Gulfsands Petroleum Regulatory News (GPX)

15 May 2006 07:24

Gulfsands Petroleum PLC15 May 2006 15 May 2006 Gulfsands Petroleum PLC("Gulfsands" or "the Company") and its Subsidiaries (together "the Group") Preliminary Results for the Year Ended 31 December 2005 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 preliminary results for the year ended 31 December 2005. Financial Highlights • Turnover for the Group increased by 36% to $45,012,000 for the year ended 31 December 2005 as compared to $33,056,000 for the year ended 31 December 2004. • Operating Profit increased by 36% to $10,242,000 for the year ended 31 December 2005 as compared to $7,510,000 for the year ended 31 December 2004. • Pre-tax profit before exceptional items and after minority interest increased by 530% to $3,683,000 for the year ended 31 December 2005 (exceptional items included a one time charge of $6,080,000 relating to the partition of the former subsidiary Northstar Gulfsands LLC) as compared to $584,000 for the year ended 31 December 2004. • Cash in bank increased by 87% to $36,561,000 at 31 December 2005 as compared to $19,579,000 at 31 December 2004. • Net assets increased by 336% to $69,989,000 at 31 December 2005 as compared to $16,060,000 at 31 December 2004. • The Company completed an Initial Public Offering on the AIM market of the London Stock Exchange raising approximately $57 million after expenses. Operational Highlights Syria • An initial reserves study at 1 January 2006 was performed for the Tigris structure in Block 26, Syria in which the Group has a 50% working interest and is the operator. The study completed by Ryder Scott identifies gross probable reserves in the Tigris structure of 442 billion cubic feet of natural gas (BCFG). A further 442 BCFG was classified as possible reserves and a further 3447 BCFG as a prospective resource should this structure be gas bearing. Should the structure be oil bearing 104 million barrels of oil (MMBO) and 64 BCFG were classified as possible reserves and a further 408 MMBO and 245 BCFG as a prospective resource. • The Company increased its ownership in Block 26 in Syria from 20% to 50% and became the operator. • The Company executed two letters of intent for the drilling of the two first wells in Block 26, Syria. • The Company completed a 1,155 line kilometre 2D seismic programme in Block 26, Syria. Gulf of Mexico, USA • Gulfsands successfully completed a restructuring of its 52.6% owned Gulf of Mexico subsidiary, Northstar Gulfsands LLC, whereby the Company now has direct ownership of approximately 52.6% of all the property interests formerly held by Northstar Gulfsands LLC. • In association with the partition of Northstar Gulfsands LLC the Company retired all of its debt and warrants associated with that entity leaving the Company debt free. • Proved and probable reserves in the USA Gulf of Mexico increased to 32.4 billion cubic feet of natural gas equivalents (BCFGE) as of 1 January 2006 as compared to 30.2 BCFGE at 1 November 2004. The net present value of those reserves at 1 January 2006 increased to $183 million as compared to $111 million at 1 November 2004. • In the USA Gulf of Mexico the Company's reserve additions replaced 269% of its 2005 produced oil and gas volumes. • The Company participated in the drilling of six offshore Gulf of Mexico exploration wells and four of those six have been discoveries. Subsequent to year-end the Company drilled another successful exploration well in January. Iraq • The Company signed a Memorandum of Understanding on the Misan Gas Project in Iraq and increased its ownership interest to 100% from 85%. Onshore Gulf Coast, USA • Proved and probable reserves in Darcy Energy LLC, owned 83% by the Company, for the onshore USA at 1 January 2006 were 1.6 BCFGE for a net present value of $9.5 million. • The Company drilled one onshore USA exploration well, which was a discovery. Gulfsands' CEO, John Dorrier, said: "In spite of reduced production from the Gulf of Mexico during the fourthquarter as a result of Hurricanes Rita and Katrina, the Company recorded strongincreases in its financial and operational performance for the year. Withfurther successes in drilling and field re-development, we anticipate continuedstrong growth in the Company's reserves base and in production for 2006particularly during the second half of the year." Enquiries: Gulfsands Petroleum (Houston) 001-713-626-9564David DeCort, Chief Financial Officer College Hill (London) 020-7457-2020Ben BrewertonNick Elwes Teather & Greenwood (London) 020-7426-9000James Maxwell (Corporate Finance)Tanya Clarke (Specialist Sales) CHIEF EXECUTIVE'S REPORT TO SHAREHOLDERS The year ending 31 December 2005 was a historic year for the Company. Wecompleted an Initial Public Offering on the AIM market of the London StockExchange, broadened the share ownership, became operator of our Syrian asset,executed a Memorandum of Understanding on a large development project in Iraq,drilled five successful exploration wells in the USA, successfully restructuredthe USA Gulf of Mexico operations and increased the Company's oil and gasreserves significantly as a result of activities in the USA and Syria. Syria The Company capitalized on an opportunity in the summer of 2005 to increase itsinterest to 50% and become operator in Block 26, located in northeast Syria.The Company has identified 31 prospects within the Block with mean resourcespotential exceeding 1 billion barrels of recoverable oil. Since becomingoperator, Gulfsands completed a 1,155 line kilometre seismic programme withinthe Block and has determined the first two drilling locations for 2006. Thefirst well, known as Souedieh North, commenced drilling in late April 2006 andhas the potential to contain in excess of 100 million barrels of recoverableoil. The second well, known as Tigris-1 is scheduled to commence drilling inAugust 2006 and has the potential to contain in excess of 500 million barrels ofoil equivalent. An independent reserves report was issued in January 2006 onthe Tigris structure, which concluded that there are 442 BCFG of gross probablerecoverable reserves. Additionally, the report classified the possible reservesas either natural gas or oil. The gas case reflects an additional 442 BCFG inpossible recoverable reserves and an additional 3447 BCFG as prospectiveresource while the oil case reflects 104 MMBO and 64 BCFG in possiblerecoverable reserves and a further 408 MMBO and 245 BCFG as prospectiveresource. USA Gulfsands successfully completed a partition in December 2005 of NorthstarGulfsands LLC, a former 52.6% owned subsidiary, which resulted in the Companytaking approximately 52.6% of the properties formerly held by NorthstarGulfsands LLC into Gulfsands directly. Additionally, the Company retired all ofits mezzanine debt and warrants leaving the Company debt free. Gulfsands provedand probable reserve base in the Gulf of Mexico at 1 January 2006 increased to32.4 BCFGE with a net present value of $183 million. Reserve additionsprimarily resulted from the drilling of four successful exploration wells duringthe year along with numerous recompletions. The reserve additions replaced 269%of the Company's 2005 produced oil and gas volumes. Within Darcy Energy LLC, Gulfsands' 83% owned onshore USA subsidiary, proved andprobable reserves at 1 January 2006 were 1.6 BCFGE with a net present value of$9.5 million. During the year, the Company participated in one onshoreexploration well, which was a discovery and commenced first production in thefirst quarter of 2006. Iraq The Company signed a Memorandum of Understanding in January 2005 with the IraqOil Ministry on the Misan Gas Project. The Misan Gas Project is a midstreamproject that gathers gas currently being flared at oil fields in Southern Iraq,brings the gas to a central processing plant to clean it of impurities andremove the light hydrocarbon liquid fraction (natural gas liquids), and thentransmits the natural gas for further distribution and use in Iraq. Theextracted hydrocarbon liquids are then transmitted to a southern port forstorage, offloading and export. Discussions have been ongoing regarding theexecution of a definitive contract on this project and the Company is in goodposition to get this contract executed during 2006. In May of 2005, Gulfsandsincreased its interest in the Misan Gas Project to 100% from 85%. AIM Listing In April 2005 Gulfsands' completed an Initial Public Offering on the AIM marketof the London Stock Exchange. The Company placed approximately $57 million ofnew equity (net of expenses) at £1.30/share. These new funds haveenabled the Company to restructure its Gulf of Mexico operations, conduct activeexploration and recompletion programmes in the Gulf of Mexico, fund a 1,155 2Dline kilometre seismic programme in Syria, fund the drilling of two upcominghigh potential wells in Syria, and fund its business development activity inIraq, in particular the Misan Gas Project. Outlook In summary, 2005 was a very active and successful year for Gulfsands, resultingin significant increases in oil and gas reserves, increased ownership in Block26, Syria and the Misan Gas Project in Iraq, and increased turnover, operatingprofit and pre-tax profit before exceptional items for the year. The Company'scurrent activities in Syria, the Gulf of Mexico, and Iraq provide significantpotential for expansion, as do future acquisition opportunities throughout theMiddle East during 2006 and beyond. John P. Dorrier Chief Executive Officer 15 May 2006 GULFSANDS PETROLEUM PLC Consolidated Profit and Loss Account Years Ended 31 December Year Ended 31 December 2005 Minority Share of Northstar Continuing Gulfsands Total Year Ended Notes Group Share (see below) Operations 31 December 2004 US$'000 US$'000 US$'000 US$'000 Turnover 24,926 20,086 45,012 33,056 Cost of sales (13,866) (12,047) (25,913) (19,485) Gross profit 11,060 8,039 19,099 13,571 General and administrative expenses (4,923) (1,330) (6,253) (4,602) Amortisation of goodwill - - - (107) Accretion of net present value decommissioning provision (1,370) (1,234) (2,604) (1,352) Administrative expenses (6,293) (2,564) (8,857) (6,061) Operating profit 4,767 5,475 10,242 7,510 Exceptional items: Loss on disposal of a subsidiary 2 (1,244) - (1,244) - Goodwill written off on disposal of a 2 (1,286) - (1,286) -subsidiary Restructuring Costs on disposal of a 2 (3,550) - (3,550) -subsidiary Profit on activities before interest (1,313) 5,475 4,162 7,510 Investment loss - - - (675) Interest receivable 1,413 205 1,618 143 Interest payable (2,510) (1,822) (4,332) (3,477) Profit before taxation (2,410) 3,858 1,448 3,501 Tax on profit on ordinary activities 3 (1,551) - (1,551) 1,038 (Loss)/Profit on activities after (3,961) 3,858 (103) 4,539taxation Minority interests 4 13 (3,858) (3,845) (2,917) RETAINED (LOSS)/PROFIT (3,948) - (3,948) 1,622 Basic (loss)/earnings per share in 5 (0.05) (0.05) 0.02$'s The profit and loss account "Continuing group share" consists of GP's 52.6% ofNorthstar Gulfsands LLC ("NSGS") and other GP activity, while the "minorityshare of NSGS" column is the NSGS 47.4% partner share. GULFSANDS PETROLEUM PLC Consolidated Balance Sheet 31 December 2005 2004 Note US$'000 US$'000 Fixed assets Tangible fixed assets 6 39,236 56,038 Intangible fixed assets 7 35 2,629 39,271 58,667 Current assets Debtors 8 4,983 10,749 Cash at bank and in hand 9 36,561 19,579 41,544 30,328 Creditors: amounts falling due within one year 10 (3,435) (18,688) Net current assets 38,109 11,640 Total assets less current liabilities 77,380 79,307 Creditors: amounts falling due after more than one year 10 - (29,947) Deferred Tax Liabilities 17 (173) - Provision for liabilities and charges 11 (6,958) (16,427) Equity minority interests 4 (260) (7,873) NET ASSETS 69,989 16,060 SHARE CAPITAL AND RESERVES 12 9,971 7,306 Share capital Share premium account 13 53,651 - Other reserve 13 11,709 10,149 Profit and loss account 13 (5,342) (1,395) SHAREHOLDERS' FUNDS 14 69,989 16,060 GULFSANDS PETROLEUM PLC Consolidated Statements of Cash Flows Years Ended 31 December 2005 2004 Note US$'000 US$'000 Net cash inflow from operating activities 15 9,504 14,802 Interest received 1,618 143 Interest paid (3,292) (2,916) Net cash outflow from returns on investments and servicing of finance (1,674) (2,773) Capital expenditure Payments to acquire tangible fixed assets (16,289) (22,912) Payments to acquire intangible fixed assets (35) (895) Net cash outflow from capital expenditure (16,324) (23,807) Financing Issue of ordinary share capital 56,651 1,187 Issue costs (464) - Warrants exercised for cash 1,689 -Contributions in subsidiary undertaking 101 160 Receipt of loans less repayments prior to disposal of a subsidiary 2,803 35,236undertaking Repayment of loans (20,571) (12,825) Payments in respect of warrants - restructuring costs (3,550) -Minority share - payment as a result of disposal of a subsidiary (11,183) -undertakingNet cash inflow from financing 25,476 23,758Increase in cash 16,982 11,980 Cash at bank and in hand brought forward 19,579 7,599 Cash at bank and in hand carried forward 36,561 19,579 Non-cash investing and financingNon-cash capital contributions in subsidiary undertaking - 2,250 Provision for decommissioning 1,370 17,000 Exceptional items: Loss on disposal of a subsidiary 1,244 - Write off of goodwill on disposal of a subsidiary 1,286 - GULFSANDS PETROLEUM PLC NOTES TO THE CONSOLIDATED ACCOUNTS 1. Basis of preparation The financial information has been prepared in accordance with applicableaccounting standards in the United Kingdom and under the historical costconvention. The financial information contained in this report does not constitute fullstatutory accounts with in the meaning of Section 240 of the Companies Act 1985. The figures are extracted from the unaudited full financial statements for theyear ended 31 December 2005, which will be filed with the Registrar of Companiesfollowing formal completion of the audit. Gulfsands Petroleum Plc was incorporated on 5 December 2004 for the purpose ofachieving admission to trading on Alternative Investment Market ("AIM") of theexisting business of Gulfsands Petroleum Ltd. and its subsidiaries. On 18February 2005, Gulfsands Petroleum Plc acquired the entire share capital ofGulfsands Petroleum Ltd. by means of a share for share exchange. The transactionqualified as a group reconstruction within the meaning of Financial ReportingStandard 6 "Acquisition and Mergers", and has been accounted for using themerger accounting method. These financial statements are the first statutory accounts for GulfsandsPetroleum Plc and reflect the results for the year to 31 December 2005. Thefinancial statements consolidate the accounts of Gulfsands Petroleum Plc and allits subsidiary undertakings (the 'Group'), drawn up to 31 December each year. In the Group financial statements, merged subsidiary undertakings are treated asif they had always been a member of the Group. The results of such a subsidiaryare included for the whole period in the year it joins the Group. Thecorresponding figures for the previous year include its results for that period,the assets and liabilities at the previous balance sheet date and the sharesissued by Gulfsands Petroleum Plc as consideration as if they had always been inissue. The balance sheet of the Gulfsands Petroleum Ltd. and its subsidiaries asat 31 December 2004 is presented as a proforma comparative. Any differencebetween the nominal value of the shares acquired and those issued by GulfsandsPetroleum Plc to acquire them is taken to reserves. Under the principles of merger accounting, the assets and liabilities of theGulfsands Petroleum Ltd. and its subsidiaries have been brought in at their bookvalues under the accounting policies of Gulfsands Petroleum Plc. The results of subsidiaries acquired or sold are consolidated for the periodsfrom or to the date control passed. Acquisitions are accounted for under theacquisition method, under which purchase consideration is allocated to theassets and liabilities on the basis of fair value at the date of acquisition. The Company's consolidated statements include the accounts of undertakings whenthe Company has the power to exercise, or actually exercises, dominant influenceor control over the undertaking. A full list of accounting policies will be shown in the group financialstatements. The significant accounting policies are detailed below: (a) Reporting currency The financial information is presented in U.S. dollars. The Company's operationsand the majority of all costs associated with foreign operations are paid inU.S. dollars and not the local currency of the operations. Therefore, thereporting and functional currency is the U.S. dollar. Gains and losses fromforeign currency transactions, if any, are recognised in current profit or lossfor the period. (b) Oil and gas properties The Group follows the full cost method of accounting for oil and gas propertiesunder which expenditure on pre-license, license acquisition, exploration,appraisal and development activities is capitalised. All capitalised explorationand development expenditures are recorded within an appropriate cost pool withintangible fixed assets, except that certain exploration and appraisal costs maybe held outside a cost pool pending determination of commercial reserves, withinintangible fixed assets. The Group has two cost pools: USA and Syria. TheGroup's definition of commercial reserves is proven and probable reserves. Pre-license acquisition, exploration and appraisal costs of individual licenseinterests held outside a cost pool remain un-depreciated pending determinationbut subject to there being no evidence of impairment. When a decision to developan oil and gas property has been taken, or if there is evidence of impairment invalue, the costs are transferred to the appropriate cost pool within tangiblefixed assets. Costs carried within each pool are depreciated on a unit of production basisusing the ratio of oil and gas production in the period to the estimatedquantity of commercial reserves at the end of the period plus production in theperiod. Costs in the unit of production calculation include the net book valueof capitalised costs plus estimated future development costs. Changes inestimates of commercial reserves or future development costs are dealt withprospectively. When events or changes in circumstances indicate that the carrying amount ofexpenditure within a cost pool may not be recoverable from future net revenuesfrom oil and gas reserves attributable to that pool, a comparison between thenet book value of the cost pool and the discounted future cash flows from thatcost pool is undertaken. To the extent that the carrying amount exceeds therecoverable amount, the pool is written down to its recoverable amount andcharged as additional depreciation. (c) Decommissioning Where a material liability for the removal of production facilities and siterestoration at the end of the production life of a field exists, a provision fordecommissioning is recognised. The amount recognised is the present value ofestimated future expenditure determined in accordance with local conditions andrequirements. Accretion expense is recognised to represent the unwinding of thediscount of the present value of the provision for decommissioning. A tangiblefixed asset of an amount equivalent to the provision is also created anddepreciated on a unit of production basis. Changes in estimates are recognisedprospectively, with corresponding adjustments to the provision and theassociated fixed asset. 2. Exceptional Items On 9 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 Cayman Islands) ("NSGS") in return for the partition of certain assets in NSGS. This was accomplishedby a conveyance of a certain undivided interest in its oil and gas properties toGP USA 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. However, the Group will continueto earn its share of turnover from certain oil and gas properties owned andmanaged by NSGS. Therefore, in accordance with Financial Reporting Standard 3 ("Reporting Financial Performance"), the directors do not consider this change inarrangement as a discontinued operation as the disposal of NSGS does not have amaterial effect on the nature and focus of the Group's operations. As a result of this change in arrangement, the Company recognized a loss on thedisposal of $1,243,583, wrote off the unamortised goodwill of $1,285,714, andincurred restructuring costs of $3,550,000. The restructuring cost of$3,550,000 represents payment made in respect of 52.6% of the outstandingwarrants in NSGS as at the time of the partition. 3. Tax on profit on ordinary activities US$'000 Deferred tax - current year 1,211 UK Corporation tax - current year 340 1,551 4. Minority Interests As a result of the change in arrangement, all minority equity interest resultingfrom the disposal of NSGS was eliminated from the liability account. On theprofit and loss statement, the minority interest expense mostly represents theminority's 47.4% share of the net income of the former subsidiary - NSGS. US$'000 At 1 January 2005 7,873 Loss on ordinary activities after taxation - Darcy Energy LLC (13) Profit on ordinary activities after taxation - Northstar Gulfsands LLC 3,858 Contributions 101 Effect of change in joint arrangement (11,559) At 31 December 2005 260 Minority interest expense Minority share - loss on ordinary activities - Darcy Energy LLC 13 Minority share - profit on ordinary activities - Northstar Gulfsands LLC (3,858) (3,845) 5. Earnings per Share The loss per ordinary share of $0.05 is based on the loss for the financialperiod of $3,948,000 and 85,442,295 ordinary shares, being the average number ofshares in issue for the period. No diluted loss per ordinary share has been disclosed because the conversion ofshare options would decrease the net loss per share. 6. Tangible Fixed Assets Oil and gas Fixed assets Total properties US$'000 US$'000 US$'000 At 1 January 2005 64,713 61 64,774 Additions 16,167 16,289 122 Transfer from intangible fixed assets 1,339 - 1,339 Disposals as a result of the disposal of a subsidiary undertaking (35,156) (115) (35,271) Disposals - (18) (18) At 31 December 2005 47,063 50 47,113 Accumulated depreciation: At 1 January 2005 (8,702) (34) (8,736) Charge for the period (6,139) (18) (6,157) Disposals as a result of the disposal of a subsidiary undertaking 6,985 13 6,998 Disposals - 18 18 At 31 December 2005 (7,856) (21) (7,877) Net book value at 31 December 2005 39,207 29 39,236 Net book value at 31 December 2004 56,011 27 56,038 The Directors have assessed the carrying value of the oil and gas properties andin their opinion, no impairment provision is considered necessary. 7. Intangible Fixed Assets (i) Oil and gas properties - unevaluated costs Syria Total US$'000 US$'000 Cost and net book value: At 1 January 2005 1,339 1,339 Transfer to tangible fixed assets (1,339) (1,339) At 31 December 2005 - - (ii) Goodwill Net book value: At 1 January 2005 1,286 Written off on disposal (1,286) At 31 December 2005 - (iii) Computer Software Cost and net book value: At 1 January 2005 4 Additions 35 Disposals (4) Depreciation charge for the period - At 31 December 2005 35 8. Debtors At 31 December 2005 2004 US$'000 US$'000 Trade debtors 4,047 6,918Other debtors 182 85Underlift 919 1,748Prepayments and accrued income 333 960Deferred tax asset - 1,038Prepaid Cash Calls (498) - 4,983 10,749 Underlift at 31 December 2005 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. 9. Cash at Bank and in Hand The Company considers cash in hand and deposits repayable on demand with anyqualifying financial institution, less overdrafts from any qualifying financialinstitution repayable on demand as cash at bank and in hand. Deposits arerepayable on demand if they can be withdrawn at any time without notice andwithout penalty or if a maturity or period of notice of not more than 24 hoursor one working day has been agreed. Cash at bank and in hand includes cash inhand and deposits denominated in foreign currencies. The Company has classified as Cash at bank and in hand certain deposits that arenot available for use in its operations. At 31 December 2005, the Companyincurred a commitment as part of an escrow agreement for its futuredecommissioning provision associated with its oil and gas properties at anestimated cost of $17,370,121. At 31 December 2005, the Company had escrowed$14,588,405 of cash for use in the settlement of its decommissioning provision. 10. Creditors Amounts Falling Due Within One Year At 31 December 2005 2004 US$'000 US$'000 Borrowings - accrued interest - 369Borrowings - principal - 5,250Provision for liabilities and charges (see note 11) 2,860 4,814Trade creditors 235 6,180UK Corporation tax payable 340 2,075 3,435 18,688 Amounts Falling Due After More Than One Year At 31 December 2005 2004 US$'000 US$'000 Borrowings - 29,947 - 29,947 All borrowings were repaid as a result of disposal of a subsidiary undertaking. 11. 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 31 December 2005 the oil and gas propertieshave estimated plugging and abandonment dates between 2006 and 2017. The portionof the provision for decommissioning expected to be settled in 2006 totalingapproximately $2,860,000 is included in creditors: amounts falling due withinone year (see note 10) and the remainder totaling approximately $6,958,000 isincluded in provision for liabilities and charges in the consolidated balancesheet at 31 December 2005. The provision for decommissioning is as follows: US$'000 At 1 January 2005 16,427 Additions 856 Current year accretion of net present value of decommissioning provision 1,370 Reduction due to disposal of a subsidiary undertaking (8,835) At 31 December 2005 9,818 Less: current portion (classified within creditors: amounts falling due within one year) (2,860) 6,958 12. Share Capital Gulfsands Petroleum Plc was incorporated on 2 December 2004 with an authorisedshare capital of £10,000,000 divided into 17,840,000 ordinary shares and2,160,000 convertible redeemable shares of 50p each. Gulfsands Petroleum Plcwas formed as the successor corporation to Gulfsands Petroleum Ltd. which wasoriginally established in 1997. On 4 January 2005, the Company redesignated 2,160,000 ordinary shares of 50p as2,160,000 convertible redeemable shares, having the rights set out in the newarticles of association of the Company as described in paragraph 3 of Part 5 ofthe AIM admission document. On 18 February 2005, the Company issued 5,349,998 ordinary shares of 50p eachand 2,160,000 convertible redeemable shares as consideration for the acquisitionof the entire share capital of Gulfsands Petroleum Ltd. Subsequently on 1 April2005 the company issued 270,000 ordinary shares of 50p each as consideration forthe acquisition of 270,000 shares in Gulfsands Petroleum Ltd. following theexercise of warrants in that company. By a resolution of the members passed 4 April 2005, each of the ordinary sharesof 50p each was subdivided into 8.75 ordinary shares. Following thissubdivision, the conversion rate of the convertible redeemable shares wasadjusted such that each convertible redeemable share was convertible into 8.75ordinary shares. On 8 April 2005, 24,300,000 new shares were issued for cash - placement at £1.30each. 12. Share Capital (continued) The movements in the share capital and options are summarised below: At 31 December 2005 2004 Number NumberAuthorised: Ordinary Shares (par value 5.714p per share) 175,000,000 175,000,000 175,000,000 175,000,000 Allotted, called up and fully paid93,031,250 ordinary shares of 5.714p each Number of Number of Ordinary Shares Convertible redeemable sharesIssued on subscription 2 - Issued on a share for share exchange on 18 February 2005 5,349,998 2,160,000 Issued on 1 April 2005 270,000 - 5,620,000 2,160,000 Conversion of convertible redeemable shares to ordinary shares 2,160,000 (2,160,000) 7,780,000 - Sub-division of shares 8.75 68,075,000 - Issue for cash - placement 24,300,000 - Options exercised for cash 656,250 - At 31 December 2005 93,031,250 - 13. Reserves Share Profit Share Premium Other And loss capital account Reserve account Total US$'000 US$'000 US$'000 US$'000 US$'000 At 1 January 2005 7,306 - 10,149 (1,395) 16,060 Warrants and options exercised 71 1,618 - - 1,689 Transfer of share premium arising on exercise of - (1,560) 1,560 - -warrants in a subsidiary Shares issued on placement 2,594 53,593 - - 56,187 Retained loss for the year - - - (3,947) (3,947) At 31 December 2005 9,971 53,651 11,709 (5,342) 69,989 14. Reconciliation of movements in shareholders' funds At 31 December 2005 2004 US$'000 US$'000(Loss)/profit for the financial period (3,947) 1,622Options and warrants exercised 1,689 - Revaluation reserve - 212 Shares issued during the period 56,187 - Net additions to shareholders' funds 53,929 1,834 Opening shareholders' funds 16,060 14,226 Closing shareholders' funds 69,989 16,060 15. Reconciliation of operating profit to net cash inflow from operatingactivities Years ended 31 December 2005 2004 US$'000 US$'000 Operating profit 10,242 7,510 Depreciation 6,157 7,959 Accretion of net present value decommissioning provision 2,604 1,352Goodwill amortised - 107 Increase/(decrease) in debtors excluding deferred tax assets 4,726 (7,828) (Decrease)/increase in creditors, excluding provision forliabilities and charges (14,225) 5,702 Net cash inflow from operating activities 9,504 14,802 16. Analysis of change in net (debt)/funds At 1 January 2005 Net Cash Flows Minority Share At 31 December 2005 US$'000 US$'000 US$'000 US$'000 Cash at bank and in hand 19,579 28,165 (11,183) 36,561 Net cash 19,579 28,165 (11,183) 36,561 Debt due after one year (29,947) 11,409 18,538 - Debt due within one year (5,250) 5,250 - - Net debt (15,618) 44,824 7,355 36,561 17. Deferred tax liabilities At 31 December 2005 US$'000 Deferred tax liability - accelerated oil and gas tax depreciation allowances 221 Deferred tax asset - net operating losses (48) At 31 December 2005 173 This information is provided by RNS The company news service from the London Stock Exchange