dependent on successful development and commercial exploitation, or alternatively, sale of the respective areas.  The carrying value of the Group's exploration and evaluation expenditure is reviewed at each balance sheet date and, if there is any indication that it is impaired, its recoverable amount is estimated.  Estimates of impairment are limited to an assessment by the directors of any events or changes in circumstances that would indicate that the carrying value of the asset may not be fully recoverable.  Any impairment loss arising is charged to the statement of comprehensive income.

(c)        Share based payments

Share based payments comprise equity settled share options granted during the year to directors, employees and consultants of the Group.  IFRS 2 requires an estimate of the fair value of all options to be undertaken at the date of grant with a charge being made to the consolidated statement of comprehensive income, spread over the expected vesting period of the options.  Fair value is determined using an appropriate pricing model determined by the directors who also determine that the assumptions applied in the calculation of the fair values of the options are appropriate.  Details of the option model and assumptions used are set out in note 18.

5          Employee benefit expense

	2011 Group $		2010 Group $
Directors and employees salaries and fees (including bonuses)	2,273,294		1,816,403
Cessation of service fees and benefits (see note 21)	1,363,259		-
Social security costs	84,394		93,415
Pension costs - defined contribution	14,436		6,714
Share based payments (see note 18)	998,498		-
Other staff costs	237,069		89,773
	4,970,950		2,006,305

6          Other expenses

	2011 Group $		2010 Group $
Travel and accommodation	928,333		627,396
Operating lease payments	464,251		173,426
Premises relocation costs	-		64,377
Legal and professional	2,081,037		1,146,944
Auditor's remuneration;
- Current year audit of parent company and consolidated financial statements	97,608		60,000
-  Prior year audit under/(over) provision	12,909		(14,417)
-  Taxation services	35,919		2,354
-  Other services	-		20,535
Net foreign exchange loss	305,755		112,161
Management & administration fees	288,044		385,515
Other	864,236		756,870
Total other expenses	5,078,092		3,335,161

7          Basic and diluted loss per share

(a)        Basic

Basic loss per share is calculated by dividing the loss attributable to equity holders of the Company by the weighted average number of ordinary shares in issue during the year.

	2011 Group		2010 Group
Loss attributable to equity holders of the Company	$(10,139,145)		$(5,318,458)
Weighted average number of ordinary shares in issue	1,169,713,891		876,109,553
Basic loss per share (US Cents per share)	(0.87)		(0.61)

(b)        Diluted

Diluted loss per share is calculated by adjusting the weighted average number of ordinary shares outstanding to assume conversion of all dilutive potential ordinary shares.  The Company had one category of dilutive potential ordinary shares: share options.  For these share options, a calculation is performed to determine the number of shares that could have been acquired at fair value (determined as the average annual market share price of the Company's shares) based on the monetary value of the subscription rights attached to outstanding share options.  The number of shares calculated as above is compared with the number of shares that would have been issued assuming the exercise of the share options. Share options outstanding at the reporting date were as follows:

	2011 Group		2010 Group
Total share options in issue (see note 18)	21,500,000		-

The effect of the above share options at 31 December 2011 is anti-dilutive; as a result they have been omitted from the calculation of diluted loss per share.

8          Intangible exploration and evaluation assets

Group	Licence costs		Geological, Geophysical and Technical Analysis		Total
	$		$		$
Year ended 31 December 2010
Opening cost / net book amount	1,218,750		2,845,074		4,063,824
Additions	575,000		385,507		960,507
Closing cost / net book amount	1,793,750		3,230,581		5,024,331
Year ended 31 December 2011
Opening cost / net book amount	1,793,750		3,230,581		5,024,331
Additions	-		33,903,047		33,903,047
Closing cost / net book amount	1,793,750		37,133,628		38,927,378

Ultimate recoupment of intangible exploration and evaluation assets capitalised is dependent on successful development and commercial exploitation, or alternatively, sale of the respective areas (note 2.6).

These assets are reviewed for impairment annually or whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.  At present the directors do not believe any such impairment indicators are present.

9          Other receivables

	2011 Group		2010 Group
	$		$
Other receivables (note (a))	135,617		113,298
Prepayments (note (b))	832,177		782,948
	967,794		896,246

(a)        Other receivables

These amounts include VAT recoverable and funds advanced to the resident management office in the Bahamas for forthcoming local expenditure.  The funds are held on a trust account with First Caribbean Bank by the resident management office.  The funds are generally utilised within three months and the receivable is non-interest bearing.

(b)        Prepayments

Prepayments include $500,000 (2010: $500,000) in applications fees paid to the Government of The Commonwealth of the Bahamas for additional exploration licences, pending award.  In the event that the Group's applications are unsuccessful 50% of this amount is refundable to the Group.  No provision has been made in the financial statements to write down the carrying value of these prepayments in the event that the applications are unsuccessful.

10         Trade and other payables

	2011 Group		2010 Group
	$		$
Exploration and evaluation liabilities	1,857,715		-
Accruals	335,547		37,807
Trade payables	481,624		272,029
Other payables	5,592		55,144
	2,680,478		364,980

11         Share capital, share premium and merger reserve

		Number of shares	Issue price	Ordinary shares	Share premium reserve	Merger reserve	Total
Group		$	$	$	$	$	$
At 1 January 2010		789,639,838		28,764	73,634,186	-	73,662,950
16 March 2010	Placing	69,842,860	0.05	2,056	3,490,976	-	3,493,032
15 June 2010	Scheme of Arrangement	-	-	(5,522)	(77,125,162)	77,130,684	-
6 October 2010	Placing	120,000,000	0.07	3,811	7,462,963	-	7,466,774
11 October 2010	Options exercised	2,500,000	0.07	80	180,726	-	180,806
10 November 2010	Options exercised	2,500,000	0.07	80	183,213	-	183,293
23 November 2010	Options exercised	2,896,398	0.07	90	210,693	-	210,783
At 31 December 2010		987,379,096		29,359	8,037,595	77,130,684	85,197,638
17 March 2011	Placing	110,000,000	0.30	3,537	31,445,689	-	31,449,226
13 April 2011	Placing	133,100,000	0.31	4,357	38,701,818	-	38,706,175
At 31 December 2011		1,230,479,096		37,253	78,185,102	77,130,684	155,353,039

The total authorised number of ordinary shares at 31 December 2011 and 2010 was 5,000,000,000 shares with a par value of 0.002p per share.

All issued shares are fully paid.

On 16 March 2010 the Company issued 69,842,860 new ordinary shares in the then Parent Company BPC Limited, incorporated in the Falkland Islands, at 3.5 pence (5 cents) per share.

On 15 June 2010 the Group underwent a Scheme of Arrangement which saw the shares in the Parent Company BPC Limited replaced with shares in Bahamas Petroleum Company plc (then BPC plc), which became the new Parent Company of the Group.

On 6 October 2010 the Company issued 120,000,000 new ordinary shares at 4.25 pence (7 cents) per share.

On 16 March 2011 the Company announced the placement of 243,100,000 new ordinary shares at 18.75 pence per share, raising $70,155,401 in net proceeds (net of $3,848,817 in transaction costs).  Of this placing, 110,000,000 ordinary shares were allotted on 17 March 2011 with the remaining 133,100,000 ordinary shares being allotted on 13 April 2011 following shareholder approval at the Extraordinary General Meeting of the Members of the Company on 11 April 2011.

Share options totalling nil (2010: 7,896,398) were exercised in the year. 

12         Share based payments

Share options are granted to directors, selected employees and consultants to the Company.  The exercise price of the granted options is equal to the fair value of the shares on the date of the grant. 

The Group had no legal or constructive obligation to repurchase or settle any options in cash.  Movements in the number of share options outstanding during the year are as follows:

	Year ended 31 December 2011				Year ended 31 December 2010
	Average exercise price per share		No. Options		Average exercise price per share		No. Options
At beginning of year	-		-		4.55p		7,896,398
Granted in the year	16.10p		21,500,000		-		-
Exercised	-		-		(4.55p)		(7,896,398)
At end of year	16.10p		21,500,000		-		-
Exercisable	21.25p		6,750,000		-		-

On 12 April 2011 the Company granted 13,500,000 share options to directors, management and consultants of the Company.  The options have an exercise price of 21.25 pence and an expiry period of 5 years.  Half of the options became exercisable immediately on grant with the remaining half becoming exercisable once the Company share price reached 50 pence per share.  The options do not lapse in the event that the option holder ceases to hold office at any time during the exercise period.

On 27 October 2011 the Company granted 8,000,000 share options to directors and management.  The options have an exercise price of 7.4 pence, an expiry period of 5 years and become exercisable once the Company share price reaches 18.75 pence per share.  In the event that the option holder ceases to hold office during the exercise period, the survivability of the options is at the explicit discretion of the Board of Directors.

The fair value of the options granted in the year is estimated using the Black Scholes model or, where there are market based vesting conditions, the Black Scholes Barrier model.  The inputs and assumptions used in calculating the fair value of options granted in the year are as follows:

	27 October 2011	12 April 2011
Share price at date of grant	7.4 pence	21.25 pence
Exercise price	7.4 pence	21.25 pence
Expected volatility	36%	61%
Expected life	1.5 years	2 years
Risk free return	1.34%	1.34%
Dividend yield	Nil	Nil
Hurdle rate	18.75 pence	50 pence*
Fair value per option tranche 1	0.16 pence	7.31 pence
Fair value per option tranche 2	n/a	4.67 pence*

*Hurdle rate for options granted on 12 April 2011 applies to 50% of total options granted only, forming tranche 2

Expected volatility has been based on an assessment of the volatility of the share price of the Company and a selection of its peers over a period consistent with the expected life of the options.  The weighted average remaining contractual life of the options in issue at 31 December 2011 is 4.2 years.

Expenses arising from share-based payment transactions

Total expenses arising from equity-settled share-based payment transactions during the year were as follows:

	2011 Group		2010 Group
	$		$
Expense in relation to options issued to Nominated Advisor, included as part of legal and professional expense	-		78,305
Expense in relation to options issued to directors, staff and consultants	998,498		-
	998,498		78,305

13         Cash used in operating activities

	2011 Group		2010 Group
	$		$
Loss after income tax	(10,139,145)		(5,318,458)
Adjustments for:
- Depreciation (note 12)	156,153		38,779
- Share based payment (note 18)	998,498		78,305
- Finance income (note 6)	(66,050)		-
- Foreign exchange loss on operating activities (note 8)	305,755		112,161
- Tax credit (note 9)	-		(61,787)
Changes in working capital
- Other receivables	(71,548)		(426,569)
- Trade and other payables	456,577		154,950
Cash used in operating activities	(8,359,760)		(5,422,619)

14         Contingencies and commitments

(i)         Contingencies

As at 31 December 2011 the Company had entered into a contract with Simon Potter for the provision of a Chief Executive Officer.  The terms of this contract give rise to certain contingent liabilities, details of which may be found in note 21.

(ii)        Expenditure Commitments

As at 31 December 2011 the Group had discharged all of its work obligations under the terms of the existing exploration licence period.

On 26 April 2012 the Group's exploration licences will renew for a further 3 year period, precipitating the obligation that the Group spud an exploration well by 26 April 2013.  In addition, the Group will be obliged to undertake technical expenditure over the renewed 3 year licence period as follows:

	$
Year 1	$400,000
Year 2	$600,000
Year 3	$500,000

At 31 December 2011 the Group had a contractual obligation of $4,995,734 (2010: $nil) in seismic processing costs which had not become payable during the year and consequently, has not been recorded in these financial statements.

(iii)       Annual rental commitments

The Group is required under the exploration licences to remit annual rentals in advance to the Government of The Commonwealth of The Bahamas in respect of the licenced areas.  By letter dated 20 March 2008, the Government of The Commonwealth of The Bahamas approved a two year extension to the existing three year licence period which now expires on 26 April 2012. 

During the year the Company informed the Government of The Commonwealth of The Bahamas of its intention to renew the licences for a further 3 years.  Rentals for year licence in the three year period of renewal are as follows; Year 1 is $57,500, Year 2 is $86,250 and Year 3 is $115,000.

Rental payments on licence areas were resumed in the prior year due to the lifting of the Government of The Commonwealth of The Bahamas requested halt on exploration activities.

No licence rentals were paid in the current year due to the prepayment of these rentals in prior years, when the Group was prohibited from engaging in exploration activities by the Government of The Commonwealth of The Bahamas, pending completion of maritime border negotiations with Cuba.

The Group leases various premises under non-cancellable operating lease agreements.  The leases have varying terms and renewal rights.

(iii)       Annual rental commitments (continued)

The future aggregate minimum lease payments under non-cancellable operating leases are as follows:

	2011 Group		2010 Group
	$		$
No later than 1 year	174,171		86,200
Later than 1 year and no later than 5 years	-		-
Later than 5 years	-		-
	174,171		86,200

15         Related party transactions

Key Management Personnel

Details of key management personnel are as follows:

Adrian Collins	Non-Executive Chairman
Alan Burns	Non-Executive Chairman - Resigned in the year
Simon Potter	Director and Chief Executive Officer
Paul Crevello	Director and Chief Executive Officer - Resigned in the year
Michael Proffitt	Finance Director, Non-Executive - Resigned in the year
Dursley Stott	Non-Executive Director
Steven Weyel	Non-Executive Director - Appointed in the year
Edward Shallcross	Non-Executive Director - Appointed in the year

Key Management Compensation

	2011 Group	2010 Group
	$	$
Short term employee benefits	2,418,662	1,718,987
Cessation of service benefits	1,363,259	-
Share based payments	867,703	-
	4,649,624	1,718,987

During the year cessation of service payments totalling $1,100,000 were paid to Paul Crevello. 

During the year amounts totalling $3,000 (2010: $3,600) were paid by the Company for the maintenance of residential property in the United States of America belonging to Paul Crevello. 

During the year, amounts totalling $8,292 were reimbursed to Paul Crevello for travel and relocation costs following his resignation as CEO of the Company. 

During the year, amounts totalling $17,539 were paid by the Company for the shipping of personal effects belonging to Paul Crevello from the Bahamas to the United States of America following his resignation as CEO of the Company. 

During the year, Paul Crevello was provided with housing in Nassau, the Bahamas for his exclusive use at a cost to the Company of $187,000 (2010: $119,000).  These amounts have been recognised in the financial statements as premises expenses under the categorisation "other costs".

Key Management Compensation (continued)

Simon Potter's key remunerative terms as Chief Executive Officer are as follows:

·              Annual salary of $1,000,000 with minimum CPI indexation.

·              Mr Potter is entitled to receive pension contributions from the company equal to 10% of his annual salary.

·              The term of the contract is 4 years.  Benefits arising from termination during the term range from nil to payment of salary over the full term, depending on the circumstances surrounding termination.

During the year $500,000 was paid to Simon Potter as a sign on bonus prior to commencement of duties.

During the year, amounts totalling $84,341 were reimbursed to Simon Potter for relocation costs following his appointment as CEO of the Company.

During the year Simon Potter was provided with the use of a Company vehicle which had a purchase cost of $104,767.

During the year cessation of service payments totalling $237,428 were paid to Michael Proffitt.

Directors' remuneration

	2011 Group		2010 Group
	$		$
Simon Potter	788,642		-
Adrian Collins	22,471		-
Alan Burns	609,471		783,558
Paul Crevello	1,783,552		802,618
Michael Proffitt	409,801		78,298
Dursley Stott	74,093		54,513
Edward Shallcross	69,476		-
Steven Weyel	24,415		-
Total	3,781,921		1,718,987

Share options granted to directors during the year are as follows:

	Number of Options granted	Exercise price per Ordinary Share	Date of Grant
Simon Potter	4,000,000	7.40p	27 October 2011
Adrian Collins	1,000,000	7.40p	27 October 2011
Steven Weyel	1,000,000	7.40p	27 October 2011
Paul Crevello	4,000,000	21.25p	12 April 2011
Alan Burns	3,000,000	21.25p	12 April 2011
Mike Proffitt	2,500,000	21.25p	12 April 2011
Dursley Stott	1,500,000	21.25p	12 April 2011
Edward Shallcross	1,500,000	21.25p	12 April 2011

Details of share options granted are disclosed in note 18 to these financial statements.

Other related party transactions

During the period to 30 September 2011, goods and administration services totalling $15,336 (2010: $40,870) were procured from Albert Technologies Limited, a company owned by Alan Burns.

During the period to 30 September 2011, Mr M Proffitt and Mr A Burns were both directors and shareholders of

Renewable Energy Holdings Plc (REH).  During this period, fees totalling $40,210 (year to 31 December 2010: $116,531) were paid to REH for shared office facilities, equipment and staffing.  On 12 April 2011 500,000 share options were granted to BDP Orbita Limited for services rendered.

During the year, expenses totalling $14,707 were incurred by the Company on behalf of Sotaterra plc, a company owned by Alan Burns.  These amounts were subsequently recharged to Sotaterra plc resulting in a nil impact on the cash position of the Company and the loss for the year.

During the period to 30 September 2011, accountancy and other financial consultancy services were procured from BDP Orbita Limited, a company in which Benjamin and Daniel Proffitt, relatives of Michael Proffitt, are directors.  Fees totalling $186,194 (year to 31 December 2010: $331,629) were paid to BDP Orbita Limited for these services.  On 12 April 2011 500,000 options were granted by the Company to BDP Orbita Limited (see note 18 for information on the terms of these options).

During the year amounts totalling $5,489 (2010: $4,738) were paid by the Company for the storage of personal effects belonging to Paul Crevello in the United States of America.

 

END

 

 

FR SDFFISFESEID