Sound Energy Regulatory News (SOU)

4 Jun 2007 07:01

Sound Oil PLC04 June 2007 Sound Oil Plc ("the Company") Preliminary results for the period ended 31 December 2006 The Board of Sound Oil Plc announces its preliminary results for the year ended31 December 2006. Highlights • Successful acquisition of first business: - Gasfield onshore Indonesia - 83.5 bcfg of gas resources - Two exploration licences • Exploration well spudded May 2007 • Three exploration wells planned for 2007 • Plan of development approved for gasfield • Raised £11 million working capital from institutional investors • Significant talent joins Board and senior management • New offices in UK and Indonesia Gerry Orbell, Chairman of the Company, commented: I am delighted with our progress. During the coming year we expect to consolidate our position in Indonesia and focus on adding value to our portfolio, both through starting development at Kerendan and by acquisitions. We are also looking forward to exploration success at our current operation at Pasundan-1 and subsequently Kujang-1" ContactsGerry Orbell, Sound Oil PlcTel +44 (0) 7903 861145 Azhic Basirov/David Jones - Smith & Williamson Corporate Finance LimitedTel: +44 (0) 207 131 4000 Tim Thompson/Nick Melson - Buchanan CommunicationsTel +44 (0) 207 466 5000 Chairman's Statement Sound Oil plc has made solid progress in the last year. In mid 2006 we acquiredMitra Energia of Indonesia in an all-share deal and raised funds of £10.7million net of costs. We returned to the market in mid July following thesuspension brought about by this acquisition, with total cash reserves of £21million. The Company now has two large and prospective assets in Indonesia - the CitarumContract area in Java where we hold a 20% position and the Bangkanai Contract inCentral Kalimantan with equity of 34.99%. We anticipated that these licenseswould fit with our strategy of adding significant value in the event of an earlydiscovery or an early revenue return, and preferably both. In Citarum, the Great Wall drilling rig has now commenced drilling the PasundanNo 1 well. There had been a delay in drilling of several months brought about byunusually severe flooding and consequent damage to the wellsite; and a moreextensive refit of the rig than had been expected. The Kujang well nearby isexpected to follow Pasundan directly. Further detailed geophysical work hasconfirmed that these two prospects are at least as big as we first thought -this is not always the case! We shall also be acquiring a series of 2D seismicprograms across the more prospective parts of the Citarum license during thecourse of 2007 to firm up more drilling opportunities. At Bangkanai, we are progressing with exploration drilling and the developmentof the proven Kerendan gas field in the centre of this large license. We arecurrently concentrating our exploration efforts in and around the Kerendan gasfield which is an area of lower exploration risk. Here we have identified asignificant new exploration target below the existing gas reservoir. We will bedrilling the Sungei Lahei No 1 well towards the end of the year, through boththe proven Kerendan gas level and the new exploration horizon below. Whateverthe exploration outcome at the deep level, we expect to complete this well as agas producer in the shallow reservoir, thus saving the cost of one developmentwell. Should the deep level prove the volumes of gas that we anticipate, thiswill have a significant impact on our reserves. We have experienced significant escalation in drilling costs during the year. Weare confident, however, in fulfilling the programme we set out at re-admissiontime by financial prudence and adopting cost saving strategies as at SungeiLahei. Sound finished the year as we started - with cash reserves which webelieve to be sufficient for our commitments. We had £17.4 million in the bank.Our major expenditures in 2006 were related to long lead items for the wells inthe Citarum Contract area. We have increased the technical capability of the Company over the year by theaddition of expert staff and we are now making a significant contribution to thetechnical understanding of the Contracts. I would like to thank all the stafffor their hard work during the year. During the coming year we shall consolidate our position in Indonesia andcomplete the integration of the UK and Indonesia offices. We expect to focus onadding production to our portfolio, both through development of Kerendan butalso through acquisition. This is the first opportunity I have had to welcome to the Board our newcolleagues, Jossy Rachmantio, Ilham Habibie and Patrick Alexander. I would liketo thank them and the original Sound Directors, Simon Davies, Michael Nobbs andTony Heath, for their contribution and support during the year. Gerry OrbellChairman Financial Review Economic environment The high oil prices seen in 2005 and 2006 have encouraged a major expansion inoil and gas exploration and development activity and this has led to a severeshortage of drilling equipment and a considerable increase in the cost of thesefacilities. On the other hand, the high oil price has also brought an increasein the number of opportunities becoming economic to explore and develop,although this in turn has caused a rise in the price being sought for suchopportunities. Income statement Loss after tax for 2006 was £2,170,000 compared with £193,000 in 2005. Prelicence exploration expenditure was £653,000 (2005 £151,000). Administrationcosts rose from £210,000 to £999,000 due to higher staff levels and office costsfollowing the acquisition of the Mitra group in mid 2006. Operating loss was£1,735,000 compared with £361,000. Net interest received was £641,000 (2005£234,000), due to an increase in cash balances following from a share issue atmid year. There was an unrealised foreign exchange loss of £1,142,000 on thegroup's holdings of US$ following the weakness of that currency. The US$ werebought after the Mitra acquisition in order to protect the purchasing power ofthe group's funds since most of the group's expenditure is now in US$. Althoughaccounting requirements are for this to be shown as a loss, albeit unrealised,the sterling cost of the Indonesian assets being acquired with the US dollarshas fallen pro rata, so the purchasing power remains the same. Basic loss pershare was 0.45 pence compared with 0.12 pence in 2005. Cash flow/balance sheet Net cash outflow before movements relating to financing was £5,004,000 (2005£102,000). Following the £11,554,000 raised from share issues, the group's cashbalance at year end was £17,389,000 (2005 £10,839,000). Cash balances wereinvested in short term deposits. Technical Review Licence interests The group participates in two Production Sharing Contract (PSC) areas in Javaand Kalimantan, Indonesia through its subsidiary company Mitra Energia Limited. Our working interests and partners are: - Citarum PSC (participation through shareholding Bangkanai PSC in BPREC operating company) - Bangkanai PSC Citarum PSC Activity during the last year has been focused on the preparations for drillingthe first two exploration wells on the Pasundan and Kujang prospects in thenorthern part of the licence close to the Jatirarangon gas field and the JGN-1oil discovery. Both wells will be drilled to test multiple reservoir levels inMiocene (carbonates; Baturaja Fm) and Oligocene (clastics; Talang Akar andJatibarang Fms); the Jatibarang Fm is the producing formation in nearbyJatirarangon field. The wells will target separate wrench-controlled faultcompartments along a NW-SE trend. The compartments are probably sealed from oneanother, but could be part of a connected megastructure at certain levels.Estimated P50 prospective resources4 for both structures combined are 570 bcfg(gas case P10, 910 bcfg). These two wells will form part of the work commitment on the licence. Theremaining obligations of 750 km of new 2D seismic data and two furtherexploration wells will be undertaken in 2007-2008. The Pasundan-1 well wasspudded with the Great Wall rig 93 on 9 May 2007 and the Kujang-1 wellsite iscurrently being prepared. Bangkanai PSC Independent assessment of Kerendan Field contingent recoverable resources byRML-Senergy3 are: Gross Net to Sound (34.99%)Proved (P1, bcfg) 187.0 65.4Proved + Probable (P1 +P2, bcfg) 238.5 83.5 A Plan of Development (POD) for the Kerendan gas field was granted in August2006 by BPMigas (the Indonesian government agency responsible for thesupervision and control of upstream oil and natural gas business activities).The field, first discovered in the 1980s, will be developed to supply gas to alocal, new-build integrated power plant operated by Medco Power. The POD callsfor the supply of 134 bcfg1 over 20 years at a maximum rate of 20 mmcfg/day2.The development plan will include re-entry of existing wells and up to five newdevelopment wells. Initial field development activities are anticipated tocommence in 2007. Exploration activity on the licence included the acquisition of a 205 km 2Dseismic survey as part of the PSC work commitment. Study of the new seismic dataidentified new prospect areas and deeper prospective horizons below the existingKerendan field Berai Fm reservoir. A location has been identified (SungaiLahei-1) to test this deeper play at several levels in the clastic TanjungFormation. The well will target estimated P50 prospective resources4 of morethan 400 bcfg. Planning for the well is currently being undertaken for drillingin 2007. This well is one of two obligation exploration wells on the licence,for which BPMigas has granted an extension of the first exploration period to 31December 2007. 1 bcfg = billion cubic feet of gas2 mmcfg/day = million cubic feet of gas per day3 RML-Senergy compiled the Competent Person's Report included in the AdmissionDocument of July 2006, from which these figures are taken.4 Prospective resources, consistent with SPE (the Society of PetroleumEngineers) guidelines, are quantified in terms of the statistical probability tofind a given recoverable hydrocarbon (oil or gas) volume in a prospectivestructure considering all the geological variables involved. The P50 figureindicates a 50% chance of finding a given volume and is generally considered thebest or most-likely estimate. The P10 figure indicates a 10% chance of finding agiven volume and is generally used to express the high estimate. The figuresquoted in this report have been verified by Sound Oil's Head of Exploration Dr.M. J. Cope BSc PhD FGS, a qualified petroleum geologist. Consolidated Profit and Loss Account for the year ended 31 December 2006 Note 2005 2006 £'000's £'000's------------------------------------------------------------------------------Exploration costs (151) (653)Share of loss of associate - (14)-------------------------------------------------------------------------------Gross loss (151) (667)Administrative costs (210) (999)Share-based payments 16 - (69)-------------------------------------------------------------------------------Operating loss 2 (361) (1,735)Interest receivable 5 234 641Foreign exchange gains/(losses) - (1,142)-------------------------------------------------------------------------------Loss on ordinary activities before tax (127) (2,236)Tax 6 (66) 66-------------------------------------------------------------------------------Loss after tax from continuing operations (193) (2,170)-------------------------------------------------------------------------------Loss per share (pence): basic 7 (0.12) (0.45)------------------------------------------------------------------------------- Consolidated Statement of Group Total Recognised Gains and Losses for the yearended 31 December 2006 2005 2006 £'000's £'000's-------------------------------------------------------------------------------Net loss for the year attributable to members of the (193) (2,170)CompanyForeign currency loss - (157)-------------------------------------------------------------------------------Total recognised losses (193) (2,327)------------------------------------------------------------------------------- Group Reconciliation of Movements in Shareholders' Funds for the year ended 31December 2006 2005 2006 £'000's £'000's-------------------------------------------------------------------------------Total recognised losses relating to the year (193) (2,327)New shares issued 11,115 26,123Costs associated with raising capital (174) (608)Provisions for share-based payments - 69-------------------------------------------------------------------------------Total movements during the year 10,748 23,257Shareholders' funds at 1 January - 10,748-------------------------------------------------------------------------------Shareholders' funds at 31 December 10,748 34,005------------------------------------------------------------------------------- Balance Sheets as at 31 December 2006 Note Group 2005 Group 2006 Company 2005 Company 2006 £'000's £'000's £'000's £'000's--------------------------------------------------------------------------------Fixed assetsIntangibleassets 8 - 16,105 - -Tangible assets 10 - 54 - 8Investments insubsidiariesand associatedundertakings 11 - 13 - --------------------------------------------------------------------------------Total fixed assets - 16,172 - 8-------------------------------------------------------------------------------Current assetsDebtors falling dueafter one year 12 - 583 - 17,885Debtors duewithin one year 13 24 601 24 47Cash and short-termdeposits 10,839 17,389 10,839 16,762-------------------------------------------------------------------------------Total current assets 10,863 18,573 10,863 34,694Creditors: amountsfalling due within oneyear 14 (115) (684) (115) (153)-------------------------------------------------------------------------------Net current assets 10,748 17,889 10,748 34,541-------------------------------------------------------------------------------Total assets less currentliabilities 10,748 34,061 10,748 34,549Creditors: amounts - - - -falling due after oneyearProvisions forliabilitiesand charges - (56) - --------------------------------------------------------------------------------Net assets 10,748 34,005 10,748 34,549-------------------------------------------------------------------------------Capital and reservesShare capital 16 300 692 300 692Share premium account 16 10,641 35,764 10,641 35,764Profit and loss account 16 (193) (2,363) (193) (1,976)Foreign currencytranslation 16 - (157) - -Share-based payments 16 - 69 - 69-------------------------------------------------------------------------------Total equityshareholders'funds 10,748 34,005 10,748 34,549------------------------------------------------------------------------------ Consolidated Cash Flow Statement for the year ended 31 December 2006 Note 2005 2006 £'000's £'000's-----------------------------------------------------------------------------Net cash outflow from operating activities 17 (336) (3,063)------------------------------------------------------------------------------Returns on investment and servicing of financeInterest received 234 641------------------------------------------------------------------------------ 234 641------------------------------------------------------------------------------Capital expenditure and financial investmentCapital expenditure - (1,483)Cash acquired through acquisition - 27Acquisition costs - (692)Loan to associate - (434)------------------------------------------------------------------------------- - (2,582)-------------------------------------------------------------------------------Cash outflow before management of liquid resources andfinancing (102) (5,004)-------------------------------------------------------------------------------FinancingIssue of Ordinary Shares 11,115 12,162Costs associated with raising capital (174) (608)-------------------------------------------------------------------------------Net cash from financing 10,941 11,554-------------------------------------------------------------------------------Increase in cash 10,839 6,550------------------------------------------------------------------------------- Notes to the Accounts 1 Accounting policies These financial statements are presented in UK£. Accounting convention The accounts are prepared under the historical cost convention and UK GAAP andin accordance with the Oil Industry Accounting Committee Statement ofRecommended Practice - 'Accounting for Oil and Gas Exploration, Development,Production and Decommissioning Activities' and applicable accounting standards. Consolidation The group accounts consolidate the accounts of Sound Oil plc (the Company) andall its subsidiary undertakings drawn up to 31 December. No profit and lossaccount is presented for the Company as provided by Section 230 of the CompaniesAct 1985. Mitra Energia Limited has been included in the group financialstatements using the acquisition method of accounting. Accordingly, the groupprofit and loss account and statement of cash flows include the results and cashflows of Mitra Energia Limited for the five and a half month period from itsacquisition on 12 July 2006. The purchase consideration has been allocated tothe assets and liabilities on the basis of fair value at the date ofacquisition. Entities in which the group holds an interest on a long-term basis and arejointly controlled by the group and one or more other ventures under acontractual arrangement are treated as joint arrangements. In the group accountsSound Oil's proportion of operating profit or loss, exceptional items, interest,taxation, gross assets and gross liabilities of the joint arrangements areincluded. Entities, other than subsidiary undertakings or joint arrangements, in which thegroup has a participating interest and over whose operating and financialpolicies the group exercises a significant influence are treated as associates.In the group financial statements, associates are accounted for using the equitymethod. Adoption of new accounting standard FRS20, share-based payments With effect from 1 January 2006, the group has adopted FRS20 share-basedpayments. The adoption of this standard has not resulted in the re-statement ofretained earnings and has had immaterial impact on the results or net assets forthe prior year. Fixed assets Oil and Gas assets The group applies the successful efforts method of accounting for explorationand evaluation (E&E) costs. (a) Intangible assets Under the successful efforts method of accounting, all licence acquisition,exploration and appraisal costs are initially capitalised in well, field orspecific exploration cost centres as appropriate, pending determination.Expenditure incurred during the various exploration and appraisal phases is thenwritten off unless commercial reserves have been established or thedetermination process has not been completed. Exploration and evaluation costs: Costs are initially capitalised as intangibleassets. Payments to acquire the legal right to explore, costs of technicalservices and studies, seismic acquisition, exploratory drilling and testing arecapitalised as intangible assets. Treatment of E&E assets at conclusion of appraisal activities: Intangible E&Eassets relating to each exploration licence/prospect are carried forward, untilthe existence (or otherwise) of commercial reserves has been determined subjectto certain limitations including review for indications of impairment. Ifcommercial reserves have been discovered, and development has been approved, thecarrying value, after any impairment loss, of the relevant E&E assets is thenreclassified as development and production assets. If, however, commercialreserves have not been found, the capitalised costs are charged to expense afterconclusion of appraisal activities. Development and production assets Development and production assets are accumulated generally on a field-by-fieldbasis and represent the cost of developing the commercial reserves discoveredand bringing them into production, together with the E&E expenditures incurredin finding commercial reserves transferred from intangible E&E assets asoutlined in accounting policy (a) above. The cost of development and production assets also includes the cost ofacquisitions and purchases of such assets, directly attributable overheads,finance costs capitalised, and the cost of recognising provisions for futurerestoration and decommissioning. (b) Impairment of development and production assets An impairment test is performed whenever events and circumstances arising duringthe development or production phase indicate that the carrying value of adevelopment or production asset may exceed its recoverable amount. The carrying value is compared against the expected recoverable amount of theasset, generally by reference to the present value of the future net cash flowsexpected to be derived from production of commercial reserves. The cashgenerating unit applied for impairment test purposes is generally the field,except that a number of field interests may be grouped as a single incomegenerating unit where the cash flows of each field are inter-dependent. Acquisitions, asset purchases and disposals Acquisitions of oil and gas properties are accounted for under the purchasemethod where the transaction meets the definition of a business combination. Transactions involving the purchases of an individual field interest, or a groupof field interests, that do not qualify as a business combination are treated asasset purchases, irrespective of whether the specific transactions involve thetransfer of the field interests directly, or the transfer of an incorporatedentity. Accordingly, no goodwill arises, and the consideration is allocated tothe assets and liabilities purchased on an appropriate basis. Tangible fixed assets and depreciation Tangible fixed assets are stated at cost or valuation less depreciation.Depreciation is provided at rates calculated to write off the cost or valuation,less the estimated residual value of each asset, over its expected useful life,as follows: Equipment and fixtures 25% straight line basis Translation of foreign currencies In the accounts of individual companies, transactions denominated in foreigncurrencies are recorded in the local currency at actual exchange rates as of thedate of the transaction. Monetary assets and liabilities denominated in foreigncurrencies at the period end are reported at the rates of exchange prevailing atthe period end. Any gain or loss arising from a change in exchange ratesubsequent to the date of the transaction is included as an exchange gain orloss in the profit and loss account. For the purposes of consolidation, the closing rate method is used under whichtranslation gains and losses on the opening net assets of overseas undertakingsare shown as a movement in reserves. All other translation differences are takento the profit and loss account. Profit and loss accounts of overseasundertakings are translated at the average exchange rate for the period. Cash and liquid resources Cash, for the purposes of the cash flow statement, comprises cash in hand anddeposits repayable on demand, less overdrafts payable on demand. Liquid resources comprise funds held in term deposit accounts. Share-based payments The grup issues equity-settled share-based payments to certain employees.Equity-settled share-based payments are measured at fair value at the date ofgrant. The fair value determined at the grant date of the equity-settledshare-based payments is expensed on a straight-line basis over the vestingperiod, based on the group's estimate of shares that will eventually vest. Fair value is measured by use of a binomial model. The expected life used in themodel has been adjusted, based on management's best estimate, for the effects ofnon-transferability, exercise restrictions, and behavioural considerations. Provisions Provisions are recognised when the group has a present obligation as a result ofa past event and it is probable that the group would be required to settle thatobligation. Provisions are measured at the management's best estimate of theexpenditure required to settle the obligation at the balance sheet date, and arediscounted to present value where the effect is material. Interest income Interest income is accrued on a time basis, by reference to the principaloutstanding and at the effective interest rate applicable. Post-Retirement Benefits Provision is made for post-retirement benefits under Indonesian law. Production Sharing Contracts The group has interests in various Production Sharing Contracts (PSC) the termsof which provide for the Company and its joint-venture participants to recoverall costs out of the proceeds of production. Where these are insufficient in anyone year to recover costs fully, they are carried forward. Production remainingafter cost recovery is divided between joint-venture participants and theIndonesian governing authority according to pre-agreed formulae. Whilst underthe form of a PSC, the title of all property, equipment and inventories passesto the Indonesian governing authority, so the substance of each contract is thatthe participants have use of all assets and market all oil produced. 2 Operating loss and segmental analysis The loss is stated after charging: Note 2005 2006 £'000's £'000's-------------------------------------------------------------------------------Depreciation - 3Auditors remuneration 3 29 100Staff costs 4 142 931-------------------------------------------------------------------------------The loss comprises: 2005 2006 £'000 £'000-------------------------------------------------------------------------------Operations (UK) 361 1,277Acquisition (South Asia) - 444Investment in associate (South Asia) - 14-------------------------------------------------------------------------------Total - continued operations 361 1,735-------------------------------------------------------------------------------Net assets comprise: 2005 2006 £'000 £'000-------------------------------------------------------------------------------UK 10,748 16,664South Asia - 17,341-------------------------------------------------------------------------------Total 10,748 34,005------------------------------------------------------------------------------- 3 Auditors' remuneration 2005 2006 £'000's £'000's------------------------------------------------------------------------------Audit of the financial statements 11 90Other fees to auditors - 10Fees in relation to corporate finance services 18 --------------------------------------------------------------------------------Charged to profit and loss 29 100Non-audit services - taken to equity - 174-------------------------------------------------------------------------------Total 29 274------------------------------------------------------------------------------- The non-audit services in 2005 were for reporting on the Admission Document on29 June 2005 and in 2006 for reporting on the Admission Document on 24 June2006. Audit services relate entirely to the current auditors, Ernst & Young LLP. Nonaudit services relate to the Company's previous auditors Chapman Davis LLP in2005 and to the Company's current auditors Ernst &Young LLP in 2006. 4 Employee costs 2005 2006 £'000's £'000's-------------------------------------------------------------------------------Staff costs, including executive directors-------------------------------------------------------------------------------Share-based payments - 69Wages and salaries 126 786Social security costs 16 76-------------------------------------------------------------------------------Total 142 931------------------------------------------------------------------------------- The expense of share-based payments all arose from transactions accounted for asequity-settled share-based payment transactions. Average number of employees (including executivedirectors) during the yearTechnical and operations 1 9Management and administration 1 8-------------------------------------------------------------------------------Total 2 17------------------------------------------------------------------------------- 5 Interest Receivable 2005 2006 £'000's £'000's-------------------------------------------------------------------------------Short-term deposits 234 641-------------------------------------------------------------------------------Total 234 641------------------------------------------------------------------------------- 6 Tax on profit on ordinary activities Analysis of tax charge 2005 2006 £'000's £'000's-------------------------------------------------------------------------------Loss on ordinary activities before tax (127) (2,236)-------------------------------------------------------------------------------Loss on ordinary activities at Standard Rate of UKcorporation Tax (30%) 38 671Non-deductible expenditure at Standard Rate (108) (7)Small companies relief 4 --------------------------------------------------------------------------------Tax loss not recognised for deferred tax purposes - 664Adjustment for prior year - 66-------------------------------------------------------------------------------Total tax - Current (66) --------------------------------------------------------------------------------Total tax (66) 66------------------------------------------------------------------------------- Tax on management expenses carried forward of £700,000 (2006: £664,000, 2005:£36,000) may be available for offset against tax on future taxable income in theUK. The most significant event to affect the tax charge in the future will be thecommencement of production activity. 7 Loss per share The calculation of basic loss per Ordinary Share is based on the loss after taxand on the weighted average number of Ordinary Shares in issue during theperiod. Basic loss per share is calculated as follows: Weighted average Earnings Loss after tax number of shares per share------------------------------------------------------------------------------- 2005 2006 2005 2006 2005 2006 £'000's £'000's million million pence pence-------------------------------------------------------------------------------Basic (193) (2,170) 165 486 (0.12) (0.45)-------------------------------------------------------------------------------Diluted loss per share has not been disclosed as inclusion of unexercisedoptions would be anti-dilutive in 2006. 8 Intangible fixed assets Oil and gas properties------------------------------------------------------------------------------- South Asia Total £'000 £'000 2006 2006-------------------------------------------------------------------------------GroupCostAt 1 January 2006 - -Acquisition of subsidiary undertaking, MitraEnergia Limited 14,791 14,791Additions during the year 1,314 1,314-------------------------------------------------------------------------------At 31 December 2006 16,105 16,105-------------------------------------------------------------------------------The Company has no intangible fixed assets. 9 Acquisition On 12 July 2006, the group acquired the enitre issued share capital of MitraEnergia Limited, an unquoted gas exploration and development company withinterests in Indonesia for a consideration of £13,961,039 satisfied by the issueof 223,376,633 ordinary shares of 0.1p at 6.25p each. The investment in MitraEnergia Limited has been included in the group's balance sheet at its fair valueat the date of acquisition at the market price of the shares at the date of thetransaction. Analysis of the acquisition of Mitra Energia Limited:Net assets at date of Book value Book Value Adjustments Fair Valueacquisition: Indonesian GAAP UK GAAP Revaluation to company £000 £000 £000 £000-------------------------------------------------------------------------------Intangible Assets - 957 13,834 14,791Tangible fixed assets 11 43 43Investments 1,167 - -Investment in associate undertaking - 27 27 Debtors due within one year 176 194 194Debtors due after morethan one year 1 33 33Loan to employee 66 66 66Cash 22 27 27Creditors due within one year (305) (447) (447)Provision forliabilities and charges (39) (81) (81)-------------------------------------------------------------------------------Net Assets 1,099 819 13,834 14,653-------------------------------------------------------------------------------Discharged by:Fair value of shares issued 13,961Costs associated with the acquisition 692------------------------------------------------------------------------------- 14,653------------------------------------------------------------------------------- Adjustments*increase in value since expenditure was incurred Prior to acquisition, the loss after tax of Mitra Energia Limited for 2005 wasUS$785,000. For 2006 until date of acquisition there was a profit of US$492,000. 10 Tangible fixed assets Furniture, fittings and office equipment------------------------------------------------------------------------------- Company Group------------------------------------------------------------------------------- £'000 £'000-------------------------------------------------------------------------------GroupCostAt 1 January 2006 - -Additions during the year 9 14Acquisition of subsidiaryundertaking - 43-------------------------------------------------------------------------------At 31 December 2006 9 57-------------------------------------------------------------------------------Amortisation and depreciationAt 1 January 2006 - -Charge for the year (1) (3)-------------------------------------------------------------------------------At 31 December 2006 (1) (3)-------------------------------------------------------------------------------Net book value at 31 December 2006 8 54-------------------------------------------------------------------------------Net book value at 31 December 2005 - -------------------------------------------------------------------------------- 11 Investments Associated Subsidiary undertakings undertakings Total £ million £ million £ million-------------------------------------------------------------------------------GroupCost and net book valueAt 1 January 2006 - - -Acquisitions 27 - 27Share of loss (14) - (14)-------------------------------------------------------------------------------At 31 December 2006 13 - 13------------------------------------------------------------------------------- The Company had no investments in 2005 or 2006 other than in Sound OilInternational Limited, an intermediate holding company. The subsidiary undertakings of the Company, all of which are 100 per cent owned,are as follows: Country of Business and incorporationName of Company area of operation or registration-------------------------------------------------------------------------------Sound Oil International Intermediate holding company, UK British VirginLimited Islands-------------------------------------------------------------------------------Mitra Energia Limited Intermediate holding company, Mauritius Indonesia -------------------------------------------------------------------------------Mitra Energia Bangkanai Exploration and development, MauritiusLimited Indonesia -------------------------------------------------------------------------------Mitra Energia Citarum Exploration, Indonesia MauritiusLimited ------------------------------------------------------------------------------- Investment in associated company comprises: Business and Country of area of Shares incorporation Name of Company operation Classification held % or registration------------------------------------------------------------------------------PT. Bumi Parahyangan Exploration,Ranhill Energia Citarum Indonesia Associate 20 Indonesia------------------------------------------------------------------------------ The group accounts for its 20 per cent share in PT. Bumi Parahyangan RanhillEnergia Citarum (BPREC) as interest in associate under FRS 9 - 'Associates andJoint Ventures'. The remaining interest in BPREC is owned by Ranhill Energy SDNBHD (60 per cent) and Bumi Parahyangan Energi (20 percent). 12 Debtors: amounts due in more than one year Group Group Company Company 2005 2006 2005 2006 £'000's £'000's £'000's £'000's-------------------------------------------------------------------------------Amounts owed by subsidiaryundertakings - - - 17,885Loan due from BPREC* - 515 - -Other debtors - 68 - --------------------------------------------------------------------------------Total - 583 - 17,885-------------------------------------------------------------------------------*For advances made to associated undertaking 13 Debtors: amounts due within one year Group Group Company Company 2005 2006 2005 2006 £'000's £'000's £'000's £'000's-------------------------------------------------------------------------------Amounts owned by fellow licenceparticipants - 344 - -Prepayments 24 55 24 43VAT receivables - 151 - 4Sundry debtors - 51 - --------------------------------------------------------------------------------Total 24 601 24 47------------------------------------------------------------------------------- 14 Creditors: amounts falling due within one year Group Group Company Company 2005 2006 2005 2006 £'000's £'000's £'000's £'000's-------------------------------------------------------------------------------Trade Creditors 11 8 11 8Taxes payable 66 35 66 -Employee benefits* - 104 - -Accruals 38 270 38 124Other Creditors - 267 - 21-------------------------------------------------------------------------------Total 115 684 115 153-------------------------------------------------------------------------------* Based on internal estimates to cover the requirements of Indonesian Labour Law13, 2003 15 Share capital Ordinary shares 0.1p shares 2005 0.1p shares 2006 £ £-------------------------------------------------------------------------------Authorised 3,000,000,000 3,000,000 3,000,000,000 3,000,000-------------------------------------------------------------------------------Called up, issued andfully paid 300,272,309 300,272 692,427,348 692,427------------------------------------------------------------------------------- On 12 July 2006, following approval at an Extraordinary General Meeting ofshareholders on that date, the Company acquired the entire issued share capitalof Mitra Energia Limited, an unquoted gas exploration and development companywith interests in Indonesia comprising a 34% interest in the Bangkanai Blockonshore central Kalimantan and a 20% interest in the Citarum Block onshorecentral Java. On the same date the Company raised approximately £10.7 million net of expensesthrough the placing of 161,500,000 new ordinary shares at 7.25p per share. The consideration for the acquisition of Mitra was the issue of 223,376,623ordinary shares credited as fully paid. In connection with the acquisition and share placing, the executive directors ofthe Company were awarded bonuses of 1,635,172 ordinary shares to Gerry Orbelland 827,586 ordinary shares to Tony Heath. Furthermore certain advisers to theCompany were issued a total of 4,795,658 ordinary shares as part of their fees. As a result of these transactions, the issued share capital of the Company wasincreased to 692,427,348 ordinary shares. The former shareholders of Mitra holdapproximately 32% of the enlarged share capital of the Company. In connection with the acquisition and share placing, Gerry Orbell and TonyHeath were awarded options on 13 July 2006 over 1,400,000 and 700,000 ordinaryshares respectively at an exercise price of 7.25p exercisable from six monthsafter award until six years after award. 16 Share capital and reserves Share Foreign Share Premium Profit and Share-based currency Capital Account Loss account Payments Total £'000's £'000's £'000's £'000's £'000's £'000's ------------------------------------------------------------------------------GroupAt 1 January 2006 - 300 10,641 (193) - 10,748Shares issued - 392 25,123 - - 25,515Share-based payments - - - - 69 69Loss for the year (157) - - (2,170) - (2,327)-------------------------------------------------------------------------------At 31 December 2006 (157) 692 35,764 (2,363) 69 34,005-------------------------------------------------------------------------------CompanyAt 1 January 2006 - 300 10,641 (193) - 10,748Shares issued - 392 25,123 - - 25,515Share-based payments - - - - 69 69Loss for the year - - - (1,783) - (1,783)-------------------------------------------------------------------------------At 31 December 2006 - 692 35,764 (1,976) 69 34,549------------------------------------------------------------------------------- 17 Cash flow reconciliations a) Reconciliation of operating loss to net cash flow from operating activities 2005 2006 £'000's £'000's-------------------------------------------------------------------------------Operating loss (361) (1,735)(Increase)/decrease in ST debtors (24) (400)(Increase)/decrease in LT debtors - (35)(Increase)/decrease in ST creditors 49 188(Increase)/decrease in LT creditors - (25)(Increase)/decrease in LT provisions - 69Depreciation - 3Foreign exchange gains/(losses) - (1,142)Share of loss of associate - 14-------------------------------------------------------------------------------Net cash outflow from operating activities (336) (3,063)------------------------------------------------------------------------------- b) Reconciliation of net cash flow to movement in net debt 2005 2006 £'000's £'000's-------------------------------------------------------------------------------Increase in cash in the period 10,839 6,523Cash acquired - 27Cash flow from movement in liquid resources - -Change in net cash resulting from cash flows - -Opening net cash - 10,839-------------------------------------------------------------------------------Net cash at 31 December 10,839 17,389------------------------------------------------------------------------------- c) Analysis of Net Cash At At 1 January 2006 Cash Flow 31 December 2006 £'000's £'000's £'000's-------------------------------------------------------------------------------Cash in hand and at bank 144 611 755Short term deposits 10,695 5,939 16,634-------------------------------------------------------------------------------Total net cash 10,839 6,550 17,389------------------------------------------------------------------------------- 18 Financial Instruments The Company has taken advantage of the exemption in FRS13 "Derivatives and OtherFinancial Instruments" in respect of short-term debtors and creditors andconsequently those items are not included in the relevant analysis within thefollowing note. Interest rate and currency risk profiles of financial assets The interest rate risk profile and the currency risk profile of the financialassets of the group as at 31 December was: Weighted Floating rate Interest-free £ Total average Currency £ million £ million £ million interest rate--------------------------------------------------------------------------------2006Cash and short-term depositsSterling 1,562 - 1,562 4.47%US$ 15,200 627 15,827 5.09%-------------------------------------------------------------------------------Total 16,762 627 17,389-------------------------------------------------------------------------------2005Cash and short-term depositsSterling 10,839 - 10,839 4.47%US$ - - - --------------------------------------------------------------------------------Total 10,839 - 10,839------------------------------------------------------------------------------- US$ cash balances have been converted at the exchange rate on 31 December 2006of US$1.9591/£1. The floating rate cash and short-term deposits comprise of cash held in interestbearing current accounts and deposits placed on the money markets for periodsranging from overnight to three months. Financial instruments exposed to interest rate risk (eg US Federal Funds Rateand UK Base Rate) were floating rate cash assets maturing within one year:£16,762,000 (2005: £10,839,000). Cash on which no interest is received relates to balances available to meetimmediate operating payments and are therefore only held for short periodsinterest-free. Fair Values 2005 2006------------------------------------------------------------------------------- Carrying Fair Carrying Fair amount value amount value £'000's £'000's £'000's £'000's-------------------------------------------------------------------------------Financial assets-------------------------------------------------------------------------------Cash - Sterling 10,839 10,839 1,562 1,562------------------------------------------------------------------------------- - US$ - - 15,832 15,832-------------------------------------------------------------------------------The fair values are based on market values at the end of the year. 19 Share-based payments Share options have been granted to senior executives and the Company'sstockbrokers. An option to acquire 500,000 ordinary shares at 7.5p each was awarded to HichensHarrison on 22 June 2005, exercisable on any date up to 29 June 2010. Options toacquire 1,400,000 and 700,000 ordinary shares at 7.25p each were awarded toGerry Orbell and Tony Heath respectively on 13 July 2006 exercisable from sixmonths after award until six years after award. The exercise price of the options is equal to the estimated market price of theshares on the date of grant. The contractual life of each option granted is sixyears. There are no cash settlement alternatives. The expense recognised for share-based payments in respect of employee servicesreceived during the year to 31 December 2006 is £69,353. No part of that expensearose from cash-settled share-based payment transactions. The following table illustrates the number and weighted average exercise prices(WAEP) of, and movements in, share options during the year. 2006 2006 No WAEP-------------------------------------------------------------------------------Outstanding as at 1 January 500,000 7.50pGranted during the year 2,600,000 6.77p-------------------------------------------------------------------------------Outstanding at 31 December 3,100.000 6.87p-------------------------------------------------------------------------------Exercisable at 31 December 2,600,000 6.77p------------------------------------------------------------------------------- For share options outstanding as at 31 December 2006, the weighted averageremaining contractual life is 4.78 years (2005 5.49 years). The weighted average fair value of options granted during the year was 2.12p(2005 1.86p). The range of exercise prices for options outstanding at the end ofthe year was 4.75p - 7.25p (2005 7.5p). The fair value of equity-settled share options granted is estimated as at thedate of grant using a binomial model, taking into account the terms andconditions upon which the options were granted. The following table lists theinputs to the model used for the years ended 31 December 2006 and 31 December2005. 2006-------------------------------------------------------------------------------Dividend yield (%) 0Expected share price volatility (%) 58Historical volatility (%) 58Risk-free interest rate (%) 4.78Expected life of options (years) 6------------------------------------------------------------------------------- The expected life of the options is based on the maximum option period and isnot necessarily indicative of exercise patterns that may occur. The expectedvolatility reflects the assumption that the historical volatility is indicativeof future trends, which may also not necessarily be the actual outcome. No other features of options grant were incorporated into the measurement offair value. Fair value of goods or services received during the period. 2005 - On 29 June 2005 454,545 new ordinary shares of 0.1p per share with a fair value of £25,000 were issued to the Company's stockbrokers Hichens Harrison & Co plc in settlement of their placing fee. 2006 - No shares were issued in settlement for goods or services provided. 20 Capital Commitments and Guarantees At 31 December 2006 the Group had capital commitments of £12,000,000 (2005:Nil)on exploration and development licences. The Company had no capital commitmentsin 2006 (2005: Nil). Under the terms of a farm-out agreement dated 1 October 2004 with ElnusaBangkanai Energy Limited (Elnusa), the Company has agreed to carry Elnusa'sshare of the initial three year minimum work obligation costs. Under the termsof the Bangkanai PSC the Company is required to spend US$15,100,000 to fulfilits initial three year minimum work obligations. Under the terms of the CitarumPSC the Company is required to spend US$5,650,000 to fulfil its three yearminimum work obligations. 21 Contingent liabilities The Company has granted RAB Octane (Master) Fund Limited ("RAB") the option toput to the Company the entire issued and allotted share capital, namely twoordinary shares, of Sound Oil Bangladesh Limited at any time up to 17 May 2086.If the put option is exercised, the maximum price payable by the Company will be2,195,222 Ordinary Shares of the Company or, with the consent of both theCompany and RAB, US$300,000 in cash. 22 Other matters The financial information for the year ended 31 December 2006 does notconstitute statutory accounts, as defined in Section 240 of the Companies Act1985, but is based on the statutory accounts for the year then ended. Thoseaccounts, upon which the auditors have issued an unqualified opinion, will bedelivered to the Registrar of Companies. Copies of the annual accounts will be sent to shareholders in due course andwill be available from the Company's website www.soundoil.co.uk. This information is provided by RNS The company news service from the London Stock Exchange