Gulfsands Petroleum Regulatory News (GPX)

28 Sep 2006 07:03

Gulfsands Petroleum PLC28 September 2006 28 September 2006 Gulfsands Petroleum plc ("Gulfsands" or "the Company") and its Subsidiaries (together "the Group") Interim Results for the Six Months Ended 30 June 2006 Summary • Gulf of Mexico production back to pre-hurricane levels • Interest expense eliminated • Oil hedges expired • Record profits for June 2006 and continuing upward trend • Probable reserves in Block 26 Syria at a NPV of $233 million • Tigris 1 well drilling ahead at 830 metres • Appointments of new Chairman, Non-executive Director and Nominated Adviser / Broker Gulfsands Petroleum plc (symbol GPX), the AIM listed oil and gas exploration,development and production company with activities in the USA, Syria and Iraqannounces its interim results for the six months ended 30 June 2006. Financial Highlights • Production in the Gulf of Mexico returned to pre-hurricane production levels of approximately 2,800 working interest barrels of oil equivalent per day in June 2006. This is up from approximately 1,500 barrels of oil equivalent per day in December 2005. Net turnover of $2,937,000 and gross profit of $1,444,000 in fact made June the most profitable month in the Group's history. • The delays in restoring production to pre-hurricane levels, which were due entirely to infrastructure constraints beyond the Group's control, has inevitably resulted in overall financial results for the first six months of 2006 which are lower than the same period for 2005. The Group nonetheless recorded a gross profit of $3,781,000 (2005: $6,274,000), a pre-tax profit of $1,462,000 (2005: $2,557,000), and a retained profit of $874,000 (2005: $1,535,000) for the six month period. • The Group also enjoyed interest expense savings of $1,452,000 for the six months as interest expense was reduced to zero following the consolidation of Gulfsands USA's interest in Northstar Gulfsands LLC in December 2005 and the repayment in full of the indebtedness of the former (majority owned) subsidiary. • Looking forward there is cause for considerable optimism for the second half of 2006. Subsequent to the end of the period, primarily as a result of high oil prices and the expiration of oil hedges, the Group recorded a new record monthly turnover of $3,233,406 for the month of August. Operational Highlights Syria • Ryder Scott identified probable net revenue interest reserves of 102 BCFG after Syrian tax net to Gulfsands in Block 26 on the Tigris structure with a net present value of $233 million. There are no proved reserves yet for Tigris, pending successful confirmation in the Tigris-1 well. • First well on Block 26 known as Souedieh North was drilled and suspended for further analysis to determine whether to stimulate the well through chemical or mechanical stimulation, deepen or abandon the well. Detailed reservoir, log and core analysis is ongoing. • A rig was contracted for Tigris-1 well which commenced drilling on 10 September 2006 and is currently drilling ahead at 830 metres. • Seismic acquisition and processing of 1,155 2D line kilometers was completed on Block 26. Interpretation of the seismic is ongoing and being integrated with previous 2D and 3D seismic data for finalizing the prospect ranking for the current drilling campaign which commenced with the Tigris-1 well. • Final negotiations on an additional drilling rig are ongoing and the Group has made arrangements for a rig under contract by other operators in Syria for a drilling slot during the first half of 2007. Gulf of Mexico, USA • Production returned to pre-hurricane 2005 levels of approximately 2,800 working interest barrels of oil equivalents per day by June 2006. • Two additional wells commenced production in the Eugene Island 58 area. The Eugene Island 58 #7 exploration well, drilled in late 2005, commenced production in May. The Group owns a 12.9% interest in this well. The Eugene Island 58 #8 exploration well, drilled in early 2006, also commenced production in May. The Group owns a 25.6% interest in this well. • Two new development wells were drilled in the West Delta 64 area. Facilities installation commenced in May and production from the four wells in this field is scheduled to commence in October. Gulfsands owns a 6.6% interest in this field. • All oil hedges expired at 30 June 2006. Second half oil sales will be reflected at market oil prices. Onshore Gulf Coast, USA • Production at the Barb Mag Field commenced in the first quarter of 2006 at approximately one million cubic feet of natural gas per day in which the Group has a 37.5% working interest. Corporate Development • The Company appointed a Chairman, Andrew West, and a new Non-executive Director, David Cowan, to the Board of Directors. • Directors increased their ownership in the Company to 22.25% of the issued share capital following the exercise of options in July 2006. • Gulfsands appointed Teather & Greenwood as Nominated Advisor and Broker. Gulfsands' CEO, John Dorrier, said: "In spite of the reductions of produced oil and gas volumes in the first sixmonths of 2006 due to pipeline repairs from the storms of 2005, the Companyproduced a solid financial result during the half. The volume increases nearthe end of the half-year combined with the expiration of all oil and most gashedges should result in a strong second half and full year financial result." Enquiries:Gulfsands Petroleum (Houston) 001-713-626-9564John Dorrier, Chief Executive Officer David DeCort, Chief Financial Officer College Hill (London) 020-7457-2020Nick Elwes Paddy Blewer Teather & Greenwood (London) 020-7426-9000James Maxwell (Corporate Finance)Tanya Clarke (Specialist Sales) These interim results can also be viewed on Gulfsands' website:www.gulfsands.net CHAIRMAN'S STATEMENT In the first six months of 2006 the Group successfully brought its Gulf ofMexico production back to pre-storm 2005 historic producing levels, recorded thebest financial month in the Group's history, announced significant probablereserves in Syria, drilled the first exploration well in Syria, contracted a rigfor the drilling of the Tigris-1 well in Syria and commenced first production atits Barb Mag field onshore U.S. Financial Turnover for the first six months of $12,143,000 and gross profit of $ 3 781 000compare to turnover of $13,701,000 and gross profit of $ 6,274,000 for the sameperiod of 2005. This deterioration was due entirely to reduced production forthe period, costs of repair to facilities and increased insurance costs allresulting from the hurricanes of 2005. Interest expense was eliminated during 2006 following the partition of NorthstarGulfsands LLC and the elimination of all debt net to the Group's interest in thesubsidiary. This resulted in a savings of $1,452,000 for the six months. Overall profit before tax to the Group was $1,462,000 as compared to $2,557,000for 2005 and the retained profit was $874,000 as compared to $1,535,000. Production in the Gulf of Mexico however returned to pre-hurricane levels inJune 2006 which bodes well for the Group as we look forward to the second halfof 2006. This coincided with the expiration of all oil and most gas hedges bythe end of June 2006. In June 2006, the Group recorded a new monthly record turnover of $2,937,000resulting in a gross profit of $1,444,000 for the month which represented nearly38% of the Group's gross profit for the entire first six months of the year. Subsequent to June 2006 the Company posted a new monthly record turnover inAugust 2006 of $3,233,406 which was a 10% increase from the record turnover seenin June. Syria The Group completed the acquisition of 1,155 kilometres of 2D seismic on Block26 and the first well, known as Souedieh North, commenced drilling in late April2006 and was temporarily suspended in June for further analysis. The secondwell, known as Tigris-1, commenced drilling in September of 2006 and has thepotential to contain in excess of 4 TCFG. The Souedieh North exploration well was drilled during the second quarter of2006 and while oil and gas shows were recorded during drilling and theinterpretation of the electric wireline logs identified potential hydrocarbonzones, no hydrocarbons were recovered to surface during wireline testing. Thewell has been suspended while all data is being reviewed and evaluated todetermine whether to stimulate the well through chemical or mechanicalstimulation, deepen or abandon the well. Detailed reservoir, log and coreanalysis is ongoing. The Tigris-1 well commenced drilling in September 2006 (currently drilling aheadat 830 metres) and is targeted to a depth of some 4,500 meters and is expectedto take 90 to 120 days to drill and evaluate. The primary objective of thiswell is the Carboniferous and Devonian aged reservoirs directly underlying theSouedieh Oil Field, the largest known oil field in Syria. The Tigris-1 well isthe second well to target these reservoirs within the overall Tigris structure.The S1100 well, drilled in 1994 by the Syrian Petroleum Company and locatedapproximately 1 kilometre northeast of Tigris-1 was the first well to intersectthese reservoirs within this structure. Independent interpretation of thewireline logs from the S1100 well indicates a substantial hydrocarbon column. Ryder Scott completed a reserves study on the Tigris structure in the first halfof 2006 and these reserves were classified as either oil or gas bearing untilsuch time as the Company drills and tests the Tigris structure. As of 1 July2006 Ryder Scott determined that the Probable Reserves net to Gulfsands afterapplying the terms of the Production Sharing Contract (net revenue interestreserves) is 102 BCFG with a net present value discounted at 10% of $233 millionafter Syrian taxes. For primarily a natural gas accumulation, an additional 75BCFG of possible reserves net to the Group were estimated to have a 10%discounted net present value of $261 million, for total probable and possiblereserves of 177 BCFG and a net present value of $494 million net to the Group.Furthermore, the Group completed its own economic evaluation on the ProspectiveGas Resource and has estimated that Prospective Gas Resource net to the Group is577 BCFG with a net present value of approximately $1.06 billion. In summary,total gas reserves potential net to the Group when combined with the ProspectiveGas Resource totals 754 BCFG (126 MMBOE) with a net present value ofapproximately $1.55 billion. For primarily an oil accumulation, Ryder Scott determined the Possible Reservesnet to the Group after applying the terms of the Production Sharing Contract(net revenue interest reserves) are 19.4 million barrels of oil having a netpresent value discounted at 10% of $452 million after Syrian taxes.Furthermore, the Group completed its own economic evaluation on the ProspectiveOil Resource and has estimated that Prospective Oil Resource net to the Group is50.9 MMBO with a net present value of approximately $1.51 billion. In summary,total oil reserves potential net to the Group among Possible and Prospective OilResource for the oil case is 70.3 MMBO with a net present value of approximately$1.96 billion. The Tigris-1 well represents the first of a series of wells proposed to bedrilled by the Group in Block 26 over the next 12 months. Interpretation of newseismic data is ongoing and being integrated with previous 2D and 3D seismicdata for finalizing the prospect ranking for the current drilling campaign whichcommenced with the Tigris-1 well. Additionally, final negotiations on anadditional drilling rig are ongoing and the Group has made arrangements for arig under contract by other operators in Syria for a drilling slot during thefirst half of 2007. Capital expenditures net to the Group in Block 26 were $4.1 million during thefirst six months of 2006. USA Production for the first six months of 2006 in the Gulf of Mexico and onshoreGulf Coast totaled 373,700 working interest barrels of oil equivalent (2,076barrels of oil equivalent per day as compared to approximately 2,800 barrels ofoil equivalent currently) and net revenue interest barrels (working interestbarrels less royalties) totaled 266,498. Turnover for the half year totaled$12,143,000 resulting in a net price per barrel of oil equivalent equal to$45.57, net of production hedges and royalties. Approximately 61% of the dailyproduction was in natural gas at a price of approximately $6.13 per mcf and 39%in oil production which was priced at approximately $59.39 per barrel. At 30June all hedge contracts on the oil had expired and approximately 14% of thenatural gas production remains currently hedged with those hedges declining toapproximately 10% of the gas volumes by year-end. Two new wells commenced production in the Eugene Island 58 area of the Gulf ofMexico. The Eugene Island 58 #7 exploration well, drilled in late 2005,commenced production in May in which the Group owns a 12.9% interest. TheEugene Island 58 #8 exploration well, drilled in early 2006 also commencedproduction in May in which the Group owns a 25.6% interest. Additionally, twonew development wells were drilled in the West Delta 64 area. Facilitiesinstallation commenced in May and production from the four wells in this fieldis scheduled to commence in October. The Group owns a 6.6% interest in thisfield. Total capital expenditures in the U.S. during the first six months were $7.2million. Iraq Discussions with the Iraqi Government have continued on the Misan Gas Projectand this will be a high priority for the Group in the coming months. The Misan Gas Project is a midstream project that gathers gas currently beingflared at oil fields in Southern Iraq, brings the gas to a central processingplant to clean it of impurities and remove the light hydrocarbon liquid fraction(natural gas liquids), and then transmits the natural gas for furtherdistribution and use in Iraq. The extracted hydrocarbon liquids are thentransmitted to a southern port for storage, offloading and export. Outlook The outlook for the Group is exciting following a record month financially inJune and subsequently in August 2006. Production in the Gulf of Mexicogenerates solid cash flows to support the capital expenditure program in theU.S. and Syria while maintaining substantial cash reserves for future growth.We will be drilling continuously in Syria over the coming twelve months havingin the past few weeks commenced the drilling of the Tigris-1 well with grossprobable reserves of 442 BCF and an overall gross potential prospective resourceof some 4.2 TCFG. I am also optimistic as to the prospects for moving forwardthe negotiations on the Misan Project now that a new government has been formedin Iraq. Andrew West Chairman of the Board 28 September 2006 Gulfsands Petroleum plc Interim Financial Statements SIX MONTHS TO 30 JUNE 2006 Unaudited CONSOLIDATED PROFIT AND LOSS ACCOUNTFOR THE SIX MONTHS ENDED 30 JUNE 2006 Six months ended 30 June Year Ended 31 December 2005 2005 Continuing Minority Continuing Minority Group Share Total Group (see Total 2006 Share (see below) Operations Share below) Operations (unaudited) (unaudited) (audited) Notes $'000 $'000 $'000 $'000 $'000 $'000 $'000 Turnover 2,3 12,143 13,701 12,339 26,040 24,926 20,086 45,012Cost of sales (8,362) (7,427) (6,690) (14,117) (13,866) (12,047) (25,913) Gross profit 3,781 6,274 5,649 11,923 11,060 8,039 19,099 General and administrative expenses (2,560) (2,160) (972) (3,132) (4,923) (1,330) (6,253)Amortization of goodwill - (54) - (54) - - -Accretion of net present value (341) (443) (400) (843) (1,370) (1,234) (2,604)decommissioning provision Administrative expenses (2,901) (2,657) (1,372) (4,029) (6,293) (2,564) (8,857) Operating profit (loss) 880 3,617 4,277 7,894 4,767 5,475 10,242 Exceptional items 2 (6,080) - (6,080) Profit on activities before interest 880 3,617 4,277 7,894 (1,313) 5,475 4,162 Interest receivable 582 392 55 447 1,413 205 1,618 Interest payable - (1,452) (1,309) (2,761) (2,510) (1,822) (4,332) Profit (loss) on ordinary activities before taxation 1,462 2,557 3,023 5,580 (2,410) 3,858 1,448 Tax on profit (loss) on ordinary activities 4 (582) (1,039) (1,039) (1,551) - (1,551) Profit (loss) on ordinary activities after taxation 880 1,518 3,023 4,541 (3,961) 3,858 (103) Minority interests (6) 17 (3,023) (3,006) 13 (3,858) (3,845) RETAINED PROFIT / (LOSS) FOR THE PERIOD 874 1,535 - 1,535 (3,948) - (3,948) Earnings(Loss) per share in $'s:Basic 5 0.01 0.02 0.02 (0.05) 0.0 (0.05)Diluted 5 0.01 0.02 0.02 The profit and loss account "Continuing group share" for 30 June 2005 and 31December 2005 consists of GP's 52.6 % of Northstar Gulfsands LLC ("NSGS") andother GP activity, while the "Minority share" column is the NSGS 47.4% partnershare. For comparative purposes compare the "Continuing group share" columnwith June 2006 results. See Note 2 in the accompanying notes for furtherdetails. The accompanying notes are an integral part of this consolidated profit and lossaccount. CONSOLIDATED BALANCE SHEET AT 30 JUNE 2006 30 June 2006 30 June 2005 31 December 2005 (unaudited) (unaudited) (audited) Notes $'000 $'000 $'000Fixed assets Tangible fixed assets 6 48,101 55,993 39,236 Intangible fixed assets 38 6,035 35 48,139 62,028 39,271 Current assets Debtors: amounts falling due within one year 7 10,053 14,210 4,983 Cash at bank and in hand 30,457 78,023 36,561 40,510 92,233 41,544 Creditors: amounts falling due within one year 8 (8,679) (16,503) (3,436) Net current assets 31,831 75,730 38,108Total assets less current liabilities 79,970 137,758 77,379 Debtors: amounts falling due after one year - - - Creditors: amounts falling due after more than one year - (34,144) - Deferred Tax Liability (253) - (173) Provision for liabilities and charges 9 (7,218) (17,270) (6,958) Equity minority interests (266) (10,915) (260) NET ASSETS 72,233 75,429 69,988 Share capital 10 10,019 9,971 9,971 Share premium account 54,680 53,651 53,651 Other reserve 11 12,003 11,709 11,709 Profit and loss account (4,469) 98 (5,343) SHAREHOLDERS' FUNDS 72,233 75,429 69,988 The accompanying notes are an integral part of this consolidated balance sheet. CONSOLIDATED CASH FLOW STATEMENTFOR THE SIX MONTHS ENDED 30 JUNE 2006 Six months ended 30 June Year Ended 31 December 2005 2005 Continuing Minority Continuing Minority Group Share Total Group (see Total 2006 Share (see below) Opera- Share below) Operations (unaudited) (unaudited) tions (audited) Notes $'000 $'000 $'000 $'000 $'000 $'000 $'000 Net cash inflow (outflow) from operating activities 12 3,584 5,933 6,099 12,032 3,232 6,272 9,504 Interest received 582 447 - 447 1619 1619Interest paid - (1,328) (1,196) (2,524) (1,732) (1,560) (3,292) Net cash inflow (outflow) from returns on investments and servicing of finance 582 (881) (1,196) (2,077) (113) (1,560) (1,673) Capital expenditurePayments to acquire tangible fixed assets 6 (11,336) (6,514) (1,541) (8,055) (11,266) (5,024) (16,290)Payments to acquire intangible fixed assets (10) (35) - (35) (35) - (35) Net cash outflow from capital expenditure (11,346) (6,549) (1,541) (8,090) (11,301) (5,024) (16,325) FinancingIssues of ordinary share capital 10 1,076 56,608 - 56,608 56,651 - 56,651Contributions in subsidiary undertaking - 37 - 37 101 - 101Warrants exercised for cash - 1,689 - 1689 1,689 - 1689Issue costs of share capital - (464) - (464) (464) - (464)Receipts from new loans - 636 573 1,209 1,474 1,329 2,803Repayment of loans - (1,315) (1,185) (2,500) (10,820) (9,751) (20,571)Payments in respect of warrants - restructuring cost - - - - (3,550) - -3550Minority share - payment as a result of disposal of a subsidiary undertaking - - - - (11,183) - -11183 Net cash inflow from financing 1,076 57,191 (612) 56,579 33,898 (8,422) 25,476 (Decrease)/increase in cash (6,104) 55,695 2,749 58,444 25,716 (8,734) 16,982 Cash at bank and in hand, beginning of period 36,561 10,845 8,734 19,579 10,845 8,734 19,579 Cash at bank and in hand, end of period 30,457 66,540 11,483 78,023 36,561 (0) 36,561 Non-cash investing and financingProvision for decommissioning 341 - - - - - 2,603Exceptional items: Disposal of Subsidiary: Loss on disposal 3 - - - - - - 1,244 Write off of goodwill 3 - - - - - - 1,286 The profit and loss account "Continuing group share" for 30 June 2005 and 31December 2005 consists of GP's 52.6 % of Northstar Gulfsands LLC ("NSGS") andother GP activity, while the "Minority share" column is the NSGS 47.4% partnershare. For comparative purposes compare the "Continuing group share" columnwith June 2006 results. See Note 2 in the accompanying notes for furtherdetails. The accompanying notes are an integral part of this consolidated cash flowstatement. NOTES TO THE CONSOLIDATED ACCOUNTS FOR THE SIX MONTHS ENDED 30 JUNE 2006 1. Basis of preparation The consolidated accounts have been prepared in accordance with applicableaccounting standards in the United Kingdom and under the historical costconvention. In addition, these accounts have been prepared in accordance withthe provisions of the Statement of Recommended Practice (SORP) "Accounting forOil and Gas Exploration, Development, Production and Decommissioning Activities", issued by the UK Oil Industry Accounting Committee on 7 June 2001. The statements which are unaudited have been prepared on the basis of accountingpolicies published in the statutory accounts for the year ended 31 December2005, except that FRS 20 'Share-based payment' has been adopted for the firsttime (see note 11 Reserves). The financial information set out in this interimreport does not constitute statutory accounts as defined in section 240 of theCompanies Act 1985. The figures for the year ended 31 December 2005 have beenextracted from the statutory accounts that have been filed with the Registrar ofCompanies and which contain an unqualified audit report. 2. Minority share and exceptional items In December 2005, one of the subsidiaries of the Company, Gulfsands PetroleumUSA, Inc. ("GP USA") redeemed its membership interest (52.6%) in NorthstarGulfsands LLC (a limited liability company registered in Texas) ("NSGS") inreturn for the partition of certain assets in NSGS. This was accomplished by aconveyance of a certain undivided interest in its oil and gas properties to GPUSA and the retention of the remaining interest therein to NSGS together withcertain other assets. As a result of this partition and redemption agreement,NSGS has ceased to be a subsidiary of GP USA. As a result of this change in arrangement, the Group recognized in December 2005exceptional items consisting of a loss on the disposal of $1,243,583, write offthe unamortised goodwill of $1,285,714, and restructuring costs of $3,550,000. NOTES TO THE CONSOLIDATED ACCOUNTS FOR THE SIX MONTHS ENDED 30 JUNE 2006 3. Segmental information The Group operates a single class of business being oil and gas exploration.All turnover in 2006 relates to income from the Group's oil and gas assets, andarose in USA. The Group profit before interest for the year is analysed by geographical areaas follows: Year ended Six Months ended 30 June 31 December 2006 2005 2005 $'000 $'000 $'000 USA 2,379 8,347 6,274Syria (267) (159) (548)Iraq (218) (614) (1,505)Common costs (1,014) 320 (59) Group's profit before interest 880 7,894 4,162 Net interest 582 (2,314) (2,714)Tax on profit/(loss) on ordinaryactivities (582) (1,039) (1,551)Minority interests (6) (3,006) (3,845) Profit/(loss) for the year 874 1,535 (3,948) 4. Tax on profit/(loss) on ordinary activities Six Months ended 30 June Year ended 31 December 2006 2005 2005 $'000 $'000 $'000 Current tax: UK corporation tax - - 340 US corporation tax 502 - - 502 - 340 Deferred tax - temporary differences 80 1,039 1,211 582 1,039 1,551 NOTES TO THE CONSOLIDATED ACCOUNTSFOR THE SIX MONTHS ENDED 30 JUNE 2006 5. Earnings/(loss) per share Six Months Ended 30 June Year ended 31 December 2006 2005 2005 US$'000 US$'000 US$'000 except per except per except per share amounts share amounts share amounts Profit (loss) 874 1,535 (3,948)Basic earnings (loss) per share 0.01 0.02 (0.05)Diluted earnings (loss) per share 0.01 0.02 # of shares # of shares # of sharesWeighted average number of shares:For basic earnings per share 93,166,333 77,722,731 85,442,295Options 9,830,215 11,633,795 10,631,133For diluted earnings per share 102,996,548 89,356,526 96,073,428 6. Tangible Fixed Assets Oil and gas Fixed assets Total properties $'000 $'000 $'000 At 31 December 2005 47,063 50 47,113 Additions 11,181 155 11,336Disposals - - - At 30 June 2006 58,244 205 58,449 Accumulated depreciation:At 31 December 2005 (7,856) (21) (7,877)Charge for the period (2,449) (22) (2,471)Disposals - - - At 30 June 2006 (10,305) (43) (10,348) Net book value at 30 June 2006 47,939 162 48,101 NOTES TO THE CONSOLIDATED ACCOUNTSFOR THE SIX MONTHS ENDED 30 JUNE 2006 7. Debtors 30 June 2006 30 June 2005 31 December 2005 $'000 $'000 $'000 Trade debtors 4,834 9,579 4,047Other debtors 1,349 370 182Underlift 919 1,748 919Prepayments and accrued income 2,123 587 333Prepaid Cash Calls 828 1926 (498) 10,053 14,210 4,983 Underlift at 30 June 2006 represents underlift acquired as a result of theacquisition of oil and gas properties in May 2004. In accordance with FRS 5,underlift represents a right to future economic benefit (through entitlement toreceive equivalent future production), which constitutes an asset. This amountis due after more than one year. 8. Creditors Amounts falling due within one year 30 June 2006 30 June 2005 31 December 2005 $'000 $'000 $'000 Trade creditors 4,484 12,965 236Provision for liabilities and charges (see note 9) 3,352 3,538 2,860UK and US Corporation tax payable 843 - 340 8,679 16,503 3,436 NOTES TO THE CONSOLIDATED ACCOUNTSFOR THE SIX MONTHS ENDED 30 JUNE 2006 9. Provision for liabilities and charges The provision for decommissioning relates to the expected future costs ofplugging and abandoning the oil and gas properties held by Gulfsands PetroleumUSA, Inc and Darcy Energy LLC. At 30 June 2006 the oil and gas properties haveestimated plugging and abandonment dates between 2006 and 2021. The portion ofthe provision for decommissioning expected to be settled in 2006 totalingapproximately $3.3 million is included in creditors: amounts falling due withinone year (see note 8) and the remainder totaling approximately $7.2 million isincluded in provision for liabilities and charges in the consolidated balancesheet at 30 June 2006. The provision for decommissioning is as follows: $'000 At 31 December 2005 9,818 Liabilities Settled During the period -Additions 411 Current year accretion of net present value of decommissioning provision 341 At 30 June 2006 10,570 Less: current portion (classified within creditors: amounts falling due within one year) (3,352) 7,218 10. Share capital At 30 June At 31 December 2006 2005Authorised: Number Number Ordinary Shares (par value 5.714p per share) 175,000,000 175,000,000 Allotted, called up and fully paid 93,481,250 ordinary sharesof 5.714p each The share capital and share options at the beginning and the end of the periodare summarised below: Number of Ordinary Number ofAllotted, called up and fully paid Shares Options At 31 December 2005 93,031,250 13,796,250Share options granted - 550,000Share options exercised 450,000 (450,000) At 30 June 2006 93,481,250 13,896,250 NOTES TO THE CONSOLIDATED ACCOUNTSFOR THE SIX MONTHS ENDED 30 JUNE 2006 10. Share capital (continued) Share options: During the first six months of the year 550,000 share options were granted underthe 2005 Stock Option Plan • In January 2006, 170,000 share options were issued to two employees with an exercise price of £1.30; • In February 2006, 380,000 share options were issued to two Directors of the Company and to four individuals relating to the project in Block 26 in Syria with an exercise price of £1.44. The share options are exercisable immediately unless there is a vestingschedule. The term of each share option was 5 years from date of grant. Theexercise price of the share options were greater than or equal to the marketprice of the shares as of the date of grant. The Board of Directors isresponsible for administering the Plan, determining the terms upon which optionsmay be granted, prescribing, amending and rescinding such interpretations anddeterminations and granting options. In April and May 2006, 450,000 share options were exercised by previousDirectors of the Company. 11. Reserves Share Profit Share premium Other and loss capital account Reserve account Total $'000 $'000 $'000 $'000 $'000 At 31 December 2005 9,972 53,651 11,709 (5,343) 69,989Share Options Exercised 47 1,029 - - 1,076Share Options Granted - - 294 - 294Retained loss for the year - - - 874 874 At 30 June 2006 10,019 54,680 12,003 (4,469) 72,233 The Group has adopted FRS 20 'Share based payment' for the first time. FRS 20 'Share based payment' requires the recognition of share based payments at fairvalue at the date of grant. The share options granted (note 10) resulted in acharge to share based compensation expense of $294,272 for the first half yearof 2006 and the offsetting credit was taken to Other reserve - share options. NOTES TO THE CONSOLIDATED ACCOUNTSFOR THE SIX MONTHS ENDED 30 JUNE 2006 12. Reconciliation of operating profit to net cash inflow from operating activities Six months ended 30 June Year Ended 31 December 2005 2005 Continuing Continuing Group Minority Total Group Minority Total 2006 Share Share Operations Share Share Operations $'000 $'000 $'000 $'000 $'000 $'000 $'000 Operating profit (loss) 880 3,617 4,277 7,894 4,767 5,475 10,242 Depreciation 2,479 2,458 2,215 4,673 3,239 2,918 6157Accretion 341 443 400 843 1,370 1,234 2604 Non-cash charge for share options 294 - - - - - -Goodwill amortised - 54 - 54 - - - (Increase)/Decrease in debtors excluding deferred tax assets (5,070) (2,923) (2,850) (5,773) 1,339 3,387 4726 Increase in creditors, excluding provision for liabilities and charges 4,660 2,283 2,058 4,341 (7,482) (6,743) -14225 Net cash inflow from operating activities 3,584 5,933 6,099 12,032 3,232 6,272 9,504 13. Post balance sheet events In July 2006, various Directors of the Company exercised options of 3,893,750ordinary shares of 5.714p each in the Company due to expire on 2 August 2006.On the date of exercise, two Directors sold 385,000 new Ordinary Shares to covercertain tax liabilities which were due in the third quarter of 2006 as a resultof the exercise. In total the Directors purchased 3,508,750 Ordinary Shares. Also in July 2006, Andrew West, a Director of the Company, was appointednon-executive Chairman of the Board and was granted 75,000 share options of5.714p each at £1.04 per share with a term of 5 years. This information is provided by RNS The company news service from the London Stock Exchange