DES.L Regulatory News (DES)

30 Apr 2008 07:01

Desire Petroleum PLC30 April 2008 For Immediate Release 30 April 2008 Desire Petroleum "Desire" or "The Company" Preliminary Results CHAIRMAN'S STATEMENT The period since the last Report and Accounts has been an eventful one forDesire, culminating in the acceptance of the terms of an offer from asignificant exploration company to farm-in to three of the eighteen prospectsidentified, to date, in the North Falkland Basin Licences held by the Company.The farm-in is subject to certain awards and approvals by the Falkland IslandsGovernment which are currently awaited. The terms of the farm-in and theprospects involved will be announced when these are received. Your Board very much welcomes the opportunity to work with our prospectivepartner, whose exploration philosophy fits extremely well with that of Desire.In particular, their technical input, especially with regard to amplitudevariation with offset (AVO) analysis of the seismic data, has been impressiveand extremely beneficial in substantially de-risking the prospects that they arefarming-into. In addition, Desire has also conducted AVO and other analyses overother, retained prospects, increasing their number, considerably de-risking themand enhancing their potential. The mid-estimate of the Company's potentialreserves now exceeds four billion barrels of recoverable oil. When approved, the farm-in will involve the drilling of two exploration wells atno cost to Desire, including the mobilisation and demobilisation costsassociated with the two wells. In addition to these two wells, Desire hasundertaken to drill two wells for its own account, using the same rig. Atcurrent rig rates, the Company has the resources to do this. It is probable thatthese wells will be drilled in Tranches C and I and, during the period underreview, Wavefield-InSeis ASA were contracted to carry out high-resolution,shallow-seismic acquisition for site surveys over several more of the Company'sprospects. Everything is in place for drilling in Tranches C and D and the finalrequirement for drilling in Tranches I and L, an EIA (environmental impactassessment), is currently being carried out. As a result of the proposed farm-in, and of the stated drilling intentions ofother Falkland Licencees, the search for a suitable drilling rig has beenaccelerated and a number of possible units are being investigated. Much willdepend upon the cost and availability of these units but it is hoped that thecooperative effort now being undertaken will lead to success in thenot-too-distant future. The results for the year ended 31 December 2007 have been prepared underInternational Financing Reporting Standards (IFRS), in accordance with theLondon Stock Exchange rules for AIM-listed companies. All comparative values forthe previous year have been restated to align with IFRS requirements. Areconciliation between comparative values under IFRS, and as formerly reportedunder UK Generally Accepted Accounting Principles (UK GAAP), has been publishedpreviously and is available on the Group's website at www.desireplc.co.uk. The loss for the year was £577,000. The increase in administrative expensesarises solely through a reduced recharge to joint-venture licences, as the focusof the Company has moved towards farm-out activity, and on enhancing theprospectivity of its 100% equity licences. The non-cash charge for share-basedpayment has remained in line with the 2006 charge, and is expected to be at asimilar level in 2008. The majority of the Company's funds are held in US dollars to match expectedexpenditure on future exploration programmes. The Company's US dollar balancesreduced from $39m to $38m during the year, after payment for additionallong-leadtime casing, tubulars and wellheads required for the programme. Theexchange loss for the year, on these dollar balances, arises from astrengthening of the pound against the dollar since the last year-end, from$1.96/£ to $1.99/£. Dollar-interest income was in line with the previous year, with higher interestrates offsetting the reduced cash balance. However, the sterling-equivalent,total interest income in the year fell to £1,025,000 with the dollar incometranslated at an average rate for the year of $2.00/£, compared to an averagerate of $1.84/£ in 2006. Recent cuts in US interest rates will impact on theCompany's interest income going forward. Included in the Report and Accounts is a letter to shareholders requesting youragreement to the future supply of documents and information to shareholders inelectronic form. Special Resolution No. 8, to be put to shareholders at theAnnual General Meeting, covers the same request. The near universal use ofelectronic communications will deliver significant savings to the Company andgreatly improve shareholders access to information. As usual, I am pleased to congratulate the members of the Board on their hardand successful work during the period. I am also delighted to welcome Bob Lyonsas a new member of the Board. Bob is already familiar with the Company'sactivities from his previous work in a consultant capacity and his experience inoff-shore drilling complements the skills of the other Directors, thuscompleting a most-effective team. On a personal note, the pancreatic cancer, for which I underwent an operation inDecember 2006, has, unfortunately, spread to other parts of my body and I ambeginning another course of chemotherapy. As a consequence, it is my intentionto retire from the Chairmanship and the Board before the Annual General Meeting.The Board has decided to appoint Stephen Phipps as Chairman in my stead. Itremains for me to thank shareholders for their patience and loyalty over theyears and to wish you all a very successful drilling campaign. Dr Colin B. Phipps30 April 2008 For more information, please contactDesire Petroleum plc 020 7436 0423Colin Phipps, ChairmanDr Ian Duncan, Chief Executive Officer Buchanan Communications 020 7466 5000Ben WilleyBen Romney CONSOLIDATED INCOME STATEMENTfor the year ended 31 December 2007 2006 2007 Note £'000 £'000 ---------------------------------- ------ -------- -------- Administrative expenses 3 (669) (751)Share-based payment expense (263) (267)Foreign-exchange loss (2,686) (332) -------- -------- Operating loss (3,618) (1,350) Investment revenues 6 1,135 1,025 -------- -------- Loss before tax (2,483) (325) Tax 7 (336) (252) -------- -------- Loss for the financial year 18 (2,819) (577) ======== ======== Earnings per shareLoss per share (pence): Basic 8 (1.27) (0.26)Loss per share (pence): Diluted 8 n/a n/a ======== ======== Movements on reserves are shown in note 18 to these Accounts. There is no difference between the results as disclosed above and the results onan historical-cost basis. All operating income and operating gains and losses relate to continuingactivities. CONSOLIDATED STATEMENT OF TOTAL RECOGNISED INCOME AND EXPENSEfor the year ended 31 December 2007 2006 2007 Note £'000 £'000 ---------------------------------- ------ -------- -------- Loss for the financial year (2,819) (577) Currency-translation difference on foreign currency,net investment - (4) -------- -------- Total recognised income and expense for the year (2,819) (581) ======== ======== BALANCE SHEETSAt 31 December 2007 The Group The Company As restated As at As restated As at 31.12.06 31.12.07 31.12.06 31.12.07 Note £'000 £'000 £'000 £'000---------------------- ------ -------- -------- -------- -------- Non-current assetsIntangible assets 11 6,867 7,650 6,867 7,650Property, plant & 10 1,474 2,292 1,474 2,292equipment -------- -------- -------- -------- 8,341 9,942 8,341 9,942 -------- -------- -------- -------- Current assetsTrade and other 13 654 68 646 67receivablesCash and cash 14 22,812 21,635 22,811 21,634equivalents -------- -------- -------- -------- 23,466 21,703 23,457 21,701 -------- -------- -------- --------Total assets 31,807 31,645 31,798 31,643 ======== ======== ======== ======== Current liabilitiesTrade and other 15 (903) (142) (850) (122)payablesCurrent tax liabilities (336) (251) (336) (251)Bank overdrafts (40) (12) (40) (12) -------- -------- -------- --------Total liabilities (1,279) (405) (1,226) (385) -------- -------- -------- --------Net assets 30,528 31,240 30,572 31,258 ======== ======== ======== ======== EquityShare capital 17 2,225 2,271 2,225 2,271Share premium account 18 45,627 46,607 45,626 46,606Retained earnings 18 (17,324) (17,638) (17,279) (17,619) -------- -------- -------- -------- Total equity 30,528 31,240 30,572 31,258 ======== ======== ======== ======== These Accounts were approved by the Board of Directors and authorised for issueon 30 April 2008 They were signed on its behalf by: Dr C B PhippsChairman CONSOLIDATED CASH FLOW STATEMENTfor the year ended 31 December 2007 Year Year ended ended 31.12.06 31.12.07 Note £'000 £'000---------------------------------- ------ -------- -------- Net cash from operating activities 20a (1,184) (760) ------ -------- -------- Investing activitiesInterest received 1,135 1,025Purchase of tangible and intangible assets (1,383) (2,108) ------ -------- -------- Net cash from/(invested in) investing activities (248) (1,083) ------ -------- -------- Financing activitiesProceeds on issue of shares 255 1,026 ------ -------- -------- Net cash from financing activities 255 1,026 ------ -------- -------- Net increase/(decrease) in cash and cash (1,177) (817)equivalents Cash and cash equivalents at the beginning of 26,635 22,772the year Effect of foreign-exchange rate changes (2,686) (332) ------ -------- -------- Cash and cash equivalents at the end of the year 20b 22,772 21,623 ====== ======== ======== NOTES TO THE FINANCIAL STATEMENTS 1 Accounting policies The Accounts are based on the following policies which have been consistentlyapplied: Basis of preparation As an AIM-listed company, the Group is required to adopt International FinancialReporting Standards (IFRS) with effect from 1 January 2007. The Group's date oftransition to IFRS was 1 January 2006. The results for the year ended 31December 2007 represent the Group's first financial statements prepared inaccordance with IFRS as adopted by the EU and the International AccountingStandards Board. A reconciliation between comparative values under IFRS and asreported under UK Generally Accepted Accounting Principles (UK GAAP) has beenpublished previously and is available on the Group's website atwww.desireplc.co.uk. IFRS 1 'First Time Adoption of International Financial Reporting Standards'(IFRS1) sets out the rules for an entity preparing its first IFRS financialstatements. The entity is required to determine the IFRS accounting policies inaccordance with the IFRS that are in place at the date of the transition (1January 2006) and, in general, apply them retrospectively. There are a number ofpossible exemptions from the retrospective application to assist the entity onmaking the transition. The Group has taken the following exemptions: a) Business combinations : the Group has elected not to restate businesscombinations prior to the transition date (1 January 2006). b) Cumulative-translation differences : the Group has elected to adopt theexemption that resets all cumulative translation gains and losses for allforeign operations to zero at the transition date. c) Share-based payments : the Group has elected to exclude share-basedarrangements that were granted prior to 8 November 2002 or that have vestedprior to the transition date. The Group has continued to apply the full-cost accounting policy, explainedfurther in the Goodwill and intangible asset accounting policy note, aspermitted by IFRS 6 'Exploration for and Evaluation of Mineral Resources'. Accounting estimates The Group's accounting policies make use of accounting estimates and judgmentsin the following areas; impairment, depreciation and share-based payments. Theseare described in more detail in the relevant accounting policy. Basis of consolidation The Group accounts consolidate the accounts of the Holding Company and all itssubsidiary undertakings, all of which were made up to 31 December 2007. Goodwill and intangible assets a. Goodwill When the fair value of the consideration for an acquired undertaking exceeds thefair value of its separable net assets, the difference is treated as purchasedgoodwill and is capitalised. When the fair value of the consideration for anacquired undertaking is less than the fair value of its separable net assets,the difference is taken directly to the income statement. Goodwill is notamortised but is reviewed at least annually for impairment. b. Acquired intangibles Intangible assets, which are capable of being recognised separately and measuredreliably on acquisition of a business, are capitalised at fair value onacquisition. Where these assets have a finite life, they are amortised over theperiod that they are expected to generate benefits, but generally not exceedingten years. c. Research and development Research expenditure is recognised as an expense as incurred. Costs incurred ondevelopment projects are recognised as intangible assets when it is probablethat the project will be a technological and commercial success. Otherdevelopment expenditure is recognised as an expense as incurred. d. Computer software Computer-software costs are amortised over their expected useful lives, asfollows:Computer software 20% straight line basis e. Oil and gas expenditure The Group applies the full-cost method of accounting, in accordance with IFRS 6'Exploration for and Evaluation of Mineral Resources' (IFRS 6), under whichexpenditure relating to the acquisition, exploration, and evaluation of oil andgas interests, including an appropriate share of directly-attributable overheadsand relevant-financing cost, is capitalised. If no discoveries are made, theaccumulated capitalised costs will be written off through the income statement.Where the facts and circumstances indicate that exploration and evaluation costsexceed their recoverable amount, the intangible costs are tested for impairment.The cost of plant acquired to carry out exploration activities is treated as atangible asset. The depreciation of such plant is capitalised as intangibleassets. f. Consortia and farm-out agreements In addition to holding licences on its own account, the Group is a member ofconsortia. The Group's proportionate share of the consortia costs are includedin intangible assets or PPE, as appropriate. During the year, the Groupcontinued with a farm-out agreement with a third party in respect of certainlicences. The Group's proportionate share of the costs is included in intangibleassets and PPE as appropriate. Property, plant and equipment (PPE) a. Oil and gas interests The Group applies the full-cost method of accounting, in accordance with IFRS 6'Exploration for and Evaluation of Mineral Resources' (IFRS 6), and theStatement of Recommended Practice ' Accounting for Oil and Gas Exploration,Development, Production and Decommissioning Activities', under which expenditurerelating to the development of oil and gas interests, including an appropriateshare of directly attributable overheads and relevant-financing cost, iscapitalised in cost pools on the basis of income-generating units. Capitalisedcosts are amortised on a unit of production basis, over proven and probablereserves, taking account of estimates of future costs of development relating tothose reserves. Depreciation of plant acquired to carry out explorationactivities is capitalised as intangible assets. b. Other Property plant and equipment are stated at cost or valuation less depreciation.Depreciation is provided at rates calculated to write off the cost or valuation,less estimated residual value of each asset, over its expected useful life, asfollows:Equipment and fixtures 20% straight line basis Investments Investments in subsidiary undertakings are shown at cost less provisions forestimated impairments in value. Foreign currencies a. Functional and presentation currency Items included in the financial statements of each of the Group's entities aremeasured using the currency of the primary-economic environment in which theentity operates ('the functional currency'). The consolidated-financialstatements are presented in Sterling, which is the Company's functional andpresentation currency. b. Transactions and balances Transactions denominated in foreign currencies are translated into thefunctional currency at the exchange rate prevailing at the dates of thetransactions. Monetary assets and liabilities denominated in foreign currenciesare translated into the functional currency at the exchange rates ruling at theyear-end. Foreign-exchange gains and losses resulting from the settlement ofsuch transactions, and from the translation at year-end exchange rates ofmonetary assets and liabilities denominated in foreign currencies are recognisedin the income statement, except when deferred in equity as qualifying cash-flowhedges and qualifying-investment hedges. Exchange differences arising from thetranslation of the balance sheets and income statements of foreign operationsinto Sterling are recognised as a separate component of equity on consolidation.When a foreign operation is sold, such exchange differences are recognised inthe income statement as part of the gain or loss on sale. Taxation a. Current income tax Current tax, including UK corporation tax, is provided on amounts expected to bepaid or recovered using the tax rates and laws that have been enacted orsubstantially enacted by the Balance-sheet date. b. Deferred income tax Deferred income tax is provided in full, using the liability method, ontemporary differences arising between the tax bases of assets and liabilitiesand their carrying amounts in the consolidated-financial statements. Deferredincome tax is determined using tax rates and laws that have been enacted orsubstantially enacted by the Balance-Sheet date and are expected to apply whenthe related deferred income tax asset is realised or the deferred-income taxliability is settled. Deferred-income tax assets are recognised to the extentthat it is probable that future taxable profits will be available against whichthe temporary differences can be utilised. Deferred income tax is provided ontemporary differences arising on investments in subsidiaries, except where thetiming of the reversal of the temporary differences are controlled by the Group,and it is probable that the temporary differences will not reverse in theforeseeable future. Cash and cash equivalents Cash and cash equivalents includes cash in hand, deposits held at call withbanks and bank overdrafts. Bank overdrafts are shown within current liabilitieson the Balance Sheet. Share-based payments The Group operates equity-settled, share-based compensation plans. The economiccost of awarding shares and share options is recognised as an expense in theincome statement equivalent to the fair value of the benefit awarded. The fairvalue is determined by reference to option-pricing models. The charge isrecognised in the income statement over the vesting period of the award. Financial instruments The Group uses certain financial instruments in its operating and investingactivities that are appropriate to its strategy and circumstances. Financialinstruments currently comprise cash and short-term debtors and creditors. TheGroup regularly reviews the funding opportunities available to it in order tofinance its operations, including considering the use of borrowings, as well asequity, to fund short-term cash requirements. The main risks arising from theGroup's present use of financial instruments are currently risk relating to theGroup's non-Sterling cash resources. The addition of any borrowings to theGroup's portfolio of financial instruments will introduce interest-rate risk. Standards and interpretations in issue but not yet effective At the date of authorisation of these financial statements, the followingStandards and Interpretations which have not been applied in these financialstatements were in issue but not yet effective. IFRS 2 Share Based Payment - amendment relating to vesting conditions and cancellations (effective annual periods beginning on or after 1 January 2009) IFRS 3 Business Combinations - comprehensive revision on applying acquisition method (effective annual periods beginning on or after 1 July 2009) IFRS 3 Operating Segments (effective annual periods beginning on or after 1 January 2009) IAS1 Presentation of Financial Statements - Comprehensive revision including requiring a statement of comprehensive income (effective annual periods beginning on or after 1 January 2009) IAS 1 Presentation of Financial Statements - Amendments relating to disclosure of puttable instruments and obligations arising on liquidation (effective annual periods beginning on or after 1 January 2009) IAS 23 Borrowing Costs - Comprehensive revision to prohibit immediate expensing (effective on borrowing costs relating to qualifying assets for which the commencement date for capitalisation is on or after 1 January 2009) IAS 27 Consolidated and Separate Financial Statements - Consequential amendments arising from amendments to IFRS 3 (effective annual periods beginning on or after 1 July 2009) IAS 28 Investments in Associates - Consequential amendments arising from amendments to IFRS 3 (effective annual periods beginning on or after 1 July 2009) IAS 31 Interests in Joint Ventures - Consequential amendments arising from amendments to IFRS 3 (effective annual periods beginning on or after 1 July 2009) IAS 32 Financial Instruments: Presentation - Amendments relating to puttable instruments and obligations arising on liquidation (effective annual periods beginning on or after 1 January 2009) IFRIC 12 Service Concession Arrangements (effective annual periods beginning on or after 1 January 2008) IFRIC 13 Customer Loyalty Programmes (effective annual periods beginning on or after 1 July 2008) IFRIC 14 IAS 19 - The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction (effective annual periods beginning on or after 1 January 2008) The Directors anticipate that the adoption of these Standards andInterpretations in future periods will have no material impact on the financialstatements of the Group except for additional disclosures on capital andfinancial instruments when the relevant standards come into effect for periodscommencing on or after 1 January 2008. 2 Production costs incurred Pre-production costs incurred, or provided, in Oil and Gas ExplorationActivities were as follows Falkland Islands 2006 2007 £'000 £'000------------------------------------- -------- --- -------- Acquisition of unproved propertiesOperating Lease - Licence costs 137 116Exploration and appraisal costs 1,843 1,488 -------- --- --------Total costs (includes costs capitalised of £1,604,000(2006 1,980 1,604- £1,980,000) ======== === ======== 3 Operating expenses 2006 2007 £'000 £'000------------------------------------- -------- -------- Administrative and other expenses Auditors' remuneration - audit fees 30 33 - other servicesa) Taxation 1 3b) Consultancy and review of Interim Accounts 6 5Directors' fees 230 230Wages and salaries 20 24Legal and professional fees 196 158Management fees 337 337Miscellaneous expenses 53 24Travel and entertaining 44 49Depreciation 3 3Operating leases - land and buildings - 16Recharge of administrative expenses (251) (131) -------- -------- 669 751 ======== ======== 4 Directors 2006 2007 Fees Fees £'000 £'000------------------------------------- -------- -------- The emoluments of the Directors were as follows: Dr C B Phipps 20 20Mr S L Phipps 15 15Dr I G Duncan 150 150Mr D L Clifton 15 15Mr A G Windham 15 15Mr E Wisniewski 15 15 -------- -------- 230 230 ======== ======== Information on related-party transactions is disclosed in note 21 to theseAccounts. 5 Employment costs 2006 2007 £'000 £'000------------------------------------- -------- -------- Wages and salaries (excluding Directors fees) - 4Social-security costs 20 20 -------- -------- 20 24 ======== ======== 2006 2007 Number NumberThe average monthly number of employees, including Directors, during the yearwas as follows Directors 6 6Administration - 1 -------- -------- 6 7 ======== ======== 6 Investment revenues 2006 2007 £'000 £'000------------------------------------- -------- -------- Interest on bank deposits 1,135 1,025------------------------------------- -------- -------- 7 Taxation 2006 2007 £'000 £'000------------------------------------- -------- -------- (a) Analysis of charge in the period Current tax:Current tax in the period 336 252In respect of previous years - - -------- -------- 336 252 -------- -------- (b) Reconciliation of the total tax charge 2006 2007 £'000 £'000The tax assessed for the period is different from thestandard rate of corporation tax in the UK of 30% (2006 -30%) Accounting loss before tax (2,483) (325) -------- -------- Tax at the standard rate of corporation tax in the UK of 30%(2006 - 30%) (745) (98) Effects of:Foreign exchange 806 97Non-allowable expenses 79 80Expenses carried forward 196 173 -------- -------- 336 252 ======== ======== (c) Factors that may affect future tax charges The Company is carrying forward an amount of tax-deductible expenditure underthe assumption that it will have income from oil exploration in the future. Theamount currently available for offset against future revenue is estimated at £22million. No deferred tax is provided on this expenditure as it is not reasonablycertain that the income from this source will materialise. 8 Earnings per share The calculation of basic-earnings per ordinary share is based on a loss of£577,000 (2006: Loss £2,819,000) and on 224,134,960 (2006: 221,934,920) ordinaryshares, being the weighted-average number of ordinary shares in issue during theyear. As the Group reports a loss for the current and comparative year then, inaccordance with IAS 33, the share options and share appreciation rights in issueare not considered dilutive. Details of such instruments that could potentiallydilute basic-earnings per share in the future are included in note 17. 9 Profit for the financial year Desire Petroleum plc has not presented its own profit and loss account, aspermitted by section 230 of the Companies Act 1985. The loss for the financialyear dealt with in the accounts of the Holding Company amounts to £607,000(2006: Loss £2,810,000). 10 Property, plant and equipment Long lead Equipment items And fixtures TotalThe Group and Company £'000 £'000 £'000---------------------------- --------- ---------- -------- Cost At 1 January 2007 as previously stated - 15 15IFRS adjustment 1,466 (3) 1,463 --------- ---------- -------- At 1 January 2007 restated 1,466 12 1,478Additions 820 - 820 --------- ---------- --------At 31 December 2007 2,286 12 2,298 ========= ========== ======== DepreciationAt 1 January 2007 as previously stated - 5 5IFRS adjustment - (1) (1) --------- ---------- -------- At 1 January 2007 as restated - 4 4Charges for the year - 2 2 --------- ---------- -------- At 31 December 2007 - 6 6 ========= ========== ========Net-book value at 31 December 2007 2,286 6 2,292 ========= ========== ========Net-book value at 31 December 2006 1,466 8 1,474 ========= ========== ======== 11 Intangible fixed assets Oil & gas Computer Goodwill interests software TotalThe Group £'000 £'000 £'000 £'000------------------------ -------- -------- -------- -------- Cost At 1 January 2007 as previouslystated 941 8,331 - 9,272IFRS adjustment - (1,466) 3 (1,463) -------- -------- -------- -------- At 1 January 2007 as restated 941 6,865 3 7,809Additions - 784 - 784 -------- -------- -------- -------- At 31 December 2007 941 7,649 3 8,593 ======== ======== ======== ======== Amortisation/impairmentAt 1 January 2007 as previouslystated 941 - - 941IFRS adjustment - - 1 1 -------- -------- -------- -------- At 1 January 2007 as restated 941 - 1 942Charge for the year - - 1 1 -------- -------- -------- -------- At 31 December 2007 941 - 2 943 ======== ======== ======== ========Net-book value at 31 December 2007 - 7,649 1 7,650 ======== ======== ======== ========Net-book value at 31 December 2006 - 6,865 2 6,867 ======== ======== ======== ======== The Group's oil and gas interests all relate to the FalklandIslands Oil & gas Computer interests software TotalThe Company £'000 £'000 £'000------------------------ -------- -------- -------- -------- Cost At 1 January 2007 as previouslystated 8,331 - 8,331IFRS adjustment (1,466) 3 (1,463) -------- -------- -------- At 1 January 2007 as restated 6,865 3 6,868Additions 784 - 784 -------- -------- -------- At 31 December 2007 7,649 3 7,652 ======== ======== ======== AmortisationAt 1 January 2007 as previously stated - - -IFRS adjustment - 1 1 -------- -------- -------- At 1 January 2007 as restated - 1 1Charge for the year - 1 1 -------- -------- -------- At 31 December 2007 - 2 2 ======== ======== ========Net-book value at 31 December 2007 7,649 1 7,650 ======== ======== ========Net-book value at 31 December 2006 6,865 2 6,867 ======== ======== ======== The Company's oil and gas interests all relate to the Falkland Islands 12 Investments 2007The Company £'000-------------------------------------------- -------- Cost at 1 January 2007 and at 31 December 2007 1,088Provision at 1 January 2007 and at 31 December 2007 (1,088) --------At 1 January 2007 and at 31 December 2007 - ======== Particulars of the subsidiary undertakings at 31 December 2007 were as follows: Proportion of Name of voting rights Country of Nature ofsubsidiary Holding and shares held Incorporation business------------- ------------ ------------ ------------ ---------- Gaelic HoldingResources plc Ordinary shares 100% Republic of company IrelandEuropeanHydrocarbonsLimited Ordinary 100% Channel Islands Non-trading shares**InteroilLimited Ordinary 99.80% England Non-trading shares*GaelicResources(Turkey)Limited Ordinary 100% British Virgin Non-trading shares* IslandsAngloScandinavianPetroleum plc Ordinary 100% England Non-trading shares*EuropeanHudrocarbons Holdings Ordinary 100% Channel Islands Holding CompanyLimited shares* * Held in the name of Gaelic Resources plc.** Held in other name of European Hydrocarbons Holdings Limited 13 Trade and other receivables The Group The Company 2006 2007 2006 2007 £'000 £'000 £'000 £'000------------------------ -------- -------- -------- -------- Other receivables 646 60 638 58Prepayments and accrued income 8 8 8 9 -------- -------- -------- -------- 654 68 646 67 -------- -------- -------- -------- There are no significant concentrations of credit risk within the Group. Themaximum credit-risk exposure relating to financial assets is represented by thecarrying value as at the Balance Sheet date. 14 Cash and cash equivalents The Group The Company 2006 2007 2006 2007 £'000 £'000 £'000 £'000------------------------ -------- -------- -------- -------- Cash at bank and short-term deposits 22,812 21,635 22,811 21,634 -------- -------- -------- -------- Cash at bank earns interest at floating rates based on a discount to US$/GBPLIBOR. Short-term deposits are made for varying periods of time and earninterest at a predetermined rate. 15 Trade and other payables The Group The Company 2006 2007 2006 2007 £'000 £'000 £'000 £'000------------------------ -------- -------- -------- -------- Other tax and social-security creditors 7 63 7 63Other creditors 850 38 816 38Accruals 46 41 27 21 -------- -------- -------- -------- 903 142 850 122 -------- -------- -------- -------- 16 Derivatives and financial instruments Financial assets The Group has cash deposits and short-term debtors. The cash deposits attractvariable rates of interest. The currency and interest profile of the Group'scash and short term deposits at 31 December was: 2006 2007Currency rate risk profile £'000 £'000------------------------------------- -------- -------- British Pound 2,836 2,542US Dollar 19,929 19,060Falkland Island Pound 47 33 ======== ======== 2006 2007Interest rate risk profile £'000 £'000------------------------------------- -------- -------- Fixed rate financial assets 20,985 21,248Floating rate financial assets 1,827 387 -------- -------- 22,812 21,635 ======== ======== At 31 December 2007, short-term deposits were earning interest at a weightedaverage fixed deposit rate of 4.54%. Cash at bank earns interest at floatingrates based on US$/GBP LIBOR. Credit risk There are no significant concentrations of credit risk within the group. Themaximum credit risk exposure relating to financial assets is represented by thecarrying values as at the Balance Sheet date. Financial liabilities The Group has no financial liabilities other than short-term creditors and bankoverdrafts. 2006 2007Interest rate risk profile £'000 £'000------------------------------------- -------- -------- Floating rate financial liabilities 40 12 ======== ======== The floating rate liabilities comprise bank borrowings which bear interest basedon GBP LIBOR 17 Share Capital 2006 2007 Number 2006 Number 2007The Group and Company of shares £'000 of shares £'000----------------------- --------- -------- --------- ---------AuthorisedOrdinary shares of 1p each 400,000,000 4,000 400,000,000 4,000----------------------- --------- -------- --------- --------- Allotted, called-up and Ordinary 1pfully-paid shares Number As at 1 January 2007 222,538,104Issued in year 4,589,908---------------------- --------- -------- --------- ---------At 31 December 2007 227,128,012 ========= Ordinary 1p shares £'000 ---------------------- --------- -------- --------- --------- As at 1 January 2007 2,225Issued in year 46 ---------At 31 December 2007 2,271 ========= The Company has one class of ordinary shares whichcarry no right to fixed income.During the year, options were exercised over No4,589,908 shares raising £1,026,120 as follows: 27 February 2007 478,239 6 August 2007 539,679 7 September 2007 2,758,395 16 October 2007 813,595 --------------- --------- Share options The share options in issue at 31 December 2007 were as follows Number of Number of Number of shares at shares Lapsed shares atDate of 1 January exercised in during 31 December Exercise grants 2007 the year the year 2007 price Exercise period--------- ------- -------- ------- -------- ------- ---------------- 4 October 3,453,949 (3,298,074) (155,875) - 23.07p Up to 81999 September 20077 May 3,108,555 (956,478) - 2,152,077 20.11p Up to 6 May2002 200926 June 4,857,119 - - 4,857,119 17.92p Up to 23 June2003 201027 May 2,146,492 (335,356) - 1,811,136 21.74p Up to 7 May2004 20111 June 550,000 - - 550,000 33.00p 1 June 2008 to2005 1 June 201213 June 100,000 - - 100,000 38.75p 13 June 2008 to2005 13 June 201221 July 1,500,000 - - 1,500,000 39.50p 21 July 2008 to2005 21 July 20121 January 25,000 - - 25,000 33.00p 1 January 20092006 to 1 January 2013 --------- ------- -------- ------- -------- ------- ---------------- The aggregate fair value of options and SAR's awarded prior to the year end was£830,311. Since the year end, SAR's with a fair value of £87,033 have beenawarded. Expected volatility was determined by calculating the historicalvolatility of the Group's share price. The expected life used in the valuationmodel has been adjusted, based on management's best estimates, for the effectsof any exercise restrictions and behavioural considerations. 18 Reserves Called up Share Share Premium Merger Retained Total Capital Reserve Reserve Earnings EquityThe Group £'000 £'000 £'000 £'000 £'000----------------------- -------- -------- -------- ------- ------- At 1 January 2007 2,225 45,627 13,343 (30,667) 30,528IFRS adjustment - - (13,343) 13,343 - -------- -------- -------- ------- ------- At 1 January 2007 - asrestated 2,225 45,627 - (17,324) 30,528Loss for the year - - - (577) (577)Foreign-exchange adjustment - - - (4) (4)Share issued in the year 46 980 - - 1,026Share-based payment charge - - - 267 267 -------- -------- -------- ------- -------At 31 December 2007 2,271 46,607 - (17,638) 31,240 ======== ======== ======== ======= ======= Called up Share Share Premium Retained Total Capital Reserve Earnings EquityThe Company £'000 £'000 £'000 £'000----------------------- -------- -------- -------- ------- ------- At 1 January 2007 2,225 45,626 (17,279) 30,572Loss for the year - - (607) (607)Share issue in the year 46 980 - 1,026Share-based payment charge - - 267 267 -------- -------- ------- -------At 31 December 2007 2,271 46,606 (17,619) 31,258 ======== ======== ======= ======= Share capital The balance classified as share capital is the nominal value on issue of theGroup's equity-share capital, comprising 1p ordinary shares. Share premium The balance classified as share premium is the premium on issue of the Group'sequity-share capital, comprising 1p ordinary shares less any costs of issuingthe shares. 19 Commitments Operating leases At the Balance Sheet date, the Group and Company had outstanding commitments forfuture minimum lease payments under non-cancellable operating leases, which falldue as follows: 2006 2007 Land and Land and buildings buildings £'000 £'000------------------------------------- -------- --------Expiring:Within 1 year 115 116Between 1 and 5 years 16 12 ======== ======== Operating lease payments represent rentals payable by the Group for its officeproperties and oil exploration licences. 20a Net cash from operating activities Year Year ended ended 31.12.06 31.12.07 £'000 £'000------------------------------------- -------- -------- Reconciliation of operating loss to net cash fromoperating activities Operating loss for the financial year (3,618) (1,350) Foreign exchange 2,686 327Depreciation on property, plant and equipment 3 3Share-based payment charge 263 267 -------- --------Operating cash flows before movement in working capital (666) (753) Decrease/(increase) in receivables (288) 318Increase/(decrease) in payables (31) 12 -------- -------- Cash generated from operations (985) (423) Income tax paid (199) (337) -------- --------Net cash from operating activities (1,184) (760) ======== ======== 20b Analysis of changes in cash and cash equivalents At 31 At 31 December Cash Exchange December 2006 flows movement 2007 £'000 £'000 £'000 £'000------------------------- -------- -------- -------- -------- Cash at bank and in hand 22,812 (845) (332) 21,635Bank overdraft (40) 28 - (12) -------- -------- -------- --------Cash at bank and in hand 22,772 (817) (332) 21,623 ======== ======== ======== ======== 21 Related-party transactions The Group entered into transactions with the following companies in whichcertain of the Directors were materially interested: Company Related PartyPhipps & Company Limited Dr C B Phipps and Mr S L PhippsCopernicus Consultancy Limited Mr E WisniewskiByron Holdings Limited Mr D L Clifton-------------------------- -------------------------- Total Services as Management Consultancy TotalThe transactions withthe Group 2006 A Director services services 2007during the year were as £'000 £'000 £'000 £'000 £'000follows Phipps & CompanyLimited 372 35 337 - 372CopernicusConsultancy Limited 5 - - 4 4Byron HoldingsLimited 15 15 - - 15Mr A G Windham 20 15 - 2 17 ======= ======== ========= ========= ======== At 31 December 2007the following 2006 2007amounts were included £'000 £'000in creditors: Phipps & CompanyLimited 6 1Byron HoldingsLimited 5 -Mr A G Windham 4 - ========= ======== In addition, the Company paid £11,700 (2006 - £3,900) to Phipps and CompanyLimited for the rent of offices. 22 Capital commitments As part of the lease agreements with the Falkland Islands Government, theCompany has drilling commitments for oil exploration before May 2013 on TranchesC and D and November 2012 on Tranches F, I and L. 23 Annual Report and Accounts The annual report and accounts of the Company for the year ended 31 December2008 are being despatched to shareholders shortly and will be available to bedownloaded from the Company's website at www.desireplc.co.uk . 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