NAUT.L Regulatory News (NAUT)

8 May 2008 07:01

Global Energy Development PLC08 May 2008 For Immediate Release 8 May 2008 GLOBAL ENERGY DEVELOPMENT PLC ("Global" or the "Company") AUDITED FINAL RESULTS FOR THE YEAR ENDED 31 DECEMBER 2007 Global Energy Development PLC, the Latin America focused petroleum explorationand production company (LSE-AIM: "GED"), announces its audited final results forthe year ended 31 December 2007. Highlights: • Turnover up 29.6% to $27.3 million (year ended 31 December 2006: $21.1 million); • Gross profit up 45.4% to $13.8 million (year ended 31 December 2006: $9.5 million); • Profit before tax (excluding correction of miscellaneous income) up 62% to $7.6 million (year ended 31 December 2006: $4.7 million); • Average operating cash netback per barrel (excluding miscellaneous income and income relating to a quality adjustment) of $30.44 during 2007 against an average price for West Texas Intermediate ("WTI") crude oil of $72.48 (2006: average operating cash netback per barrel $23.86, average price for WTI $66.23); • Proved plus probable ("2P") reserves totalling 15.2 million barrels of oil equivalent ("BOE") as at 31 December 2007 giving a net present value at a 10% discount ("NPV10") of $641.2 million (2006: $427.0 million); • Proved plus probable plus possible ("3P) reserves totalling 64.9 million BOE as at 31 December 2007 giving a NPV10 of $2.5 billion (2006: $1.7 billion); and • Potentially high-impact drilling underway at the Colombian Rio Verde contract to supplement current production. These final results are the Company's first final results to be reported inaccordance with International Financial Reporting Standards ("IFRS") and thecomparative financial information for the year ended 31 December 2006 has beenrestated accordingly. The percentages given within this announcement arecalculated using the restated financial information for the year ended 31December 2006. For further information: Global Energy Development PLCCatherine Miles, Company Secretary +44 (0) 20 7763 7177www.globalenergyplc.com +44 (0) 7909918034 Landsbanki Securities (UK) Limited +44 (0) 20 7426 9000Jeff Keating / Fred Walsh / Sebastian Jones NOTES TO EDITORS: The Company's shares have been traded on AIM, a market operated by the LondonStock Exchange, since March 2002 (LSE-AIM: "GED"). The Company's balancedportfolio covers the countries of Colombia, Peru and Panama and comprises a baseof production, developmental drilling and workover opportunities and severalhigh-potential exploration projects. Proven and probable oil and gas reserves are estimated quantities ofcommercially producible hydrocarbons which the existing geological, geophysicaland engineering data show to be recoverable in future years from knownreservoirs. The proved reserves reported by Ryder Scott Company, LP ("RyderScott"), independent petroleum consultants, conform to the definition approvedby the Society of Petroleum Engineers ("SPE") and the World Petroleum Congress("WPC"). The probable and possible reserves reported by Ryder Scott conform todefinitions of probable and possible reserves approved by the SPE/WPC using thedeterministic methodology. The information contained within this announcement has been reviewed by RyderScott. In addition, the information contained within this announcement has beenreviewed by Mr. Stephen Voss and Mr. Stephen Newton, both Directors of theCompany. Mr. Voss is a Registered Professional Engineer in Texas and has been aMember of SPE for 25 years. Mr. Newton holds a Mining/Petroleum Engineeringdegree from the University of Queensland, Brisbane and a Master of SciencePetroleum Engineering degree from Imperial College London. He has been a Memberof SPE for 35 years. CHAIRMAN'S STATEMENT Towards the end of 2007 the Company announced that it had received severalunsolicited expressions of interest from separate parties who were interested inpotentially acquiring the Company. The Board of the Company ultimatelyconcluded that these approaches undervalued the Company and terminated all suchdiscussions. These approaches arose, in the Board's opinion, due to thedisconnect in the value the petroleum industry places on the Company's assetsand the much lesser value that the financial markets place on the Company as awhole. The Company's financial statements and independently audited reservesfor the year ended 31 December 2007 again show the considerable value inherentwithin the Company. Various initiatives are underway to develop the Company's broad portfolio ofassets, not least the commercial partnering discussions and the potentiallyhigh-impact drilling currently underway at the Colombian Rio Verde contract. Inaddition, the Company has added a key appointment in 2008 with Stephen Newtonjoining the Company as a member of the Board and Managing Director. He hasextensive experience in Colombia having held, among other roles, the position ofPresident and General Manager of Colombia for Occidental Petroleum Corporation.His contribution will be invaluable during 2008. Mikel FaulknerExecutive Chairman 8 May 2008 VICE CHAIRMAN AND MANAGING DIRECTOR'S REVIEW Financials These final results are the Company's first final results to be reported inaccordance with International Financial Reporting Standards ("IFRS") and thecomparative financial information for the year ended 31 December 2006 has beenrestated accordingly. The percentages given within this announcement arecalculated using the restated financial information for the year ended 31December 2006. The impact of adopting IFRS is disclosed within the Notes to theFinancial Information section of this announcement and additional information isalso available on the Company's website at www.globalenergyplc.com. Turnover for the year ended 31 December 2007 was $27.3 million, an increase of29.6% against the prior year (year ended 31 December 2006: $21.1 million) due tohigher oil prices, marginally increased oil production volumes and incomerelating to a quality adjustment. Total cost of sales was $13.5 million (yearended 31 December 2006: $11.6 million) and gross profit was $13.8 million (yearended 31 December 2006: $9.5 million). Operating profit was $9.9 million (yearended 31 December 2006: $5.2 million) with profit before tax (excludingcorrection of miscellaneous income) (see note 2 of Notes to FinancialStatements) at $7.6 million (year ended 31 December 2006: $4.7 million). Gross production for the year ended 31 December 2007 totalled 478,030 barrels ofoil ("bbls") (year ended 31 December 2006: 466,099 bbls) with production net tothe Company of 413,775 bbls (year ended 31 December 2006: 401,298 bbls). Theaverage price for West Texas Intermediate ("WTI") crude oil during 2007 was$72.48 (2006: $66.23) and the Company averaged an operating cash netback perbarrel of oil (excluding miscellaneous income and income relating to a qualityadjustment) of $30.44 (2006: $23.86). The Company's lease and operating expense("LOE") per barrel of oil equivalent ("BOE") in 2007 was 6.5% lower than in 2006due to increased operational efficiencies and despite rising industry costs. Net cash inflow from operating activities for the year ended 31 December 2007was $12.4 million (year ended 31 December 2006: $8.9 million) and this togetherwith available cash funded capital expenditure of $13.3 million (year ended 31December 2006: $15.2 million). 2007 Reserve Report Ryder Scott, the petroleum consultancy firm, has independently audited theCompany's portfolio of contracts and prepared a reserve report for the Companyannually since the Company's admission to AIM in 2002. Ryder Scott reported that as at 31 December 2007, proved reserves net to theCompany totalled 4.6 million BOE (as at 31 December 2006: 5.5 million BOE),proved plus probable ("2P") reserves net to the Company totalled 15.2 millionBOE (as at 31 December 2006: 19.4 million BOE) and proved plus probable pluspossible ("3P") reserves net to the Company totalled 64.9 million BOE (as at 31December 2006: 81.8 million BOE). Based upon a Brent Crude Oil Price of $93.85 per barrel, this being the closingprice as at 31 December 2007, the date of the Reserve Report, the Net PresentValue at a 10% discount ("NPV10") of the proved reserves was $214.0 million(2006: $128.0 million). The NPV10 of the 2P reserves totalled $641.2 million(2006: $427.0 million) and the NPV10 of the 3P reserves totalled $2.5 billion(2006: $1.7 billion). Of the 4.2 million BOE reduction in the 2P reserves in 2007 against 2006, 0.4million BOE was attributable to the production in 2007, 2.9 million BOE of thereduction, almost 70%, was a consequence of forecasted substantially higher oilprices accelerating the Company's cost recovery and therefore allowing EcopetrolS.A. ("Ecopetrol"), the state oil company and the partner in the Bolivar andBocachico contracts, to back-in to these two Colombian contracts at earlierdates in the future. In addition, a revised development approach at the Bolivarcontract resulted in lower future development costs further acceleratingEcopetrol's back-in. Anticipated accelerated Ecopetrol back-in also accountedfor 12.5 million BOE, approximately 74%, of the 16.8 million BOE reduction inthe 3P reserves. Gross recoverable 3P reserves in 2007 totalled 106.0 million BOE. This was a 2%increase against 2006 (2006: 103.7 million BOE) and therefore indicated thatengineering remained almost entirely unchanged since the 2006 Reserve Report. Therefore, while substantially improved oil prices in 2007 have decreased theCompany's contractual share of future oil production, they have also increasedthe Company's 2P property value by over 50% against 2006. Overview of Contracts and Activities The Company currently holds five contracts in Colombia, one contract in Peru andone contract in Panama. The Company is currently fully compliant with the termsof each of these contracts. During 2007, the Company undertook drilling at the Colombian Luna Llenacontract. The first well, Luna Llena 1, tested fresh formation water with smalltraces of hydrocarbons. While the second well, Luna Llena 2, proved theexistence of a productive horizon and possibly significant reserves, anindependent technical study indicated that a major portion of these reserveswere located underneath or in close proximity to the Meta River meaning a verycapital intensive work programme would be needed to potentially realise thesereserves and that commercial development would be very high risk. Although theCompany exceeded the capital investment obligations for the initial phase of thecontract, the complications resulting from the location of the reserves andpotential environmental restrictions, the unexpected additional capitalrequirement and very restrictive rainy season resulted in the Company not beingable to meet all of the specific work commitments within the time periodprovided for under the contract. As a result, as at 31 March 2008 the Companyno longer held the contract. The Luna Llena contract, however, accounted for noreserves within the 2007 Reserve Report and only 341,000 BOE of 3P reserves inthe 2006 Reserve Report. During 2007, the Colombian Los Sauces contract was also relinquished to theNational Hydrocarbons Agency of the Republic of Colombia ("ANH") as the Companywas unable to secure a rig due to industry-wide equipment availabilityconstraints and therefore unable to complete its work obligations under thecontract. The Los Sauces contract accounted for none of the Company's reservesin either the 2006 or 2007 Reserve Reports. In relation to the Peruvian Block 95 contract, the Company is awaiting theenvironmental permit required to undertake drilling. Once this is obtained, theCompany will proceed to finalise the details of the drilling programme with thefirst obligation well contractually required by late 2009. The Company signed the Panamanian Garachine contract during June 2007, the firsthydrocarbons contract the Panamanian government had signed since 1990. TheCompany is on schedule with the currently required geological and geophysicalwork obligations and anticipates completion of all phase 1 requirements on orbefore November 2008. Since the end of 2007, the Company has experienced some field underperformanceat some of its older fields, predominately at the Palo Blanco field within theColombian Alcaravan contract. The field underperformance is partially due to anincreasing percentage of well downtime due to surface mechanical conditions andalso delays caused by the lack of rigs to repair down hole problems. Thisresulted in average net production for the first quarter of 2008 of 982 barrelsof oil per day ("bopd") versus 1,126 bopd for 2007. The Company is currentlyaddressing the Palo Blanco field power generation facilities issues which havebeen the major source of mechanical downtime. In May 2008, production has beenrestored to approximately 1,000 bopd net to the Company. The management believes that the current two-well drilling programme at theColombian Rio Verde contract has the potential to significantly enhance currentproduction levels. The Rio Verde contract contains the Tilodiran fieldcontaining the Tilodiran 2 well which is currently producing 500 net bopd andhas outperformed original decline rate projections resulting in Ryder Scottassigning a 30% increase in the Tilodiran field proved reserves for 2007. Thesecond of the two wells to be drilled back-to-back is the Tilodiran 3 well, adirect offset to the Tilodiran 2 well and is classified by Ryder Scott as aproved, undeveloped location. The first well, the exploratory Boral 1 well, hasnow been drilled vertically to a total depth of 12,340 feet, production casinghas been set and initial testing is underway to evaluate the Gacheta and Ubaqueformations, with both these formations present in the Tilodiran field. TheBoral 1 well is structurally updip from the Rio Verde 1 well which was drilledseveral years ago by a previous operator. Ryder Scott has assigned a total ofeight possible drilling locations to develop the Boral field based upon seismicand the Rio Verde 1 well log information. The Company continues to assess commercial partnering opportunities for some ofits projects in order to accelerate the realisation of potential value and twoseparate letters of intent ("LOIs") have been signed during April 2008 coveringtwo of the Company's contracts. Stephen VossVice Chairman Stephen NewtonManaging Director 8 May 2008 Consolidated Income StatementFor the period ended 31 December 2007 Note 2007 2006 $'000 $'000Revenue 27,289 21,053Cost of sales (13,514) (11,578)Gross Profit 13,775 9,475 Other income 2 678 200Other income - correction of miscellaneous income 2 1,240 - 1,918 200General and Administrative costs (5,841) (4,438)Operating Profit 9,852 5,237 Finance income 3 164 152Finance expense 4 (1,141) (683)Profit before taxation 8,875 4,706Income tax expense 5 (1,882) (1,225)Profit after taxation 6,993 3,481 Earnings Per Share 1 - Basic $ 0.20 $ 0.10 - Diluted $ 0.19 $ 0.09 Shares Outstanding 1 - Basic 35,328,428 35,304,403 - Diluted 43,038,651 43,814,626 The results reflected above relate to continuing activities. The Notes to the Financial Statements below form an integral part of thesefinancial statements. Consolidated statement of changes in equity Called Up Share Capital Share Other Retained Capital Reserve Premium Reserve Losses Total $'000 $'000 $'000 $'000 $'000 $'000At 1 January 2006 537 210,844 26,288 1,314 (177,809) 61,174Profit for the period - - - - 3,481 3,481Total recognised income and expense for the year - - - - 3,481 3,481Equity proportion of convertible debt - - - 512 - 512Share based payments - - - - 312 312Exercise of options 2 - 151 - - 153At 1 January 2007 539 210,844 26,439 1,826 (174,016) 65,632Profit for the period - - - - 6,993 6,993Total recognised income and expense for the year - - - - 6,993 6,993Share based payments - - - - 480 480At 31 December 2007 539 210,844 26,439 1,826 (166,543) 73,105 The Notes to the Financial Statements below form an integral part of thesefinancial statements. Consolidated Balance SheetAs at 31 December 2007 Note 2007 2006 $'000 $'000AssetsNon-current assetsIntangible assets 7 4,419 4,658Property, plant and equipment 8 82,499 76,578 86,918 81,236Current assetsInventories 9 884 999Deferred tax assets 6 288 728Trade and other receivables 10 9,367 4,405Term deposits 11 1,831 893Cash & cash equivalents 12 4,602 6,955 16,972 13,980Total assets 103,890 95,216 LiabilitiesCurrent liabilitiesTrade and other payables 13 (4,223) (3,456) (4,223) (3,456)Non-current liabilities 14Convertible loan notes 15 (15,810) (15,425)Deferred tax liabilities 6 (10,010) (10,029)Long term provisions 16 (674) (624)Other payables 14 (68) (50) (26,562) (26,128)Total liabilities (30,785) (29,584)Net assets 73,105 65,632 EquityCalled up share capital 17 539 539Share premium account 17 26,439 26,439Other reserve 17 1,826 1,826Capital reserve 17 210,844 210,844Retained losses 17 (166,543) (174,016)Total equity 73,105 65,632 The Notes to the Financial Statements below form an integral part of thesefinancial statements. Consolidated Cash Flow StatementFor the period ended 31 December 2007 Note 2007 2006 $'000 $'000Operating ActivitiesProfit before Taxation 8,875 4,706Depreciation, depletion and amortisation 8 6,805 4,343Write-off unsuccessful exploration costs 7 65 -(Increase)/decrease in trade and other receivables 10 (4,962) 1,016Decrease / (Increase) in inventories 9 115 (343)(Decrease) / increase in trade and other payables 13 767 6Increase in long-term provisions 16 66 50Accretion expense on convertible notes 15 283 546Provision against unitisation receivable 1,050 -Other non-cash items 63 14Stock options expense 18 480 312Cash flows from operating activities 13,607 10,650Income taxes paid (1,202) (1,724)Net cash flows from operating activities 12,405 8,926 Investing activityCapital expenditure and financial investment - Expenditure on tangible fixed assets (12,242) (13,699) - Expenditure on intangible fixed assets (1,040) (1,466)Disposal of assets 108 827Interest received 3 164 152Increase in short-term deposits 11 (938) (345)Net cash flows from investing activities (13,948) (14,531) Financing activitiesInterest paid (810) (305)Convertible loan notes issued 15 - 5,201Net cash flows from financing activities (810) 4,896 Decrease in cash and cash equivalents (2,353) (709)Cash at beginning of year 6,955 7,664Cash at end of year 12 4,602 6,955 The Notes to the Financial Statements below form an integral part of thesefinancial statements. NOTES TO THE FINANCIAL INFORMATIONFor the twelve months ended 31 December 2007 The financial information set out above does not constitute the Company'sstatutory accounts for the period ended 31 December 2007 or 2006. The statutoryaccounts for 2007 will be delivered to the Registrar of companies, following theCompany's annual general meeting. The auditors have reported on those accounts;their report was unqualified and did not contain statements under section 237(2)or (3) of the Companies Act 1985. Copies of the annual report and accounts will be posted to all shareholders. Further copies will be available from the Company's registered office from thedate of posting. Basis of Preparation With effect from 1 January 2007 it became mandatory for the Group to comply withInternational Financial Reporting Standards (IFRS). The financial results of the Group for the twelve months ended 31 December 2007have been prepared on a basis which is consistent with International FinancialReporting Standards (IFRS) as adopted by the European Union. Comparativeinformation for 2006 has been restated under IFRS. Reconciliations to IFRS fromthe previously published UK GAAP financial statements will be included in thefull annual report and accounts. 1. Earnings per share (EPS) Basic earnings per share amounts are calculated by dividing profit for theperiod attributable to ordinary equity holders of the parent by the weightedaverage number of ordinary shares outstanding during the year. Diluted earnings per share amounts are calculated by dividing profit for theperiod attributable to ordinary equity holders of the parent by the weightedaverage number of ordinary shares outstanding during the year, plus the weightedaverage number of shares that would be issued on the conversion of dilutivepotential ordinary shares into ordinary shares. The calculation of the dilutivepotential ordinary shares related to employee and director share option plansincludes only those options with exercise prices below the average share tradingprice for each period. 2007 2006 $'000 $'000Net profit attributable to equity holders used in basic calculation 6,993 3,481($'000)Add back interest and accretion charge in respect of convertible 970 554loan notes ($'000)Net profit attributable to equity holders used in dilutive 7,963 4,035calculation ($'000) Basic weighted average number of shares 35,328,428 35,304,403 Dilutive potential ordinary shares Shares related to convertible notes 4,565,027 4,565,027 Employee and Director share option plans 3,145,196 3,945,196Diluted weighted average number of shares 43,038,651 43,814,626 The dilutive share schemes and options are detailed within Share based payments(note 18). The calculation of the diluted EPS assumes all criteria giving riseto the dilution of the EPS are achieved and all outstanding share options areexercised. 2. Other income 2007 2006 $'000 $'000Financial gain on settlement of royalties 444 -Crude transport fees 104 40Miscellaneous income 22 160Gain on sale of assets 108 -Specific adjustment for correction of miscellaneous income 1,240 -Total other income 1,918 200 The correction of miscellaneous income resulted from a current year endreconciliation of fees, tariffs and other income and an analysis of deferredincome recorded over a period of years, which identified that other income hadbeen understated in prior periods. The correction of miscellaneous income wasidentified by the Group as an associated result of a reversal of a timingdifference between the local Colombian policy of recording revenue and the Grouppolicy of revenue recognition. Revenue is recorded in Colombia when the oil islifted by the customer however revenue is recorded at Group level at the pointof sale according to the sales contract in place. In addition during thedetailed analysis and correction of the related accounts at the currentfinancial year end mis-classifications between other income and revenue wereidentified. In prior years, although the information that would have beenrequired to correct the recorded amount of other income would have beenavailable copies of this information were not retained as this was not, at thetime, considered necessary and in consequence the information that would berequired to allocate the adjustment to prior periods is not available. It hasbeen found to be impracticable to recreate records retrospectively in order todetermine the period specific effect of the overall adjustment of £1.2m. Inaccordance with the provisions of IAS 8 regarding the impracticability ofidentifying historic data in order to objectively ascertain the specific effecton each of the prior periods the adjustment to correct the miscellaneous incomeshas been recognised in the current year. For comparison purposes, thisadjustment has been excluded from the calculation of key performance indicatorsfor profit before tax and cash netback per barrel. 3. Finance income 2007 2006 $'000 $'000Income on cash at bank and short-term deposits 164 152 4. Finance expense 2007 2006 $'000 $'000Bank loans and overdrafts 122 80Interest on convertible debt 938 685Accretion of convertible debt expense 386 304Unwinding of discount on decommissioning provision 49 49Gross finance expenses 1,495 1,118Interest capitalised during the year (354) (435)Net finance expenses 1,141 683 5. Taxation Global Energy Development PLC is subject to UK and Colombian taxation. UK taxation The Company does not expect to be liable for UK corporation tax in theforeseeable future because, as of the date of the last UK tax return, Global hadtrading losses brought forward of $14.5m which are expected to increase in thefuture. Colombian taxation The Company pays taxes in Colombia through its branch office of the subsidiaryHarken de Colombia, Ltd. The current tax included represents the tax payableunder Colombian legislation called Presumptive Income Tax (PIT). The PITcalculation is based upon a 34% tax rate (2006: 35%) on presumptive incomerepresenting 3% of the previous year's taxable net assets. At 31 December 2007, net operating losses carried forward accumulated prior tothe year 2002 and totalling $13.0m expired in accordance with Colombian tax law.To the extent allowed, net operating losses carried forward were utilised eachyear to reduce current taxation charges. See note 6 for information related todeferred taxation recognized regarding the net operating losses carried forward. Taxation charge Analysis of the Group tax charge/(credit): 2007 2006 $'000 $'000Current tax:UK Corporation Tax on profits at 30% (2006: 30%) - -Overseas tax 1,500 1,723Adjustments in respect of previous periods (40) -Total current tax 1,460 1,723Deferred tax:UK deferred tax (16) (47)Overseas tax 438 (451)Total deferred tax 422 (498)Tax charge on profit on ordinary activities 1,882 1,225 The Overseas current tax charge for 2006 includes a reclassification of $738,000of tax expense previously reflected as administrative expenses. The weightedaverage effective tax rate is 21% (2006: 26%) based on profit before taxation. Taxation reconciliation The charge for the year can be reconciled to the profit per the incomestatement: 2007 2006 $'000 $'000Profit before tax 8,875 4,706Tax on Group profit before tax at UK Corporation tax rate of 30% 2,663 1,412(2006: 30%)Effects of:Expenses not deductible for tax purposes 2,166 2,062Tax rate differences on profits/(losses) outside ring fence (1,077) 554activitiesUtilisation of Colombia tax losses foregone (2,252) (2,305)Temporary differences (see note 10) 422 (498)Adjustments in respect of previous periods (40) 0Total tax charge 1,882 1,225 6. Deferred taxation Net operating losses in the Harken de Colombia, Ltd branch generated in theyears 2002 and prior were partially utilised in each year since. In 2006, adeferred tax asset in the amount of $433,000 was recognised on the basis offorecasted local profits and anticipated utilisation of losses carried forward,however actual utilisation of losses was higher for the year. At 31 December2007, the remaining balance of net operating losses carried forward totalling$13.0m expired, in accordance with Colombia tax law, therefore no deferred taxassets related to those net operating losses were recorded in 2007. Deferred taxation on Colombia tax losses Historical Deferred Deferred Tax Losses Tax Asset Charges/ Brought $'000 (Credits) Forward $'000 $'000 As at 1 January 2006 139,718 - -Tax losses expiring (111,712) - -Utilisation of tax losses in 2006 (8,363) - -As at 31 December 2006 19,643 433 (433)Utilisation of tax losses in 2007 (6,623) (433) 433Tax losses expiring (13,020) - -As at 31 December 2007 - - - Additionally, in accordance with IAS 12, a deferred tax liability was recognisedin non-current liabilities related to temporary differences between net bookvalues of assets in Colombia and their associated tax basis, as detailed below: Temporary differences on Colombia assets Temporary Deferred Tax Deferred Tax Differences Liability Charges/ $'000 $'000 (Credits) $'000As at 1 January 2006 (29,450) (10,013) -Movement in temporary differences (47) (16) 16As at 31 December 2006 (29,497) (10,029) -Movement in temporary differences 56 19 (19)As at 31 December 2007 (29,441) (10,010) - These temporary differences between the tax basis of Colombia related assets andtheir book value are generated due to investments carried outside of the localbranch books and therefore not tax deductible in Colombia. Other temporary differences Temporary Deferred tax Deferred Tax Differences asset $'000 Charges/ $'000 (Credits) $'000As at 1 January 2006 711 214Movement in temporary differences 231 81 (81)As at 31 December 2006 942 295Movement in temporary differences 103 (7) 7As at 31 December 2007 1,045 288 Other temporary differences between tax basis and net book carrying values arisein regards to a decommissioning liability related to Colombia exploration andproducing assets in the amount of $674,000 at 31 December 2007 (2006: $624,000),and office equipment and miscellaneous assets with timing differences totalling$371,000 (2006: $318,000). 7. Intangible exploration and evaluation (E&E) assets 2007 2006 $'000 $'000CostsColombiaAt 1 January 1,157 2,257Additions 7,476 -Exploration expenditure written off (65) -Transfer to tangible assets (8,568) (1,100)At 31 December - 1,157 PeruAt 1 January 2,807 1,508Additions 667 1,299Exploration expenditure written off (33) -At 31 December 3,441 2,807 PanamaAt 1 January 694 527Additions 284 167At 31 December 978 694 Total intangible costs at 31 December 4,419 4,658 The amounts for intangible E&E assets represent costs incurred on active oil andgas exploration projects. In accordance with the Oil and Gas asset accountingpolicies of the Group, E&E assets are evaluated when circumstances exist thatsuggest the possibility of impairment, as well as when E&E assets are reclassedto the Development and Producing phase. The outcome of ongoing exploration, andtherefore whether the carrying value of assets will ultimately be recovered, isinherently uncertain. In June 2007, the exploration and producing contract with the Colombian AgenciaNacional de Hidrocarburos covering the Los Sauces area in Colombia wasterminated. In September 2007, after negotiations to modify terms and conditionsof the contract obligations failed, investment totalling $1,075,000 wasreclassified to depreciable facilities. Further during the year, Global invested $7.4m in the drilling of two wells onthe Luna Llena contract area which were initially classified as E&E costs in thebalance sheet. In March 2008, that contract was terminated, therefore in lightof the financial impact those assets were reclassed to depreciable assets in2007, the appropriate depreciation expense was charged to the income statement,and related reserves were eliminated from commercial reserves estimates.. In accordance with the provisions of IFRS 6 and IAS 36 the Group haveconsidered, in detail, the definition of CGU for the purposes of assessing theaccounting treatment of the E&E assets referred to above. The considerationshave taken into account the operating structure of the terminated licencesalongside existing D&P assets, the interdependence of future cashflows arisingfrom the terminated licences alongside existing D&P projects and hence theextent to which individual assets in each CGU generate cash flows which arelargely independent of those from other assets, the operating segment to whichthe assets had belonged under IFRS 8 and an assessment of the recoverable amountof the CGU in which the assets were held. Accordingly the directors considerthat the carrying value of the D&P assets as disclosed in note 8 are notimpaired based on an assessment of the recoverable amount of each of the group'sCGUs. 8. Property, plant and equipment Oil and Facilities Office Total Gas and Equipment $'000 Properties Pipelines & Other $'000 $'000 $'000 Cost: At 1 January 2007 81,396 19,158 1,727 102,281 Additions 3,012 1,674 169 4,855 Disposals (293) - (279) (572) Transfers 9,819 (1,686) - 8,133 At 31 December 2007 93,934 19,146 1,617 114,697 Depreciation: At 1 January 2007 (20,350) (4,209) (1,144) (25,703) Disposals 211 - 181 392/Transfers (118) 38 (2) (82) Provided during the year (5,368) (1,264) (173) (6,805) At 31 December 2007 (25,625) (5,435) (1,138) (32,198) Net book value at 31 December 2007 68,309 13,711 479 82,499 For comparison purposes, balances and activity for the year 2006 is presentedbelow: Oil and Facilities Office Total Gas and Equipment $'000 Properties Pipelines & Other $'000 $'000 $'000Cost:At 1 January 2006 84,162 2,660 1,486 88,308Additions 11,169 2,289 241 13,699Disposals - - - -Reclasses/Transfers (13,935) 14,209 - 274At 31 December 2006 81,396 19,158 1,727 102,281 Depreciation:At 1 January 2006 (18,956) (1,436) (968) (21,360)Disposals - - - -Reclasses/Transfers 2,016 (2,078) 62 -Provided during the year (3,410) (695) (238) (4,343)At 31 December 2006 (20,350) (4,209) (1,144) (25,703) Net book value at 31 December 2006 61,046 14,949 583 76,578Net book value at 31 December 2005 65,206 1,224 518 66,948 Included in the cost of tangible fixed assets is $788,000 (2006: $435,000) inrespect of capitalised financing costs. The amount of financing costscapitalised in the period is $353,000 (2006 $347,000). E&E costs for the Los Sauces contract in addition to drilling costs related toLuna Llena, as described in note 7, were transferred from Intangible Assets toTangible Assets during the year. Detailed analyses of tangible assetsclassifications recorded in prior years for Colombia resulted inreclassification of asset values ($1,357,000) and related depreciation ($38,000)from Facilities and Pipelines to other categories of tangible fixed assets. Inaddition, excess materials and equipment valued at $329,000 were transferredinto inventory. Overall, profit after tax was not impacted by thesetransactions. Other excess materials and equipment totalling $572,000 withrelated depreciation of $392,000 were sold to third parties or otherwisedisposed of, resulting in recognition of a gain of $108,000 in Other Income. Depletion and depreciation for oil assets is calculated on a unit-of-productionbasis, using the ratio of oil production in the period to the estimatedquantities of proved and probable reserves at the end of the period plusproduction in the period. Oil and gas assets are tested periodically forimpairment to determine whether the net book value of capitalised costs relatingto the cash generating unit exceed the associated estimated future discountedcash flows of the related commercial oil and gas reserves. If an impairment isidentified, the depletion is charged through the income statement in the periodincurred. The Group has performed an impairment test at 31 December 2007 and noimpairment requirement was identified. 9. Inventories 2007 2006 $'000 $'000Oil stocks 306 167Yard Stock 578 832Total Inventories 884 999 The amount of inventory which has been recognised as an expense during the yearis $1,703,000 (2006: $974,000). 10. Trade and other receivables 2007 2006 $'000 $'000Trade receivables 10,351 4,399Less provision for impairment of trade receivables (1,931) (881)Net trade receivables 8,420 3,518Other receivables 50 601Prepayments 437 286Withholding taxes receivable 460 -Total trade and other receivables 9,367 4,405 As at 31 December 2007, with the exception of the unitisation issue discussedbelow, there were no receivables considered past due (2006: $nil), and the Boardof Directors considers that the carrying values adequately represents the fairvalues of all receivables. The maximum exposure to credit risk at the reportingdate is the fair value of each class of receivable set out above. As at 31 December 2007, trade receivables of $4.0m (2006 $3.1m) related to anassociation partner in the Colombian region, whose legal entitlement under aunitisation issue is subject to ongoing negotiation and arbitration. In light ofthe probability of delays anticipated in the resolution of the unitisationissue, the Board of Directors elected to impair the receivable. The amount ofthe provision as at 31 December 2007 was $1.9m (2006 $881,000) based on a 10%discount factor. The ageing of this receivable is as follows: 2007 2006 $'000 $'000Up to 3 months 244 974 to 6 months 236 317Over 6 months 3,560 2,717Total 4,040 3,131 Also included in the above are trade receivables from the Group's sole customertotalling $6.3m (2006: $1.1m) in crude sales receivables not considered a riskdue to the short term nature of the receivables, the positive credit rating ofthe customer, and the historical trading relationship with this customer. Thefull balance from this customer as at 31 December 2007 was due within 30 days(2006: 30 days). Other classes of financial assets included within trade and other receivables donot contain impaired assets. The carrying values of the Groups' trade and other receivables are denominatedin the following currencies: 2007 2006 $'000 $'000US Dollar 7,323 3,556Colombian Peso 2,040 845Peruvian Nuevos Soles 4 4Total 9,367 4,405 11. Term deposits 2007 2006 $'000 $'000Dollar denominated investments 1,831 893 The Group has established US Dollar denominated Certificates of Deposit withrestricted access and varying maturity dates as guarantees for Letters of Creditrequired for performance assurance on oil and gas fields and office rentalcontracts. At 31 December 2007, the Group maintained four Certificates ofDeposit totalling $1,731,000 (2006: $793,000) supporting oil and gas fields andone Certificate of Deposit in the amount of $100,000 (2006: $100,000) supportingone office rental contract. There are no material differences between thecarrying amounts of the financial assets and their fair values. The maturity of the Group's term deposits is as follows: 2007 2006 $'000 $'000Up to 3 months - 4483 to 6 months - -Over 6 months 1,831 445Total 1,831 893 12. Cash & cash equivalents 2007 2006 $'000 $'000Cash in bank and on hand 4,602 6,955 All cash balances constitute demand deposits or short term investments availableat call and held in US Dollars, Colombian Pesos, Peruvian Nuevos Soles andPounds Sterling. 13. Current liabilities 2007 2006 $'000 $'000Trade payables 1,109 2,206Taxation 1,579 308Other financial liabilities - 309Accrued liabilities 1,223 325Short term loans payable 312 308Total current liabilities 4,223 3,456 Trade payables reflect balances owed on invoices received from vendors andcontractors related to active projects in progress at the end of each period.The increase in balances related to taxation is primarily due to VAT taxes onthe open crude sales receivables. Other financial liabilities as at 31 December2006 reflect the value of crude oil royalties due to Ecopetrol, which wassettled in 2007. The increase in accrued liabilities relates to ongoing projectsand represents the value of work completed but not yet invoiced at 31 December2007. Short term loans payable represent the financing of insurance premiums at fixedrates over the coverage period. It is considered that where trade and other payables are not carried at fairvalue in the consolidated balance sheet, book value approximates to fair valueat 31 December 2007 and 2006. Maturity analysis of the financial liabilities is as follows: 2007 2006 $'000 $'000Up to 3 months 3,989 3,2253 to 6 months 78 77Over 6 months 156 154Total 4,223 3,456 14. Non-current liabilities 2007 2006 $'000 $'000Long term leases payable 68 50Decommissioning provision 674 624Convertible loan notes 15,810 15,425Deferred income taxation (see note 6) 10,010 10,029Total non-current liabilities 26,562 26,128 Long term leases payable represents the difference between actual lease paymentsand the recognition of lease costs on a straight-line basis as per IAS 17. 2007 2006 $'000 $'000Analysis of debt:Debt can be analysed as falling due:Within one year or on demand - -Between one and two years - -Between two and five years 68 50In five years or more 15,810 15,425 15,878 15,475 All of the Group's loans and borrowings are denominated in United StatesDollars. 15. Convertible loan notes 2007 2006 $'000 $'000Balance bought forward 15,425 10,482Convertible loan notes issued - 5,201Proportion classed as equity - (512)Costs of raising finance - (292)Accreted interest 385 546Balance carried forward 15,810 15,425 On 8 December 2006, the Group entered into a fixed-rate loan agreement for$11,903,000 in convertible notes. Unless previously redeemed, converted orpurchased and cancelled, the notes are repayable in full on 8 December 2012. Ifthe Company redeems the loan notes prior to 8 December 2009, an early redemptionpenalty of 8% on the outstanding balance is payable. A portion of the previous loan notes from the loan agreement entered into on 27October 2005 ("2005 loan notes") was partly extinguished ($6,702,000) andre-invested in the new convertible notes. A balance of $5,798,000 in 2005 loannotes remains outstanding. The Group raised an additional $5,201,000 in cashfrom this financing transaction. All loan notes incur an interest charge of 5% per annum for the three years to 8December 2009, 6% per annum for the two years to 8 December 2011 and thereafteran interest rate of 7%. Interest is payable quarterly. The effective interestrate is therefore 5.85%. Holders of the loan notes issued in 2006 have the rightto convert the outstanding amount (or part thereof) into ordinary shares at afixed exchange rate of $1.90:£1 and at a fixed price of 179p at any time.Holders of the 2005 loan notes have the right to convert the outstanding amount(or part thereof) into ordinary shares at a fixed exchange rate of $1.78:£1 andat a fixed price of 305.8p at any time. The loan notes are not secured againstany assets of any Group company. In accordance with the provisions of IAS 32,the Group has determined the convertible loan note issue to be a compoundfinancial instrument requiring a proportion of the loan to be classified asequity. The reclassified element represents the difference between the fairvalue of a similar liability with no equity conversion option and the fair valueof the existing loan in current terms. Accordingly, an amount of $512,000 wasbeen reclassified to equity in 2006. Total costs incurred in raising the loanamounts in 2006 were $325,000 of which $32,000 was reclassified to equity. Theremainder was debited against the carrying value of the notes. Accreted interestis charged to the income statement over the life of the notes. The effectiveinterest rate is 5.96%. 16. Provisions 2007 2006 $'000 $'000Decommissioning liability on 1 January 625 575Unwinding of discount on decommissioning liability 49 49Decommissioning liability on 31 December 674 624 The decommissioning provision represents the present value of decommissioningcosts for existing assets in the Group's oil and gas operations, which areexpected to be incurred between 2010 and 2018. These provisions have beengenerated based on the Group's internal estimates, and where available, studiesand analyses from external sources. Assumptions, based on the current economicenvironment, have been made which management believes are a reasonable basisupon which to estimate the future liability. These estimates are reviewedperiodically to take into account any material changes to those assumptions.However, actual decommissioning costs will ultimately depend upon future marketprices for the necessary decommissioning work required at the time assets aredecommissioned and abandoned. Furthermore, the timing of decommissioning islikely to depend on when the fields cease to produce at economically viablerates, which in turn is dependent upon future oil and gas prices that areinherently uncertain. 17. Share capital 2007 2006 Number of 2007 Number of 2006 Shares $'000 Shares $'000 AuthorisedOrdinary shares of 1p each 70,000,000 1,071 70,000,000 1,071Unclassified shares of £1 each 50,000 92 50,000 92Allotted, called up and fully paidOrdinary shares of 1p each 35,328,428 539 35,328,428 539 The ordinary shares confer the right to vote at general meetings of GlobalEnergy Development PLC, to a repayment of capital in the event of liquidation orwinding up and certain other rights as set out in Global Energy DevelopmentPLC's articles of association. The ordinary shares also confer the right to receive dividends if declared bythe directors and approved by the Company. The unclassified shares do not carryany rights. The following describes the nature and purpose of each reserve within owners'equity. Reserve Description and Purpose Share premium Amount subscribed for share capital in excess of nominal value._________________________________________________________________________________________________________ Equity element of the convertible loan notes accounted for inOther reserve accordance with IAS 32 and IAS 39._________________________________________________________________________________________________________ Cumulative net gains and losses recognised in the consolidated incomeRetained losses statement._________________________________________________________________________________________________________ Reserve created on issue of shares on acquisition of subsidiaries inCapital reserve prior years._________________________________________________________________________________________________________ 18. Share based payments Discretionary share option incentive plan The Company periodically grants share options to employees and directors, asapproved by the Board of Directors. At 31 December 2007 and 31 December 2006 thefollowing share options were outstanding in respect of the ordinary shares: Year ended 31 December 2007 Year of Number Of Issued Lapsed Exercised Number Start Date End Date Price Grant Shares in Year in Year of Shares per Share2002 2,915,196 - - - 2,915,196 31.01.2002 31.01.2012 50.0p2002 30,000 - - - 30,000 08.08.2002 12.08.2012 54.5p2004 675,000 - - - 675,000 03.12.2004 03.12.2014 151.1p2005 240,000 - (60,000) - 180,000 08.12.2005 08.12.2015 265.1p2006 325,000 - - - 325,000 13.09.2006 13.09.2016 174.5p2007 - 200,000 - - 200,000 13.06.2007 13.06.2017 85.7pTotal 4,185,196 200,000 (60,000) - 4,325,196 Year ended 31 December 2006 Year of Number Of Issued Lapsed Exercised Number Start Date End Date Price per grant Shares in Year in Year of Shares Share2002 2,967,636 - (32,440) (20,000) 2,915,196 31.01.2002 31.01.2012 50.0p2002 30,000 - - - 30,000 08.08.2002 12.08.2012 54.5p2004 780,000 - - (105,000) 675,000 03.12.2004 03.12.2014 151.1p2005 270,000 - - (30,000) 240,000 08.12.2005 08.12.2015 265.1p2006 - 325,000 - - 325,000 13.09.2006 13.09.2016 174.5pTotal 4,047,636 325,000 (32,440) (155,000) 4,185,196 The Company's share price at 31 December 2007 was 83.5p (31 December 2006:123.5p). The highest and lowest share prices during the year were 140.0p (2006:300.0p) and 82.5p (2006: 118.5p) respectively. The fair values of awards granted under the Group's option plan have beencalculated using a variation of a binomial option pricing model that takes intoaccount factors specific to share incentive plans such as the vesting periods,estimated share price volatility, the expected dividend yield on the Company'sshares and expected exercise of share options. The following principalassumptions were used in the valuation: Grant date 3 Dec 2004 8 Dec 2005 13 Sep 2006 13 Jun 2007Share price at date of grant 1.51p 2.651p 1.745p 0.857pExercise price 1.51p 2.651p 1.745p 0.857pVolatility 36.73% 33.02% 40.68% 30.99%Option Life 3 Dec 2014 8 Dec 2015 13 Sep 2016 13 Jun 2017Dividend Yield 0% 0% 0% 0%Risk-Free investment rate 4.645% 4.226% 4.568% 5.416%Employee Turnover 3.7 years 3.3 years 4.3 years 4.0 years Volatility has been based on a Volatility Cone calculation model using thehistoric share price two years prior to each grant date and assigning aprobability weighting. Volatilities were selected between the median and the75th percentile calculations. Based on above assumptions the fair values of the options granted are estimatedto be: Grant date 3 Dec 2004 8 Dec 2005 13 Sep 2006 13 Jun 2007Fair value 51p 76p 66p 28p Expense arising from share-based payments: Based on the above fair values and the Company's expectations of employeeturnover, the expense arising from equity-settled share options and share awardsmade to employees was $480,000 for the period (2006: $312,000). There were noother share-based payment transactions. - Ends - This information is provided by RNS The company news service from the London Stock Exchange