Annual Report and Accounts

Empyrean Energy PLC 01 May 2007 Empyrean Energy PLC ('Empyrean' or the 'Company'; Ticker: (EME)) Final Results ------------- For the period 1 April 2006 to 31 March 2007 -------------------------------------------- • Net cash position £4.9 million following successful placing with institutional investors in January 2007 • Two further project acquisitions in the USA made during the period • During the period Empyrean makes its first modest discovery and goes into production from two wells Chairman's Statement It is with pleasure that I am able to report on a successful second year of operations for Empyrean Energy Plc ('Empyrean' or 'the Company'). Since the last Annual General Meeting, we have continued to seek additional projects that fit our strategy of investing in energy projects within politically stable regions. We have also undertaken an additional capital raising to assist the Company with the development of its existing portfolio of projects and to provide the capacity to invest in additional opportunities as they are identified. It is important to note that since our AIM listing, less than two years ago, Empyrean has participated in the drilling of six wells, with a further five wells already scheduled for the remainder of calendar year 2007. All six wells drilled to date have encountered hydrocarbons, with two at Project Margarita currently in production and a third at Sugarloaf yet to be tested for hydrocarbon shows in the shallower Cretaceous carbonates and chalks that gave a good log response. Last December the Company acquired an interest in Project Margarita, which consists of a number of deep prospects and also a number of lower risk smaller shallow prospects. Empyrean has already drilled three of the six planned wells to test the shallow prospects before moving onto the three higher impact deep 30 to 200 bcf gas prospects. Two of the first three shallow wells have become producers, with the Milagro well connected to a gas sales line on 3 April 2007, and the Dos Dedos well been connected to the sales line on 26 April 2007. A further three shallow wells will now be drilled before a decision is made concerning moving on to the deeper prospects. Although modest, this production marks a significant milestone for Empyrean, which has been achieved within two years of listing on AIM. At our Glantal Project in Germany, no commercial discovery was made from the testing of our first well, however results proved the existence of a seal (one of the greater pre-drill risks), the presence of fractures as a major component of reservoir effectiveness and the presence of gas. Having confirmed the geological characteristics of the formation, a seismic programme will be implemented prior to a decision about the position for the next well. At the Eagle Oil Pool Development Project in California, the Eagle North-1 well encountered promising oil shows whilst drilling. An attempt to perforate and test a promising zone in the horizontal part of the well proved far more challenging and it has been concluded that the perforating guns did not fire. An attempt to retrieve the guns and production valve failed. A post mortem on the operations has concluded the best way forward, given the oil shows whilst drilling, is to drill a new well with a wider diameter horizontal completion. This is potentially a key production asset for Empyrean and we expect that plans to drill the new well will commence in the near term. The Sugarloaf well in Texas had two potential targets, and initial efforts concentrated on testing the most prospective intervals below 19,000 feet where drilling had encountered intermittent gas shows. These proved uncommercial, and a testing programme for the shallower Cretaceous carbonates and chalks is currently being finalised and it is anticipated that operations will recommence in the near future. In January 2007, the Company successfully raised additional capital, an achievement that strongly confirmed the market's confidence in the Company's strategy, and in the balance of risk and reward which has been achieved with its wide portfolio of projects. The Board intends to continue actively looking for additional attractive opportunities to complement this portfolio further. Patrick Cross Chairman 30 April 2007 Operations Report The Company has substantially increased its operational activities over the last twelve months. In addition to the ongoing Glantal Gas Project, the Eagle Oil Pool Development Project and the Sugarloaf Hosston Project, Empyrean has also acquired a working interest in the Margarita Project in the Gulf Coast, Texas USA. Glantal Gas Project Electric logs indicate that at least 20 intervals showing porosity and permeability have been intercepted during drilling and therefore had the possibility of being gas-filled reservoirs. Of these, six intervals were identified as the most likely to produce a positive result on testing. It was decided that the testing programme would investigate all six intervals only if the lowermost four intervals gave encouraging results. Testing operations were carried out and completed during the month of July 2006 using the Koller workover rig. All tests were deemed to have been valid. The results were as follows: Interval Depth Details Interval 1 1445-1455m A light blow at the surface and 212 litres of fluid were recovered in the drill string. Interval 2 1355-1379m Similar results with no detection of gas and only recovery of formation water. Interval 3 1228-1249m This was the zone that showed the best permeability and over a 4 hour flow period produced only 348 litres of connate water and no significant gas. Interval 4 1205-1220m This interval yielded only a small quantity of flammable gas to surface with no discernible formation water. The permeability appeared to be poor. Since these four intervals were considered to be the most likely to flow gas, the results confirmed that no further testing of Glantal-1 was warranted and the well was consequently plugged and abandoned. Despite the test results, the prospectively of the project still remains high. Glantal-1 results proved the existence of seal (one of the greater pre-drill risks), the presence of fractures as a major component of reservoir effectiveness and the presence of gas during drilling and in the drill stem test number four. The Glantal Prospect is located in the south western portion of the massive Pfalzer Anticline. And within the 60km2, the prospect can be divided into two distinct structural elements, the Poltzberg Anticline and the Ulmet-Welchweiler Horst. Glantal-1 well was located on the relatively low western flank of the Poltzberg and a structurally higher position for the next well would be an ideal follow up to test the porous intervals already drilled. However, prior to any further drilling, new seismic data will be required to further define the nature of faulting and compartmentalisation of the various structural elements. A small but adequate programme of 63 km has been designed which may be extended to approximately 100km. As with drilling rigs, seismic crews are difficult to acquire particularly when the programme is small, as in the case of Glantal. Preparations for the seismic campaign are under way and data acquisition will commence as soon as a contract is finalised. Eagle Oil Pool Development Project Due to technical breakdowns and unconsolidated nature of the reservoir, the original programme of using a 2 3/8' slotted liner when testing the oil- filled sandstone had to be revised. The programme involved the testing of 72 metres of Lower Bellocchi Gatchell oil sand cased behind the 4 1/2' liner plus 105 metres of open hole (barefoot completion) beyond the base of the 4 1/2' liner set at 4,386 metres, a total of 177 metres. This procedure required using a tubing- conveyed perforation gun, as well as a coiled tubing unit and a less expensive completion rig. The larger drilling rig was released on 20th May 2006 and testing operations were not resumed until sometime later. Technical faults continued to plague the testing operation. Not only did the casing guns malfunction, but fishing operations to retrieve both the production valve, seal assembly and casing guns in the horizontal well proved to be unsuccessful. Finally on 17th October 2006 it was announced that all partners had considered it no longer cost effective to continue the workover operation. It was agreed that the money would be better spent on a future re-entry and side track from the current cased Eagle North-1 well bore. The possibility of drilling another well is still being considered. If re-entry and sidetrack is decided, the target will remain the 177 metres of Lower Mary Bellocchi Gatchell oil sand in the horizontal well bore over the interval 4,209 - 4,386 metres. It should be recalled that that these sands have produced at rates of up to 223 barrels of oil and 0.7 mcf from a 12 metre interval in the same sands of the Mary Bellocchi vertical well located 366 metres to the southeast. Production from the proposed horizontal interval should increase the oil production rate fourfold at least. Planning has commenced for the future drilling operation, although the exact timing of recommencement depends on the availability of rigs, personnel and equipment. Sugarloaf Hosston Project This attractive farmin agreement with Texas Crude Energy Inc. was announced by Empyrean on 6th April 2006 and mentioned briefly in the last Annual Report. The Farmin Agreement by which Empyrean would be earning a 7.5% interest before payout (reverting then to a 6% working interest) involved participating in the drilling and testing of a 21,000 feet well. The primary objective was the Cretaceous Hosston sandstone reservoir and the four way closure over an area of at least 20,000 acres was estimated to have an upside potential of several trillion cubic feet of gas. The mean reserves potential had been calculated at 800 bcf of gas. Drilling commenced on 17th August 2006. First significant gas shows were recorded at 11,895' in the secondary objective, the Cretaceous chalk and limestone. These shows continued to 12,240' where they abruptly ended. Preliminary log estimates show 92' gross column of gas with a reservoir porosity of between 4 -10 %. As planned, 9 5/8' casing was set at 14,480' and a 7 5/8' liner cemented at 17,000'. Significant gas shows reappeared at 18,190' following the interception of the primary objective, the Hosston sandstones at 17,950'. These gas shows continued intermittently throughout the sequence until the total depth (T.D.) of 20,896' was reached on the 28th November 2006. The logs run at TD show a net pay of between 90 - 140' over an interval 1,700' (19,700' - 18,000') using a 6% porosity cut-off. The most prospective sand was 17' thick showing a calculated porosity of 9%. Based on these log results and gas shows during drilling, the operator proposed setting pipe at 19,000'. Perforations over 10 separate intervals between 19'630' - 18'973' in the lower Hosston sands were successfully executed but no gas flow resulted. The well was cemented up to 18,900', and perforations were then made over 7 higher intervals between 18,199' - 18,689' where significant gas peaks had been encountered during drilling. These fine-grained sandstone intervals were then subjected to a fraccing procedure. On 12th March it was announced that the fraccing had achieved only minor gas recovery at a rate too small to measure. There are several reasons which can explain the absence of significant gas flow, despite the shows during drilling. The most likely explanation is the lack of sufficient permeability due to the fine-grained nature of the sandstones. The deleterious effects of using heavy mud weight (15.6 lbs/gal) by necessity could also have played a role in impeding gas flow. The next operation will be to test the much shallower Cretaceous chalk and limestone which provided good gas shows and encouraging electric log response. A definitive testing programme is being finalised and it is anticipated that operations will recommence in the near future. Project Margarita, Gulf Coast Texas, USA In the November of 2006, Empyrean entered into a farmin agreement where it would earn a 44% Working Interest in six shallow prospects located in a prolific gas-producing area of Southeast Texas, USA. Under the terms offered, Empyrean would also have the opportunity to participate in any of the shallow prospects drilled after the initial six well programme. There also exists the option to participate, under the same farmin terms, in three 'Deep Prospects' (30 - 200 bcf of gas) planned to be drilled in the second-third quarter of 2007. All of the shallow prospects are analogues of well documented Frio and Vicksburg sands production in the project area and have been identified using proven sophisticated geophysical techniques. Drilling of the first of the shallow wells commenced on 20th December 2006 and to date all three wells, El Viejito, Milagro and Dos Dedos, have encountered hydrocarbons. 1. El Viejito El Viejito flowed gas at 210 mscfd during a 24 hour test period. High vertical permeability caused eventual water influx from below the well-defined gas-bearing interval and the gas flow was finally choked because of the water accumulating in the production string. The well was suspended to be used for a water disposal for other joint venture wells in the area. 2. Milagro Milagro, the second well drilled at Margarita and had good shows while being drilled and was connected to a gas sales line on the 3rd April, 2007. On 26th April 2007 it was producing at 451,000 scfd with minor amounts of oil. It has been producing at rates of up to 384,000 scfd with minor amounts of oil. Side-wall cores and log interpretation would seem to indicate that the reservoir is actually oil- bearing with a high gas-oil ratio. In a nearby well initial flow was almost entirely gas before oil eventually flowed, which could be the case at Milagro. Further production data is required before reserves can accurately be determined. If the initial engineering calculation of approximately 150,000 barrels of oil gross is correct, there is a strong likelihood that two wells will be required to exploit the accumulation. 3. Dos Dedos Dos Dedos the third well is also a gas producer. Connection to a gas sales line was completed on 26th April 2007 and production commenced at 151,000 scfd and will gradually be increased. Probable reserves for the producing sand are in the vicinity of 0.35 bcf gross, but again production and pressure data are required for a more accurate reserve determination. The remainder of the six well programmes will commence mid-May 2007 and be completed by the end of July 2007. The wells will be drilled to depths of between 1,340 and 1980 metres. The total mean reserves have been calculated at a little over 3.1 bcf. Should Empyrean elect to participate in the 'Deep Wells programme' following the 'Shallow Wells', it will have the opportunity to share in the drilling of far larger gas prospects which have the potential of holding between 30 to 200 bcf. The reservoir targets will be the Cook Mountain and Wilcox formations and drilling is expected to commence late September 2007. FJ Brophy BSc (Hons) Technical Director 30 April 2007 Income Statement for the year ended 31 March 2007 Notes 2007 2006 £'000 £'000 Administrative expenses (866) (760) ----------- ----------- Operating loss 2 (866) (760) Interest received 3 75 71 ----------- ----------- Loss on ordinary activities before taxation (791) (689) Taxation on loss on ordinary activities 6 - - ----------- ----------- Loss for the financial year (791) (689) ----------- ----------- Loss per share expressed in pence per share - Basic 7 (2.1)p (2.5)p A separate Statement of Recognised Income and Expense is not required. Balance Sheet as at 31 March 2007 Notes 2007 2006 £'000 £'000 Assets Non-current assets Intangible assets 8 6,443 3,860 Plant and equipment 9 4 7 ----------- ----------- 6,447 3,867 Current assets Other receivables 10 237 239 Cash and cash equivalents 4,889 3,210 ----------- ----------- 5,126 3,449 ----------- ----------- Liabilities Current liabilities Other payables 11 (27) (123) ----------- ----------- (27) (123) ----------- ----------- Net current assets 5,099 3,326 ----------- ----------- Net assets 11,546 7,193 ----------- ----------- Shareholders' equity Share capital 13 99 70 Share premium 12,486 7,665 Other reserves 441 147 Retained loss (1,480) (689) ----------- ----------- Total equity 11,546 7,193 ----------- ----------- Cash Flow Statement for the year ended 31 March 2007 Notes 2007 2006 £'000 £'000 Net cash outflow from operating activities 12 (644) (769) ----------- ----------- Return on Investments Interest received 75 71 ----------- ----------- Net cash inflow from returns on investments 75 71 ----------- ----------- Capital expenditure Purchase of tangible fixed assets (3) (12) Purchase of intangible fixed assets (2,583) (3,854) Proceeds from the sale of intangible fixed 3 - assets ----------- ----------- Net cash inflow for capital expenditure (2,583) (3,866) ----------- ----------- Financing Issue of ordinary share capital 5,095 8,146 Expenses relating to share issues (264) (372) ----------- ----------- Net cash inflow from financing 4,831 7,774 ----------- ----------- Increase in net cash 1,679 3,210 Cash and cash equivalents at the start of the 3,210 - year ----------- ----------- Cash and cash equivalents at end of the year 4,889 3,210 =========== =========== Statement of Changes in Equity for the year ended 31 March 2007 Share Share Other Retained Total capital premium reserve loss equity account reserve £'000 £'000 £'000 £'000 £'000 As at 1 April 2005 Share capital issued 70 8,076 - - 8,146 Cost of share issue - (411) - - (411) Share based payments - - 147 - 147 Loss for the year - - - (689) (689) As at 31 March 2006 70 7,665 147 (689) 7,193 Share capital issued 29 5,066 - - 5,095 Cost of share issue - (245) - - (245) Share based payments - - 294 - 294 Loss for the year - - - (791) (791) As at 31 March 2007 99 12,486 441 (1,480) 11,546 Statement of Accounting Policies for the year ended 31 March 2007 The financial statements of Empyrean Energy plc for the year ended 31 March 2007 were authorised for issue by the board on 30 April 2007 and the balance sheets signed on the board's behalf by Mr Patrick Cross and Mr Frank Brophy. The Company's financial statements have been prepared in accordance with International Financial Reporting Standards ('IFRS'). The principal accounting policies are summarised below. They have all been applied consistently throughout the year. Basis of accounting These financial statements have been prepared under the historical cost convention in accordance with International Financial Reporting Standards and IFRIC interpretations and with those parts of the Companies Act, 1985 applicable to companies reporting under IFRS. The financial report is presented in Sterling and all values are shown in pounds (£). Turnover The Company had no turnover during the year. Finance Revenue Finance Revenue is recognised as interest accrues. Cash and cash equivalents Cash and short-term deposits in the balance sheet comprise cash at bank and in hand and short-term deposits with an original maturity of three months or less. For the purposes of the Cash Flow Statement, cash and cash equivalents consist of cash and cash equivalents as defined above, net of outstanding bank overdrafts. Deferred tax Current tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantially enacted by the balance sheet date. No deferred tax asset has been recognised because there is insufficient evidence of the timing of suitable future profits against which they can be recovered. Foreign currencies Transactions denominated in foreign currencies are translated into sterling at contracted rates or, where no contract exists, at average monthly rates. Monetary assets and liabilities denominated in foreign currencies which are held at the year-end are translated into sterling at year-end exchange rates. Exchange differences on monetary items are taken to the Income Statement. Trade and other receivables Trade receivables, which generally have 30 day terms, are recognised and carried at original invoice amount less any allowance for any uncollectible amounts. Trade and other payables Trade payables and other payables are carried at amortised cost and represent liabilities for goods and services provided to the company prior to the end of the financial year that are unpaid and arise when the company becomes obliged to make future payments in respect of the purchase of these goods and services. Exploration and development expenditure Exploration, evaluation and development expenditure incurred is accumulated in respect of each identifiable area of interest. These costs are only carried forward to the extent that they are expected to be recouped through the successful development of the area or where activities in the area have not yet reached a stage which permits reasonable assessment of the existence of economically recoverable reserves. Accumulated costs in relation to an abandoned area are written off in full against the profit in the year in which the decision to abandon the area is made. A regular review is undertaken of each area of interest to determine the appropriateness of continuing to carry forward costs in relation to that area of interest. Restoration, rehabilitation and environmental costs necessitated by exploration and evaluation activities are expensed as incurred and treated as exploration and evaluation expenditure. Judgements and estimates The Group makes judgements and assumptions concerning the future that impact the application of policies and reported amounts. The resulting accounting estimates calculated using these judgements and assumptions will, by definition, seldom equal the related actual results but are based on historical experience and expectations of future events. The judgements and key sources of estimation uncertainty that have a significant effect on the amounts recognised in the financial statements are discussed below. Impairment of assets Financial and non-financial assets are subject to impairment reviews based on whether current or future events and circumstances suggest that their recoverable amount may be less than their carrying value. Recoverable amount is based on a calculation of expected future cash flows which includes management assumptions and estimates of future performance. Share-based payments Certain Directors of the Company receive remuneration in the form of equity-settled share-based payment transactions, whereby services are rendered in exchange for rights over shares ('equity-settled transactions'). The cost of equity-settled transactions with employees is measured by reference to the fair value at the date at which they are granted. The fair value is determined using the Black-Scholes pricing model, further details of which are given in note 5 to the Financial Statements. The cost of equity-settled transactions with parties other than employees is measured at the fair value of the services received at the date of receipt, with a corresponding increase in equity. Going concern The financial statements have been prepared on a going concern basis. Notes to the Financial Statements for the year ended 31 March 2007 1. Turnover and Segmental Analysis The Company had no turnover during the year. All the administration costs were incurred by the Company in the United Kingdom. Capitalised exploration, evaluation and development expenditure can be analysed by the following geographical segments: 2007 2006 £'000 £'000 Continental Europe 2,644 2,027 North America 3,799 1,833 ----------- ----------- 6,443 3,860 =========== =========== 2. Operating Loss The operating loss is stated after charging: 2007 2006 £'000 £'000 Auditors' remuneration - audit services 8 5 - other services 3 3 Depreciation (note 9) 5 3 Directors' emoluments (note 5) 116 88 Directors' share based payments (note 5) 261 127 =========== =========== Auditors' remuneration for non-audit services provided during the year amounting to £2,500 relates to the provision of review and taxation services. 3. Interest Receivable 2007 2006 £'000 £'000 Bank interest received 75 71 =========== =========== 4. Staff Costs (including Directors) The Company had no employees during the year, other than Directors 2007 2006 £'000 £'000 Equity-settled share-based payments 294 127 =========== =========== The Company's equity-settled share based payments comprise incentive options granted to the Company's Directors. The amount and details of share options subject to equity-settled share based payments are set out in note 13. The fair value of these options has been fully expensed during the year, based on a Black-Scholes model, assuming a risk free rate of 4.7% and expected volatility of 60%. The value per option ranges from 8 pence to 9 pence. There are no performance measures attached to the options. 5. Directors' Emoluments Executive Salary Options Issued 2007 2006 2007 2006 £'000 £'000 £'000 £'000 Non-Executive Directors: Patrick Cross (1) 33 24 - 41 Malcolm James 24 16 - - Executive Directors: Frank Brophy (2) 36 24 130 86 Thomas Kelly (3) 36 24 131 - Christopher Lambert (4) 16 40 - - (Resigned 4 October 2006) ---------- ---------- ---------- ---------- Total 145 128 261 127 ========== ========== ========== ========== Capitalised to Intangible Assets 26 40 - - ---------- ---------- ---------- ---------- Expensed to Income Statement 119 88 261 127 ---------- ---------- ---------- ---------- 1) Services provided includes £5,000 paid to HFH Associates Ltd 2) Services provided by F J Brophy Pty Ltd 3) Services provided by Apnea Holdings Pty Ltd 4) Services provided by Walkerton Plc No pension benefits are provided for any Director. The Executive Directors are remunerated for consultancy services provided to the Company in relation to its exploration operations as disclosed above. These payments are capitalised to licences and deferred exploration costs (note 8). Malcolm James is a director of Claridge House Services Limited, for which there is a contract for the provision of administrative and office services to the Company. Directors' Share Options On 31 October 2006, Frank Brophy and Thomas Kelly were allocated options over 1,000,000 shares each at an exercise price of 50 pence per share with an expiry date of 31 October 2009. 6. Taxation 2007 2006 £'000 £'000 Current year taxation UK corporation tax at 30% on profits for the year - - ----------- ----------- Factors affecting the tax charge for the year Loss on ordinary activities before tax (791) (689) ----------- ----------- Loss on ordinary activities at the UK standard rate of (237) (207) 30% Effect of tax benefit of loss carried forward 237 207 ----------- ----------- Current year taxation - - =========== =========== No deferred tax asset has been recognised because there is insufficient evidence of the timing of suitable future profits against which they can be recovered. Tax losses of approximately £1,480,000 are available to be claimed going forward. 7. Loss Per Share The basic loss per share is derived by dividing the loss for the year attributable to ordinary shareholders by the weighted average number of shares in issue. 2007 2006 Loss for the year £(791,542) £(689,000) Weighted average number of Ordinary shares of £0.002 in issue 37,833,661 27,310,455 Loss per share - basic (2.1) pence (2.5) pence Weighted average number of Ordinary shares of £0.002 in issue inclusive of outstanding options 39,006,994 27,917,129 As the inclusion of the potential ordinary shares would result in a decrease in the loss per share they are considered to be antidilutive and, as such, a diluted loss per share is not included. 8. Intangible Assets Licences and deferred exploration 2007 2006 £'000 £'000 Cost Balance brought forward 3,860 - Additions 2,583 3,860 ----------- ----------- At 31 March 6,443 3,860 =========== =========== Amortisation - - ----------- ----------- Net Book Value At 31 March 6,443 3,860 =========== =========== At 31 March 2007 the Directors undertook an impairment review of the licences and deferred exploration costs, as a result of which, no provisions were deemed to be required. Exploration Expenditure by Project Area 2007 2006 £'000 £'000 Glantal, Germany 2,644 2,027 Eagle Oil, USA 2,723 1,833 Sugarloaf Hosston, USA 528 - Margarita, USA 548 - ----------- ----------- Total Licences and deferred exploration 6,443 3,860 =========== =========== 9. Plant and Equipment Office Equipment 2007 2006 £'000 £'000 Cost Balance brought forward 12 - Additions 3 10 Disposal (3) - ----------- ----------- At 31 March 12 10 ----------- ----------- Depreciation Balance brought forward 3 - Charge for the year 5 3 ----------- ----------- At 31 March 2007 8 3 ----------- ----------- Net Book Value At 31 March 4 7 =========== =========== 10. Other Receivables 2007 2006 £'000 £'000 VAT receivables 237 239 =========== =========== 11. Other Payables 2007 2006 £'000 £'000 Accounts Payable 10 - Accruals 17 123 ----------- ----------- Total Payables 27 123 =========== =========== 12. Reconciliation of Operating Loss to Operating Cash Flows 2007 2006 £'000 £'000 Operating loss (866) (760) Increase / (decrease) in debtors 2 (243) Increase / (decrease) in accrued liabilities (88) 104 Other non-cash charges 294 127 Depreciation 5 3 Increase in accounts payable 9 - ----------- ----------- Net cash outflow from operating activities (644) (769) =========== =========== 13. Called Up Share Capital The authorised share capital of the Company and the called up and fully paid amounts at 31 March 2007 were as follows:- 2007 2006 Authorised 1,000,000,000 ordinary shares of 0.2p each 2,000,000 2,000,000 Issued and fully paid 49,596,767 (2006: 35,038,671) ordinary shares of 0.2p each 99,194 70,077 On 26 April 2006 a further 267,619 shares were allotted for cash on exercise of warrants over ordinary shares of 0.2p at a price of 35p per share. On 24 November 2006 a further 4,762 shares were allotted for cash on exercise of warrants over ordinary shares of 0.2p at a price of 35p per share. On 26 January 2007 a placement for a further 14,285,715 ordinary shares of 0.2p were allotted for cash at a price of 35p per share. Share Options and Warrants The following equity instruments have been issued by the Company and have not been exercised at 31 March 2007: Number of ordinary shares Exercise price Expires IPO Warrants 1,173,333 35 pence 27 July 2007 Incentive options 1,250,000 35 pence 31 December 2008 Incentive options 250,000 40 pence 31 December 2008 Incentive options 2,250,000 50 pence 31 October 2009 14. Commitments As at 31 March 2007, the Company had no material capital commitments. 15. Related Party Transactions Other than those disclosed in note 5 there were no other related party transactions during the year. 16. Post Balance Date Events Production has commenced from the shallow well programme at the Margarita project at both the Milagro and Dos Dedos wells. Milagro the second well drilled had good shows and was connected to a gas sales line on the 3 April 2007. On 26 April 2007 it was producing at 451,000 scfd with minor amounts of oil. Further production data is required before reserves can accurately be determined. Dos Dedos the third well drilled in the shallow well programme at Margarita. Dos Dedos is also a gas producer and connection to a gas sales line was completed on 26 April 2007, with production commencing at 151,000 scfd. Production and pressure data is required before the reserves can accurately be determination. On 24 April 2007, the Company announced that the Joint Venture had extended the land acquisition programme for the Sugarloaf Project area, increasing the area over which the Joint Venture has rights to approximately 19,500 acres to date. For further information Laurence Read/ Ed Portman Conduit PR Tel: +44 (0) 207 429 6605/ +44 (0) 7979955923 Empyrean Energy plc Tel: +44(0) 207 182 1746 Rod Venables/ Cecil Jordaan HB Corporate Tel: +44(0) 207 510 8600 This information is provided by RNS The company news service from the London Stock Exchange

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