NAUT.L Regulatory News (NAUT)

7 Apr 2005 07:01

Global Energy Development PLC07 April 2005 7 April 2005 GLOBAL ENERGY DEVELOPMENT PLC AUDITED RESULTS FOR THE YEAR ENDED 31 DECEMBER 2004 "Record Financial Results Continuing year-on-year positive financial trends since 2002 flotation" Global Energy Development PLC ("Global" or the "Company"), a Latin Americafocused petroleum exploration and production company (LSE-AIM: "GED"), todayannounces results for the year ended 31 December 2004. Financial Highlights • Revenues up 28% to $10,974,000 (2003: $8,556,000) • Gross Profit up 65% to $5,349,000 (2003: $3,239,000) • Profit before tax up 292% to $3,127,000 (2003: $797,000) • No debt as at 31 December 2004 • Finding cost of approximately $5 per barrel in the three years ending 31 December 2004 • 107% increase in Capital Expenditure budget for 2005 (2004: $8,700,000) - fully funded from cash available and cashflow from production Operational Highlights • 2 exclusive contracts signed in Colombia in 2004 and another exclusive contract in Peru added post the year end • Portfolio now much enlarged and prospect rich - trend towards exploration against backdrop of established production - 6 contracts and 1 pending contract covering approximately 3 million acres in Colombia, Peru and Panama - 100% ownership of all contracts • Production widened to 10 wells from 4 contracts as at 31 December 2004 - Record daily production of 2230 bopd from 11 wells as at 3 April 2005 • Multiple exploration prospects within enlarged portfolio in all 3 countries already independently reported on - First exploration expenditure since flotation on properties held under contract to occur in 2005 • Anticipate signing at least 2 additional exclusive contracts or Technical Evaluation Agreements during the remainder of 2005 Commenting of the results for 2004 and progress post the year end, Stephen Voss,Managing Director, said: "We are very optimistic about Global's position within the oil industry. Weidentified many years ago three pre-eminent countries in which to operate -Colombia, Peru and Panama - that have continually offered improved industryterms and economic and political stability. All three continue to have fewindependents operating in them and as a consequence Global continues to maintainits first mover advantage and the opportunity to acquire additional attractiveacreage. We have significantly enlarged our portfolio since our flotation three years agoand now have a much diversified portfolio offering multiple prospectopportunities in addition to established production. This production throughout2004 against historically high oil prices resulted in record financial resultsfor the year. Our production and strong-pipeline of near-term production allows the Company tocontinue to build on a solid financial base whilst beginning to pursue theconsiderable exploration prospects under contract and pending contract which themanagement believe are capable of significantly enlarging and transforming theCompany going forward." For further information: Global Energy Development PLCCatherine Miles, director of Investor Relations +44 (0) 20 7808 5550www.globalenergyplc.com +44 (0) 7909918034 Notes to Editors: Global holds exclusive contracts and rights to explore for and / or produce oiland gas from a geographically diversified portfolio of prospective acreage inColombia, Panama and Peru. CHAIRMAN'S STATEMENT 2004 produced record financial results for Global continuing the positive yearon year financial trends since Global floated on the Alternative InvestmentMarket of the London Stock Exchange ("AIM") over three years ago. Operationally, we have consistently demonstrated our ability to source,negotiate and execute contracts and Technical Evaluation Agreements ("TEAs") inLatin America, our long-term geographical focus and where the management teamhave decades of operating experience. Our portfolio is now much enlarged and diversified comprising six contracts,namely Association, Concession and Exploration/Exploitation License contracts(with production currently from four of them) and one contract pending followinga concluded TEA, with 100% ownership by Global of all contracts. The portfolio spans three countries - Colombia, Peru and Panama. Recentfavourable oil policy reforms in both Colombia and Peru have led to even morecompelling contract terms providing us with even greater upside. Alongsidethis, Latin America is independently reported to be second only to the MiddleEast in terms of undiscovered conventional and heavy oil. Global's 2005 capital expenditure budget, expected to be fully funded by cashavailable and cashflow, will be committed not only to further, alreadyidentified, workovers and development drilling within several of our contractareas - in order to escalate production, increase cashflow and build on theCompany's solid financial base - but will also be partially committed to highpotential exploration activity. This being reflective of the Company's desireto trend more towards exploration against a backdrop of stability fromproduction and development activities. Importantly, the portfolio has beendeliberately diversified in terms of prospectivity to allow for materialexploration upside complemented by established production and developmentactivities, thereby creating the perfect hybrid. Our independent engineers conducted a possible and an exploration potentialreserve report as at 31 December 2004 on our exploration acreage now undercontract in Peru, pending contract in Panama and within one of our establishedcontract areas in Colombia, namely Bolivar. This report has provided a clearfocus for our exploration activity in 2005 and beyond while giving us evengreater confidence in the considerable potential in each area. Mikel D. FaulknerChairman 7 April 2005 MANAGING DIRECTOR'S REVIEW Overview In 2004 we signed two further exclusive Concession contracts in Colombia andpost the year end have added an exclusive Exploration/Exploitation Licensecontract in Peru thereby dramatically increasing the acreage under (non TEA)contract to approximately 1,565,000 acres. This is against the 130,000 acresheld under (non TEA) contract as at 31 December 2003. When taking into accountthe pending contract in Panama following an extensive TEA period, the Company'sacreage position jumps to approximately 3 million acres. Reflecting our focus of amassing exploration opportunities within our portfolio,of the 1,565,000 acres currently under (non TEA) contract over 85% isexploratory in nature. Drilling and workover activity in 2004 led to production as at 31 December 2004coming from a widened base of 10 wells within four contracts against six wellsfrom three contracts as at 31 December 2003 and two wells from one contract inMarch 2002, the time of our flotation on AIM. Financials Revenues for the year ended 31 December 2004 were $10,974,000, a 28% increaseagainst the prior year (2003: $8,556,000). Gross profit increased by 65% to$5,349,000 (2003: $3,239,000). General and administrative costs continued theiryear on year decline since the Company's flotation on AIM and totalled just$2,241,000 in 2004, a 10% drop against 2003. Profit before tax increased by 292% to $3,127,000 (2003: $797,000) with Netincome up 148% to $2,566,000 (2003: $1,034,000). As at 31 December 2004, Globalhad no debt. Production for the year was 365,527 barrels of oil (2003: 394,000 barrels ofoil) and daily production has risen from 1084 bopd as at 31 December 2004 to2230 bopd as at 3 April 2005 from 11 wells, a record high for the Company. Asat 31 December 2004, independent engineers reported that proved and probablereserves totalled 16.5 million BOE (31 December 2003: 19.7 million BOE) withproved reserves stable against the prior year. Latin America Latin America has long been the management team's geographical region of choice.It is characterised by one of the lowest finding and development costsworldwide with Global having an approximate $5 per barrel finding anddevelopment cost in the three years ended 31 December 2004. Colombia, Peru and Panama are all characterized by private treaty negotiationsand recent oil policy reforms in Colombia and Peru have led to them beingindependently acknowledged as now having the two best contract terms in LatinAmerica. Peru for example now offers contract stability, no signature bonus,international arbitration, a new flexible contract model, seismic informationfee of charge and lower production-based royalties. In Colombia in July 2003the state-owned National Hydrocarbons Agency of the Republic of Colombia ("ANH")was created under reforms to boost exploration activities and split the dualroles Ecopetrol, the state-owned Colombian oil company, had as an administratorof hydrocarbon resources and a for-profit oil and gas company. In addition,lower production-based royalties and extended exploration, evaluation andproduction periods have been introduced. In the management's opinion, Panama'semerging oil industry is expected to be closely aligned with that of Colombia. Competition has long been limited with few independent oil companies activethroughout Latin America and with those who do operate there mostly beingrelatively new entrants therefore allowing Global the opportunity to rapidlyamass highly attractive acreage through utilising established contacts andlong-standing knowledge. Operations Colombia Global currently holds three Association contracts with Ecopetrol - Alcaravan,Bolivar and Bocachico - as well as two exclusive Exploration and ProductionConcession contracts with ANH - Rio Verde and Los Hatos - both signed in 2004. Rio Verde In September 2004, we signed a new Exploration and Production Concessioncontract with ANH for the Rio Verde area covering 75,000 acres in the centralLlanos region with Global owning 100% of the contract subject only to an initial10.5% royalty. Two existing wells located in the contract area, Tilodiran 1 and Macarenas 1,were both successfully recompleted and brought on production in December 2004and January 2005 respectively, ahead of management's initial expectations. Thisin turn represented the shortest interval in Global's history between contractsigning and production and also gave Global the accolade of being the firstcompany to produce oil from a contract signed with the newly formed ANH. We anticipate drilling our first development well, Tilodiran 2, at the end of2005 or early 2006 and look to acquire development and exploratory seismic overthe next 18 to 20 months in order to develop our development and explorationplans for the remaining acreage. Los Hatos We much enlarged our established, producing Palo Blanco field located within ourAlcaravan contract area through the addition in November 2004 of the 85,000 acreLos Hatos Exploration and Production Concession contract signed with ANH. LosHatos, located in the central Llanos region, is contiguous southwards to ourPalo Blanco field. Global owns a 100% working interest in the contract subjectonly to an initial 8% royalty payable to the Colombian Ministry of Energy. We propose drilling our first exploratory well, Los Hatos 1, within the fourthquarter of this year and our expectations are high owing to its close proximityto the established Cajaro 1 well within the Palo Blanco field. Cajaro 1 wasplaced onto production in June 2003 and its cumulative production as at 31December 2004 was approximately 253,000 barrels. Should Los Hatos 1 besuccessful we will look to identify other drilling locations within the contractarea. Bolivar We anticipate that a significant part of our near-term production will come fromour 55,000 acre Bolivar Association contract which as at 31 December 2004contained approximately 50% of our proved and probable reserves. We thereforeplan to drill one to three wells within the next 18 months in addition to oneworkover and the implementation of a gas injection project following a studythat concluded that it could lead to improved recovery from the currentlyproducing wells. In aggregate we expected to drill or workover a minimum of four to five wells inColombia within the next 18 to 20 months. This will allow us to fulfil all ourcurrent work commitments. We however have the flexibility to accelerate thisdrilling / workover programme dependent on the success of the initial four tofive wells. Peru Our License contract with Perupetro S.A. ("Perupetro"), the national oil companyof Peru, for the Exploration/Exploitation of Hydrocarbons in the Block 95 Arealocated in the Maranon Basin of Northeastern Peru is being officially executedlater this week through the notarisation of the contract, completing thestatutory procedures required for contract signing and effectiveness. Approvalfor the contract was received in December 2004 and followed a TEA which weentered into in 2001 with Perupetro and which concluded last year. During the TEA term we conducted an extensive study of the area that includedthe reprocessing of seismic data and evaluation of previous well data. Based onthe results of this study we elected to exercise our option to convert the TEAinto a contract. The Bretana field, located in the Block 95 Area, wasidentified in the early 1970s and in 1974 the Bretana 1 well tested 18 degreeAPI gravity oil at rates of approximately 800 bopd. Once effective we expected the contract to cover approximately 1,275,000 acressubject only to an initial 5% royalty, which equals the lowest royalty paid bythe Company in its history and reflects just one aspect of the highlycompetitive contract terms following the recent oil policy reforms in Perureferred to above. We anticipate drilling our first well in the identified Bretana field within thecontract area in late 2006 or early 2007. Following this, we will drill anexploratory well elsewhere in the contract area, currently scheduled for late2008. Panama In September 2001, Global signed a TEA with the Ministry of Commerce andIndustry for the Republic of Panama. The TEA covered an area of approximately1.4 million gross acres divided into three blocks in and offshore Panamaincluding the Garachine Block Area. The Garachine Block Area is less than 100 miles away from the Panama Canal, amajor transit centre for oil shipments, and was first identified in the 1920'swhen several shallow wells were drilled onshore encountering good oil shows inthe Mid Miocene rock section. More recent offshore exploration in the easternGulf substantiated Miocene source potential and outlined the regional basinstructure with a reconnaissance grid of seismic data. During the TEA term the Company conducted an extensive study of the contractarea which included the review and re-interpretation of all available geologicdata, re-interpretation of offshore seismic data, geochemical analyses of seepoil and potential source rocks, and the thermal maturation / expulsion modelingof potential oil generation zones. On the basis of what the management considered strong findings from the study,the Company decided to exercise its option to enter into a contract with theMinistry. Current indications received by the management are that the contractwill be signed and effective by the end of the first half or beginning of thesecond half of this year. Exploration Of the approximate $18 million capital expenditure budget for 2005 which isexpected to be fully funded by cash available and cashflow, roughly $1 millionis earmarked for expenditure on exploration on properties held under contract,the first expenditure on non-TEA exploration since the Company's flotation. The $1 million will go towards geophysical and geological activities, namely thereprocessing and revaluation of existing data in Panama and Colombia. Inaddition, in Peru there will be acquisition of new micro-magnetic geophysicaldata in and around the identified Bretana field and elsewhere throughout theBlock 95 Area. Expenditure on exploration is expected to trend-up dramatically going forwardwith capital expenditure on exploration activities expected to equal that ofdevelopment within the next two to three years, with this being fully fundedunder current plans from cashflow from escalating production. Additional Contracts & Strategy We anticipate signing at least two further contracts or TEAs during theremainder of 2005. We will continue to evaluate areas of acreage for potential contracts and / orTEAs throughout Latin America, but more specifically in Colombia, Peru andPanama for the reasons detailed above. Cashflow from current and near-term production will continue to allow anincreasing annual capital expenditure budget which in turn will go towardsfurther workovers and development drilling and, increasingly, explorationactivities. Industry Outlook As a company we have been optimistic about the future of the internationalpetroleum industry since we floated on AIM in early 2002. At that time, weindicated oil prices would increase because of diminishing surplus productioncapacity in both non-OPEC and OPEC countries. By the end of 2004, it was widelyacknowledged that only a small amount of surplus capacity existed in SaudiArabia. Most of this surplus was heavy oil and not the widely used light oilimportant in most refinery operations. In addition to the inability of theindustry to increase its surplus producing capacity, the Asian economies ofIndia and China continued their rapid economic growth throughout 2004 andconsequently the demand for oil products in these countries reached much higherlevels than had been anticipated only one to two years previously. Furthermore, costs to add an incremental barrel of daily capacity have continuedto rise because of the inability of the industry to find sufficient volumes ofnew supplies to offset production declines from older fields. Macro economictrends in the USA have also contributed to higher oil prices due to a decline inthe value of the dollar against almost all major currencies. As a result,although oil prices have increased in dollar terms for many importing countriesthese prices have in fact declined when measured in their own currency. So, thequestion now is not if prices will continue to rise but only how far will theygo before curtailing economic activity throughout the world. If the cost of oilexperienced in the early 1980s is any indication, prices need to reach over $90per barrel to cause significant economic distress. We believe that the economicenvironment and outlook for the industry over the next several years isprecisely the same as we originally envisioned in 2002. That is, we remainfirmly convinced of the outstanding opportunities that exist in the oil industryespecially for established independent operators. Conclusion We are very optimistic about Global's position within the oil industry. Weidentified many years ago three pre-eminent countries in which to operate -Colombia, Peru and Panama - that have continually offered improved industryterms and economic and political stability. All three continue to have fewindependents operating in them and as a consequence Global continues to maintainits first mover advantage and the opportunity to acquire additional attractiveacreage. We have significantly enlarged our portfolio since our flotation three years agoand now have a much diversified portfolio offering multiple prospectopportunities in addition to established production. This production throughout2004 against historically high oil prices resulted in record financial resultsfor the year. Our production and strong-pipeline of near-term production allows the Company tocontinue to build on a solid financial base whilst beginning to pursue theconsiderable exploration prospects under contract and pending contract which themanagement believe are capable of significantly enlarging and transforming theCompany going forward. Stephen C. Voss Managing Director 7 April 2005 GROUP PROFIT AND LOSS ACCOUNTFor the year ended 31 December 2004 Notes 2004 2003 $000 $000 TURNOVER 10,974 8,556Cost of sales 3 (5,625) (5,317) _______ _______ GROSS PROFIT 5,349 3,239Administrative expenses 3 (2,241) (2,499)Other Income 42 75 _______ _______ OPERATING PROFIT 3,150 815Net interest payable 5 (23) (18) _______ _______ PROFIT ON ORDINARY ACTIVITIES BEFORE TAXATION 3,127 797Taxation on profit from ordinary activities 6 (561) 237 _______ _______ PROFIT ON ORDINARY ACTIVITIES AFTER TAXATION 2,566 1,034 _______ _______ TRANSFER TO RESERVES 2,566 1,034 _______ _______ EARNINGS PER ORDINARY SHARE- Basic and diluted 7 0.09 0.04 _______ _______ There are no recognised gains and losses other than the profit of $2,566,000(2003: $1,034,000) for the year ended 31 December 2004. All amounts relate to continuing operations. GROUP BALANCE SHEETAt 31 December 2004 Note 2004 2003 $000 $000FIXED ASSETSIntangible assets 8 1,222 1,181Tangible assets 9 57,170 51,512 _______ _______ 58,392 52,693 CURRENT ASSETSStocks 11 473 538Debtors 12 2,005 413Cash at bank and in hand 13 2,857 3,178 _______ _______ 5,335 4,129 Creditors: amounts falling due within one year 14 (5,107) (843) _______ _______ NET CURRENT ASSETS 228 3,286 _______ _______ TOTAL ASSETS LESS CURRENT LIABILITIES 58,620 55,979 Provision for liabilities and charges 15 (529) (459) _______ _______ 58,091 55,520 _______ _______ CAPITAL AND RESERVESCalled up share capital 16 406 405Capital reserve 17 210,844 210,844Share premium account 17 18,740 18,736Profit and loss account 17 (171,899) (174,465) _______ _______ 58,091 55,520 _______ _______ COMPANY BALANCE SHEETAt 31 December 2004 Note 2004 2003 $000 $000 FIXED ASSETSTangible assets 9 293 300Investments 10 21,836 17,315 _______ _______ 22,129 17,615 CURRENT ASSETSDebtors 12 305 114Cash at bank and in hand 13 250 64 _______ _______ 555 178Creditors: amounts falling due within one year 14 (10,708) (3,366) _______ _______ NET CURRENT LIABILITIES (10,153) (3,188) _______ _______ TOTAL ASSETS LESS CURRENT LIABILITIES 11,976 14,427 _______ _______ CAPITAL AND RESERVESCalled up share capital 16 406 405Share premium account 17 18,740 18,736Profit and loss account (7,170) (4,714) _______ _______ 11,976 14,427 _______ _______ GROUP CASH FLOW STATEMENTYear ended 31 December 2004 Note 2004 2003 $000 $000 Net cash inflow from operating activities 18 8,196 3,651 RETURNS ON INVESTMENT AND SERVICING OF FINANCEInterest received 18 18 TAXATION (65) 237 CAPITAL EXPENDITURE AND FINANCIAL INVESTMENTExpenditure on intangible and tangible fixed assets (8,700) (4,421)Proceeds from disposal of fixed assets - 124 _______ _______ NET CASH OUTFLOW BEFORE FINANCING (551) (391) _______ _______ FINANCINGCapital contributions - 7New shares issued 5 - _______ _______ DECREASE IN CASH (546) (384) _______ _______ CASH AT BEGINNING OF YEAR 3,178 3,562 _______ _______ CASH AT END OF YEAR 2,632 3,178 _______ _______ NOTES TO THE FINANCIAL STATEMENTS 1. ACCOUNTING POLICIES Basis of preparation The financial statements have been prepared under the historical cost conventionand are in accordance with applicable accounting standards and the Statement ofRecommended Practice "Accounting for Oil and Gas Exploration, Development andDecommissioning Activities", (the "SORP"). The financial statements are presented in US dollars as this is the principalcurrency in which the Group's activities are conducted. The following principal accounting polices have been applied and remainunchanged from the previous year: Basis of consolidation The consolidated financial statements incorporate the results of Global EnergyDevelopment PLC and all of its subsidiary undertakings as at 31 December 2004using the merger method of accounting. Merger Accounting Where merger accounting is used, the investment is recorded in the Company'sbalance sheet at the nominal value of the shares issued together with the fairvalue of any additional consideration paid. 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 the Company as consideration as if they had always been in issue. Anydifference between the nominal value of the shares acquired by the Company andthose issued by the Company to acquire them is taken to reserves. Fixed Assets (a) Intangible assets The Group capitalises costs associated with certain new areas of explorationinterest. These costs are assessed for recoverability on at least an annualbasis or when there has been an indication that impairment in value may haveoccurred, such as for a relinquishment of the acreage. Impairment of unevaluated prospects is assessed based on management's intentionwith regard to future exploration and development of individually significantproperties and the ability of the Group to obtain funds to finance suchexploration and development. When it is determined that such costs will be recouped through successfuldevelopment and exploitation or alternatively by sale of the interest,expenditure will be transferred to tangible assets and depleted over theexpected productive life of the asset. Whenever a project is not consideredviable, the associated exploration expenditure is transferred to the relevanttangible cost pool. Where there are no development and producing assets withinthe cost pool, the transferred exploration expenditure is charged directly tothe profit and loss account. 1. ACCOUNTING POLICIES (Continued) (b) Tangible Oil and Gas Assets The Group follows the "full cost" method of accounting for the costs associatedwith exploration, appraisal, development and production of oil and gas reserves.The Group's evaluated oil and gas assets are held in a separately designatedgeographical cost pool, which is Latin America. The costs of acquisition ofproperty (including rights and concessions), geological and geophysical costs,cost of field production facilities, pipelines and plant and equipment areclassified as tangible fixed assets if they relate to proved and probable oiland gas properties. All costs associated with property acquisition, exploration and development arecapitalised regardless of whether they result in commercial discoveries or not.Proceeds from the disposal of oil and gas assets are credited to the cost pools.Producing oil and gas assets are depleted by pool on a unit of production methodin the proportion of actual production for the period to the total remainingcommercial reserves. Reserves are those estimated at the end of the period plusproduction during the period. For depletion purposes only, the cost baseincludes costs of capital assets and anticipated future development expenditureexpected to be incurred to access these reserves. (c) Other Tangible Fixed Assets Other tangible fixed assets are depreciated on a straight-line basis so as towrite off the cost less any estimated residual value of each asset evenly overits estimated useful economic life as follows: - Facilities and pipeline - units of production - Office equipment - between 5 to 7 years (d) Impairment of Fixed Assets The carrying values of fixed assets are reviewed for impairment in the periodswhen events or changes in circumstances indicate that the carrying value may notbe recoverable. An impairment loss is provided for in the current period profitand loss account when the carrying value of the assets exceeds their estimatedrecoverable amount. The estimated recoverable amount is defined as the higher ofthe net realisable value and the value in use. The value in use is determined byreference to estimated future discounted cash flows. Decommissioning provision Provision for decommissioning of oil and gas production facilities is recognisedin the accounts on commencement of field development on the basis of costsestimated at the balance sheet date in accordance with the local conditions andrequirements. Such provision represents the Company's share of the estimatedliability for costs, which will be incurred in removing production platforms andfacilities at the end of the commercial production from the field. Where the time value of money is material, the provision made in the accounts isfor the present value of the estimated future costs. A corresponding tangiblefixed asset is also created for the amount equal to the provision when it isfirst made in the accounts. Any change in the value of estimated expenditureis reflected as an adjustment to the provision and fixed asset. This asset issubsequently depreciated as part of oil and gas assets in accordance with thedepreciation policy applied to such assets. Where the provision is discounted, the carrying value of the provision increaseseach year to reflect the passage of time. This increase is recognised as anannual charge to the current year profit and loss account and is included withininterest expense. Investments Fixed asset investments in subsidiaries, joint ventures and associates areincluded in the accounts at cost less provision for impairment. Stocks Stocks, which comprise oil in tanks and pipelines as well as materials, arestated at the lower of cost or net realisable value. Foreign currencies (a) Company Transactions in foreign currencies are recorded at the rate ruling at the dateof the transaction. Monetary assets and liabilities denominated in foreigncurrencies are retranslated at the rate of exchange ruling at the balance sheetdate. All differences are taken to the profit and loss account. (b) Group The accounts of the overseas subsidiary undertakings and Group's operationsconducted through a foreign branch are translated at the rate of exchange rulingat the balance sheet date. All translation differences are taken to the profitand loss account. Pension costs The Group contributes to a defined contribution scheme. Contributions arecharged to the profit and loss account as they become payable. Leasing commitments Rentals payable under operating leases are charged in the profit and lossaccount on a straight-line basis over the lease term. Deferred Tax Deferred tax is recognised in respect of all timing differences that haveoriginated but not reversed at the balance sheet date where transactions orevents have occurred at that date that will result in an obligation to pay more,or a right to pay less or to receive more, tax, with the following exceptions: • Provision is made for deferred tax that would arise on remittance ofthe retained earnings of overseas subsidiaries, associates and joint venturesonly to the extent that, at the balance sheet date, dividends have been accruedas receivable; • Deferred tax assets are recognised only to the extent that theDirectors consider that it is more likely than not that there will be suitabletaxable profits from which the future reversal of the underlying timingdifferences can be deducted, Deferred tax is measured on an undiscounted basis at the tax rates that areexpected to apply in the periods in which timing differences reverse, based onthe tax rates and laws enacted or substantively enacted at the balance sheetdate. 2. TURNOVER AND SEGMENTAL ANALYSIS Turnover represents the amounts invoiced by the Group to third parties in theordinary course of business, in respect of the Group's crude oil production, andis stated net of royalties and applicable taxes. Turnover is recognised ondelivery of products. Turnover and profit on ordinary activities before taxation is attributable toone continuing activity, which is oil production from the Harken de ColombiaLtd. Branch located in Colombia, South America. 3. COST OF SALES AND OPERATING EXPENSES 2004 2003 $000 $000 Production costs 2,538 2,398Depletion of oil properties 2,664 2,304Depletion of other tangible fixed assets 423 615 _______ _______Total cost of sales 5,625 5,317 _______ _______ General and administrative 2,241 2,499 _______ _______ Administration expenses 2,241 2,499 _______ _______ Total Cost of Sales and Administration 7,866 7,816 _______ _______ 4. OPERATING PROFIT 2004 2003This is stated after charging: $000 $000 Auditors' remuneration, under accrual basisAudit services- Current auditor 137 85- Predecessor auditor - 15Non-audit services 82 18 _______ _______ 219 118 _______ _______ The non- audit services include tax compliance services and services provided inrelation to corporate transactions. 2004 2003 $000 $000 Operating lease expense (rent) 198 205Loss in disposal of tangible fixed assets _______ _______ 34 20 _______ _______ 5. INTEREST PAYABLE AND SIMILAR CHARGES 2004 2003 $000 $000 Interest receivable 18 18Unwinding of discount on decommissioning (41) (36) _______ _______Net interest payable (23) (18) _______ _______ 6. TAXES ON PROFIT ON ORDINARY ACTIVITIES The taxation charge is made up as follows: 2004 2003 $000 $000UK corporation tax - - Foreign taxPresumptive income tax for the year 561 264Adjustment in respect to previous periods - (501) _______ _______Total tax 561 (237) _______ _______ The tax assessed on the loss on ordinary activities for the period is lower thanthe standard rate of taxation in the UK. The differences are explained below: 2004 2003 $000 $000 Profit on ordinary activities before taxes 3,127 797 _______ _______ Profit on ordinary activities multiplied by standard rate of corporationtax in the UK of 30% (2003: 30%) 938 239 Effects of:Over provision in prior years - (501)Disallowed expenses and non-taxable income - -Asset based tax rates on overseas earnings (see below) (377) 25 _______ _______ 561 (237) _______ _______ Total tax Global pays taxes in Colombia through its subsidiary Harken de Colombia, Ltd.The current tax included represents the minimum tax payable under Colombianlegislation called Presumptive Income Tax ("PIT"). The PIT calculation is basedupon a presumptive income equivalent to 6% of the previous year taxable netequity. The tax rate on the presumptive income is 38.5%. The 2004 income taxprovision was for $561,000. Factors Affecting Future tax rates No provision has been made for a deferred tax asset arising on Colombian taxlosses carried forward qof $134,000,000 (2003: $111,000,000) as it is unlikelythere will be sufficient taxable profits from which the asset can be recovered.These carried forward losses will expire between 2005 and 2007. Also, for thesame reason no deferred tax asset has been recognized in relation to the UK taxlosses of $2,456,000 (2003; $1,407,000). 7. EARNINGS PER SHARE The calculation of basic and diluted earnings per ordinary share is based on thenet income for the year of $2,566,000 (2003: $1,034,000). The weighted averagenumber of shares used in calculating basic earnings per share in 2004 is28,012,817 and 2003 is 27,971,832. The effect of all potential ordinary shares in 2003 and 2004 is notmaterial. 8. INTANGIBLE ASSETS Cost: Company Group $000 $000 At 1 January 2004 - 1,181Additions - 41- _______ _______ - 1,222 _______ _______ At 31 December 2004 The above assets relate to certain new areas of exploration interest. 9. TANGIBLE FIXED ASSETS Oil & Gas Facilities Office Total Properties and Equipment & Pipelines OtherGroup $000 $000 $000 $000Cost:At 1 January 2004 174,349 15,461 1,041 190,851Additions 8,324 279 176 8,779Disposals - - (35) (35) _______ _______ _______ _______ At 31 December 2004 182,673 15,740 1,182 199,595 _______ _______ _______ _______ Depreciation:At 1 January 2004 (133,636) (5,074) (629) (139,339)Provided during the year (2,664) (275) (148) (3,087)Disposals - - 1 1 _______ _______ _______ _______ At 31 December 2004 (136,300) (5,349) (776) (142,425) _______ _______ _______ _______ Net book value at 31 December 2004 46,373 10,391 406 57,170 _______ _______ _______ _______ Net book value at 1 January 2004 40,713 10,387 412 51,512 _______ _______ _______ _______ Company Office Equipment & Other $000Cost:At 1 January 2004 525Additions 113 _______At 31 December 2004 638 _______Depreciation:At 1 January 2004 (225)Provided during the year (120) _______ At 31 December 2004 (345) _______ Net book value at 31 December 2004 293 _______ Net book value at 1 January 2004 300 _______ 10. GROUP INVESTMENTS Company 2004 Costs: $000At 1 January 2004 17,315Additions 4,521 _______ At 31 December 2004 21,836 _______ All investments relate to subsidiary undertakings. Group The Group's subsidiaries at 31 December 2004 are listed below. Held directly Country Class of share Proportion held of Incorporation Capital held by the Company Harken de Colombia Ltd. Cayman Islands Ordinary 100%Harken de Colombia Holdings, Ltd. Cayman Islands Ordinary 100%Harken de Colombia II, Ltd. Cayman Islands Ordinary 100%Harken de Colombia III, Ltd. Cayman Islands Ordinary 100%Harken South America, Ltd. Cayman Islands Ordinary 100%Harken de Peru Holdings, Ltd. Cayman Islands Ordinary 100%Harken del Peru Limitada Cayman Islands Ordinary 100%Harken de Panama Holdings, Ltd. British Virgin Islands Ordinary 100%Harken de Panama, Ltd. British Virgin Islands Ordinary 100%Global Management Resources British Virgin Islands Ordinary 100% The following branches are included in the subsidiaries listed above: Harken de Colombia Ltd. Colombian Branch Indirect Holding 100%Harken de Colombia Ltd. II Colombian Branch Indirect Holding 100%Harken del Peru Limitada Peruvian Branch Indirect Holding 100%Harken de Panama, Ltd. Panamanian Branch Indirect Holding 100% All of the above companies / branches are engaged in oil & gas exploration. 11. STOCKS Group 2004 2003 $000 $000 Crude stock 67 42Yard stock 406 496 _______ _______ Total Stocks 473 538 _______ _______ Stocks include oil in tanks and pipelines located in Colombia, and yard stock,which includes casing, tubing and other materials for the operation of theproduction facilities and for exploratory drilling. Stocks are stated at thelower of cost or net realisable value. 12. DEBTORS: AMOUNTS FALLING DUE WITHIN ONE YEAR Company Company Group Group 2004 2003 2004 2003 $000 $000 $000 $000 Trade debtors - - 1,387 39Other debtors 39 - 233 102Prepayments and accrued income 266 114 385 272 _______ ______ _______ _______ 305 114 2,005 413 _______ _______ _______ _______ 13. CASH AT BANK AND IN HAND At 31 December 2004 and 2003, there were no restrictions on cash balances. 14. CREDITORS: AMOUNTS FALLING DUE WITHIN ONE YEAR Company Company Group Group 2004 2003 2004 2003 $000 $000 $000 $000 Bank Overdraft - - 225 -Trade creditors 41 20 3,468 598Taxation and social security - - 176 73Other creditors - - 285 39Amount owed to parent companies 440 - 440 -Amounts owed to subsidiary undertakings 9,785 3,228 - -Accruals and deferred income 442 118 513 133 _______ _______ _______ _______