Bowleven Regulatory News (BLVN)

20 Nov 2007 13:53

BowLeven Plc20 November 2007 20 November 2007 Bowleven Plc ('Bowleven' or 'the Company') Adoption of International Financial Reporting Standards (IFRS) and the US Dollaras a presentational currency for the Group's financial statements. Bowleven, the African focused oil & gas company listed on AIM, today announcesthe publication of the restatement of its 2006-07 comparative financialinformation under IFRS (previously stated under UK Generally Accepted AccountingPractices (UK GAAP)) and the adoption of the US Dollar as the presentationalcurrency for the Group's financial statements with effect from 1 July 2007. The first results to be prepared under IFRS will be the Company's interimresults to 31 December 2007 and will include comparative information for the sixmonths to 31 December 2006. The Company will present its first annual report andaccounts under IFRS for the year ended 30 June 2008, which will includecomparative IFRS financial information for the year ended 30 June 2007. These restatements have been prepared on the basis of revised accountingpolicies that have been agreed with Bowleven's auditors. This restated financialinformation is presented in this release together with reconciliations from UKGAAP to IFRS and these revised accounting policies. The principal differences for Bowleven between reporting on the basis of UK GAAPand IFRS are as follows: • Implementation of IFRS 6, 'Exploration for and Evaluation of Mineral Resources', and adoption of successful efforts from the previously applied full cost accounting under UK GAAP • Expensing pre licence award expenditure previously held within exploration assets • Retranslation of certain assets and liabilities held by subsidiaries with non-US Dollar functional currencies on consolidation • Disclosure and presentational adjustments for certain assets held by the Group The overall impact of the shift to IFRS accounting has been to reduce the valueof the Group balance sheet by 13% to $309.4million as at 30 June 2007. Thisrepresents the aggregation of the one-off expensing of certain past explorationactivities and the impact of various foreign currency translations. The Grouploss for the year to 30 June 2007 increases to $20.1million. This is due to thetranslational impact of a Sterling inter-company loan now presented in USDollars. The value of this loan (and thus the obligation of the fully-ownedsubsidiary concerned) will fluctuate in line with the US Dollar/Sterlingexchange rate and, under IFRS, this variation must be expressed in theconsolidated P&L account. No material adjustments to the accounts have arisenfrom ongoing operations. ENQUIRIES For further information please contact: Bowleven plcJohn Brown, Finance Director 00 44 131 524 5678 Hoare Govett LimitedAndrew Foster 00 44 207 678 8000 Notes to the Editor: Bowleven is an African focused oil and gas Group, based in Edinburgh and tradedon AIM since December 2004. Bowleven holds, through its wholly-owned subsidiary EurOil Limited, a 100%equity interest in the Etinde Permit area being three shallow water blocks inoffshore Cameroon, West Africa; namely Blocks MLHP 5, MLHP 6 and MLHP 7. Intotal Bowleven has approximately 2,300 km2 of exploration acreage located acrossthe Rio del Rey and Douala basins in the Etinde Permit. Bowleven has operated inCameroon since 1999. The Government of Cameroon has announced a cooperation agreement with theGovernment of Equatorial Guinea to investigate a project to export gas fromCameroon to the gas liquefaction plant on Bioko Island on Equatorial Guinea. Itis proposed that Limbe would be the gathering hub for any such scheme. Bowleven also holds, through its wholly-owned subsidiary FirstAfrica Oil, a 100%equity interest in the EOV offshore block in Gabon, which contains an existingoil discovery that it is seeking to develop, and, subject to government of Gabonconsent of a farm out to Addax Petroleum, a 50% equity interest in the EpaemenoBlock, which is 1,340 km2 of exploration acreage in onshore Gabon that sitsadjacent to a number of recent discoveries in surrounding blocks. Introduction and Summary of Changes under IFRS Introduction Bowleven plc is, as an AIM listed company, required to adopt InternationalFinancial Reporting Standards (IFRS), as adopted by the European Union (EU), foraccounting periods beginning on or after 1 January 2007. The first period to bereported using these Standards will be the six month period ending 31 December2007. In order to fully understand the impact of these changes and provide acomparative for the new statements, it is necessary to restate the previouslyreported Balance Sheets at 1 July 2006, 31 December 2006 and 30 June 2007, andthe Income Statement for the year to 30 June 2007 and Income Statement for the 6months ended 31 December 2006. This document sets out how the adoption of IFRS has affected previously reportedresults and it has been prepared using IFRS accounting policies. The Group'sauditors have provided an Independent Audit Report for the year ended 30 June2007 and an Independent Review Report for the six months ended 31 December 2006 period. This document also includes a summary of the impact on the Income Statement and Balance Sheet, the Group's new accounting policies and a detailed reconciliationto the previously reported numbers, which were prepared in accordance with UK GAAP. Bowleven also intends to adopt the US dollar as the presentational currency forthe Group's results for the six months ending 31 December 2007. The Group'sexisting foreign currencies accounting policy (defined under note j in section 'Principal Accounting Policies')has been updated to reflect the revised translation policy to US Dollar. Restated US dollar balances prepared under thisrevised policy have been included in this document for comparative purposes. Summary Changes to the Group's reported financial information for the year ended 30 June2007 as a result of adopting IFRS are summarised as follows: UK GAAP IFRS IFRS IFRS adjustments £'000 £'000 £'000 $'000Income StatementLoss after tax (4,768) (5,403) (10,171) (20,147)--------------------- ------- --------- -------- ------- Basic and diluted earnings per share £(0.09) £(0.10) £(0.19) $(0.37)--------------------- ------- --------- -------- ------- Balance sheetTotal assets less current 175,355 (22,588) 152,767 309,359liabilities ------- --------- -------- ------- The adjustments arise due to the adoption of IFRS 6, IAS 21 and IAS 39. The principal adjustments arise due to the adoption of IFRS 6 'Exploration forand Evaluation of Mineral Resources'. Under UK GAAP, the Group had previouslyadopted the full cost accounting method, as permitted in the provisions of theUK Oil Industry Accounting Committee's 'Statement of Recommended Practice'(SORP) 'Accounting for Oil and Gas Exploration Development, Production andDecommissioning Activities'. The IFRS accounting policy for oil and gas assetsis set out in detail under note f in section 'Principal Accounting Policies'. The impact of IFRS 6 on the Group's Financial Statements is that, firstly, onadoption of a successful efforts accounting policy, any unsuccessful explorationcosts are required to be written off in the Income Statement. Secondly, underIFRS 6, the costs which are incurred prior to the award of licences are alsorequired to be expensed in the Income Statement. These costs included technicalservices and data acquisition necessary for successful licence applications. On adoption of IAS 39 'Financial Instruments: Recognition and Measurement',derivative financial assets and liabilities are recognised on the Balance Sheet,with corresponding adjustments to retained earnings. The exchange loss on theunwinding of forward foreign exchange contracts is recognised in the IncomeStatement for the year ended 30 June 2007. IAS 21 'The Effects of Changes in Foreign Exchange Rates' requires that thefunctional currency for each subsidiary within the Group be determined. A changeof functional currency has been made as at the IFRS transition date to one ofthe Group's subsidiaries to reflect the underlying transactions, events andconditions relevant to that subsidiary. Cash Flow IAS 7 - 'Cash Flow Statements' has had no material impact on the net movement incash and cash equivalents and therefore a cash flow reconciliation is notpresented in this statement. Some presentational differences exist between thecash flow statements presented under UK GAAP and IFRS. First Time Adoption of IFRS IFRS 1 'First Time Adoption of International Financial Reporting Standards'establishes the transitional requirements for the preparation of FinancialStatements upon first time adoption of IFRS. IFRS 1 generally requires an entityto comply with IFRS effective at the reporting date and to apply theseretrospectively to the opening Balance Sheet, the comparative period and thereporting period. The standard allows certain optional exemptions fromretrospective application, and other elections on transition; the exemptionswhich the Group has applied are as follows: • IFRS 3 'Business Combinations' - Not to restate financial information for business combinations which occurred prior to 1 July 2006; and • IFRS 1 - To deem cumulative translation differences arising on consolidation of subsidiary undertakings to be zero at 1 July 2006. Independent Auditor's Report INDEPENDENT AUDITOR'S REPORT TO BOWLEVEN PLC ON THE PRELIMINARY IFRS FINANCIALSTATEMENTS FOR THE YEAR ENDED 30 JUNE 2007 We have audited the accompanying preliminary International Financial ReportingStandards ('IFRS') financial statements of the Company for the year ended 30June 2007 which comprise the Group opening IFRS Balance Sheet as at 1 July 2006,the Group Income Statement for the year ended 30 June 2007 and the Group BalanceSheet as at 30 June 2007, together with the related accounting policies. This report is made solely to the Company in accordance with our engagementletter dated 9 October 2007. Our audit work has been undertaken so that we mightstate to the company those matters we are required to state to them in anauditor's report and for no other purpose. To the fullest extent permitted bylaw, we do not accept or assume responsibility or liability to anyone other thanthe Company for our audit work, for this report, or for the opinions we haveformed. Respective responsibilities of directors and auditors These preliminary IFRS financial statements are the responsibility of thecompany's directors and have been prepared as part of the Company's conversionto IFRS. They have been prepared in accordance with the basis set out inSections 1 and 9 which describe how IFRS have been applied under IFRS 1,including the assumptions management has made about the standards andinterpretations expected to be effective, and the policies expected to beadopted, when management prepares its first complete set of IFRS financialstatements as at 30 June 2008. Our responsibility is to express an independent opinion on the preliminary IFRSfinancial statements based on our audit. We read the other informationaccompanying the preliminary IFRS financial statements and consider whether itis consistent with the preliminary IFRS financial statements. This otherinformation comprises the description of significant changes in accountingpolicies. We consider the implications for our report if we become aware of anyapparent misstatements or material inconsistencies with the preliminary IFRS financial statements. Our responsibilities do not extend to any other information. Basis of audit opinion We conducted our audit in accordance with International Standards on Auditing (UK and Ireland) issued by the Auditing Practices Board. An audit includesexamination, on a test basis, of evidence relevant to the amounts anddisclosures in the preliminary IFRS financial statements. It also includes anassessment of the significant estimates and judgements made by the directors inthe preparation of the preliminary IFRS financial statements, and of whether theaccounting policies are appropriate to the company's circumstances, consistentlyapplied and adequately disclosed. We planned and performed our audit so as to obtain all the information andexplanations which we considered necessary in order to provide us withsufficient evidence to give reasonable assurance that the preliminary IFRSfinancial statements are free from material misstatement, whether caused byfraud or other irregularity or error. In forming our opinion we also evaluatedthe overall adequacy of the presentation of information in the preliminary IFRSfinancial statements. Opinion In our opinion, the preliminary IFRS financial statements for the year ended 30June 2007 have been prepared, in all material respects, in accordance with thebasis set out in Sections 1 and 9, which describes how IFRS have been appliedunder IFRS 1, and the policies expected to be adopted, when management preparesits first complete set of IFRS financial statements as at 30 June 2008. Emphasis of matter Without qualifying our opinion, we draw attention to the fact that, under IFRS's, only a complete set of financial statements with comparative financialinformation and explanatory notes can provide a fair presentation of theCompany's financial position, results of operations and cash flows in accordancewith IFRS's. BAKER TILLY UK AUDIT LLP2 Edinburgh QuayFountainbridgeEH3 9PU Independent Review Report INDEPENDENT REVIEW REPORT TO BOWLEVEN PLC ON THE PRELIMINARY IFRS FINANCIALSTATEMENTS FOR THE SIX MONTHS ENDED 31 DECEMBER 2006 Introduction We have been instructed by the company to review the preliminary InternationalFinancial Reporting Standards ("IFRS") interim financial information for the sixmonths ended 31 December 2006 which comprises the Group Income Statement for thesix months ended 31 December 2006 and the Group Balance Sheet as at 31 December2007. We have read the other information contained in the interim report andconsidered whether it contains any apparent misstatements or materialinconsistencies with the preliminary IFRS interim financial information. This report is made solely to the company in accordance with guidance containedin Bulletin 1999/4 'Review of interim financial information' issued by theAuditing Practices Board. To the fullest extend permitted by the law, we do notaccept or assume responsibility to anyone other than the company for our work,for this report, or for the conclusions we have formed. Directors' responsibilities The preliminary IFRS interim financial information is the responsibility of, andhas been approved by, the Directors. As disclosed, the next annualfinancial statements of the Group will be prepared in accordance with thoseIFRS's adopted for use in the European Union. This preliminary interim financialinformation has been prepared as part of the company's conversion to IFRS inaccordance with the requirements of IFRS 1 'First Time Adoption of InternationalFinancial Reporting Standards' relevant to interim reports. The accountingpolicies are consistent with those that the directors intend to use in the nextfinancial statements. Review work performed We conducted our review in accordance with guidance contained in Bulletin 1999/4'Review of interim financial information' issued by the Auditing Practices Boardfor use in the United Kingdom. A review consists principally of makingenquiries, primarily of persons responsible for financial and accountingmatters, and applying analytical and other review procedures to the financialinformation and underlying financial data, and based thereon, assessing whetherthe accounting policies and presentation have been consistently applied, unlessotherwise disclosed. A review excludes audit procedures such as tests ofcontrols and verification of assets, liabilities and transactions. It issubstantially less in scope than an audit performed in accordance withInternational Standards of Auditing (UK and Ireland) and therefore provides alower level of assurance than an audit. Accordingly we do not express an opinionon the preliminary IFRS interim financial information. Review conclusion On the basis of our review we are not aware of any material modifications thatshould be made to the preliminary IFRS financial information as presented forthe six months ended 31 December 2006. BAKER TILLY UK AUDIT LLP2 Edinburgh QuayFountainbridgeEH3 9PU Group IFRS Income Statement for the Year Ended 30 June 2007 UK GAAP IAS 21 IAS 39 IFRS IFRS £'000 £'000 £'000 £'000 $'000 Administration expenses (7,388) - - (7,388) (15,515)------------------- -------- -------- ------- -------- -------- Operating lossContinuing operations (6,519) - - (6,519) (13,774)Acquisitions (869) - - (869) (1,741)------------------- -------- -------- ------- -------- -------- (7,388) - - (7,388) (15,515) Interest income 2,629 - - 2,629 5,108Finance costs (9) (4,848) (555) (5,412) (9,740)------------------- -------- -------- ------- -------- --------Loss before tax (4,768) (4,848) (555) (10,171) (20,147) Tax - - - - -------------------- -------- -------- ------- -------- --------Loss for the year (4,768) (4,848) (555) (10,171) (20,147)------------------- -------- -------- ------- -------- -------- Basic and diluted earningsper share £(0.09) £(0.09) £(0.01) £(0.19) $(0.37)------------------- -------- -------- ------- -------- -------- Group IFRS Balance Sheet as at 30 June 2007 UK IFRS GAAP adjustments IFRS IFRS 2007 2007 2007 £'000 £'000 £'000 $'000Non-current assetsIntangible explorationassets 95,669 (22,571) 73,098 149,709Property, plant andequipment 31,921 (17) 31,904 63,932----------------------- ------- -------- ------ -------Total non-current assets 127,590 (22,588) 105,002 213,641----------------------- ------- -------- ------ ------- Current assetsInventory 3,893 - 3,893 7,802Trade and otherreceivables 1,039 - 1,039 2,080Cash and cash equivalents 52,550 - 52,550 105,307---------------------- ------- -------- ------- -------Total current assets 57,482 - 57,482 115,189---------------------- ------- -------- ------- ----------------------------- ------- -------- ------- -------Total assets 185,072 (22,588) 162,484 328,830---------------------- ------- -------- ------- ------- Current liabilitiesTrade and other payables 9,717 - 9,717 19,471---------------------- ------- -------- ------- -------Total current liabilities 9,717 - 9,717 19,471---------------------- ------- -------- ------- ------- Total assets less currentliabilities 175,355 (22,588) 152,767 309,359---------------------- ------- -------- ------- ------- EquityCalled-up share capital 7,452 - 7,452 14,377Share premium 177,750 - 177,750 340,058Foreign currencytranslation (913) 13 (900) 13,727Other reserves 3,986 - 3,986 7,384Retained earnings (12,920) (22,601) (35,521) (66,187)---------------------- ------- -------- ------- -------Total equity attributableto the equity holders 175,355 (22,588) 152,767 309,359---------------------- ------- -------- ------- ------- Group IFRS Income Statement for the Half Year Ended 31 December 2006 UK GAAP IAS 21 IAS 39 IFRS IFRS £'000 £'000 £'000 £'000 $'000Administrationexpenses (3,058) - - (3,058) (6,758)------------------ -------- -------- ------- ------- -------- Operating loss (3,058) - - (3,058) (6,758)------------------ -------- -------- ------- ------- -------- Interest income 972 - - 972 1,845Finance costs - (3,377) (499) (3,876) (6,693)------------------ -------- -------- ------- ------- --------Loss before tax (2,086) (3,377) (499) (5,962) (11,606) Tax - - - - ------------------- -------- -------- ------- ------- --------Loss for the period (2,086) (3,377) (499) (5,962) (11,606)------------------- -------- -------- ------- ------- -------- Group IFRS Balance Sheet as at 31 December 2006 IFRS UK GAAP adjustments IFRS IFRS 2006 2006 2006 £'000 £'000 £'000 $'000Non-current assetsIntangible explorationassets 49,218 (20,576) 28,642 58,697Property, plant andequipment 386 (17) 369 724--------------------- -------- --------- --------- ---------Total non-current assets 49,604 (20,593) 29,011 59,421--------------------- -------- --------- --------- --------- Current assetsInventory 4,199 - 4,199 8,238Trade and otherreceivables 11,041 - 11,041 21,660Cash and cash equivalents 79,086 - 79,086 155,153Other financial assets 9,664 (485) 9,179 18,007--------------------- -------- --------- --------- ---------Total current assets 103,990 (485) 103,505 203,058--------------------- -------- --------- --------- ------------------------------ -------- --------- --------- ---------Total assets 153,594 (21,078) 132,516 262,479--------------------- -------- --------- --------- --------- Current liabilitiesTrade and other payables 4,328 - 4,328 8,492--------------------- -------- --------- --------- ---------Total current liabilities 4,328 - 4,328 8,492--------------------- -------- --------- --------- --------- Total assets less currentliabilities 149,266 (21,078) 128,188 253,987--------------------- -------- --------- --------- --------- EquityCalled-up share capital 6,041 - 6,041 11,420Share premium 149,969 - 149,969 281,696Foreign currencytranslation - (5) (5) 12,673Other Reserves 3,494 - 3,494 5,844Retained earnings (10,238) (21,073) (31,311) (57,646)--------------------- -------- --------- --------- ---------Total equity attributableto the equity holders 149,266 (21,078) 128,188 253,987--------------------- -------- --------- --------- --------- Group IFRS Balance Sheet as at 1 July 2006 IFRS UK GAAP adjustments IFRS IFRS 2006 2006 2006 £'000 £'000 £'000 $'000Non-current assetsIntangible explorationassets 40,953 (17,212) 23,741 43,121Property, plant andequipment 381 - 381 692--------------------- -------- ----------- ------- -------Total non-current assets 41,334 (17,212) 24,122 43,813--------------------- -------- ----------- ------- ------- Current assetsInventory 810 - 810 1,471Trade and otherreceivables 435 - 435 790Cash and cash equivalents 42,453 (9,650) 32,803 59,580Other financial assets - 9,664 9,664 17,553--------------------- -------- ------------ ------- -------Total current assets 43,698 14 43,712 79,394--------------------- -------- ------------ ------- ---------------------------- -------- ------------ ------- -------Total assets 85,032 (17,198) 67,834 123,207--------------------- -------- ------------ ------- ------- Current liabilitiesTrade and other payables 1,003 - 1,003 1,822--------------------- -------- ----------- ------- -------Total current liabilities 1,003 - 1,003 1,822--------------------- -------- ----------- ------- -------Total assets less currentliabilities 84,029 (17,198) 66,831 121,385--------------------- -------- ----------- ------- ------- EquityCalled-up share capital 2,961 - 2,961 5,378Share premium 86,002 - 86,002 156,205Other reserves 3,218 - 3,218 5,845Retained earnings (8,152) (17,198) (25,350) (46,043)--------------------- -------- ---------- -------- --------Total equity attributableto the equity holders 84,029 (17,198) 66,831 121,385--------------------- -------- ---------- -------- -------- Principal Accounting Policies a) Basis of preparation These financial statements have been prepared in accordance with IFRS as adoptedby the European Union (EU) and with those parts of the Companies Act, 1985,applicable to companies reporting under IFRS. The financial statements have beenprepared under the historical cost convention as modified by the revaluation ofcertain financial assets and liabilities (including derivative instruments). The preparation of financial statements requires the use of estimates andassumptions that affect the reported amount of assets and liabilities at thedate of the financial statements and the reporting amount of income and expensesduring the year. Although these estimates are based on management's bestknowledge of the amount, event or actions, actual results ultimately may differfrom those estimates. b) Accounting Standards Bowleven has prepared these financial statements in accordance with applicableIFRS as adopted by the EU. c) Functional and Presentational Currency The currency in which the Group's entities primarily generate and expend cash isUnited States Dollars. Thus, in accordance with International AccountingStandard 21, "The Effects of Changes in Foreign Exchange Rates", the Group hasadopted US Dollar as its presentational currency. d) Basis of Consolidation The consolidated accounts include the results of Bowleven PLC and its subsidiaryundertakings at the Balance Sheet date. Bowleven allocates the purchase consideration of any acquisition to assets andliabilities on the basis of fair values at the date of acquisition. Under a Group reconstruction in a prior year, the Company acquired the whole ofthe issued share capital of Bowleven Resources Limited in exchange for shares.The reconstruction has been accounted for in accordance with the transitionalexemptions of IFRS 1 'First Time Adoption of International Financial ReportingStandards'. e) Business Combinations The acquisition of subsidiaries by the Group is accounted for by using thepurchase method. On acquisition, the assets, liabilities and contingent liabilities of asubsidiary are measured at their fair values at the date of acquisition. Business combinations arising prior to the Group's transition date to IFRS (1July 2006) have not been revisited under the exemption provided by IFRS 1. f) Oil and Gas: Intangible Assets - Exploration/Appraisal Assetsand Property, Plant and Equipment - Development/Producing Assets The Company applies the successful efforts method of accounting for explorationand appraisal (E&A) costs having regard to the requirements of IFRS 6:"Exploration for and Evaluation of Mineral Resources". The impact of applyingthis method is to write off £15,915,000 for abortive well costs as at thetransition date (1 July 2006). Costs incurred prior to obtaining the legal right to explore an area areexpensed directly to the Income Statement as they are incurred. This hasresulted in a write off of £1,297,000 as at the transition date. All licence acquisition, exploration and appraisal costs (including seismic) arecapitalised initially as intangible assets by well, field or exploration area asappropriate. Once commercial reserves are established and technical feasibility forextraction determined, then the carrying cost, after adjusting for anyimpairment that may be required (see below), of the relevant exploration andappraisal asset is then reclassified as a single field cost centre andtransferred into development and producing assets. In the event that nocommercial reserves have been found, the results of the exploration activity nolonger contribute to ongoing exploration work, or if the company decides not tocontinue exploration and appraisal activity in the area, then the costs of suchunsuccessful exploration and appraisal is written off to the Income Statement inthe period in which the determination is made. The significant components of the development and production assets are thefields. The fields are aggregated to represent the cost of developing thecommercial reserves discovered, together with the exploration and appraisalcosts transferred from intangible exploration and appraisal assets, and bringingthem into production. The development and production costs also include: i. Costs of assets acquired/purchased;ii. Directly attributable overheads;iii. Finance costs; andiv. Decommissioning and restoration. Depletion and Depreciation Bowleven depletes expenditure on development and production assets using theunit of production method, based on proved and probable reserves on a field byfield basis. The depletion calculation takes account of the estimated future costs of thedevelopment of recognised proved and probable reserves. Principal Accounting Policies (continued) Currently there are no significant items of property, plant and equipment deemedto have different useful lives. Other significant items of property, plant and equipment are depreciatedseparately over their deemed economic lives. Other significant items ofproperty, plant and equipment include: i. Pipelines; andii. Processing facilities. Impairment In accordance with IFRS 6, exploration and appraisal assets are reviewedregularly for indicators of impairment and costs written off where circumstancesindicate that the carrying value might not be recoverable. Where there has been a charge for impairment in an earlier period that chargewill be reversed in a later period where there has been a change incircumstances to the extent that the discounted future net cash flows are higherthan the net book cost at the time. In reversing impairment losses, the carryingamount of the asset will be increased to the carrying value that would have beendetermined (net of depletion) had no impairment loss been recognised in priorperiods. Impairment reviews on development and production assets are carried out on eachcash-generating unit in accordance with IAS 36 "Impairment of Assets". Animpairment test is performed whenever events or circumstances arising during thedevelopment or production phase indicate that the carrying value of a cashgenerating unit may exceed its recoverable amount. An impairment test is alsocarried out before the transfer of costs related to assets which are beingtransferred to development and production assets following establishment ofcommercial reserves. The cash generating unit for impairment purposes are those assets which generatelargely independent cash flows and are normally, but not always, singledevelopment areas. Where there are indicators of impairment the carrying value of each cashgenerating unit is compared with its recoverable amount, i.e. the associatedexpected discounted future net cash flows. If the carrying value is higher thanthe recoverable amount, the value is written down to the recoverable amount andthe loss is written off to the Income Statement as an impairment loss. Forecasted production profiles are determined on an asset by asset basis, usingappropriate petroleum engineering techniques. Disposals Net proceeds from any disposal of an exploration/appraisal asset or development/production asset are credited initially against the previously capitalised cost.Any surplus proceeds are credited to the Income Statement. Any surplus gain or loss arising on disposal of a development/production assetis recognised in the Income Statement to the extent that the net proceeds exceedor are less than the appropriate portion of the net capitalised cost of theasset. g) Inventories Inventories are stated at the lower of cost and net realisable value. Costincludes all costs incurred in bringing each product to its present location andcondition as follows: Materials and equipment inventory -- purchase cost on a first-in, first-outbasis. h) Financial Instruments Financial assets and financial liabilities are recognised on the Group's BalanceSheet when the Group becomes party to the contractual provisions of theinstrument. The Group does not currently have any existing derivative financialinstruments in place, but has used them during the reported periods to manageits exposure to fluctuations in foreign exchange rates. Derivative financial instruments are stated at fair value and are re-measuredeach period and where measurement differences occur, the gain or loss arisingfrom the re-measurement in fair value is recognised immediately in the IncomeStatement. Trade and Other Receivables Trade receivables are recognised and carried at the original invoice amount lessany provision for impairment. Other receivables are recognised and measured atnominal value. Trade and other receivables are recognised when invoiced. Cash and Cash Equivalents Cash and cash equivalents comprise cash at bank and short term deposits with anoriginal maturity of three months or less. Trade Payables and Other Creditors Trade payables and other creditors are non-interest bearing and are measured atcost. i) Decommissioning The Group recognises the full discounted cost of decommissioning when theobligation to rectify environmental damage arises principally on developmentsanction. The amount recognised is the present value of the estimated futureexpenditure. A corresponding development and production asset of an amount equivalent to theprovision is also created. This is subsequently depreciated as part of the capital cost of the developmentand production asset. Any change in the present value of the estimatedexpenditure is reflected as an adjustment to the provision and the asset. The unwinding of the discount on the decommissioning provision is included as afinance cost. j) Foreign Currencies Transactions entered into in a currency other than the functional currency aretranslated into the functional currency using the exchange rates prevailing atthe dates of the transactions. At each Balance Sheet date, the monetary assets and liabilities of the Group'sentities that do not use US Dollars as their functional currency are translatedinto US Dollar at exchange rates prevailing on the Balance Sheet date and ratesat the date of transactions for Income Statement accounts. Non-monetary assets are translated at historic rate with gains or losses onretranslation being recognised in the Income Statement. The resulting exchangedifferences are classified as a separate component of equity until disposal ofthe subsidiary. On disposal the cumulative amounts of exchange differences arerecognised in the Income Statement. In accordance with the transitional provisions of IFRS 1, cumulative foreignexchange translation differences for all subsidiaries that do not use US Dollaras a functional currency have been set to zero at the date of transition toIFRS. The exchange rate used for the retranslation of the closing Balance Sheet at 30June 2007 is £1/$2.00 (2006: £1/$1.82). Reconciliation of Group Equity as at 30 June 2007 IFRS 6 IAS 21 IAS 39 Total IFRS UK GAAP adjustments adjustments adjustments adjustments IFRS IFRS £'000 £'000 £'000 £'000 £'000 £'000 $'000See notes on reconciling a b citems below Intangibleexplorationassets 95,669 (17,212) (4,818) (541) (22,571) 73,098 149,709Property,Plant andEquipment 31,921 - (17) - (17) 31,904 63,932------------------- -------- -------- -------- -------- -------- ------- --------Totalnon-currentassets 127,590 (17,212) (4,835) (541) (22,588) 105,002 213,641------------------- -------- -------- -------- -------- -------- ------- -------- Inventory 3,893 - - - - 3,893 7,802Trade andotherreceivables 1,039 - - - - 1,039 2,080Cash and cashequivalents 52,550 - - - - 52,550 105,307------------------- -------- -------- -------- -------- -------- ------- --------Total currentassets 57,482 - - - - 57,482 115,189------------------- -------- -------- -------- -------- -------- ------- --------------------------- -------- -------- -------- -------- -------- ------- --------Total assets 185,072 (17,212) (4,835) (541) (22,588) 162,484 328,830------------------- -------- -------- -------- -------- -------- ------- -------- Trade andother payables 9,717 - - - - 9,717 19,471------------------- ------- -------- -------- -------- -------- ------- --------Total currentliabilities 9,717 - - - - 9,717 19,471------------------- -------- -------- -------- -------- -------- ------- -------- ------------------- -------- -------- -------- -------- -------- ------- --------Total assetsless currentliabilities 175,355 (17,212) (4,835) (541) (22,588) 152,767 309,359------------------- -------- -------- -------- -------- -------- ------- -------- EquityShare capital 7,452 - - - - 7,452 14,377Share premium 177,750 - - - - 177,750 340,058Foreign currencytranslation (913) - 13 - 13 (900) 13,727Other reserves 3,986 - - - - 3,986 7,384Retained earnings (12,920) (17,212) (4,848) (541) (22,601) (35,521) (66,187)------------------- -------- -------- -------- -------- -------- ------- --------Total equity 175,355 (17,212) (4,835) (541) (22,588) 152,767 309,359------------------ -------- -------- -------- -------- -------- ------- -------- Reconciling Items between UK GAAP and IFRS for the Year Ended 30 June 07 a) IFRS 6 adjustments The previous impact of IFRS 6 on the Group's Financial Statement is to write off£15,915,000 ($28,906,000) of abortive exploration costs, upon adoption of thesuccessful efforts accounting method, from intangible assets to retainedearnings. These costs were previously capitalised under UK GAAP using the fullcost accounting method. Pre licence award costs capitalised under UK GAAP arealso required to be written off to the Income Statement under IFRS 6. Thedecrease in intangible exploration assets following the write off of pre-licenceaward costs is £1,297,000 ($2,356,000) at June 2007. b) IAS 21 adjustments IAS 21 requires that the functional currency for each subsidiary within theGroup be determined. Where the functional currency is different from the Group'sUS Dollar presentational currency, all assets and liabilities of thosesubsidiaries should be converted to US Dollars at closing rates onconsolidation. The majority of the Group's subsidiary undertakings now have a US Dollarfunctional currency. The primary effect of applying this policy retrospectivelyfrom the transition date is an exchange loss of £4.8 million on theretranslation of the intangible assets previously recorded in Sterling intotheir functional currency of US Dollars. In accordance with IAS 21, cumulative exchange differences are now recognised asa separate component within equity. The retranslation of inter company loansfrom functional to presentational currency for subsidiaries resulted in exchangelosses which have been recognised in the Group Income Statement. Bowleven has taken advantage of the exemptions offered under IFRS 1 and deemedcumulative translation differences to be zero at 1 July 2006. An exchange gain of $13.7 million has primarily arisen on retranslation of sharepremium into US Dollars as the functional currency of the parent company isSterling. There are no other significant elements in the foreign currency reserve. For the year ending 30 June 2008, Bowleven is intending to present its financialresults in US Dollars with the associated accounting policies being updatedaccordingly. c) IAS 39 adjustments On adoption of IAS 39 derivative financial assets and liabilities are recognisedon the Balance Sheet and corresponding adjustments to retained earnings.Accordingly, the intangible exploration assets and cash and cash equivalentshave been adjusted by £541,000 in respect of a foreign currency derivative (thepurpose of the forward contract was to manage the Dollar expenditure onintangible assets). Reconciliation of Group Equity as at 31 December 2006 IFRS 6 IAS 21 IAS 39 Total IFRS UK GAAP adjustments adjustments adjustments adjustments IFRS IFRS £'000 £'000 £'000 £'000 £'000 £'000 $'000See notes on a b creconciling items below Intangibleexplorationassets 49,218 (17,212) (3,364) - (20,576) 28,642 58,697Property, plant andequipment 386 - (17) - (17) 369 724---------------- -------- -------- -------- -------- -------- ------- --------Totalnon-currentassets 49,604 (17,212) (3,381) - (20,593) 29,011 59,421---------------- -------- -------- -------- -------- -------- ------- -------- Inventory 4,199 - - - - 4,199 8,238Trade and otherreceivables 11,041 - - - - 11,041 21,660Cash and cashequivalents 79,086 - - - - 79,086 155,153Other financialassets 9,664 - - (485) (485) 9,179 18,007---------------- -------- -------- -------- -------- -------- ------- --------Total currentassets 103,990 - - (485) (485) 103,505 203,058---------------- -------- -------- -------- -------- -------- ------- ------------------------ -------- -------- -------- -------- -------- ------- --------Total assets 153,594 (17,212) (3,381) (485) (21,078) 132,516 262,479---------------- -------- -------- -------- -------- -------- ------- -------- Trade andother payables 4,328 - - - - 4,328 8,492---------------- -------- -------- -------- -------- -------- ------- --------Total currentliabilities 4,328 - - - - 4,328 8,492---------------- -------- -------- -------- -------- -------- ------- ------------------------ -------- -------- -------- -------- -------- ------- --------Total assetsless currentliabilities 149,266 (17,212) (3,381) (485) (21,078) 128,188 253,987---------------- -------- -------- -------- -------- -------- ------- -------- EquityShare capital 6,041 - - - - 6,041 11,420Share premium 149,969 - - - - 149,969 281,696Foreigncurrencytranslation - - (5) - (5) (5) 12,673Other Reserves 3,494 - - - - 3,494 5,844Retainedearnings (10,238) (17,212) (3,376) (485) (21,073) (31,311) (57,646)---------------- -------- -------- -------- -------- -------- ------- --------Total equity 149,266 (17,212) (3,381) (485) (21,078) 128,188 253,987---------------- -------- -------- -------- -------- -------- ------- -------- Reconciling Items between UK GAAP & IFRS for the 6 Months Ended 31 Dec 2006 a) IFRS 6 adjustments The impact of IFRS 6 on the Group's Financial Statement is to write off£15,915,000 ($28,906,000) of abortive exploration costs, upon adoption of thesuccessful efforts accounting method. These costs were previously capitalisedunder UK GAAP using the full cost accounting method. Pre licence award costscapitalised under UK GAAP are also required to be written off to the IncomeStatement under IFRS 6. The decrease in intangible exploration assets followingthe write off of pre-licence award costs is £1,297,000 ($2,356,000) at December2006. b) IAS 21 adjustments IAS 21 requires that the functional currency for each subsidiary within theGroup be determined. Where the functional currency is different from the Group'sUS Dollar presentational currency, all assets and liabilities of thosesubsidiaries should be converted to US Dollars at closing rates onconsolidation. The majority of the Group's subsidiary undertakings now have a US Dollarfunctional currency. The primary effect of applying this policy retrospectivelyfrom the transition date is an exchange loss on the retranslation of theintangible assets previously recorded in Sterling into their functional currencyof US Dollar. In accordance with IAS 21, cumulative exchange differences are now recognised asa separate component within equity. The retranslation of inter company loansfrom functional to presentational currency for subsidiaries has resulted in exchange losses which have been recognised in the Group Income Statement. Bowleven has taken advantage of the exemptions offered under IFRS 1 and deemedcumulative translation differences to be zero at 1 July 2006. An exchange gain of $12.6 million has primarily arisen on retranslation of sharepremium into US Dollars as the functional currency of the parent company isSterling. There are no other significant elements in the foreign currency reserve. For the year ending 30 June 2008, Bowleven is intending to present its financialresults in US Dollars with the associated accounting policies being updatedaccordingly. c) IAS 39 adjustments On adoption of IAS 39 derivative financial assets and liabilities are recognisedon the balance sheet and corresponding adjustments to retained earnings.Accordingly the other financial assets have been adjusted by £485,000 in respectof a foreign currency derivative. Reconciliation of Group Equity as at 1 July 2006 IFRS 6 IAS 39 Total IFRS UK GAAP adjustments adjustments adjustments IFRS IFRS £'000 £'000 £'000 £'000 £'000 $'000See notes on a breconciling itemsbelow Intangibleexplorationassets 40,953 (17,212) - (17,212) 23,741 43,121Property,plant andequipment 381 - - - 381 692---------------- -------- -------- -------- -------- ------- --------Totalnon-currentassets 41,334 (17,212) - (17,212) 24,122 43,813---------------- -------- -------- -------- -------- ------- -------- Inventory 810 - - - 810 1,471Trade andotherreceivables 435 - - - 435 790Cash and cashequivalents 42,453 - (9,650) (9,650) 32,803 59,580Otherfinancialassets - - 9,664 9,664 9,664 17,553---------------- -------- -------- -------- -------- ------- --------Total currentassets 43,698 - 14 14 43,712 79,394---------------- -------- -------- -------- -------- ------- -------- Total assets 85,032 (17,212) 14 (17,198) 67,834 123,207---------------- -------- -------- -------- -------- ------- -------- Trade andother payables 1,003 - - - 1,003 1,822---------------- -------- -------- -------- -------- ------- --------Total currentliabilities 1,003 - - - 1,003 1,822---------------- -------- -------- -------- -------- ------- -------- ---------------- -------- -------- -------- -------- ------- --------Total assetsless currentliabilities 84,029 (17,212) 14 (17,198) 66,831 121,385---------------- -------- -------- -------- -------- ------- -------- EquityShare capital 2,961 - - - 2,961 5,378Share premium 86,002 - - - 86,002 156,205Other reserves 3,218 - - - 3,218 5,845Retainedearnings (8,152) (17,212) 14 (17,198) (25,350) (46,043)---------------- -------- -------- -------- -------- ------- --------Total equity 84,029 (17,212) 14 (17,198) 66,831 121,385--------------- -------- -------- -------- -------- ------- -------- Reconciling Items between UK GAAP and IFRS as at 1 July 06 a) IFRS 6 adjustments The impact of IFRS 6 on the Group's Financial Statement is to write off£15,915,000 ($28,906,000) of abortive exploration costs, upon adoption of thesuccessful efforts accounting method. These costs were previously capitalisedunder UK GAAP using the full cost accounting method. Pre licence award costscapitalised under UK GAAP are also required to be written off to the IncomeStatement under IFRS 6. The decrease in intangible exploration assets followingthe write off of pre-licence award costs is £1,297,000 ($2,356,000) at June2007. b) IAS 39 adjustments On adoption of IAS 39 derivative financial assets and liabilities are recognisedon the balance sheet and corresponding adjustments to retained earnings.Accordingly £9,650,000 within cash and cash equivalents has been reclassified asother financial assets in respect of a forward Dollar currency contract thatwas used as a hedge against drilling costs. Calculation of the fair market valueas at 30 June 2006 resulted in a gain of £14,000, which has been carried toreserves. This information is provided by RNS The company news service from the London Stock Exchange