Management Resource Solutions Regulatory News (MRS)

7 Sep 2006 07:03

Melrose Resources PLC07 September 2006 FOR IMMEDIATE RELEASE 7 September 2006 Melrose Resources plc Unaudited Interim Results to 30 June 2006 Melrose Resources plc, the oil and gas exploration and production company withinterests in Egypt, Bulgaria, USA and France, today announces its interimresults for the six months to 30 June 2006. Highlights Operational Highlights • Acquisition of Merlon Petroleum Company for a consideration of $265 million, less debt and adjusted for working capital; • Successful appraisal of West Khilala discovery - recoverable reserves now estimated at 380 Bcf (GIIP c.500 Bcf); • Oil discovery at the West Dikirnis No.2 appraisal well - recoverable reserves estimated at 25 MMbbls (OIIP c.70 MMbbls) and 86 Bcf; • Further oil discovery at El Tamad; Financial Highlights • Turnover of $50.8 million (2005 - $47.3 million); • Operating profit of $17.9 million (2005 - $18.8 million); • Profit after tax of $2.9 million (2005 - $17.2 million); • EBITDAX of $39.3 million (2005 - $38.3 million); • Issue in July 2006 of 22.7 million new ordinary shares at £3.30 per share raised $134.5 million net of expenses; • New $300 million borrowing facilities put in place. Chairman's statement Commenting on the results, Robert Adair, Chairman said: "Obviously the highlight of the first half of the year was the acquisition ofMerlon Petroleum Company, which was completed on 29 June 2006, and which has Ibelieve already added significant value to shareholders. In addition, successfulexploration and appraisal drilling in Egypt, particularly on the West Dikirnisand West Khilala fields has also significantly increased net asset value." For further information, please contact: Melrose ResourcesRobert Adair, Chairman 0184 553 7037David Curry, Chief Executive 0131 221 3360Munro Sutherland, Finance Director 0131 221 3360 Buchanan CommunicationsBen Willey 0207 466 5000 or visit www.melroseresources.com On 29 June 2006 Melrose completed the acquisition of Merlon Petroleum Company.Merlon was Melrose's partner in Egypt and the operator of the properties. Theacquisition of Merlon has, therefore, given Melrose operatorship and 100%ownership of these properties. In addition, Merlon owns oil and gas propertiesin the onshore Gulf Coast area of Texas, USA. The acquisition has doubledMelrose's exposure to the exploration upside in its properties in Egypt andincreased Melrose's oil and gas reserve base by approximately 60%. Egypt The West Dikirnis field is now being developed as an oilfield and the fast-trackdevelopment proposal calls for initial production of 10,000 bopd and 15 MMcfpdof gas in the third quarter of 2007. Production will be through 17 km of oil andgas pipelines to the existing South Batra plant which is being upgraded. Up toeight further appraisal well locations have been identified on the West Dikirnisstructure in planning the development drilling programme and target productionby the end of 2007 is up to 20,000 bopd plus 50 MMcfpd. Recoverable reserves arenow estimated to be 25 MMbbls and 86 Bcf. The West Khilala gas field is now estimated to have recoverable reserves of 380Bcf. The initial development plan targets production of 80 MMcfpd in the firstquarter of 2007 with an increase to 120 MMcfpd to be based on furtherdevelopment drilling: up to four further well locations have been identified forfurther appraisal drilling on the West Khilala field. Both the West Khilala and West Dikirnis structures have now been confirmed inearly Miocene marine turbidite fans which have excellent reservoir qualities;exploration activity on the Mansoura Concession is being re-focused on prospectsof this type. Other exploration drilling this year in Egypt has proven successful. The Salakaprospect encountered gas in the Pliocene, and gas and condensate in two Miocene,intervals. This field is also being developed and first production, throughupgraded facilities at South Mansoura, is scheduled for January 2007 at 13MMcfpd and 150 bcpd. Appraisal drilling is expected to take this to 25 MMcfpdand 250 bcpd. The West Abu Khadra No.1 exploration well also encountered a gascolumn in an Abu Madi reservoir target and the East Abu Khadra No.1 will bedrilled soon; the whole Abu Khadra area will be evaluated prior to testing andhopefully development. Future shallow drilling will be concentrated on the SidiSalim oil play. Some viable Pliocene section prospects are being identified assecondary targets in deeper wells, as in the Salaka discovery, and the WestKhilala area has Pliocene channel potential which will be tested in the plannedappraisal wells. Existing fields are performing steadily. The El Tamad field has stabilised ataround 500 bopd and 900 Mcfpd. The El Tamad No.3 well has opened the play up tothe east. This well was structurally higher than the El Tamad No.1 with athicker, 32 ft oil leg. The well was tested at 750 bopd and 300 Mcfpd and hasnow been put on production. The El Tamad No.4 appraisal well, located to theeast of the existing wells but in the same fault compartment as the No.3 well,will be drilled immediately with No.5 and No.6 wells planned for the comingmonths. El Tamad plant production capacity of 2,000 bopd should be reached bymid-2007. South Batra production has stabilised at around 25 MMcfpd and 350 bcpdand new wells are now being planned to maintain production. Remedial action isalso scheduled on existing wells to address the liquid hold problem beingexperienced in the reservoir. The South Mansoura fields are producing around 20MMcfpd. In addition, three further small discoveries in the area are currentlyawaiting approval to start production. The Turbay gas and oil field, Al Rawdagas field and Tummay gas field are all now being hooked up and will provideproduction into the South Mansoura plant in the near future. Acquisition and processing of 3-D seismic data continued through the period. Theprocessed data from recent phases acquired over the eastern side of the ElMansoura Concession will be available in the second half of the year. Prioritywill be given to the evaluation of the West Dikirnis trend with severalanalogous prospects and leads in the area requiring further study. The deeperOligocene play will also be evaluated in this area. 3-D seismic has beenacquired in the northwest of the SE Mansoura exploration concession. Preliminaryinterpretation of the data appears to confirm the Sidi Salim structuresidentified on old 2-D seismic. The processed seismic will be available in aboutfour months and a number of new prospects are expected to emerge from theinterpretation. With four fields under development, newly acquired 3-D seismic will promote anew phase of exploration which will target the new turbidite fan plays analogousto West Dikirnis and West Khilala. The Sidi Salim oil play in the south is alsodemonstrating great promise with the continuing development of the El Tamadfield. Further potential exists in the large, deeper Oligocene plays in the eastof the concession. Bulgaria In Bulgaria, production from the Galata gas field has continued to be impressiveand in line with expectations. The first stage of the onshore compression plantwhich was installed in January 2006 has proven very reliable and full customernominations have been met since then including during a period of extreme coldin the first quarter of 2006. The second onshore compressor and associatedequipment are currently being constructed and are on schedule for delivery toVarna in February 2007. Site preparation in Varna has commenced to make best useof the summer weather. In April 2006 Melrose acquired a fourth exploration permit offshore Bulgaria,Bourgas Deep. The acquisition was an important addition to Melrose's explorationacreage and exploration plans have now been formulated for all four of Melrose'scurrent exploration permits - Kaliakra 99, Emine, Rezovska and Bourgas Deep. TheAtwood Southern Cross semi-submersible drilling rig has been contracted for athree well drilling programme with an option for two further wells. The rig isexpected to be mobilised into the Black Sea in November and, after drilling twowells for another operator, is now expected to commence drilling for Melrose inthe first quarter of 2007. The first well is likely to be a Miocene channel on Block Bourgas Deep which isconsidered a lower risk prospect while the second well will test the Ropotamoprospect on Block Rezovska. The well design has been completed for these firsttwo locations and they will shortly be submitted for approval by the Ministry ofEnvironment and Waters. The design of the third well, to test a Pliocene fanprospect on the deeper water area of Block Kaliakra 99, is currently beingfinalised. Further exploration activity in Bulgaria over the next year willinclude a 2-D seismic acquisition in the northern area of Block Kaliakra 99 andinterpretation and analysis by technical teams in Edinburgh and Sofia willcontinue. Melrose's bid for the re-award of Block Galata was opened in July 2005 by acommittee appointed and chaired by the Minister of Environment. It has beenindicated that the committee will announce the results of the bid process inSeptember. Melrose is confident that its bid is the most meritorious of the fourbids submitted and is hopeful that the block will be re-awarded. The earlyre-award of the block could result in a change to the planned drilling schedulein 2007. A jack-up rig may also be contracted for the fourth quarter of 2006 orearly 2007. USA In the USA the development drilling programme continued with six new wellsdrilled in the Jalmat field in the first half of the year and three new wellsrecently drilled in the Artesia field. Six of these new wells have been put ontoproduction, with the remaining three wells scheduled to be completed this month.Work has continued on the implementation of the waterflood projects. In theJalmat field, construction of a second water injection facility was completedand 14 additional injection wells are now ready to be activated from thisfacility. In the Artesia field, construction of a new water injection facilityand laying of a new high pressure trunk line is scheduled to commence later thismonth. In the second half of the year, the emphasis on the Group's Permian Basinassets will be on increasing the density of water injection wells which iscritical to raising production levels. Following the acquisition of Merlon's USassets, a development well on the Holmes lease in East Texas is planned and anexploration well is also being considered. France Detailed analysis of data over the area of the Rhone Maritime exploration permithas yielded some very interesting results and additional data have now beenacquired and integrated into the evaluation. The core of the work has been theconstruction of a basin model which has demonstrated clear potential for thegeneration and expulsion of hydrocarbons in both the pre-salt Miocene andpost-salt Pliocene horizons. A number of large structures have been identifiedbetween a faulted section in the north of the area and salt diapirs in the southwhich penetrate to the sea bed. Satellite oil seep surveys purchased recentlyhave shown seeps as predicted over the fault and diapir sections which provide apath for hydrocarbons to reach the seabed. All of the key ingredients forexploration success appear to be present: hydrocarbon generation; clearmigration paths; traps; and good seal. The next stage of exploration activitywill require a 3-D seismic survey and the drilling of an exploration well. Apreliminary farm-out summary has now been prepared and a number of companieswith a deepwater exploration focus have been contacted. The concession islooking very prospective and a strong industry partner is being sought to jointventure on the evaluation of this key asset. Results for the six months ended 30 June 2006 Turnover in the six months ended 30 June 2006 was $50.8 million (six monthsended 30 June 2005 (as restated) $47.3 million). Operating profit was $17.9million (six months ended 30 June 2005, profit of $18.8 million). Profit beforetaxation in the first half was $6,609,000 (six months ended 30 June 2005, profitof $21,308,000). Profit after taxation was $2,948,000 (six months ended 30 June2005, profit of $17,212,000). The result for the period was affected by financing costs of $12.0 million ofwhich $7.1 million resulted from the cost of short-term loan facilities to allowthe acquisition of Merlon to be closed, the prepayment of existing loanfacilities and the writing-off of financing costs carried in relation to theexisting bank facilities which were repaid. The result in the previous period benefited from financing income of $7.9million, of which $4.1 million arose from the sale of options in a quotedcompany and $3.6 million on the unrealised gain arising from the revaluation tofair value of the options in the same quoted company, which were held by theCompany. Net daily production in the six months ended 30 June 2006 averaged 69 MMcfepd(11,544 boepd) which compares with 74 MMcfepd (12,277 boepd) during the whole oflast year. Production was split 1,561 Mcfpd and 755 bopd in the USA, 12,185Mcfpd and 196 bcpd in Egypt and 49,811 Mcfpd in Bulgaria. Average net productionin the same period in 2005 was 1,096 Mcfpd and 766 bopd in the USA, 17,072 Mcfpdand 166 bcpd in Egypt and 52,453 Mcfpd in Bulgaria. Average prices receivedduring the period were $63.51 per barrel and $3.47 per Mcf compared with $48.65and $3.06 in 2005. EBITDAX for the period was $39.3 million (six months ended 30 June 2005, $38.3million). In addition to the cost of the acquisition of Merlon, capitalexpenditure during the period amounted to $44.0 million (six months ended 30June 2005, $32.2 million). Capital expenditures were split between Egypt - $30.9million, Bulgaria - $5.8 million, USA - $6.8 million and France - $0.5 million. The acquisition by Melrose of Merlon Petroleum Company was completed on 29 June2006. The total consideration for the acquisition, including costs, was $288.1million. On 12 July Melrose completed the issue of 22.7 million new shares at£3.30 per share under a Placing and Open Offer. Net proceeds from the issue ofnew shares were $134.5 million. The balance sheet as at 30 June 2006 reflectsthe fact that the acquisition of Merlon had been completed with the use of bankdebt prior to the share issue. A pro forma balance sheet showing the effect ofthe share issue is shown at note 9 to the interim accounts. Outlook Current gross production in Egypt is approximately 50 MMcfepd and this isexpected to rise to over 135 MMcfepd during the first half of 2007 and over 200MMcfepd during the second half of 2007. This will give net production forMelrose in Egypt of around 60 MMcfepd of which over one third is expected to beoil and condensate. Production from the Galata field in the second half of 2006is expected to be roughly the same as in the first half. In the USA, currentproduction of approximately 1,000 boepd is expected to increase steadily overthe next year with further drilling and as the benefits of the waterflood startto be seen. Drilling activity in Egypt over the next few months will combine furtherappraisal drilling in the West Khilala, West Dikirnis and El Tamad areastogether with some appraisal and development drilling, mainly in the South Batraand South Mansoura areas and with exploration drilling targeting primarily thenew Miocene turbidite play and the shallow Sidi Salim oil play. In Bulgaria theexploration programme scheduled for the year-end has very exciting potential. The Merlon acquisition price was underpinned by Melrose's detailed knowledge ofthe Egyptian assets of Merlon. The purchase price of the Merlon oil and gasassets was less than the NPV10 of the proved and probable reserves of Merlonexcluding the exploration potential and was, therefore, a very good deal fromMelrose's point of view. In particular, detailed analysis by Melrose's technicalteam had attributed significant value to the potential of the West Khilala andWest Dikirnis discoveries. Both of these fields were discovered in the secondhalf of 2005 and the results of appraisal wells drilled on each field in 2006have since confirmed the value upside which Melrose had anticipated. I believethat the acquisition of Merlon has raised Melrose's asset base and operatingcapability to a new level and has already added significant additional value forshareholders. Robert F M Adair Chairman 7 September 2006 Consolidated statement of income statementfor the six months ended 30 June 2006 ---------------------- ----- ---------- ---------- ---------- 6 months ended 6 months ended 12 months ended 30 June 2006 30 June 2005 31 December restated 2005 $000 $000 $000 Unaudited Unaudited Audited ---------------------- ----- ---------- ---------- ---------- NoteRevenue 3 50,843 47,282 94,506 Depletion (15,909) (15,503) (33,378)Decommissioning charge (736) (553) (1,144)Unsuccessfulexploration costs (4,620) (3,355) (9,255)Other cost of sales (6,312) (4,633) (10,429) ---------- ---------- ----------Total cost of sales (27,577) (24,044) (54,206) ---------- ---------- ---------- Gross profit 23,266 23,238 40,300 Administrative expenses (5,405) (4,409) (8,136) ---------- ---------- ----------Profit from operations 3 17,861 18,829 32,164 Financing income 709 7,899 9,897Financing costs (11,961) (5,420) (10,304) ---------- ---------- ---------- Profit before taxation 6,609 21,308 31,757 Income tax expense (3,661) (4,096) (9,350) ---------- ---------- ----------Profit for the period 2,948 17,212 22,407 ---------- ---------- ---------- Earnings per share(cents)Basic 4 3.7 22.5 28.9 ---------- ---------- ----------Diluted 4 3.7 21.9 28.1 ---------- ---------- ---------- Note: All activities are continuing activities. Consolidated statement of recognised income and expensefor the six months ended 30 June 2006 6 months ended 6 months ended 12 months ended 30 June 2006 30 June 2005 31 December 2005 $000 $000 $000 Unaudited Unaudited Audited Cash flow hedges - effective portion of changes in fair value - (23) 13Exchange differences onnon-functional currencyentities (14) (613) -Net income recogniseddirectly in equity (14) (636) 13 Profit for the period 2,948 17,212 22,407 Total recognised incomeand expense for the period 2,934 16,576 22,420 Consolidated balance sheetas at 30 June 2006 ------------------ ---- --------- --------- ---------- As at As at As at 30 June 2006 30 June 2005 31 December $000 Restated 2005 Unaudited $000 $000 Unaudited Audited------------------ ---- --------- --------- ---------- Note Non-current assetsIntangible assets 176,243 33,271 19,281Property, plant, andequipment 393,009 168,708 196,186Financial assets 3,544 3,602 4,132Deferred tax asset 22,095 19,722 17,259 --------- --------- ---------- 594,891 225,303 236,858 --------- --------- ---------- Current assetsInventories 15,213 1,384 6,847Trade and otherreceivables 43,245 22,755 23,945Cash and cash equivalents 11,607 20,288 7,965 --------- --------- ---------- 70,065 44,427 38,757 --------- --------- ---------- --------- --------- ----------Total assets 664,956 269,730 275,615 --------- --------- ---------- Current liabilitiesBank loans 5 (126,687) (11,161) (20,000)Other loans 5 - (3,500) (3,500)Trade and other payables (38,422) (11,368) (14,298)Provisions (797) (555) (1,099) --------- --------- ---------- (165,906) (26,584) (38,897) --------- --------- ---------- Non-current liabilitiesBank loans 5 (260,526) (58,865) (47,519)Other loans 5 - (17,500) (17,500)Deferred tax liability (64,685) (2,347) (1,338)Provisions (7,564) (7,154) (6,797) --------- --------- ---------- (332,775) (85,866) (73,154) --------- --------- ---------- --------- --------- ----------Total liabilities (498,681) (112,450) (112,051) --------- --------- ---------- --------- --------- ----------Net assets 166,275 157,280 163,564 --------- --------- ---------- Equity attributable toshareholdersIssued capital 14,322 14,074 14,080Share premium 10,612 8,576 8,579Special reserve 111,244 111,244 111,244Retained earnings 30,097 23,386 29,661 --------- --------- ----------Total Equity 166,275 157,280 163,564 --------- --------- ---------- Consolidated cash flow statement for the six months ended 30 June 2006 ------------------------- ---------- --------- ----------- 6 months ended 6 months ended 12 months ended 30 June 2006 30 June 2005 31 December restated 2005 $000 $000 $000 Unaudited Unaudited Audited ------------------------- ---------- --------- ----------- Cash flows from operatingactivitiesProfit for the period 2,948 17,212 22,407Adjustments for:Depreciation 181 55 204Depletion anddecommissioning charge 16,645 16,056 34,522Unsuccessful explorationcosts 4,620 3,355 9,255Loss on disposal of assets - - 14Loss on revaluation ofinvestments 40 - -Foreign exchange (gains)/losses (502) 698 1,235Financing income (207) (7,899) (9,897)Financing costs 11,921 4,722 9,069Equity-settled share-basedpayment expenses 244 216 737Income tax expense 3,661 4,096 9,350 ---------- --------- -----------Operating profit beforechanges in working capital 39,551 38,511 76,896 Increase in inventory (2,179) - (5,463)Decrease/ (increase) intrade and otherreceivables 4,122 (1,511) (4,148)Increase/ (decrease) intrade and other payables 4,486 (1,569) (303) ---------- --------- -----------Cash generated fromoperations 45,980 35,431 66,982 Income taxes paid (2,925) (3,497) (6,968) ---------- --------- -----------Net cash inflow fromoperating activities 43,055 31,934 60,014 ---------- --------- ----------- Cash flows from investingactivitiesProceeds from sale ofinvestment 547 4,076 5,350Interest received 207 221 416Acquisition of property,plant and equipment andintangible assets (44,175) (32,221) (67,671)Acquisition of subsidiary(net of cash received) (284,354) - - ---------- --------- -----------Net cash outflow frominvesting activities (327,775) (27,924) (61,905) ---------- --------- ----------- Cash flows from financingactivitiesProceeds from the issue ofshare capital 1,273 8,427 8,435Interest paid (7,369) (3,678) (6,472)Loan arrangement fees paid (9,284) - -Borrowings raised 394,692 9,000 6,000Repayment of borrowings (91,000) - -Dividends paid - (1,333) (1,333) ---------- --------- -----------Net cash inflow fromfinancing activities 288,312 12,416 6,630 ---------- --------- ----------- Net increase in cash andcash equivalents 3,592 16,426 4,739Cash and cash equivalentsat start of period 7,965 4,237 4,237Effect on exchange ratefluctuations on cash held 50 (375) (1,011) ---------- --------- -----------Cash and cash equivalentsat end of period 11,607 20,288 7,965 ---------- --------- ----------- Notes to the interim accounts 1 General information Melrose Resources plc (the "Company") is a company registered in England. Thisinterim report contains the financial information of the Company and itssubsidiaries (together referred to as the "Group") for the six month periodended 30 June 2006. The interim report was authorised for issue by the directors on 6 September2006. The comparative figures for the year ended 31 December 2005 do not constitutestatutory accounts as defined in section 240 of the Companies Act 1985. A copyof the statutory accounts for that year has been delivered to the Registrar ofCompanies. The auditors' report on those accounts was unqualified and did notcontain statements under section 237(2) or (3) of the Companies Act 1985. 2 Accounting policies - basis of preparation The Group adopted International Financial Reporting Standards (IFRS) as thebasis for preparation of its financial statements from 1 January 2005, with adate of transition to IFRS of 1 January 2004. Interim results to 30 June 2005and associated restated financial information were prepared and issued on thisrevised basis during 2005. At that date the Company continued to apply itsexisting full cost accounting policy for oil and gas assets to both theexploration and appraisal activity phase and to those in the development andproduction phase. Following the subsequent publication of IFRIC guidance in November 2005, whichnoted the limited scope of IFRS 6 "Exploration for Evaluation of MineralResources", Melrose announced on 31 March 2006 that it had updated its oil andgas accounting policy and as a consequence had decided to adopt a successfulefforts based accounting policy for its financial statements. As a result Melrose has restated the 30 June 2005 financial statements issuedpreviously on 1 September 2005 to reflect changes arising from theimplementation of this revised methodology. The same accounting policies and methods of computation have been applied inthis interim financial report as were applied in the statutory accounts for theyear ended 31 December 2005, which are available on the Company's website,www.melroseresources.com. Business acquisitions are accounted for by applying the purchase method.Goodwill represents amounts arising on the acquisition of subsidiaries andrepresents the difference between the cost of the acquisition and the fair valueof net identifiable assets acquired. 3 Segmental reporting The Group has a single class of business which is oil and gas exploration,development and production. ----------------- ---------- ---------- ----------Geographical area 6 months ended 6 months ended 12 months ended 30 June 2006 30 June 2005 31 December Restated 2005 $000 $000 $000----------------- ---------- ---------- ---------- RevenueBulgaria 30,166 26,567 51,908Middle East 10,787 13,189 26,127USA 9,890 7,526 16,471 ---------- ---------- ---------- Total 50,843 47,282 94,506 ---------- ---------- ---------- Profit from operationsBulgaria 13,276 10,881 11,020Middle East 2,760 6,831 18,320USA 4,251 3,148 6,435 Common costs (2,426) (2,031) (3,611) ---------- ---------- ----------Group profit fromoperations 17,861 18,829 32,164 ---------- ---------- ---------- 4 Earnings per share The calculation of basic and diluted earnings per share is based upon thefollowing: --------------------- ----------- ---------- ---------- 6 months ended 6 months ended 12 months ended 30 June 2006 30 June 2005 31 December 2005 Restated Restated $000 $000 $000--------------------- ----------- ---------- ---------- ----------- ---------- ----------Profit for the periodattributable to ordinary shareholders (basic anddiluted) 2,948 17,212 22,407 ----------- ---------- ---------- Cents Cents Cents Earnings per shareBasic 3.7 22.5 28.9Diluted 3.7 21.9 28.1 The weighted average number of ordinary shares used in the calculation of basicand diluted earnings per share for each period was calculated as follows: --------------------- ----------- ---------- ----------- 6 months ended 6 months ended 12 months ended 30 June 2006 30 June 2005 31 December 2005 No. of shares No. of shares No. of shares--------------------- ----------- ---------- ----------- Issued ordinary shares atstart of period 78,582,376 76,021,672 76,021,672Shares issued during theperiod 1,349,948 2,533,704 2,560,704 ----------- ---------- -----------Shares in issue at end ofperiod 79,932,324 78,555,376 78,582,376 ----------- ---------- ----------- Weighted average number ofordinary shares at end ofperiod 79,374,098 76,477,107 77,540,675Effect of share options inissue 1,222,572 2,176,870 2,251,344 ----------- ---------- -----------Weighted average number ofordinary share at end ofperiod - for dilutedearnings per share 80,596,670 78,653,977 79,792,019 ----------- ---------- ----------- 5 Bank loans and financial instruments On 26 June 2006 the Group entered into new $300 million Revolving Bank LoanFacilities. All previous loan facilities of the Group were repaid. On 28 June 2006 the Group entered into a Bridge Bank Loan Facility for an amountup to £75.0 million ($136.2 million). The Bridge Facility was put in place inorder to enable the Company to complete the acquisition of Merlon PetroleumCompany prior to the receipt of funds from the open offer and placing of shareswhich was completed on 12 July 2006. The Group's interest-bearing loans and borrowings are as follows: ----------------------- --------- --------- ----------- As at As at As at 30 June 2006 30 June 2005 31 December 2005 $000 $000 $000----------------------- --------- --------- ----------- Current liabilitiesBank loans 126,687 11,161 20,000Other loans - 3,500 3,500Non-current liabilitiesBank loans 260,526 58,865 47,519Other loans - 17,500 17,500 --------- --------- -------- 387,213 91,026 88,519 --------- --------- -------- The following table indicates the effective interest rates of interest-bearingliabilities at the balance sheet date, and the period in which they mature orfall due: Effective Rate Total Repayable Repayable Repayable % $000 1 year 1-2 years 3-5 years $000 $000 $000---------------- -------- -------- -------- -------- -------- As at 30 June 2006Secured bankloans 9.1 260,526 - 62,787 197,739Secured bankloans 8.7 126,687 126,687 - - As at 31 December2005Secured bankloans 8.1 67,519 20,000 17,694 29,825Other loans 11.0 21,000 3,500 3,500 14,000 As at 30 June 2005Secured bankloans 7.0 70,026 11,161 18,868 39,997Other loans 11.0 21,000 3,500 3,500 14,000 6 Financial instruments The Group is exposed to currency risk arising from purchases, sales, borrowings,cash and cash equivalents that are denominated in currencies other than USdollars. The Bridge Facility held by the Company as at 30 June 2006 wasdenominated in Sterling. The repayment of the Bridge Facility was made from theproceeds of the share issue which was effective 12 July 2006, with the fundsreceived being in Sterling. The denomination of the Bridge Facility in Sterling,therefore, complied with Group policy that borrowings should match the currencyof the cashflows from which it is expected that they will be repaid. 7 Consolidated statement of changes in equityattributable to shareholders Share capital Share premium Special reserve Retained reserve $000 $000 $000 $000---------------------- -------- -------- -------- --- --------- Balance as at1 January 2005 13,606 617 111,244 7,440 Issue of sharecapital 468 7,959 - -Issue costs - - - -Totalrecognisedincome andexpense - - - 16,576Equity-settledtransactions,net of tax - - - 703Distributiontoshareholders - - - (1,333) -------- -------- -------- ---------Balance as at30 June 2005(restated) 14,074 8,576 111,244 23,386 Issue of sharecapital 6 237 - -Issue costs - (234) - -Totalrecognisedincome andexpense - - - 5,844Equity-settledtransactions,net of tax - - - 431 -------- -------- -------- ---------Balance as at31 December2005 14,080 8,579 111,244 29,661 Issue of sharecapital 242 2,033 - -Totalrecognisedincome andexpense - - - 2,934Equity-settledtransactions,net of tax - - - (286)Distributiontoshareholders - - - (2,212) -------- -------- -------- ---------Balance as at30 June 2006 14,322 10,612 111,244 30,097 -------- -------- -------- --------- 8 Acquisition of subsidiary company On 29 June 2006 the group acquired 100% of the issued share capital of MerlonPetroleum Company for a cash consideration of $287.0 million. Further costsdirectly attributable to the acquisition of Merlon Petroleum Company amounted to$1.1 million. Merlon Petroleum Company is an oil and gas exploration and production company,based in the USA with interests in Egypt and the USA. The acquisition has resulted in Melrose owning 100% of the working interests inall of the Egyptian concessions and development leases in which it currently hasan interest. In addition, Melrose has taken over as the operator of theseinterests. Merlon's US assets are in the Gulf Coast area of Texas. This transaction has been accounted for using the purchase method of accounting,as required by IFRS 3. The fair value shown is provisional as it has beencalculated using actual and estimated information as available. ---------------------- --------------- --- ---------------- Book Value Fair value prior to acquisition Provisional $000 $000---------------------- --------------- --- ---------------- Net assets acquiredProperty, plant and equipment 53,169 193,202Intangible assets 15,333 77,264Deferred tax assets 2,089 2,089Inventories 6,185 6,185Trade and other receivables 22,966 22,966Cash and cash equivalents 3,769 3,769Trade and other payables (17,352) (17,352)Deferred tax liabilities - (60,589) Goodwill - 60,589 ---------- ----------Net assets 86,159 288,123 ---------- ---------- Total consideration satisfied by:Cash 288,123 The cash consideration was $000 $000derived as follows: ---------------------- --------------- --- ---------------- Acquisition price 265,000 Purchase price adjustmentsInventory 7,139Net working capital 6,429Less indebtedness (30,000) ---------- (16,432) ----------Cash paid to Merlon on 248,568acquisitionMerlon debt repaid on acquisition 38,473Directly attributable costs 1,082 ----------Total acquisition cost 288,123 ---------- No profits or losses of Merlon Petroleum Company have been recognised in theincome statement. The relevant amount is immaterial as the acquisition wascompleted on 29 June 2006. The carrying amount of each class of asset and liability as disclosed above hasbeen determined in accordance with applicable International Financial ReportingStandards and Group accounting policies. 9 Pro-forma balance sheet as at 30 June 2006 The pro-forma balance sheet, which is set out below for information purposesonly, shows the effect on the Group balance sheet as at 30 June 2006 of thePlacing and Open Offer which was effective from 12 July 2006. The share issuewas approved by shareholders at the Extraordinary General Meeting held on the 26June 2006, immediately following the approval by the shareholders of theacquisition of Merlon Petroleum Company. Following the Placing and Open Offer there are 102,623,456 ordinary shares inissue. ------------------ ----------- ----------- ----------- As at 30 June Placing and Pro-forma as at 2006 open offer 30 June 2006 $000 $000 $000 Unaudited------------------ ----------- ----------- ----------- Non-currentassets 594,891 - 594,891 Current assetsInventories 15,213 - 15,213Trade andotherreceivables 38,594 - 38,594Cash and cashequivalents 16,258 7,765 24,023 ----------- ----------- ----------- 70,065 7,765 77,830 ----------- ----------- ----------- ----------- ----------- -----------Total assets 664,956 7,765 672,721 ----------- ----------- ----------- Current liabilitiesBank loans (126,687) 126,687 -Trade andother payables (38,422) - (38,422)Provisions (797) - (797) ----------- ----------- ----------- (165,906) 126,687 (39,219) ----------- ----------- ----------- Non-current liabilitiesBank loans (260,526) - (260,526)Deferred taxliability (64,685) - (64,685)Provisions (7,564) - (7,564) ----------- ----------- ----------- (332,775) - (332,775) ----------- ----------- ----------- ----------- ----------- -----------Totalliabilities (498,681) - (371,994) ----------- ----------- ----------- ----------- ----------- -----------Net assets 166,275 134,452 300,727 ----------- ----------- ----------- Equity attributable to shareholdersIssued capital 14,322 4,180 18,502Share premium 10,612 130,272 140,884Special reserve 111,244 - 111,244Retainedearnings 30,097 - 30,097 ----------- ----------- -----------Total Equity 166,275 134,452 300,727 ----------- ----------- ----------- 10 Restatement of the comparative figures as at 30 June 2005 Group reconciliation of net assets as at 30 June 2005 ---------- --------- ------- -------- ------- ------ ------ --------- June 2005 IAS 1 Successful IFRS 6 IAS 21 IAS 39 June 2005 (as interim report efforts restated) accounting $000 $000 $000 $000 $000 $000 $000 ---------- --------- ------- -------- ------- ------ ------ --------- Non currentassetsIntangibleassets 33,322 - - (26) (25) - 33,271Property,plant andequipment 204,004 (1,384) (34,027) - 115 - 168,708Financialassets 3,602 - - - - - 3,602Deferred tax 10,280 - 10,467 - 73 (1,098) 19,722 --------- ------- -------- ------- ------- ------ --------- 251,208 (1,384) (23,560) (26) 163 (1,098) 225,303 CurrentassetsInventories - 1,384 - - - - 1,384Trade &other 22,744 - - - 11 - 22,755receivablesCash & cashequivalents 20,288 - - - - - 20,288 --------- ------- -------- ------- ------- ------- --------- 43,032 1,384 - - 11 - 44,427 --------- ------- -------- ------- ------- ------- ---------Total assets 294,240 - (23,560) (26) 174 (1,098) 269,730 --------- ------- -------- ------- ------- ------- --------- Currentliabilities (27,957) (1,284) - - 89 - (26,584)Non-currentliabilities (87,681) 1,284 124 - - 2,975 (85,866) --------- ------- -------- ------- ------- ------- ---------Totalliabilities (115,638) - 124 - 89 2,975 (112,450) --------- ------- -------- ------- ------- ------- --------- --------- ------- -------- ------- ------- ------- ---------Net assets 178,602 - (23,436) (26) 263 1,877 157,280 --------- ------- -------- ------- ------- ------- --------- EquityattributabletoshareholdersShare 14,074 - - - - - 14,074capitalSharepremium 8,576 - - - - - 8,576accountSpecial 111,244 - - - - - 111,244reserveRetainedearnings 44,708 - (23,436) (26) 263 1,877 23,386 --------- ------- -------- ------- ------- ------- ---------Total equity 178,602 - (23,436) (26) 263 1,877 157,280 --------- ------- -------- ------- ------- ------- --------- Group reconciliation of profit for the six months ended 30 June 2005 -------------- -------- ------- -------- -------- ------- --------- June 2005 IAS 1 Successful IAS 21 IAS 39 June 2005 (as interim report efforts restated) accounting $000 $000 $000 $000 $000 $000-------------- -------- ------- -------- -------- ------- --------- Revenue 47,282 - - - - 47,282Depletion (17,249) - 1,746 - - (15,503)Decommissioningcharge (553) - - - - (553)Unsuccessfulexplorationcosts - - (3,355) - - (3,355)Other costs ofsales (6,184) - 1,551 - - (4,633) -------- ------- -------- -------- ------- ---------Gross profit /(loss) 23,296 - (58) - - 23,238 Administrativeexpenses (4,327) 698 (780) - - (4,409) -------- ------- -------- -------- ------- ---------Profit /(loss)fromoperations 18,969 698 (838) - - 18,829 Financingincome 7,686 - 213 7,899Financing costs (3,898) (698) (138) (686) (5,420) -------- ------- -------- -------- ------- ---------Profit/(loss)beforetaxation 22,757 - (838) 75 (686) 21,308 Income tax(expense)/credit (5,030) - 934 - - (4,096) -------- ------- -------- -------- ------- ---------Profit/(loss)for the period 17,727 - 96 75 (686) 17,212 -------- ------- -------- -------- ------- --------- Earnings pershare Basic 23.2 cents 22.5 centsDiluted 22.5 cents 21.9 cents Glossary--------- Glossary bbl barrel of oil or condensateBcf billion cubic feet of gasbcpd barrel of condensate per dayboe barrel of oil equivalentboepd barrel of oil equivalent per daybopd barrel of oil or condensate per dayEBITDAX earnings before interest, taxation, depletion, depreciation, amortisation and exploration costsMbbl thousand barrels of oil or condensateMboe thousand barrels of oil equivalentMcf thousand cubic feet of gasMMbbl million barrels of oil or condensateMMboe million barrels of oil equivalentMMcf million cubic feet of gasMMcfpd million cubic feet of gas per dayMMcfepd million cubic feet of gas equivalent per day This information is provided by RNS The company news service from the London Stock Exchange