Last checked at 11 Nov 2009 07:47
Pantheon Resources plc - Final Results for the Year Ended 30 June 2009
Pantheon Resources plc ("Pantheon", the "Company" or the "Group"), the AIM-quoted oil and gas exploration company active in Louisiana and Texas, today announces its final results for the period ended 30 June 2009.
KEY POINTS
This has been a year of great achievement for Pantheon notwithstanding the mechanical problems associated with the Vision Rice University #1 well ("VRU#1").
Pantheon's refocused and refreshed corporate strategy was implemented.
Main achievement was confirmation of extension of the Brookeland field (Austin Chalk) into Pantheon's Tyler County acreage.
Pantheon, and the operator, Vision Resources LLC, now consider the Tyler County project proven as a development play which offers material value to shareholders.
Initial analysis of the VRU#1 well's results has led to a marked increase in management's confidence in the project. Increase of 60% in average potential reserves per well now estimated by Pantheon's technical consultant.
Second well on Pantheon's Tyler County acreage estimated to commence in January 2010.
Austin Chalk remains the primary target. Secondary target also in deeper Woodbine formation which formed part of Pantheon's original farm-in of May 2008.
Both features may be tested at a low incremental cost to Pantheon.
Woodbine feature identified on seismic and considered to be a moderate risk prospect. Vision already producing from Woodbine from pre-farm in well located on Joint Venture acreage.
Woodbine feature has the potential to increase significantly the value of Pantheon's acreage without compromising the safe and effective appraisal of the Austin Chalk.
Operating loss of £3.17 million versus £4.85 million last year. Results dominated by post balance date events which amount to some £2.2 million.
The Company has published its annual report and accounts for the year ended 30 June 2009, copies of which are today being posted to shareholders and will be available on the Company's website at www.pantheonresources.com
| In accordance with the AIM Rules, the information in this announcement has been reviewed and signed off by Jay Cheatham, who has over 30 years' relevant experience within the sector. |
For further information on Pantheon Resources plc, see the website at www.pantheonresources.com
Further information:
Pantheon Resources plc
| Jay Cheatham, CEO Justin Hondris, Director, Finance and Corporate Development | +44 20 7484 5359 |
Oriel Securities Limited (Nominated Adviser)
| Michael Shaw | +44 20 7710 7600 |
CHAIRMAN'S STATEMENT FOR THE YEAR ENDED 30 JUNE 2009
Pantheon's refocused and refreshed corporate strategy was implemented in the financial year under review under the leadership of the Chief Executive Officer, Jay Cheatham. It yielded major success. The key event was the confirmation of an extension of the adjacent Brookeland field into Pantheon's Tyler County, East Texas acreage, notwithstanding the mechanical difficulties encountered. This confirmation also has significant and positive implications for the rest of the play.
As the Vision Rice University #1 well has been the dominant feature during the past financial year it has been essential for the Joint Venture to assess, analyse and understand the results obtained. The initial results of this process have led to a marked increase in management's confidence as to the project's potential both in terms of reserves and improved economic projections. Four factors may be identified as being behind this change; higher than expected reservoir pressures; the presence of an unconsolidated rubble zone; the expectation of fewer wells being required to develop the play; and the existence of black oil and condensate.
High reservoir pressure is generally regarded as a positive attribute in the Austin Chalk as it usually indicates higher potential reserves and productivity. Pantheon's independent technical consultant has raised estimates of average potential reserves per well by 60% after reviewing the data obtained. Separately the estimated maximum number of wells in the programme has been reduced to 50 from 60, leading to a potential reduction in capital expenditure. This means that there is the prospect of an increased reserve potential for a lower overall capital outlay. These factors obviously should have a beneficial impact on the project's economics.
This is not to ignore the difficulties that were encountered whilst drilling this well. Paradoxically the very problems that led to the inability to test the well and its subsequent plugging were also the same ones that have led to an increased confidence in the project's potential.
The Vision Rice University #1 well had been engineered to cope with expected high pressures but in focussing on managing the even higher reservoir pressures encountered, with the emphasis on safety, testing was interrupted and eventually halted. Initially attributed to the inability of the equipment to cope with the flow rates, it was eventually found to be related to the presence of the rubble zone. The geological advantage of such a zone is that it promotes natural gas flow and extends the reach of the well in terms of reserves accessed.
Vision Resources LLC ("Vision"), the operator, has reviewed carefully the results of the Vision Rice University #1 well. In light of the information gained, the well management programme has been revised. The next well will be drilled using a larger rig and casing programme. Vision is one of the more experienced operators in the region. Moreover apart from its own technical capabilities, Vision also has access to the resources of its major shareholder, Kaiser Francis Oil Company. The latter is one of the world's largest private energy producers according to Forbes Magazine in October 2009.
The current schedule is for the second well to commence in January 2010. The primary target will again be the Austin Chalk. This well will also be utilised to gain further knowledge of the deeper Woodbine play, which formed part of Pantheon's original farm-in of May 2008. The Woodbine will be a secondary target. The Woodbine formation is known as a prolific producer in nearby fields, notably the Double A Wells field located some six miles to the west of Pantheon's acreage. Based on existing information and a nearby successful well drilled into the Woodbine by Vision on the Joint Venture acreage, it has been possible to establish a location where both formations may be tested at a low incremental cost.
Elsewhere Pantheon reported further success at its Bullseye discovery. Jumonville #2 was completed as another producer from the Miogyp formation with production commencing in late June 2009. The Camerina zone was not tested in this well but this zone still provides potential for further upside across the Bullseye prospect. Another delineation well, Acosta #1, did not provide an adequate test. This well has been converted for use as a water disposal well. A further four locations have been identified at Bullseye for potential delineation of the Miogyp.
Success was achieved but unexpected delays, primarily at the Vision Rice University #1 well, led to significant cost overruns. These led to Pantheon accessing capital markets during the year. In April 2009 a bridging finance facility was agreed between Pantheon and its Chief Executive Officer for an amount of up to £0.85 million. This bridging facility was augmented in June 2009 from other unrelated parties and now stands at £1.13 million. This was also a placing of 4.55 million shares after the end of the financial year raising £0.507 million.
The loan by the Chief Executive Officer indicates not only his commitment to the Group but also his strong belief in the Tyler County project. It also reflected the Board's desire to minimise shareholder dilution if possible in line with corporate strategy. It is clear, however, that if the Tyler County project is to fulfil its potential then it will not be funded optimally out of corporate cash flow. The Group has, and continues to review all options available to enhance shareholder returns in an optimal and secure manner consistent with best practice. This includes assessing the appropriate debt to equity mix over the short to medium term.
At the end of the financial year, Pantheon is involved with two successful finds. One of these, Tyler County, has the scale to transform the Group's asset base. This is a very satisfactory transformation from a year ago. Pantheon is now on the cusp of moving from an exploration to development phase. This has been achieved in the face of challenging and changing times both for the Group and markets.
Management is now facing a further period of activity as the second well is awaited at Tyler County. Success at this well should usher in a period of intense activity for the Group as the Joint Venture seeks to implement its ambitious development programme. The Board believes that Pantheon has a future of enormous potential which remains insufficiently understood. One of the challenges facing the Group and its management is communicating the plans to unlock the major value already created.
Susan Graham
10 November 2009
CHIEF EXECUTIVE OFFICER'S STATEMENT FOR THE YEAR ENDED 30 JUNE 2009
This has been a year of great achievement for Pantheon notwithstanding the mechanical problems associated with the Vision Rice University #1 well ("VRU#1"). Pantheon believes a field has been discovered in the Austin Chalk of its Tyler County project which offers material value to shareholders. The asset values and cash flows associated with this project are expected to become evident in first half 2010.
Over the last 12 months Pantheon participated in the drilling of three new wells and re-entered a fourth. The Group's main achievement arose from the first well into the Austin Chalk in its Tyler County acreage. The VRU#1 well was a geological success confirming the extension of the Brookeland field into the Joint Venture acreage. The well encountered greater than 13,000 psi, well above pre-drill expectations. Significant flows of natural gas, condensate and oil flowed during intermittent periods, although subsequent operations were unable to complete successfully the well.
For Pantheon the two Jumonville wells at Bullseye were both successful completions in the Miogyp formation and provide cash flow for the Group. The Acosta re-entry proved unsuccessful in the Miogyp and was completed as a water disposal well.
The plan is to spud the second well on Pantheon's Tyler County acreage in January 2010. The operator, Vision Resources ("Vision") has recommended drilling the next well at a location that may both penetrate the Austin Chalk, the primary target, at a structurally advantageous location and also test the deeper Woodbine formation. The Woodbine formation only lies some 500 feet below the Austin Chalk. This should permit drilling of both targets to be achieved at a low incremental cost to Pantheon.
The Woodbine is a very prolific producer in East Texas at such fields as 'East Texas' and 'Double A Wells'. Vision has identified a feature on seismic that is similar to the 'Double A Wells' field which lies six miles west of Pantheon's acreage block. Vision also has a completion in the Woodbine on the margin of this identified feature which provides further valuable information. Vision's completed well is estimated to have ultimate gross production of five billion cubic feet of gas equivalent ("bcfe"). This feature covers between 5,000 and 9,000 acres and is considered to be a moderate risk prospect.
It should be emphasised that the Austin Chalk remains the primary target. However success in the Woodbine has the potential to add substantially to the economic value of Pantheon's Tyler County acreage.
The past 12 months have proven just how fickle the oil and gas industry can be. Globally oil and natural gas prices went from record highs to recent year lows as the world economy struggled with the aftershocks of the effects from sub-prime mortgages and an economic slowdown. The US rig count plunged from 2031 to 889 and shale gas plays that had been successful became uneconomic.
Against this backdrop Pantheon has made major strides in its corporate development. With the geological success at Tyler County, I am more excited than ever about the Group's prospects and the potential of the Joint Venture acreage. Pantheon's partners at Tyler County remain as committed as ever.
Management believes the underlying potential of Pantheon's drilling programme is material. The next well is scheduled to spud in January 2010. This will be a step out from VRU#1 and should prove up significant reserves for the Joint Venture. I look forward to sharing an exciting first half 2010 and beyond with you.
Operational Review
Tyler County, Austin Chalk
The VRU#1 well encountered reservoir pressure of greater than 13,000 psi and also an unconsolidated rubble zone. The combination of those two factors, coupled with a packer failure compromised the completion, led to extensive delays and overruns and eventually to the plugging of this well. The Tyler County Venture is operated by Vision, a private U.S. oil and gas company. The major shareholder in Vision is Kaiser Francis Oil Company (KFOC), "among the world's biggest private energy producers" (Forbes Magazine Special Issue Oct 2009). KFOC has a direct working interest in the Tyler County play and, together with Vision, controls 61% working interest. The first well on this project, VRU#1, commenced drilling on 12 November 2008. In February 2009 the completion assembly was run. Reservoir pressure was materially higher both than that seen in the Anadarko/Ergon wells located to the north and also to pre-drill estimates. This higher pressure caused the operator to complete the well with a shorter lateral (horizontal) section than originally planned. However fractures were cut which were accompanied by higher-than-expected natural gas pressure. After setting a slotted liner in the horizontal segment of the wellbore, service company personnel were unable to set a production packer, on two separate occasions. On the third attempt, a packer and production tubing were successfully installed. During subsequent clean-up operations the well bore became blocked. This caused further delays. The operator utilised a coiled tubing unit in an attempt to remove the blockages. During these procedures, small pieces of formation flowed through the slotted liner into the well bore resulting in a new obstruction. This occurred each time the well was cleaned out. Such experiences are consistent with the presence of an unconsolidated rubble formation. Eventually the blockages prevented the extraction of the coiled tubing from the hole. Remedial operations by the operator to remove the stuck coiled tubing utilising a high pressure snubbing unit were unsuccessful. Consequently, it was announced on 8 September 2009 that Vision had recommended that the VRU#1 well be plugged and abandoned solely for mechanical reasons.
Despite this decision, the overall prospectivity of the project was proven and confirmed an extension of the adjacent Anadarko/Ergon field. During the limited testing operations conducted, the VRU#1 well flowed natural gas, condensate and black oil.
The difficulties encountered during drilling of this well were solely of a mechanical nature resulting from much higher than expected reservoir pressures and the unexpected presence of an unconsolidated rubble zone. The presence of both of these features is considered positive for the overall project and should enhance the project's economics as follows:
In Austin Chalk wells, higher pressure is generally regarded as indicating higher potential reserves and productivity. The reservoir pressures encountered in the VRU#1 well may lead to flow rates in the upper tier of regional Austin Chalk producers if repeated in future wells. Although this well was engineered for higher reservoir pressures than the offsetting wells, the actual pressures encountered exceeded even these planned levels.
Unconsolidated rubble zones typically exhibit higher porosity and permeability. Together these factors should lead to enhanced recovery and flow rate per well if confirmed in future wells. It is also possible that this rubble zone may extend across a significant portion of the acreage. If confirmed, this should deliver a large area of targets with projected productive rates exceeding previous estimates.
The presence of such a rubble zone may also lead to reduced future drilling costs. With more reserves estimated to be drained per well, a lower overall number of wells may be required. Additionally, a shorter lateral section per well is anticipated. This should lead to reduced future capital expectations for the project.
The data received from the VRU#1 well provided the Group with greater confidence in the project's potential. Reviewing the technical data obtained so far, Pantheon's technical consultant has upgraded reserve estimates per well by some 60%.
The operator does not expect similar difficulties for the remainder of the programme. The main difficulties previously encountered have been identified, i.e. the high reservoir pressures and presence of the rubble zone. These may be managed using standard drilling practices which have already been incorporated into the planned well management programme for the next and subsequent wells.
The plan is to spud the second well in January 2010 with the primary target being the Austin Chalk. It is also planned to test a deeper feature in the Woodbine formation. The Woodbine is a very prolific producer in the nearby 'Double A' Wells field in Polk County, six miles west of Pantheon's acreage. It should be emphasised that the Austin Chalk remains the primary target. However the higher risk target in the Woodbine has the potential to increase significantly the value of Pantheon's acreage without compromising the safe and effective appraisal of the Austin Chalk.
Bullseye
The Jumonville #1 well was confirmed as a discovery in July 2008. After permanent facilities were constructed, Jumonville #1 flowed at a sustained gross rate of 500 barrels per day ("bopd"). This was followed by re-entry of an old well bore, Noble Acosta, on the property. A window was opened in the casing and a new wellbore was sidetracked. The new wellbore apparently was not far enough away from the old one and the well initially had no flow and produced only water after a remedial treatment.
The Jumonville #2 well was spudded on Christmas Day 2008. This was a very significant well as it was intended not only to penetrate the Camerina and Miogyp sands but also test the deeper Cib Haz formation. The latter was estimated to have a gross reserve potential of 20 million barrels of oil. After considerable drilling delays total depth was reached in April 2009 at 14,000 feet measured depth. The well had significant shows in the Camerina and Miogyp formations on the way to the Cib Haz. After running logs it was thought that a discovery had been made in the Cib Haz. The Cib Haz 6 zone had 130 feet of a thinly bedded hydrocarbon bearing sandstone with the Cib Haz 7 zone showing 60 feet.
Enthusiasm was short lived as the tests had no flow from either zone. The well was then completed in the Miogyp with an initial gross flow of 750 bopd and 250 thousand cubic feet of gas a day ("mcfd"). The sustained gross production rate was 600 bopd and 350 mcfd. Permanent facilities at Bullseye are capable of handling 3,000 bopd, 5,000 mcfd of natural gas and also water disposal.
At Bullseye there are four additional Miogyp locations. There is also the recompletion potential in the Camerina zone above the Miogyp in both Jumonville #1 and #2. Currently gross Bullseye production is averaging 700 barrels of oil equivalent per day ("boepd"). This is restricted due to inadequate water disposal pumping capacity. A higher capacity pump is on order.
Belle Grove
In December 2008 Pantheon acquired a two-thirds interest in 600 acres immediately west of the Bullseye acreage. Seismic indicated the Camerina sand was in an up-dip location to Pantheon's Bullseye acreage with further Miogyp potential. When lease rentals came due this autumn, it was decided that Pantheon's efforts were best directed to the Tyler County project. The decision was thus made to relinquish the Belle Grove acreage.
Padre Island and Wharton
Production at Dunn Deep on Padre Island ceased in March 2009 after averaging at a gross rate of 900 mcfd and 2 bopd. Cessation of production was solely due to the involuntary bankruptcy of the operator, BNP Petroleum. It is unlikely that this well will produce again. As a result, Pantheon no longer has any production from Padre Island.
Pantheon's two wells in Wharton County averaged at a gross rate of 480 mcfd in third quarter 2009. The Group's net production averaged about 40 mcfd from these wells.
Production
During financial 2009 net production averaged 280 mcfed. This compares with the net 556 mcfed achieved in financial 2008. The decline in output may be attributed to the loss of Padre Island production with Dunn Deep ceasing production in March 2009. Significant changes to the mix of production occurred during the year. The mix has changed from almost 100% gas to over 80% oil production with the commissioning of Jumonville #1 well. Production was augmented from the Jumonville #2 well almost on the last day of financial 2009.
Conclusion
This is the year when I believe Pantheon broke through to add material asset value for shareholders, which should become evident in first half 2010. Irrespective of the mechanical problems associated with VRU#1, Pantheon, and its operator, Vision, now consider the Tyler County project proven as a development play. The next well is expected to be drilled at some distance from the Group's first well at VRU#1 at an advantageous location for the Austin Chalk and deeper Woodbine plays. I assure you the Company's glass is half full not half empty. Pantheon has a solid cash flow generator at Bullseye and has proven the presence of hydrocarbons at Tyler County. I cannot wait for the results from our 2010 Tyler County drilling.
Jay Cheatham
10 November 2009
FINANCE DIRECTOR'S REPORT FOR THE YEAR ENDED 30 JUNE 2009
Financial Review
The Group made a loss for the year of £3,048,360 (2008: £4,846,628). This result was dominated by post balance date events which occurred after the Group's financial year end of 30 June 2009. Specifically, some £2,205,175 of this loss related to post balance date impairment charges relating to the Tyler County and Belle Grove projects.
The main components of the results have been set out below.
Production
Net total production for the financial year ending 30 June 2009 attributable to Pantheon amounted to 128 .6 mcfd and 25.3 bopd. Average realisations for the year for natural gas and oil were US$7.38 per mcf and US$53.57 per barrel respectively.
Revenue
Revenues for the year ended 30 June 2009 were lower than the previous year at £515,639 (2008: £784,240). This was due principally to the cessation of production from the Wilson and Dunn Deep wells during the year. Falling oil and US natural gas prices throughout the year contributed further to this decline. The Jumonville #2 well came onto production in the last few days of the financial year, although these revenues will not be recognised until next year's results.
Cost of Sales
For the year ended 30 June 2009 the cost of sales of £459,771 was materially higher than for the previous year (2008: £156,713). The main component of this charge is depreciation. In the financial year to end June 2008 it was decided to write-off the full carrying value of the Wilson well. This amounted to approximately £3,443,000. As this was categorised as an impairment charge there was no depreciation associated with the production from this well. This had the impact of reducing overall depreciation in financial 2008.
Water disposal charges relating to Jumonville #1 well were included in cost of sales in financial 2009. The conversion of the Acosta well to a salt water disposal well is expected to reduce these charges in the next financial year.
Impairments
The total Impairment charge of £2,317,579 (2008: £4,858,558) was dominated by the post balance date decisions to write off the carrying values of both the Vision Rice University #1 well and the Belle Grove project. These accounted collectively for approximately 95% of the impairment charge.
In September 2009 the decision was made to plug and abandon Vision Rice University #1 well ("VRU#1") located in Tyler County, East Texas. This was purely for mechanical reasons. The well was a geological success and confirmed the extension of the Brookeland field. However as the VRU#1 well was a non-producer it was decided to adopt a pragmatic accounting treatment and write-off all direct drilling costs relating to the well.
The Group has also elected to write off its entire carrying costs relating to the Belle Grove prospect, located in South Louisiana. This prospect was expected to incur material expenditure commitments in the medium term. Following the operator's inability either to test the Camerina zone, or obtain conclusive data on the Cib Haz zone at the Jumonville 2 well on the adjacent Bullseye acreage, the Group made the decision to focus its future efforts and capital on the lower risk Tyler County project.
Accounting Policies
There have been no major changes to accounting policies during the year.
Debt Financing
During the year the Company also raised £1,072,815 of bridging finance debt to cover the cost overruns and planned remedial operations in the drilling of the Tyler County and Bullseye prospects. A debt facility was utilised as it was considered to represent a lower cost of capital than equity at that time.
Capital Structure
The capital structure of the Group did not change materially during the year. A total of 103,349 shares were issued during the year in accordance with the incentive scheme for the Company's CEO, Mr J. Cheatham. At year end there were 39,837,130 shares in issue.
On 21 August 2009 the Company announced the placement of 4,554,600 ordinary shares at a price of £0.12 per share to raise £0.507m after expenses. These funds were used to fund the remedial operations in the Vision Rice University #1 well following extensive drilling and testing delays, and to provide general working capital.
Going Concern
The Company recognises the requirement for additional capital in order to fund the drilling of future wells. The Company is presently exploring its alternatives and expects to complete discussions before the close of the calendar year. The results of the Vision Rice University #1 well are very promising from a geological perspective and give the board great confidence to successfully raise additional capital
Taxation
The Group incurred a loss for the year and has not incurred a tax charge. The directors have not considered it appropriate to recognise a deferred tax asset to reflect the potential benefit arising from these timing differences.
Risk Assessment
The Group's oil and gas activities are subject to a variety of risks, both financial and operational, as detailed below. These risks have the potential to materially affect the financial performance of the Group.
Liquidity and Interest Rate Risk
Liquidity risk has increased for many companies as a result of the scale of the continued economic crisis. During the year Pantheon issued some short term "bridging finance" debt, in preference to issuing dilutive equity, in order to raise sufficient capital to meet its drilling obligations which had run over time and over budget. Subsequent to the year end the Company completed a small equity placement which raised approximately £500,000 for working capital and final operations at the Vision Rice University #1 well. The Company closely monitors its cash position and forecasts are reviewed monthly by the board. The Company is currently planning to raise sufficient capital to enable the ongoing operations of the Group.
Oil and Gas Price Risk
Oil and Gas sales revenues were subject to the wild swings in the underlying commodity prices throughout the year. Fortunately, Oil and Gas prices have recovered from their lows which is very positive for the Group's assets.
Currency Risk
Almost all capital expenditure and operational revenues for the year were denominated in US dollars. Due to the volatility affecting both US Dollar and the Great British Pound as a result of the global economic crisis, the Group aligned foreign exchange transactions with the timing of capital requirements as closely as possible to smooth the volatility over the year. The Company did not engage in any hedging activity during the year.
Financial Instruments
At this stage of the Group's activities it has not been considered appropriate or necessary to enter into any derivatives trading or hedging strategies. Once the Group's production revenues increase substantially, such strategies will be reviewed on a more regular basis.
Justin Hondris
10 November 2009
INDEPENDENT AUDITORS' REPORT TO THE MEMBERS OF PANTHEON RESOURCES PLC FOR THE YEAR ENDED 30 JUNE 2009
We have audited the financial statements of Pantheon Resources plc for the year ended 30 June 2009 which comprise the Consolidated income statement, the Consolidated and Parent Company statements of changes in net equity, the Consolidated and Parent Company balance sheets, the Consolidated and Parent Company cash flow statements and the related notes. The financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union.
This report is made solely to the Company's members, as a body, in accordance with sections 495 and 496 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the Company's members those matters we are required to state to them in an auditor's report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company's members as a body, for our audit work, for this report, or for the opinions we have formed.
Respective Responsibilities of Directors and Auditors
As explained more fully in the Statement of Directors' Responsibilities, set out in page 14, the Directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit the financial statements in accordance with relevant legal and regulatory requirements and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board's (APB's) Ethical Standards for Auditors.
Scope of the audit of the financial statements
A description of the scope of an audit of financial statements is provided on the APB's web-site at www.frc.org.uk/apb/scope/UKNP.
Opinion on financial statements
In our opinion:
Opinion on other matters prescribed by the Companies Act 2006
In our opinion the information given in the Chairman's statement, Chief Executive Officer's statement, Finance Director's report and the Directors' Report for the financial year for which the financial statements are prepared is consistent with the financial statements.
Matters on which we are required to report by exception
We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you if, in our opinion:
Michael Egan (Senior Statutory Auditor)
For and on behalf of
UHY Hacker Young, Statutory Auditor
Quadrant House4 Thomas More Square
London E1W 1YW
10 November 2009
CONSOLIDATED INCOME STATEMENT FOR THE YEAR ENDED 30 JUNE 2009
| | | | |
| | Notes | 2009 | 2008 |
| | | £ | £ |
| | | | |
| Turnover | 3 | 515,639 | 784,240 |
| Cost of sales | | (459,771) | (156,713) |
| | | | |
| Gross profit | | 55,868 | 627,527 |
| | | | |
| Administrative expenses before share based payments and impairment losses | | (801,892) | (582,196) |
| Share based payments | 21 | (102,506) | (55,820) |
| Impairment of intangible assets | 13 | (2,317,579) | (4,858,558) |
| Total administration expenses | 4 | (3,221,977) | (5,496,574) |
| | | | |
| Operating loss | | (3,166,109) | (4,869,047) |
| | | | |
| Finance revenue | 6 | 117,749 | 22,419 |
| | | | |
| Loss before taxation | | (3,048,360) | (4,846,628) |
| | | | |
| Taxation | 7 | - | - |
| | | | |
| Loss for the year | | (3,048,360) | (4,846,628) |
| | | | |
| Loss per ordinary share – basic and diluted | 2 | (7.07)p | (26.01)p |
All of the above amounts are in respect of continuing operations.
CONSOLIDATED STATEMENT OF CHANGES IN NET EQUITY
FOR THE YEAR ENDED 30 JUNE 2009
| | Share | Share | Retained | Currency | Equity | Total |
| | capital | premium | earnings | reserve | reserve | |
| | £ | £ | £ | £ | £ | £ |
| Group | | | | | | |
| At 1 July 2007 | 155,524 | 9,698,748 | (5,434,548) | (234,275) | 649,053 | 4,834,502 |
| Net loss for the year | - | - | (4,846,628) | - | - | (4,846,628) |
| Foreign currency | - | - | - | (7,375) | - | (7,375) |
| Issue of shares | 241,815 | 5,024,617 | - | - | - | 5,266,432 |
| Share based payment | - | - | - | - | 55,820 | 55,820 |
| Balance at 30 June 2008 | 397,339 | 14,723,365 | (10,281,176) | (241,650) | 704,873 | 5,302,751 |
| | | | | | | |
| | Share | Share | Retained | Currency | Equity | Total |
| | capital | premium | earnings | reserve | reserve | |
| | £ | £ | £ | £ | £ | £ |
| Group | | | | | | |
| At 1 July 2008 | 397,339 | 14,723,365 | (10,281,176) | (241,650) | 704,873 | 5,302,751 |
| Net loss for the year | - | - | (3,048,360) | - | - | (3,048,360) |
| Foreign currency Share based payment- issue of shares | - 1,033 | - - | - - | 673,314 - | - 48,967 | 673,314 50,000 |
| Share based payment- issue of options | - | - | - | - | 53,539 | 53,539 |
| Excess of share based payment over par value of issued shares | - | - | 48,967 | - | (48,967) | - |
| Balance at 30 June 2009 | 398,372 | 14,723,365 | (13,280,569) | 431,664 | 758,412 | 3,031,244 |
CONSOLIDATED BALANCE SHEETAS AT 30 JUNE 2009
| | | | |
| | Notes | 2009 | 2008 |
| | | £ | £ |
| ASSETS | | | |
| Fixed assets | | | |
| Intangible fixed assets | 13 | 2,202,814 | 2,134,551 |
| Tangible fixed assets | 14 | 2,238,513 | 167,755 |
| | | 4,441,327 | 2,302,306 |
| | | | |
| Current assets | | | |
| Trade and other receivables | 9 | 78,761 | 1,379,722 |
| Cash and cash equivalents | 10 | 52,682 | 3,091,725 |
| | | 131,443 | 4,471,447 |
| Total assets | | 4,572,770 | 6,773,753 |
| | | | |
| LIABILITIES | | | |
| Creditors: amounts falling due within one year Short term borrowings | 11 12 | 468,710 1,072,816 | 1,471,002 - |
| Total liabilities | | 1,541,526 | 1,471,002 |
| | | | |
| Net assets | | 3,031,244 | 5,302,751 |
| | | | |
| EQUITY | | | |
| Capital and reserves | | | |
| Called up share capital | 15 | 398,372 | 397,339 |
| Share premium account | 15 | 14,723,365 | 14,723,365 |
| Retained losses | | (13,280,569) | (10,281,176) |
| Currency reserve | | 431,664 | (241,650) |
| Equity reserve | | 758,412 | 704,873 |
| | | | |
| Shareholders’ funds | | 3,031,244 | 5,302,751 |
The financial statements were approved by the Board on 10 November 2009
Justin Hondris
Director
CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 30 JUNE 2009
| | | | |
| | Notes | 2009 | 2008 |
| | | | £ |
| Net cash (outflow)/ inflow from operating activities | 16 | (294,693) | (68,906) |
| | | | |
| Cash flows from investing activities | | | |
| Interest received | | 117,749 | 22,419 |
| Acquisition of tangible fixed assets | | (2,223,420) | (2,655) |
| Funds used for capital expenditure | | (2,385,842) | (2,478,605) |
| Net cash outflow from investing activities | | (4,491,513) | (2,458,841) |
| | | | |
| Cash flows from financing activities | | | |
| Proceeds from issue of shares | | 1,033 | 4,349,274 |
| Issue costs Short term loan received | | - 1,072,816 | (169,859) - |
| Net cash inflow from financing activities | | 1,073,849 | 4,179,415 |
| | | | |
| Net (decrease)/increase in cash and cash equivalents | | (3,712,357) | 1,651,668 |
| | | | |
| Effect of foreign currency translation reserve | | 673,314 | (7,375) |
| | | | |
| Cash and cash equivalents at the beginning of the year | | 3,091,725 | 1,447,432 |
| | | | |
| Cash and cash equivalents at the end of the period | 10 | 52,682 | 3,091,725 |
| | | | |
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2009
1. Accounting policies
A summary of the principal accounting policies, all of which have been applied consistently throughout the period, is set out below.
1.1. Basis of preparation
The financial statements have been prepared using the historical cost convention. In addition, the financial statements have been prepared in accordance with the International Financial Reporting Standards ("IFRS") including IFRS 6, Exploration for and Evaluation of Mineral Resources, as adopted by the European Union ("EU") and in accordance with the provisions of the Companies Act 2006.
The Group's financial statements for the year ended 30 June 2009 were authorised for issue by the board of Directors on 10 November 2009 and the balance sheets were signed on the Board's behalf by Mr J Hondris.
The Group financial statements are presented in UK pounds sterling.
In accordance with the provisions of Section 408 of the Companies Act 2006, the Company has not presented a profit and loss account. A loss for the year ended 30 June 2009 of £592,750 (2008: loss of £602,234) has been included in the income statement.
1.2. Basis of consolidation
Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are de-consolidated from the date that control ceases. The purchase method of accounting is used to account for the acquisition of subsidiaries by the Group. The cost of an acquisition is measured as the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange, plus costs directly attributable to the acquisition. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date, irrespective of the extent of any minority interest. The excess of the cost of acquisition over the fair value of the Group's share of the identifiable net assets acquired is recorded as goodwill. Goodwill arising on acquisitions is capitalised and subject to impairment review, both annually and when there are indications that the carrying value may not be recoverable.
Inter-company transactions, balances and unrealised gains on transactions between group companies are eliminated.
All the companies over which the Company has control apply, where appropriate, the same accounting policies as the Company.
1.3. Going Concern
The Group incurred a loss of £3,048,360 for the year. Approximately £2,205,000 of this loss related to events which occurred subsequent to the year end. These related specifically to the decisions to write off the direct costs in relation to the Vision Rice University #1 well which was recommended to be plugged and abandoned in September 2009 for mechanical reasons, and the decision to relinquish the Belle Grove prospect.
The VRU#1 well was a geological success and confirmed the extension of the Brookeland field in Tyler County. The Tyler County project has the potential to be of significant value to the Group in the Directors opinion. However as the well was a non-producer it was decided to adopt a conservative accounting treatment and write-off all direct drilling costs relating to the well.
In the final days of the year ended 30 June 2009 the Jumonville #2 well came onstream. When coupled with the revenues from the Jumonville #1 well the Directors believe these revenues are sufficient to cover the Group's ongoing operating costs, excluding drilling. Further, the Directors believe the Tyler County Joint Venture to be of material value to the Group and have confidence that this could be sold, or farmed down if required.
The Group is currently working towards raising sufficient capital to fund the continued drilling operations of the Group as participation in the next two wells in the Tyler County programme is required in order to maintain its interest in that joint venture. Following the geological success of the Vision Rice University #1 well the Directors are confident that they should be successful in raising such funds.
The Group has received confirmation from the CEO, Jay Cheatham that he would be prepared to extend the period of his loan to the Company should circumstances demand. Further the Directors' salaries will continue to be accrued if required.
Accordingly, the Directors believe the inherent value in the Group's projects, coupled with the revenues from the Bullseye project are sufficient to ensure the going concern of the Group, and have prepared the financial statements on a going concern basis.
1.4. Revenue
Oil and Gas revenue represents amounts invoiced (exclusive of sales related taxes) for the Group's share of oil and gas sales in the year.
Interest revenue is recognised on a proportional basis taking into account the interest rates applicable to the financial assets.
1.5. Foreign currency translation
(i) Functional and presentational currency
The financial statements are presented in Pounds Sterling ("£"), which is the functional currency of the Company and is the Group's presentation currency.
Items included in the Company's subsidiary entities are measured using United States Dollars ("US$"), which is the currency of the primary economic environment in which they operate.
(ii) Transactions and balances
Transactions in foreign currencies are translated into Sterling at the rate of exchange ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are translated at the rate of exchange ruling at the balance sheet date. The resulting exchange gain or loss is dealt with in the income statement.
The assets, liabilities and the results of the foreign subsidiary undertakings are translated into Sterling at the rates of exchange ruling at the year end. Exchange differences resulting from the retranslation of net investments in subsidiary undertakings are treated as movements on reserves.
1.6. Cash and cash equivalents
The Company considers all highly liquid investments, with a maturity of 90 days or less to be cash equivalents, carried at the lower of cost or market value.
1.7. Deferred taxation
Deferred tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements. Deferred tax is determined using tax rates (and laws) that have been enacted or substantially enacted by the balance sheet date and expected to apply when the related deferred tax is realised or the deferred liability is settled.
Deferred tax assets are recognised to the extent that it is probable that the future taxable profit will be available against which the temporary differences can be utilized.
1.8. Exploration and development costs
All costs associated with oil, gas and mineral exploration and investments are capitalised on a project by project basis, pending determination of the feasibility of the project. Costs incurred include appropriate technical and administrative expenses but not general corporate overheads. If an exploration project is successful, the related expenditures will be transferred to Developed Oil and Gas Properties and amortised over the estimated life of the commercial reserves on a unit of production basis. Where a licence is relinquished or project abandoned, the related costs are written off. Where the Group maintains an interest in a project, but the value of the project is considered to be impaired, a provision against the relevant capitalised costs will be raised.
The recoverability of all exploration and development costs is dependent upon the discovery of economically recoverable reserves, the ability of the Group to obtain necessary financing to complete the development of the reserves and future profitable production or proceeds from the disposition thereof.
Amounts recorded for these assets represent costs and are not intended to reflect present or future values.
1.9. Impairment of exploration and development costs and depreciation of fixed assets
The carrying value of unevaluated areas is assessed on at least an annual basis or when there has been an indication that impairment in value may have occurred. The impairment of unevaluated prospects is assessed based on the Directors' intention with regard to future exploration and development of individual significant areas and the ability to obtain funds to finance such exploration and development.
Developed Oil and Gas Properties are amortised over the estimated life of the commercial reserves on a unit of production basis.
The cost of other fixed assets is written off by equal annual instalments over their expected useful lives, as follows:
Office equipment - two years.
1.10. Financial instruments
IFRS7 requires information to be disclosed about the impact of financial instruments on the Group's risk profile, how the risks arising from financial instruments might affect the entity's performance, and how these risks are being managed.
The Group's policies include that no trading in derivative financial instruments shall be undertaken.
These disclosures have been made in Note 20 to the accounts.
1.11. Share based payments
On occasion the Company made share-based payments to certain Directors and advisers by way of issue of share options. The fair value of these payments is calculated by the Company using the Black-Scholes option pricing model. The expense is recognised on a straight line basis over the period from the date of award to the date of vesting, based on the Company's best estimate of the number of shares that will eventually vest.
1.12. Capital management
The Group's objective when managing capital is to ensure that adequate funding and resources are obtained to enable it to develop its projects through to profitable production, while in the meantime safeguarding the Group's ability to continue as a going concern. This is aimed at enabling it, once the projects come to fruition, to provide appropriate returns for shareholders and benefits for other stakeholders. Capital will continue to be sourced from equity and from borrowings as appropriate.
1.13. Critical accounting estimates and judgements
The preparation of financial statements in conformity with International Financial Reporting Standards requires the use of accounting estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reporting period. Although these estimates are based on management's best knowledge of current events and actions, actual results ultimately may differ from those estimates. IFRS also require management to exercise its judgement in the process of applying the Group's accounting policies.
The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the financial statements are as follows:
Impairment of intangible assets
Determining whether an intangible asset is impaired requires an estimation of whether there are any indications that its carrying value is not recoverable.
At each reporting date, the Company reviews the carrying value of its tangible and intangible assets to determine whether there is any indication that those assets have been impaired. If such an indication exists, the recoverable amount of the asset, being the higher of the asset's fair value less costs to sell and value in use, is compared to the asset's carrying value. Any excess of the asset's carrying value over its recoverable amount is expensed to the income statement.
Developed Oil & Gas Properties
Developed Oil & Gas Properties are amortised over the life of the area according to the estimated rate of depletion of the economically recoverable reserves. If the amount of economically recoverable reserves varies, this will impact on the amount of the asset which should be carried on the balance sheet.
Share based payments
The Group records charges for share based payments.
For option based share based payments to determine the value of the options management estimate certain factors used in the option pricing model, including volatility, vesting date, exercise date of options and the number of options likely to vest.
At each reporting date during the vesting period management estimate the number of shares that will vest after considering the vesting criteria.
If these estimates vary from actual occurrence, this will impact on the value of the equity carried in the reserves.
1.14. New standards and interpretations not applied
During the year, the IASB and IFRIC have issued a number of new standards, amendments and interpretations with an effective date after the date of these financial statements. Of these, only the following are expected to be relevant to the Group:
The Directors do not anticipate that the adoption of these standards and interpretations will have a material impact on the Group's financial statements in the period of initial application.
2. Loss per share
The basic loss per share of 7.07p (2008: 26.01p) for the Group is calculated by dividing the loss for the year by the weighted average number of ordinary shares in issue of 39,826,654 (2008: 18,635,255).
3. Segmental information
The primary segmental reporting is determined to be geographical segment according to the location of the assets. The Directors do not believe that there is a secondary segment that could be reported.
All turnover relates to income from the Group's oil and gas assets and is derived from the United States.
The loss for the year is analysed by geographical area as follows:
| Geographical segment (Group) | United Kingdom | United States | Total |
| | £ | £ | £ |
| Turnover | - | 515,639 | 515,639 |
| Cost of sales | - | (459,771) | (459,771) |
| Interest received | 110,147 | 7,602 | 117,749 |
| Impairment of investment | - | (2,317,579) | (2,317,579) |
| Share-based payments | (102,506) | - | (102,506) |
| Administration expenses | (600,391) | (201,501) | (801,892) |
| Loss before taxation | (592,750) | (2,455,610) | (3,048,360) |
| Geographical segment (Group) | United Kingdom | United States | Total |
| | £ | £ | £ |
| Developed oil & gas properties | - | 2,236,150 | 2,236,150 |
| Exploration and development costs | - | 2,202,814 | 2,202,814 |
| Fixed assets | 2,362 | - | 2,362 |
| Trade and other receivables | 63,858 | 14,903 | 78,761 |
| Cash and cash equivalents | 38,643 | 14,039 | 52,682 |
| Trade and other payables | (261,982) | (206,728) | (468,710) |
| Loans payable | (1,072,815) | - | (1,072,815) |
| Net assets | (1,229,934) | 4,261,178 | 3,031,244 |
| | 2009 | 2008 |
| This is stated after charging: | £ | £ |
| Auditors' remuneration | | |
| - group and parent company audit services | 15,000 | 15,000 |
| Auditors’ remuneration for non audit services | | |
| - taxation services | 2,784 | 3,610 |
| | 17,784 | 18,610 |
| 5. Directors’ emoluments | | | |
| | 2009 | 2008 | |
| | £ | £ | |
| | | | |
| Wages and salaries | 443,199 | 254,441 | |
| Social security costs | 43,457 | 26,627 | |
| | 486,656 | 281,068 | |
| | | ||
| 6. Finance revenue | | |
| | 2009 | 2008 |
| | £ | £ |
| | | |
| Bank interest | 117,749 | 22,419 |
| | | |
| 7. Taxation | | |
| | 2009 | 2008 |
| | £ | £ |
| | | |
| | | |
| Factors affecting the tax charge for the period | | |
| Loss on ordinary activities before taxation | (3,048,360) | (4,846,628) |
| | | |
| Loss on ordinary activities before taxation | | |
| multiplied by standard rate of corporation | | |
| tax of 28.0% (2008 29.5%) | (853,541) | (1,429,726) |
| | | |
| Effects of: | | |
| Non deductible expenses | 21,467 | 16,951 |
| Timing differences not recognised | 26,063 | - |
| Losses in the period not used | 806,011 | 1,412,775 |
| | | |
| Total tax charge | - | - |
Factors that may affect future tax charges
At the balance sheet date the Group has unused losses carried forward of approximately £12,100,000 (2008: £7,900,000) for offset against future suitable profits. Most of the losses were sustained in the USA.
The Directors do not consider it appropriate to recognise a deferred tax asset in respect of such losses or in respect of accelerated tax depreciation allowances, due to the uncertainty of future profit streams. The contingent deferred tax assets are estimated to be £4.2m (2008:£2.7m) in respect of losses carried forward and £38,000 (2008: £4,000) in respect of accelerated depreciation allowances.
8. Subsidiary entities
The Company currently has the following wholly owned subsidiaries all of which were incorporated on 3 February 2006:
| Country of | Percentage | ||
| Name | Incorporation | ownership | Activity |
| Hadrian Oil & Gas LLC | United States | 100% | Holding company |
| Agrippa LLC | United States | 100% | Holding company |
| Pantheon Oil & Gas LP | United States | 100% | Oil & gas exploration |
Pantheon Oil & Gas LP is 99% owned by Agrippa LLC as its limited partner and 1% by Hadrian Oil & Gas LLC as its general partner.
| 9. Trade and other receivables | | |
| | Group | Group |
| | 2009 | 2008 |
| | £ | £ |
| | | |
| Amounts falling due within one year: | | |
| Trade receivables | 14,903 | 225,237 |
| Unpaid share capital | - | 1,087,017 |
| Prepayments and accrued income | 51,909 | 54,459 |
| Other receivables | 11,949 | 13,009 |
| | 78,761 | 1,379,722 |
| Amounts falling due after more than one year : | | |
| | | |
| Amount due from subsidiary undertakings | - | - |
| 10. Cash and cash equivalents | | |
| | Group | Group |
| | 2009 | 2008 |
| | £ | £ |
| | | |
| Cash at bank and in hand | 52,682 | 3,091,725 |
| 11. Trade and other payables | | |
| | Group | Group |
| | 2009 | 2008 |
| | £ | £ |
| | | |
| Trade creditors | 61,633 | 1,269,680 |
| Accruals | 407,077 | 201,322 |
| | 468,710 | 1,471,002 |
| 12. Short term borrowings | | |
| | Group | Group |
| | 2009 | 2008 |
| | £ | £ |
| | | |
| Amounts falling due within one year: | | |
| Bridging finance facility | 1,072,816 | - |
| As at 30 June 2009 | 1,072,816 | - |
| 13. Intangible fixed assets | |||
| Group | | | Exploration and development costs £ |
| Cost | | | |
| At 30 June 2007 | | | 8,085,269 |
| Additions | | | 3,200,948 |
| Reclassified to Tangible assets | | | - |
| At 30 June 2008 | | | 11,286,217 |
| Impairment | | | |
| At 30 June 2007 | | | 4,293,108 |
| Impairment during the period | | | 4,858,558 |
| At 30 June 2008 | | | 9,151,666 |
| | | | |
| Net book value | | | |
| At 30 June 2008 | | | 2,134,551 |
| At 30 June 2007 | | | 3,792,161 |
| | |||
| Group | | | Exploration and development costs £ |
| Cost | | | |
| At 30 June 2008 | | | 11,286,217 |
| Additions | | | 2,385,842 |
| Reclassified to Tangible assets | | | - |
| At 30 June 2009 | | | 13,672,059 |
| Impairment | | | |
| At 30 June 2008 | | | 9,151,666 |
| Impairment during the period | | | 2,317,579 |
| At 30 June 2009 | | | 11,469,245 |
| | | | |
| Net book value | | | |
| At 30 June 2009 | | | 2,202,814 |
| At 30 June 2008 | | | 2,134,551 |
| | |||
| Group | Developed Oil & Gas Properties £ | Office Equipment £ | Total £ |
| Cost | | | |
| At 30 June 2007 | 268,823 | 2,769 | 271,592 |
| Reclassified from Intangible assets | - | - | - |
| Additions | - | 2,655 | 2,655 |
| At 30 June 2008 | 268,823 | 5,424 | 274,247 |
| Depreciation | | | |
| At 30 June 2007 | 21,334 | 692 | 22,026 |
| Depreciation for the year | 83,445 | 1,021 | 84,466 |
| At 30 June 2008 | 104,779 | 1,713 | 106,492 |
| | | | |
| Net book value | | | |
| At 30 June 2008 | 164,044 | 3,711 | 167,755 |
| At 30 June 2007 | 247,489 | 2,077 | 249,566 |
| Group | Developed Oil & Gas Properties £ | Office Equipment £ | Total £ |
| Cost | | | |
| At 30 June 2008 | 268,823 | 5,424 | 274,247 |
| Reclassified from Intangible assets | - | | |
| Additions | 2,223,420 | - | 2,223,420 |
| At 30 June 2009 | 2,492,243 | 5,424 | 2,497,667 |
| Depreciation | | | |
| At 30 June 2008 | 104,779 | 1,713 | 106,492 |
| Depreciation for the year | 151,314 | 1,348 | 152,662 |
| At 30 June 2009 | 256,093 | 3,061 | 259,154 |
| | | | |
| Net book value | | | |
| At 30 June 2009 | 2,236,150 | 2,363 | 2,238,513 |
| At 30 June 2008 | 164,044 | 3,711 | 167,755 |
| 15. Called up share capital | 2009 | 2008 |
| | £ | £ |
| | | |
| | | |
| Authorised: | | |
| 1,000,000,000 ordinary shares of £0.01 each | 10,000,000 | 10,000,000 |
| | | |
| Allotted, issued and fully paid: | | |
| 39,837,130 ordinary shares of £0.01 each | 398,372 | 397,339 |
| | | Number | Issued and fully paid Capital | Share Premium Reserve |
| | | | £ | £ |
| Movement in issued Capital: | | | | |
| As at 1 July 2008 | | 39,733,781 | 397,339 | 14,723,365 |
| Issue of 103,349 shares on 6 August 2008 | | 103,349 | 1,033 | - |
| Share issue costs | | - | - | - |
| As at 30 June 2009 | | 39,837,130 | 398,372 | 14,723,365 |
| | Group | Group |
| | 2009 | 2008 |
| | £ | £ |
| | | |
| Operating loss | (3,166,109) | (4,869,047) |
| Impairment | 2,317,579 | 4,858,558 |
| Depreciation | 152,662 | 84,466 |
| Cost of issuing share options | 102,506 | 55,820 |
| Decrease/(increase) in trade and other receivables | 1,300,961 | (223,656) |
| (Decrease)/increase in trade and other payables | (1,002,292) | 24,953 |
| Net cash (outflow)/ inflow from operating activities | (294,693) | (68,906) |
17. Control
No one party is identified as controlling the Company.
18. Decommissioning expenditure
The Directors have considered the environmental issues and the need for any necessary provision for the cost of rectifying any environmental damage, as might be required under local legislation. In their view, no provision is necessary for any future costs of decommissioning or any environmental damage.
19. Capital commitments
The Group has no obligation to drill any further wells or make any further payments in respect of any new wells in any of its joint ventures. Should the Group elect to not participate in any wells beyond the first well in the Tyler County joint venture then it would forfeit its interest over the remainder of the programme.
As at 30 June 2009, the Group has no fixed financial commitments in respect of any other programmes other than maintaining its interest in its existing joint ventures. Before any new wells are commenced in relation to these joint ventures, the Company must first elect to participate in any proposed well thereby allowing the Company to decline participation if it deems appropriate.
20. Financial instruments
The Group's principal financial instruments comprise cash and cash equivalents, trade and other receivables and trade and other payables.
The main purpose of these financial instruments is to finance the Group's operations. The Group has various other financial assets and liabilities such as receivables and trade payables, which arise directly from its operations. It is, and has been throughout the entire period, the Group's policy that no trading in financial instruments shall be undertaken.
The main risk arising from the Group's financial instruments is market risk. Other minor risks are summarised below. The Board reviews and agrees policies for managing each of these risks.
Market risk
Market risk is the risk that changes in market prices, and market factors such as foreign exchange rates and interest rates will affect the entity's income or the value of its holdings of financial instruments.
The objective of market risk management is to manage and control market risk exposures within acceptable parameters while optimising the return.
The Company does not use derivative products to hedge foreign exchange risk and has exposure to foreign exchange rates prevailing at the dates when funds are transferred into different currencies.
Cash flow interest rate risk
The Group's exposure to the risks of changes in market interest rates relates primarily to the Group's cash and cash equivalents with a floating interest rate. These financial assets with variable rates expose the Group to cash flow interest rate risk. All other financial assets and liabilities in the form of receivables and payables are non-interest bearing. The Group does not engage in any hedging or derivative transactions to manage interest rate risk.
In regard to its interest rate risk, the Group continuously analyses its exposure. Within this analysis consideration is given to potential renewals of existing positions, alternative investments and the mix of fixed and variable interest rates. The Group has no policy as to maximum or minimum level of fixed or floating instruments.
Interest rate risk is measured as the value of assets and liabilities at fixed rate compared to those at variable rate.
| Weighted Average Interest Rate 2009 | Fixed Interest Rate 2009 | Non - Interest Bearing 2009 | |
| Financial assets: | % | £ | £ |
| Cash on Deposit | 0.05 | 38,643 | - |
| Trade and other Receivables | - | - | 63,859 |
| Financial liabilities | |||
| Bridging Loans | 24 | 1,072,816 | - |
Net Fair Value
The net fair value of financial assets and financial liabilities approximates to their carrying amount as disclosed in the balance sheet and in the related notes.
Currency Risk
The functional currency for the Group's operating activities is the Pound Sterling and for exploration activities the United States of America dollar. The Group has not hedged against currency depreciation but continues to keep the matter under review.
Financial risk management
The Directors recognise that this is an area in which they may need to develop specific policies should the Group become exposed to wider financial risks as the business develops.
Liquidity risk
Liquidity risk is the risk that the entity will not be able to meet its financial obligations as they fall due.
The objective of managing liquidity risk is to ensure as far as possible, that it will always have sufficient liquidity to meet its liabilities when they fall due, under both normal and stressed conditions.
The entity has established a number of policies and processes for managing liquidity risk. These include:
- Continuously monitoring actual and budgeted cash flows and longer term forecasting cash flows;
- Monitoring the maturity profiles of financial assets and liabilities in order to match inflows and outflows; and
- Monitoring liquidity ratios (working capital).
Credit Risk Management
Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Group. The Group's main counterparties are the operators of the respective projects. Funds are normally only remitted on a prepayment basis a short period before the commencement of drilling. The Group has adopted a policy of only dealing with what it believes to be creditworthy counterparties and would consider obtaining sufficient collateral where appropriate, as a means of mitigating the risk of financial loss from defaults. The Group's exposure and the credit ratings of its counterparties are continuously monitored and the aggregate value of transactions concluded is spread amongst approved counterparties.
Trade receivables at 30 June 2009 consist primarily of revenues owed for production. Ongoing credit evaluation is performed on the financial condition of accounts receivable.
21. Share based payments
Included within administration expenses is a charge for issuing shares and share options.
| | | |
| | Group | Group |
| | 2009 | 2008 |
| | £ | £ |
| | | |
| Cost of issuing share options Cost of issuing shares | 53,539 48,967 | 55,820 - |
| | 102,506 | 55,820 |
| Movements in share options in issue | | | | |
| Exercise Price | Number of Options issued as of 30 June 2008 | Issued during year | Cancelled or Exercised during year | Number of Options issued as of 30 June 2009 |
| £0.20 | - | 321,844 | - | 321,844 |
| £1.00 | 833,284 | - | - | 833,284 |
| £1.25 | 500,000 | - | - | 500,000 |
| £1.50 | 950,000 | - | - | 950,000 |
| £2.00 | 1,050,000 | - | - | 1,050,000 |
| Total | 3,333,284 | 321,844 | - | 3,655,128 |
The 3,333,284 options already issued as at 1 July 2008 have already vested. Of these, 2,033,284 options are all exercisable on or before 5 April 2011, 300,000 options are all exercisable on or before 31 August 2012 and 1,000,000 options are exercisable on or before 10 January 2013. No options were exercised, forfeited or expired during the year.
During the year 321,844 options were issued in conjunction with draw downs on the bridging loan facilities between the period 12 March 2009 and 24 June 2009. All options are exercisable at £1.00 on or before 1 December 2011
These options were valued at £14,889 with reference to the Black-Scholes option pricing model taking into account the following input assumptions:
These options were issued in conjunction with draw downs on the bridging loan facilities during the period 12 March 2009 and 24 June 2009. Because share prices can change on a daily basis the volatility assumptions will also change. The ranges for share price and volatility are presented above.
The volatility percentage is an estimation of the expected volatility in the share price for a junior exploration Company which is listed on AIM having regard to comparative companies, quantum of cash raised, targeted (institutional) investment group and risk profile.
22. Post balance sheet events
In September 2009, it was announced that the Vision Rice University #1 well on the Tyler County, East Texas prospect was to be plugged and abandoned for mechanical reasons, principally because of equipment stuck in the well. All direct costs relating to the well have been charged to the income statement as an impairment.
The board has elected to write off all costs relating to the Belle Grove joint venture as the board considered it a better use of shareholders funds to commit future capital to the Tyler County and Bullseye projects. The Belle Grove prospect was expected to occur material drilling commitments in the medium term had the Group maintained its interest in the joint venture.
In August 2009 the Company placed with investors 4,554,600 new ordinary shares in the Company at an issue price of £0.12 per share to raise £0.507m after costs.
23. Related party transactions
The Company's related party transactions, comprising loans extended to the Company by Mr J. Cheatham, are disclosed in the Directors' Report.