12 Nov 2008 07:00
Victoria Oil & Gas Plc
12 November 2008
Victoria Oil & Gas Plc
(AIM: VOG)
Preliminary Announcement of Results for year ended
31 May 2008
Highlights
Raising of £20 million in February 2008 including a share placing led by a major Abu Dhabi consortium organised by Noor Capital PSC
Appointment of Messrs Rashed Al Suwaidi, Philip Rand, Mukhtar Tuyakbayev and George Donne to the Board of VOG
Completion of testing of Well 103 and calculation of C1+C2 proven reserves for the well by the Russian Ministry of Natural Resources of 14.4 million barrels of oil equivalent
Signing of Heads of Agreement for the acquisition of Bramlin Limited, an African focused oil and gas exploration company with a 60% interest in the Logbaba gas field in Cameroon
Signing of an option to acquire 100% of Falcon Petroleum Limited, a private exploration company with assets in Ethiopia and Mali
For further information please contact:
| Kevin Foo / George Donne Victoria Oil & Gas Plc +44 (0)207 921 8820 | Jonathan Charles / Ed Portman Conduit PR +44 (0)207 429 6607 +44 (0) 7733 363 501 |
| Strand Partners Limited Simon Raggett / Angela Peace Tel: +44 (0) 20 7409 3494 |
Chairman's Statement
Dear Shareholder,
It is my pleasure to discuss the year's progress at Victoria and our plans for growing the Company.
Victoria in Turbulent Times
The financial turbulence of the last few months and the global liquidity crisis has destroyed wealth and market value in almost all equities and Victoria has not been spared. However, your Board strongly feels that in these times it is critical to prevent external forces from obscuring the fundamental advantages of any business and more importantly, to position ourselves not only to survive the times but to thrive when markets inevitably turn.
The Board is focussed on the fundamental advantages of Victoria and how we can position ourselves to best capitalise on the situation. Our key advantages are:
A strong shareholder base and a well financed Company
An outstanding oil, gas and gas condensate project in West Medvezhye, Russia, that has progressed well during the year
A desire and a capability of the Company to expand into other geographic territories and to capitalise on our technical and economic strengths, whilst at the same time spreading our risk
A very strong desire for success, overcoming all obstacles
Crucially for Victoria, in February we completed a £20 million fundraising, predominantly through the strategic investment from an Abu Dhabi consortium led by Noor Capital PSC. This refinancing guaranteed the Company funds for our operations during the year before the worst of the financial turmoil engulfed the market.
Furthermore, Noor's investment has brought additional expertise to the Board through Mr. Rashed S J Al Suwaidi and Mr. Philip Rand. Their vision has encouraged the Company to expand its horizons and be bold in our ambitions. We have also strengthened our Board with the addition of Mr. Mukhtar Tuyakbayev and Mr. George Donne and our technical group via Blackwatch Petroleum Services and GeoDynamics Research.
Victoria in Russia and Kazakhstan
West Medvezhye (West Med)
Our team in Nadym, Siberia, deserves huge praise for their work in progressing the development of the West Med field during this year. Thanks to their extraordinary efforts, we successfully completed all requirements for the exploration period of the licence and have entered into the first phase of the 18 year production period.
This important development means that we now have more time to appraise and explore the subsurface and determine exactly the right locations to exploit the potential of the field. Given the extreme demands of the working environment in Western Siberia the ability to plan an exploration and development programme accurately is vital. To remind shareholders, West Med has over 1.1 billion barrels of oil equivalent in prospective recoverable resources and in March we received confirmation from the Russian Ministry of Natural Resources (MNR) that recoverable C1 and C2 reserves from Well 103 were 14.4 million barrels of oil equivalent. In consultation with Blackwatch and GeoDynamics, Victoria is formulating the programme for the drilling of another three appraisal and exploration wells over the next five years.
Kemerkol
It is unfortunate that the events surrounding the legal attack on our Kemerkol oil field in Kazakhstan have overshadowed much of the work that we have done this year. We believe this unprovoked raid on our legally acquired asset is illegal and we are fighting the claim brought against our Kazakh subsidiary. We are taking our appeal all the way to the Supreme Court of Kazakhstan, where we hope that our good title to Kemerkol will be undisputedly recognised. We have received opinions from several senior law firms in the country that our ownership of the asset is sound and the transfer of the licence to our subsidiary is valid. It is therefore disappointing to see that the Rule of Law cannot be guaranteed in some jurisdictions in Kazakhstan. We have appealed directly to the office of the President, the General Prosecutor and the Anti-Raider and Anti-Corruption Commissions and we sincerely hope that our rights as bona fide investors will be protected.
In the UK, we have won a judgement against Ms. Elefteriadi for breach of warranties of the English Law Sale and Purchase Agreement, which she signed with the Company. This judgement should precipitate an award of damages to be determined by the court, but at a level no less than the consideration price paid of $14.75 million. In Canada, we successfully obtained an injunction prohibiting Ms.Elefteriadi or the previous licensee of Kemerkol, Alhambra Resources, from transferring the asset to third parties.
Victoria Expanding Horizons
We believe that the current financial climate has created some unprecedented opportunities for acquisitions and expansion.
Victoria has actively pursued new, value-enhancing projects in the FSU and has recently signed agreements on two new opportunities in Africa, which I believe will enhance our company significantly. These opportunities enable us to diversify our portfolio and have two regions of activity, the FSU and Africa.
Bramlin Limited
Victoria has signed a Heads of Agreement for the acquisition of Bramlin to take place via a Scheme of Arrangement.
Bramlin's principal asset is a farm-in agreement for 60% of the Logbaba gas field in Cameroon, West Africa. Logbaba was discovered in the late 1950s and three of its four discovery wells were tested and flowed at rates ranging from 12 to 62 million cubic feet of natural gas per day.
An independent study undertaken by RPS Energy during 2008 estimated the 2P reserves for Logbaba at over 21 million barrels of oil equivalent with an attributable NPV10 to Bramlin of $168 million. It is important to note that this estimation is only for approximately one square kilometre of the 64 square kilometre licence area.
Further to its subsurface potential, Logbaba is ideally located to access the undeveloped energy markets in Cameroon. The field is on the outskirts of Douala, the commercial capital of the Cameroon, where many industrial users are located. These companies currently rely on high-cost liquid fuels and a conversion to natural gas from Logbaba would be an attractive alternative. A number of these industrial consumers have already signed off-take agreements or letters of intent with Bramlin for over 7 million cubic feet per day at prices around $16/thousand cubic feet. Plans for gas fired power generation are also part of the Logbaba field development.
The Board believes that the Bramlin acquisition will be a catalyst for major change and growth in Victoria Oil & Gas.
Falcon Petroleum Limited
Victoria has also signed an option agreement for the acquisition of Falcon Petroleum Limited for a consideration to be determined by an independent consultant, but for not more than $12.5 million. Falcon is a private company with interests in two Production Sharing Agreements (PSAs) over oil exploration blocks in Africa.
In Ethiopia, Falcon has 90% of Blocks Ab1, Ab4 and Ab7 of the Blue Nile (Abay) Basin covering around 26,000 square kilometres and in Mali it has 50% of the 20,000 square kilometres Block 17 in the Nara Trough. Both of these assets offer low-cost entries into undeveloped regions with large hydrocarbon potential in ideal terrain for the application of GeoDynamics' technology.
Financial Report
You will see that the accounts are very much longer than, and in a different format to, the 2007 accounts. This has been caused by the adoption of International Financial Reporting Standards (IFRS) for the first time.
This change to IFRS has also meant that we have changed our accounting policies in some areas and we have restated last year's figures to make them comparable. This change has significantly reduced the loss we are showing for 2007 and also affected our loss for 2008, primarily because of the different accounting treatment of the convertible loan notes.
With the support of our strategic partners and the opportunities for new acquisitions being realised, your Board believes that the future is very exciting for Victoria as we approach 2009. I would like to extend my thanks to all of our employees and my fellow Directors for their endeavour this year and also thank you, our shareholder, for your most patient support.
Kevin Foo
Chairman
Operating Review
Dear Shareholder,
I am very pleased to report to you for the first time on the development of Victoria's assets during 2008. In our capacity as technical advisers, Blackwatch have been heavily involved in the Company's operations throughout the year and have also assisted in evaluating and pursuing a number of acquisition opportunities.
West Medvezhye
Following the completion of testing operations on Well 103, the well was suspended for future re-entry and reserve calculations were submitted to the MNR on schedule by the end of December 2007. After assessment of the test results and technical studies, the MNR duly recognised a commercial discovery at Well 103 and confirmed Russian category C1+C2 proven recoverable reserves of 14.4 million barrels of oil equivalent for the structures intersected in the Bazhenov and Jurassic intervals.
As a result, West Med has now commenced the first five-year period of its 18 year production licence. Our priority for this first period is to gather as much data as possible, with which to focus our upcoming exploration and appraisal programme. We hope that this will allow us to prove the technical feasibility and commercial viability of the licence.
The acquisition of new data commenced in early 2008 when a geochemical survey was conducted centred on the Well 103 discovery. The geochemical survey highlighted a significant potential structure, possibly two miles in radius, updip from the 103 location. Further analysis and interpretation of the 2D seismic data for West Med using the drilling results of Well 103 was performed by the local subsoil institute, SibNats. This work shows the presence of a structure conforming to that found by the geochemical survey data.
To enhance this new interpretation of the West Med target zones, Victoria is commissioning a GeoDynamics passive seismic survey to be conducted over the coming winter. The survey will again be focused on the new target location close to 103 and, on successful completion, should provide the basis for the selection of the final location of appraisal Well 105, to be drilled the following winter when conditions allow. The objective of Well 105 will be to prove up a much larger reserve than the current C1+C2 of 14.4 million barrels of oil equivalent. On completion of Well 105, we will then look to drill a further two wells before the end of the current five-year period in 2012.
Kemerkol
Operations at the Kemerkol field in Kazakhstan were unfortunately interrupted in June 2008 as a result of the legal dispute over Victoria's title to the licence.
Prior to the suspension of operations, Kemerkol was producing around 140 barrels of oil per day from Wells 73 and 20. Our intension during the course of 2008 was to acquire a passive seismic survey from GeoDynamics to identify the next drilling locations and also analyse the subsalt and salt overhang potential of the field. Although the survey cannot be commenced until the legal dispute has been resolved in Victoria's favour, the equipment has been mobilised to Atyrau and is on stand-by for immediate implementation when permitted.
New Projects
Bramlin Limited
In advance of drilling an appraisal and development well in the Logbaba field in the first quarter of 2009, Blackwatch have been assisting the management of Bramlin in sourcing a suitable rig. Bramlin has recently concluded a contract on a 2,000 horse-power land rig owned by Dalma Energy LLC, just coming off a contract in Oman, and preparations are underway to mobilise this rig to Cameroon. It is planned to drill a twin location to one of the four original exploration and appraisal wells drilled when Logbaba was discovered and the new well will be completed as a producer to supply the contracted gas quantities. Engineering has also commenced on the Logbaba gas plant, which will be built to process the produced good quality gas to sales specification and to extract LPG/LNG for sale on the local market.
Falcon Petroleum
Falcon has three very prospective blocks in Ethiopia's Abay (Blue Nile) Basin, Ab-1, Ab-4, and Ab-7, and initial findings are very promising. The blocks contain seeps, with oil sample analyses indicating maturity and migration from depth and gravity data indicating sediment thickness in the basin of circa five kilometres. These are very promising attributes in terms of prospectivity and a number of major companies are bidding for the surrounding blocks. Falcon's Mali Block 17 is situated in the Nara Trough and offset data from a passive seismic survey of a neighbouring block indicates that the basin is prospective. Mali has had very little oil and gas exploration activity in the past, but has attracted the interest of a number of major and independent oil companies in the last two years. Planning is underway for passive seismic surveys for Mali and Ethiopia.
Sam Metcalfe
Managing Director,
Blackwatch Petroleum
Consolidated Income Statement
Year ended 31 May 2008
| 2008 | 2007 | ||
| $000 | $000 | ||
| Continuing operations | |||
| REVENUE | 1,726 | 373 | |
| Cost of sales | (1,655) | (199) | |
|
|
| ||
| GROSS PROFIT | 71 | 174 | |
| Other gains and (losses) | 260 | (3,053) | |
| Administrative expenses | (4,857) | (3,460) | |
|
|
| ||
| OPERATING LOSS | (4,526) | (6,339) | |
| Interest received | 248 | 151 | |
| Finance revenue | 11,095 | 9,642 | |
| Finance costs | (7,985) | (4,773) | |
|
|
| ||
| LOSS BEFORE TAXATION | (1,168) | (1,319) | |
| Income tax expense | - | - | |
|
|
| ||
| LOSS AFTER TAXATION FOR THE | |||
| FINANCIAL YEAR | (1,168) | (1,319) | |
|
|
| ||
| Cents | Cents | ||
| Loss per share - basic | (0.70) | (1.17) | |
| Loss per share - diluted | (0.70) | (1.17) |
Consolidated Balance Sheet
As at 31 May 2008
| 2008 | 2007 | ||
| $000 | $000 | ||
| ASSETS: | |||
| NON CURRENT ASSETS | |||
| Intangible assets | 104,365 | 92,649 | |
| Property, plant and equipment | 2,008 | 1,363 | |
| Investments | 696 | - | |
| Restricted cash | 122 | - | |
|
|
| ||
| 107,191 | 94,012 | ||
|
|
| ||
| CURRENT ASSETS | |||
| Inventory | 3 | - | |
| Receivables | 1,226 | 1,821 | |
| Cash and cash equivalents | 9,270 | 9,945 | |
|
|
| ||
| 10,499 | 11,766 | ||
|
|
| ||
| TOTAL ASSETS | 117,690 | 105,778 | |
|
|
| ||
| LIABILITIES: | |||
| CURRENT LIABILITIES | |||
| Trade and other payables | (4,947) | (5,706) | |
|
|
| ||
| NET CURRENT ASSETS | 5,552 | 6,060 | |
|
|
| ||
| NON-CURRENT LIABILITIES | |||
| Borrowings | (3,693) | - | |
| Convertible loan -debt portion | (212) | (14,399) | |
| Derivative financial instrument | (1,518) | (13,636) | |
| Provisions | (1,393) | - | |
|
|
| ||
| (6,816) | (28,035) | ||
|
|
| ||
| NET ASSETS | 105,927 | 72,037 | |
|
|
| ||
| EQUITY: | |||
| Called-up share capital | 2,621 | 1,129 | |
| Share premium | 100,133 | 71,935 | |
| ESOP Trust reserve | (124) | (74) | |
| Investment revaluation reserve | 295 | - | |
| Translation reserve | 110 | - | |
| Other reserve | 2,852 | - | |
| Retained earnings - surplus/(deficit) | 40 | (953) | |
|
|
| ||
| TOTAL EQUITY | 105,927 | 72,037 | |
|
|
|
Consolidated Statement of Changes in Equity
Year ended 31 May 2008
| Called up share capital | Share premium | ESOP Trust reserve | Investment revaluation reserve | Retained earnings / (deficit) | Translation reserve | Other reserve | Total | |
| $000 | $000 | $000 | $000 | $000 | $000 | $000 | $000 | |
| At 1 June 2006 | 1,044 | 68,153 | (53) | - | (2,545) | - | - | 66,599 |
| Shares issued for cash | 85 | 4,853 | (45) | - | - | - | - | 4,893 |
| Transfer concerning issue expenses of loan notes | - | (1,071) | - | - | 1,071 | - | - | - |
| Credit re value of shares vested by ESOP | - | - | 24 | - | 1,840 | - | - | 1,864 |
| Loss for the year | - | - | - | (1,319) | - | - | (1,319) | |
| At 31 May 2007 | 1,129 | 71,935 | (74) | - | (953) | - | - | 72,037 |
| Shares issued for cash | 1,063 | 29,205 | (50) | - | - | - | - | 30,218 |
| Share issue costs | - | (3,353) | - | - | - | - | - | (3,353) |
| Conversion of loan notes | 429 | 4,507 | - | - | - | - | - | 4,936 |
| Transfer concerning issue expenses of loan notes | - | (2,161) | - | - | 2,161 | - | - | - |
| Revaluation to fair value | - | - | - | 295 | - | - | - | 295 |
| Currency translation adjustment | - | - | - | - | - | 110 | - | 110 |
| Gain on redemption of imbedded derivative | - | - | - | - | - | - | 2,852 | 2.852 |
| Loss for the year | - | - | - | - | (1,168) | - | - | (1,168) |
| At 31 May 2008 | 2,621 | 100,133 | (124) | 295 | 40 | 110 | 2,852 | 105,927 |
Share Premium reserve
The share premium reserve comprises of the excess of monies received in respect of share capital over the nominal value of shares issued, less share and debenture issue costs.
ESOP Trust reserve
The ESOP Trust reserve comprises of shares in the Company held by the Victoria Oil and Gas ESOP Trust.
Investments revaluation reserve
The investments revaluation reserve includes revaluation of available for sale investments to market value.
Retained earnings deficit
Retained earnings comprises accumulated losses in the current year and prior years.
Translation reserve
The translation reserve includes movements that relate to the retranslation of non-monetary items whose functional currencies are not US Dollars.
Other reserve
The Other reserve includes gains and losses arising on redemption of the embedded derivative component of hybrid financial instruments stated at fair value.
Consolidated Cash Flow Statement
Year ended 31 May 2008
| 2008 | 2007 | ||
| $000 | $000 | ||
| CASH FLOW FROM OPERATING ACTIVITIES | |||
| Loss for the year | (1,168) | (1,319) | |
| Finance costs recognised in income statement | 7,985 | 4,773 | |
| Investment revenue recognised in income statement | (248) | (151) | |
| Impairment loss recognised in income statement | - | 2,293 | |
| Depreciation and amortisation of non-current assets | 671 | 242 | |
| Fair value gain on embedded derivative | (11,095) | (9,642) | |
| Net foreign exchange gain | (3,695) | (712) | |
| Value of shares vested by Victoria Oil & Gas Plc ESOP Trust | - | 750 | |
|
|
| ||
| (7,550) | (3,766) | ||
| MOVEMENTS IN WORKING CAPITAL | |||
| Decrease/ (increase) in trade and other receivables | (106) | (225) | |
| (Increase)/decrease in inventories | (3) | 16 | |
| (Decrease)/increase in trade and other payables | (3,137) | 1,715 | |
|
|
| ||
| CASH USED IN OPERATIONS | (10,796) | (2,260) | |
| Interest paid | (867) | (982) | |
|
|
| ||
| NET CASH USED IN OPERATING ACTIVITIES | (11,663) | (3,242) | |
| CASH FLOWS FROM INVESTING ACTIVITIES | |||
| Interest received | 248 | 151 | |
| Payments for intangible fixed assets | (7,236) | (27,441) | |
| Payments for tangible fixed assets | (949) | (766) | |
| Proceeds from sale of tangible fixed assets | 12 | - | |
| Proceeds from sale of intangible assets | 300 | - | |
| Transfer to fund for asset retirement obligations | (122) | - | |
|
|
| ||
| NET CASH USED IN INVESTING ACTIVITIES | (7,747) | (28,056) | |
| CASH FLOW FROM FINANCING ACTIVITIES | |||
| Proceeds from issue of equity shares | 30,218 | 4,893 | |
| Proceeds from issue of convertible loan notes | 2,000 | 37,100 | |
| Repayment of convertible loan notes | (15,717) | - | |
| Payment of equity issue costs | (990) | - | |
| Payment of loan issue costs | (265) | (3,214) | |
| Proceeds from borrowings | 3,410 | - | |
|
|
| ||
| NET CASH GENERATED FROM FINANCING ACTIVITIES | 18,656 | 38,779 | |
|
|
| ||
| NET (DECREASE)/INCREASE IN CASH | |||
| AND CASH EQUIVALENTS | (754) | 7,481 | |
| CASH AND CASH EQUIVALENTS BEGINNING OF THE YEAR | 9,945 | 2,380 | |
| Effects of exchange rate changes on the balance of cash held in | |||
| foreign currencies | 79 | 84 | |
|
|
| ||
| CASH AND CASH EQUIVALENTS END OF THE YEAR | 9,270 | 9,945 | |
|
|
|
Notes
1. Transition to IFRS
Reconciliations between the previously reported losses after tax for the year ended 31 May 2007 and the balance sheet as at 31 May 2007 and those presented under IFRS are shown below:
Reconciliation from previous UK GAAP to IFRS comparative figures
Consolidated Income Statement for the year ended 31 May 2007
| As previously | |||
| measured under | Transition | Under | |
| UK GAAP | adjustments | IFRS | |
| $000 | $000 | $000 | |
| Revenue | 373 | - | 373 |
| Cost of Sales | (199) | - | (199) |
| _____ | _____ | ____ | |
| Gross Profit | 174 | - | 174 |
| Other gains and losses | (3,053) | - | (3,053) |
| Administrative expenses | (3,513) | 53 | (3,460) |
| _____ | _____ | ____ | |
| Operating loss | (6,392) | 53 | (6,339) |
| Interest received | 151 | - | 151 |
| Finance revenue | - | 9,642 | 9,642 |
| Finance costs | (2,053) | (2,720) | (4,773) |
| _____ | _____ | ____ | |
| Loss before taxation | (8,294) | 6,975 | (1,319) |
| Taxation | - | - | - |
| _____ | _____ | ____ | |
| Loss after taxation | (8,294) | 6,975 | (1,319) |
| _____ | _____ | ____ | |
| Loss per share (Cents) | |||
| Basic | (7.06) | (5.89) | (1.77) |
| Diluted | (7.06) | (5.89) | (1.77) |
The transition adjustments reflect the following changes:
Administration Expenses
Adjustment arises on consolidation of the ESOP Trust in accordance with IAS27.
Finance Revenue
The convertible loan notes have been redefined as hybrid financial instruments. The Finance income arises on taking the reduction in the fair value of the embedded derivative element to the Income Statement.
Finance Cost
The increase in the finance cost reflects the accrual for interest at the effective interest rate, being the rate necessary to increase the initial value of the debt portion of the convertible loan to the repayable amount at the end of the term.
Loss per share
The decrease in the loss per share is as a result of the above adjustments, partially offset by reducing the weighted average number of shares in issue by the weighted average number of shares held by the ESOP Trust.
Reconciliation from previous UK GAAP to IFRS comparative figures
Consolidated Balance Sheet as at 31 May 2007
| As previously | |||
| measured under | Transition | Under | |
| UK GAAP | Adjustments | IFRS | |
| $000 | $000 | $000 | |
| NON-CURRENT ASSETS | |||
| Intangible assets | 93,708 | (1,059) | 92,649 |
| Property, plant and equipment | 874 | 489 | 1,363 |
| ______ | ______ | ______ | |
| 94,582 | (570) | 94,012 | |
|
|
| ||
| CURRENT ASSETS | |||
| Receivables | 1,442 | 379 | 1,821 |
| Cash and cash equivalents | 9,924 | 21 | 9,945 |
| ______ | ______ | ______ | |
| 11,366 | 400 | 11,766 | |
| ______ | ______ | ______ | |
| TOTAL ASSETS | 105,948 | (170) | 105,778 |
|
|
| ||
| LIABILITIES: | |||
| CURRENT LIABILITIES | |||
| Trade and other payables | (5,702) | (4) | (5,706) |
| ______ | ______ | ______ | |
| NET CURRENT ASSETS | 5,664 | 396 | 6,060 |
| NON-CURRENT LIABILITIES | |||
| Borrowings | (31,241) | 31,241 | - |
| Convertible loan -debt portion | - | (14,399) | (14,399) |
| Derivative financial instrument | - | (13,636) | (13,636) |
| ______ | ______ | ______ | |
| NET ASSETS | 69,005 | 3,032 | 72,037 |
| ______ | ______ | ______ | |
| EQUITY: | |||
| Called-up share capital | 1,129 | - | 1,129 |
| Share premium | 71,935 | - | 71,935 |
| ESOP Trust reserve | - | (74) | (74) |
| Equity component of convertible loan | 3,716 | (3,716) | - |
| Retained earnings - (deficit) | (7,775) | 6,822 | (953) |
| ______ | ______ | ______ | |
| TOTAL EQUITY | 69,005 | 3,032 | 72,037 |
| ______ | ______ |
The transition adjustments reflect the following changes:
Intangibles
In accordance with IFRS 6, the following amounts have been transferred out of intangibles:
Property, plant and equipment acquired for the exploration programme, previously include as deferred development expenditure. Subsequent depreciation is charged to the Exploration and Evaluation cost pool in intangible fixed assets. (NBV $489,000)
Pre licence expenditure previously capitalised as deferred development costs within intangible fixed assets, which is now written off. ($194,000).
Pre licence expenditure in respect of the element that is recoverable from 3rd parties, which is now included in receivables ($376,000).
Property, Plant and Equipment
As stated above, in accordance with IFRS6 plant and equipment acquired for the exploration programme is included within P, P&E whereas previously it had been included within deferred development expenditure.
Receivables
Pre licence study costs which the Group expects to sell to a third party for value. Previously included within intangible assets.
Cash and Cash Equivalents
Increase resulting from consolidation of the ESOP Trust in accordance with SIC 12 'Special Purpose Entities'.
Trade and Other Payables
Increase resulting from consolidation of the ESOP Trust.
Borrowings
The convertible loan note was previously treated as a compound financial instrument under UK GAAP, but this was reviewed and redesignated as a hybrid financial instrument comprising a host note with an embedded derivative in accordance with IAS 32 (Borrowings $31,241,000, equity component of convertible loan $3,716,000 and credit to retained earnings $7,424,000).
Convertible Loan-Debt Portion
This represents the difference at date of issue between the fair value of the financial instrument and the fair value of the embedded derivative contained within it plus subsequent interest accrued using the effective interest rate less interest paid.
Derivative Financial Instrument
Fair value of the embedded derivative contained within the convertible loan notes
ESOP Trust Reserves
The Victoria Oil & Gas ESOP Trust has been consolidated on the basis that it is controlled by the Company. The ESOP Trust reserve represents the value of shares in the Company held by the Trust which are deductible from equity in accordance with IAS 32.
Equity Component of Convertible Loan
Convertible loan notes had previously been accounted for as compound financial instruments and split between the liability element and an equity component which are now shown as convertible loan note-debt portion and derivative financial instrument.
Retained Earnings
This represents the effect of the net impact of the above adjustments.
2. Publication of non statutory accounts
The financial information set out in this preliminary announcement does not constitute statutory accounts.
The balance sheet at 31 May 2008 and income statement, cash flow statement and associated notes for the year then ended have been extracted from the Group's 2008 statutory financial statements upon which the auditors' opinion is unqualified.
3. Annual Report
The Annual Report for the year ended 31 May 2008 has been posted to shareholders. The Annual General Meeting of the Company will be held at 1st floor Meeting Room, Hatfield House. 52-54 Stamford Street, London SE1 9LX, on 4 December 2008 at 11.00 a.m. A full version of the annual accounts will be available on the Company's website at www.victoriaoilandgas.com