IFRS
Regal Petroleum PLC
19 September 2007
Immediate Release 19 September 2007
REGAL PETROLEUM PLC
('Regal' or 'the Company')
First Time Adoption of International Financial Reporting Standards ('IFRS') -
Preliminary Restatement of 2006 Financial Information
Regal Petroleum plc, the AIM listed London based oil and gas exploration and
production group, is pleased to announce the restatement of its 2006 financial
information under IFRS.
Regal prepared its financial statements under UK Generally Accepted Accounting
principles ('UK GAAP') until 31 December 2006. From 1 January 2007, in line with
AIM listing requirements, the Company will prepare its consolidated financial
statements in accordance with International Accounting Standards and IFRS, as
adopted by the European Union.
The Company's anticipated accounting policies under IFRS, together with
reconciliations from the 2006 financial information previously released under UK
GAAP to IFRS, are provided below.
The Company's first published results to be prepared on an IFRS basis will be
those for the six months ending 30 June 2007 which will include comparative IFRS
financial results for the six months ended 30 June 2006 and for the year ended
31 December 2006.
For further information, please contact:
Regal Tel: 020 7408 9500
Neil Ritson, Chief Executive Officer
Frank Scolaro, Chairman
Evolution Securities Tel: 020 7071 4300
Robert Collins
Buchanan Communications Tel: 020 7466 5000
Bobby Morse
Ben Willey
First Time Adoption and Restatement of 2006 results under
International Financial Reporting Standards
Introduction
Regal Petroleum plc (Regal or the Group) prepared its consolidated financial
statements under UK Generally Accepted Accounting Practices (UK GAAP) for all
reporting periods to 31 December 2006. With effect from 1 January 2007 all
companies listed on the Alternative Investment Market (AIM) are required to
report in accordance with International Financial Reporting Standards (IFRS).
The Group's first published results to be prepared under IFRS will be those for
the six months ended 30 June 2007, which will include comparative IFRS financial
statements for the six months ended 30 June 2006. The Group will present its
first annual report and accounts under IFRS for the year ended 31 December 2007,
which will include comparative IFRS financial information for the year ended 31
December 2006. Therefore the Group's date of transition to IFRS is 1 January
2006, being the first day of the comparative period (transition date).
Set out in this document are extracts from Regal's consolidated financial
statements for the year ended 31 December 2006 and the six months ended 30 June
2006, restated under IFRS, including reconciliations of the income statements,
balance sheets and cash flow statements between UK GAAP and IFRS. The document
additionally sets out the Group's balance sheet under IFRS at the transition
date, including reconciliation to the UK GAAP balance sheet at that date. The
Group's accounting policies have been revised to reflect IFRS and are also
included herein.
The financial information relating to the year ended 31 December 2006 and the
transition date balance sheet have been audited by UHY Hacker Young LLP. The
financial information relating to the six months ended 30 June 2006 has been
reviewed by UHY Hacker Young LLP. The audit and review reports, addressed to the
Directors of Regal, are included on pages 21 and 23.
Summary Impact of IFRS on Group Results
The principal changes to the Group's reported consolidated 2006 financial
information from the adoption of IFRS are as follows:
UK GAAP Change under IFRS
IFRS
$'000 $'000 $'000
Income Statement
Revenue 10,845 (34) 10,811
Operating loss (66,166) (6,105) (72,271)
Loss after tax (109,176) (6,104) (115,280)
Basic loss per share (cents) (85.0) (4.8) (89.8)
Balance Sheet
Net Assets 69,960 (6,336) 63,624
These changes arise from the following principal factors:
(a) Changes in accounting policies
•IFRS 6 'Exploration for and Evaluation of Mineral Resources': In
accordance with IFRS 6, Regal has written off pre-licence acquisition costs
which were previously capitalised under the Group's full cost UK GAAP
accounting policy. In addition, the Directors have chosen to adopt the
successful efforts method of accounting for its oil and gas assets. This
represents a change in accounting policy from the full cost method used in
the preparation of the accounts prepared under UK GAAP and has been
undertaken as it brings the Group more into line with the majority of its
peer group who report under IFRS. Adoption of the successful efforts method
has had no impact on the results presented.
•IAS 21 'Effect of Changes in Foreign Exchange Rates': Under UK GAAP the
profit and loss account of a foreign entity could be translated at the
closing rate for consolidation purposes. IAS 21 requires revenues and
expenses to be translated at actual rates or appropriate averages.
•IAS 38: 'Intangible Assets': Computer software costs have been
reallocated from Tangible assets to Intangible assets
(b) Changes in Presentation of Financial Information
•IAS 1 'Presentation of Financial Statements': The form and presentation
of the UK GAAP financial statements has been changed to be in compliance
with IAS 1.
•IAS 16 'Property, plant and equipment': 'Tangible fixed assets' has been
renamed 'Property, plant and equipment'.
•IAS 7 'Cash Flow Statements': In the Cash Flow Statement under IFRS cash
flows have been grouped under three main headings: cash flows from operating
activities, from investing activities and from financing activities. This
has led to some presentational changes compared with UK GAAP. There is no
change to the net movement in cash and cash equivalents.
A detailed analysis of the effect of these changes can be found on pages 19 and
20 of this report.
First Time Adoption of IFRS
IFRS 1 'First-time Adoption of International Financial Reporting Standards'
establishes the transitional requirements for the preparation of financial
statements upon first time adoption of IFRS. IFRS 1 generally requires an entity
to comply with IFRS effective at the reporting date and to apply these
retrospectively to the opening balance sheet, the comparative period and the
reporting period. The standard allows certain optional exemptions from full
retrospective application and other elections on transition.
Elections made pursuant to IFRS 1 'First Time Adoption' are as follows:
• IFRS 3 'Business Combinations' has not been applied retrospectively to
business combinations before 1 January 2006. Thus both the classification of
the business combination and the measurement of fair values determined at
the time of the business combination have been maintained.
• Cumulative foreign exchange translation differences for all subsidiaries
which do not use US dollars as a functional currency have been set to zero.
• IFRS 2 'Share-based Payment Transactions' has not been applied to awards
granted before 7 November 2002.
The remaining available elections were reviewed by the Directors and considered
to be either not applicable or not appropriate.
Accounting policies
The accounting policies which the Group has adopted in relation to the
preliminary comparative financial information, and which it currently intends to
adopt for the purposes of its 2007 IFRS interim and annual financial statements,
are set out below.
Basis of preparation
The preliminary comparative financial information (the 'financial information')
has been prepared 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 information is
prepared under the historical cost basis except for valuation of certain
share-based payments and other financial assets. The financial information is
the first financial information to be prepared in accordance with IFRS and the
date of the transition to IFRS is 1 January 2006.
This document and the financial statements contained within do not constitute
statutory accounts within the meaning of section 240 of the Companies Act 1985.
The comparatives for the year ended 31 December 2006 and the period ended 30
June 2006 are not the Group's statutory accounts for that financial year/period.
A copy of the statutory accounts for the year ended 31 December 2006 has been
delivered to the Registrar of Companies. The auditors' report on those accounts
was qualified arising from a limitation in scope in respect of their
comparatives.
Basis of consolidation
The consolidated financial information incorporates the financial information of
the Company and entities controlled by the Company (its subsidiaries) made up to
31 December each year. Control is achieved where the Company has the power to
govern the financial and operating policies of an investee entity so as to
obtain benefits from its activities.
Subsidiaries
The acquisition of subsidiaries is accounted for using the purchase method. On
acquisition, the assets, liabilities and contingent liabilities of a subsidiary
are measured at their fair values at the date of acquisition. Any excess of cost
of acquisition over the fair values of the identifiable net assets acquired is
recognised as goodwill, any deficiency of the cost of acquisition below the fair
values of the identifiable net assets acquired (i.e. discount on acquisition) is
credited to the income statement in the period of acquisition. The results of
subsidiaries acquired or disposed of during the year are included in the
consolidated income statement from the effective date of acquisition or up to
the effective date of disposal, as appropriate.
Subsidiaries that are not controlled by the Company are accounted for as
available-for-sale financial assets (see financial instruments accounting
policies).
Joint ventures
The Group's companies participate in joint ventures which involve joint control
of assets used in the Group's oil and gas exploration, development and producing
activities. The Group accounts for its share of the assets and liabilities of
joint ventures, classified in the appropriate Balance Sheet heading within each
company and at Group level upon consolidation.
Corporate restructuring
During 2002 the Group carried out a corporate restructuring including the
introduction of a new holding company. As this represented a combination of
entities under common control, and because this was before 1 January 2006, this
business combination was outside the scope of IFRS 3 'Business Combinations' and
was therefore accounted for using principles of merger accounting as specified
under UK GAAP.
Commercial reserves
Proven and probable oil and gas reserves are estimated quantities of
commercially producible hydrocarbons which the existing geological, geophysical
and engineering data show to be recoverable in future years from known
reservoirs. The proven and probable reserves included herein conform to the
definition approved by the Society of Petroleum Engineers (SPE) and World
Petroleum Congress (WPC).
Oil and gas exploration assets and development/producing assets
The Group applies the successful efforts method of accounting for oil and gas
assets, having regard to the requirements of IFRS 6 'Exploration for and
Evaluation of Mineral Resources'.
All licence acquisition, exploration and evaluation costs are initially
capitalised as intangible fixed assets in cost centres by field or by
exploration area, as appropriate, pending determination of commerciality of the
relevant property. Directly attributable administration costs are capitalised
insofar as they relate to specific exploration activities, as are finance costs
to the extent they are directly attributable to financing development projects.
Pre-licence costs and general exploration costs not specific to any particular
licence or prospect are expensed as incurred.
If prospects are deemed to be impaired ('unsuccessful') on completion of the
evaluation, the associated costs are charged to the income statement. If the
field is determined to be commercially viable, the attributable costs are
transferred to development/production assets within property, plant and
equipment in single field cost centres.
Subsequent expenditure is capitalised only where it either enhances the economic
benefits of the development/producing asset or replaces part of the existing
development/producing asset.
Net proceeds from any disposal of an exploration asset are initially credited
against the previously capitalised costs. Any surplus proceeds are credited to
the Income Statement. Net proceeds from any disposal of development/producing
assets are credited against the previously capitalised cost. A gain or loss on
disposal of a development/producing asset is recognised in the Income Statement
to the extent that the net proceeds exceed or are less than the appropriate
portion of the net capitalised costs of the asset.
Depletion and amortisation
All expenditure carried within each field is amortised from the commencement of
production on a unit of production basis, which is the ratio of oil and gas
production in the period to the estimated quantities of commercial reserves at
the end of the period plus the production in the period, generally on a field by
field basis. In certain circumstances, fields within a single development area
may be combined for depletion purposes. Costs used in the unit of production
calculation comprise the net book value of capitalised costs plus the estimated
future field development costs necessary to bring the reserves into production.
Changes in the estimates of commercial reserves or future field development
costs are dealt with prospectively.
Impairment
At each balance sheet date, the Group reviews the carrying amount of exploration
assets and development/producing assets to determine whether there is any
indication that those assets have suffered an impairment loss. This includes
exploration and appraisal costs capitalised which are assessed for impairment in
accordance with IFRS 6. If any such indication exists, the recoverable amount of
the asset is estimated in order to determine the extent of the impairment loss
(if any).
Recoverable amount is the greater of net selling price and value in use. In
assessing value in use, the estimated future cash flows are discounted to their
present value using a pre-tax discount rate that reflects current market
assessments of the time value of money and the risks specific to the asset.
If the recoverable amount of an asset is estimated to be less than its carrying
amount, the carrying amount of the asset is reduced to its recoverable amount.
Impairment losses are recognised as an expense immediately.
When an impairment loss subsequently reverses, the carrying amount of the asset
is increased to the revised estimate of its recoverable amount, but so that the
increased carrying amount does not exceed the carrying amount that would have
been determined had no impairment loss been recognised for the asset in prior
years. A reversal of an impairment loss is recognised as income immediately.
Decommissioning
Where a material liability for the removal of production facilities and site
restoration at the end of the productive life of a field exists, a provision for
decommissioning is recognised. The amount recognised is the present value of
estimated future expenditure determined in accordance with local conditions and
requirements. The cost of the relevant tangible fixed asset is increased with an
amount equivalent to the provision and depreciated on a unit of production
basis. Changes in estimates are recognised prospectively, with corresponding
adjustments to the provision and the associated fixed asset. There were no
material decommissioning liabilities at 1 January and 31 December 2006.
Property, plant and equipment other than oil and gas assets and depreciation
Property, plant and equipment other than oil and gas assets are stated at cost
less accumulated depreciation and any provision for impairment. Depreciation is
charged so as to write off the cost, less estimated residual value, of assets on
a straight-line basis over their useful lives as follows:
Fixtures, fittings and equipment : 20-25% per annum straight line
Motor vehicles : 20-25% per annum straight line
Plant and machinery : 8-25% per annum straight line
Inventories
Inventories are stated at the lower of weighted average cost and net realisable
value. Net realisable value represents the estimated selling price less all
estimated costs of completion and costs to be incurred in marketing, selling and
distribution.
Revenue recognition
Turnover represents amounts invoiced in respect of sales of oil and gas
exclusive of indirect taxes and excise duties and is recognised on delivery of
product. Interest income is accrued on a time basis, by reference to the
principal outstanding and at the effective rate applicable, which is the rate
that exactly discounts estimated future cash receipts through the expected life
of the financial asset to that asset's net carrying amount.
Foreign currencies
The Group's consolidated accounts are presented in US Dollars. The functional
and presentational currencies of some subsidiary companies may be in currencies
other than US Dollars.
The functional currency of individual companies is normally determined by the
primary economic environment in which the entity operates (the functional
currency), normally the one in which it primarily generates and expends cash.
Transactions in currencies other than US dollars ('foreign currencies') are
recorded in US dollars at the rates of exchange prevailing on the dates of the
transactions. At each balance sheet date, monetary assets and liabilities that
are denominated in foreign currencies are retranslated into US dollars at the
rates prevailing on the balance sheet date. Non-monetary assets and liabilities
carried at fair value that are denominated in foreign currencies are translated
at the rates prevailing at the date when the fair value was determined. Gains
and losses arising on retranslation are included in net profit or loss for the
period, except for exchange differences arising on non-monetary assets and
liabilities where the changes in fair value are recognised directly in equity.
On consolidation, the assets and liabilities of the group's subsidiaries which
do not use US dollars as their functional currency are translated into US
dollars at exchange rates prevailing on the balance sheet date. Income and
expense items are translated at the average exchange rates for the period unless
exchange rates fluctuate significantly. Exchange differences arising, if any,
are classified as equity and are recognised in the group's translation reserve.
Such translation differences are recognised as income or as expenses in the
period in which the operation is disposed of.
In accordance with the transitional provisions of IFRS 1 cumulative foreign
exchange translation differences at 1 January 2006 for all subsidiaries which do
not use US dollars as a functional currency have been set to zero.
Pensions
The Group operates a defined contribution pension scheme. The assets of the
scheme are held separately from those of the Group in an independently
administered fund. The amount charged to the profit and loss account represents
the contributions payable to the scheme in respect of the accounting period.
Leases
Leases are classified as finance leases whenever the terms of the lease transfer
substantially all the risks and rewards of ownership to the lessee. All other
leases are classified as operating leases.
Assets held under finance leases are recognised as assets of the Group at their
fair value or, if lower, at the present value of the minimum lease payments,
each determined at the inception of the lease. The corresponding liability is
included on the balance sheet as a finance lease obligation. Lease payments are
apportioned between finance charges and reduction of the lease obligation so as
to achieve a constant rate of interest on the remaining balance of the
liability. Finance charges are charged directly against income, unless they are
directly attributable to qualifying assets, in which case they are capitalised
in accordance with the Group's policy on borrowing costs (see below).
Rentals payable under operating leases are charged to income on a straight-line
basis over the term of the relevant lease.
Taxation
The tax expense represents the sum of the tax currently payable and deferred
tax.
Current tax, including UK corporation and overseas tax, is provided at amounts
expected to be paid (or recovered) using the tax rates and laws that have been
enacted or substantially enacted by the balance sheet date.
Deferred tax is the tax expected to be payable or recoverable on differences
between the carrying amounts of assets and liabilities in the financial
information and the corresponding tax bases used in the computation of taxable
profit, and is accounted for using the balance sheet liability method. Deferred
tax liabilities are generally recognised for all taxable temporary differences
and deferred tax assets are recognised to the extent that it is probable that
taxable profits will be available against which deductible temporary differences
can be utilised. Such assets and liabilities are not recognised if the temporary
difference arises from goodwill or from the initial recognition (other than in a
business combination) of other assets and liabilities in a transaction that
affects neither the tax profit nor the accounting profit.
Deferred tax liabilities are recognised for taxable temporary differences
arising on investments in subsidiaries and associates, and interests in joint
ventures, except where the group is able to control the reversal of the
temporary difference and it is probable that the temporary difference will not
reverse in the foreseeable future.
The carrying amount of deferred tax assets is reviewed at each balance sheet
date and adjusted to the extent that it is probable that sufficient taxable
profits will be available to allow all or part of the asset to be recovered.
Deferred tax is calculated at the tax rates that are expected to apply in the
period when the liability is settled or the asset is realised. Deferred tax is
charged or credited in the income statement, except when it relates to items
charged or credited directly to equity, in which case the deferred tax is also
dealt with in equity.
Dividends payable
Accounting for dividends payable is in accordance with IAS 10 'Events after the
Balance Sheet Date'. Accordingly, dividends proposed or declared on equity
instruments after the Balance Sheet date are not recognised as a liability at
the Balance Sheet date.
Financial instruments
Financial assets and financial liabilities are recognised on the Group's balance
sheet when the Group becomes a party to the contractual provisions of the
instrument. The Group does not currently utilise derivative financial
instruments.
Trade receivables
Trade receivables do not carry any interest and are stated at their nominal
value as reduced by appropriate allowances for estimated irrecoverable amounts.
Investments
Investments are recognised and derecognised on a trade date where a purchase or
sale of investment is under a contract whose terms require delivery of the
investment within the timeframe established by the market concerned, and are
initially measured at cost, including transaction costs.
Investments are classified as either held-for-trading or available-for-sale, and
are measured at subsequent reporting dates at fair value. Where securities are
held for trading purposes, gains and losses arising from changes in fair value
are included in net profit or loss for the period. For available-for-sale
investments, gains and losses arising from changes in fair value are recognised
directly in equity, until the security is disposed of or is determined to be
impaired, at which time the cumulative gain or loss previously recognised in
equity is included in the net profit or loss for the period. Impairment losses
recognised in profit and loss for equity instruments classified as
available-for-sale are not subsequently reversed through profit and loss.
Trade payables
Trade payables are not interest-bearing and are stated at their nominal value.
Bank borrowings and loan notes
Interest-bearing bank borrowings and loan notes are recorded at the proceeds
received, net of direct transaction costs. Direct transaction costs are
accounted for on an amortised cost basis in profit and loss using the effective
interest method and are added/deducted to/from the carrying amount of the
instrument to the extent that they are not settled in the period in which they
arise.
Equity instruments
Equity instruments issued by the Company and the Group are recorded at the
proceeds received, net of direct issue costs.
Finance costs and debt
Borrowing costs directly attributable to the acquisition, construction or
production of qualifying assets, which are assets that necessarily take a
substantial period of time to get ready for their intended use or sale, are
added to the cost of those assets, until such time as the assets are
substantially ready for their intended use or sale.
Finance costs of debt are allocated to periods over the term of the related debt
at the effective interest rate on the carrying amount. Directly attributable
transaction costs are deducted from the debt proceeds on initial recognition of
the liability and are amortised and charged to the Income Statement as finance
costs over the term of the debt.
All other borrowing costs are expensed as incurred.
Cash and cash equivalents
Cash and cash equivalents comprise cash on hand and demand deposits and other
short term highly liquid investments that are readily convertible to a known
amount of cash and are subject to an insignificant risk of changes in value.
Included in cash and cash equivalents are amounts relating to financial
guarantees entered into by the Group to collaterise future commitments as per
standard industry practice.
Share-based transactions
The Group has applied the requirements of IFRS 2 'Share-based payments'. In
accordance with the transitional provisions of that standard, this standard has
not been applied to those awards that were granted on or before 7 November 2002.
In addition, the standard has not been applied to awards that were granted after
7 November 2002 that vested before 1 January 2005. However, in contrast to the
transitional provision of IFRS 2, the standard has been applied for those awards
that were granted after 7 November 2002, and that vested between 1 January 2005
and 1 January 2006 in order to be consistent with the transitional rules adopted
under UK GAAP in the 2006 annual report in respect of FRS 20 Share-based
Payments.
All share based awards of the group to date have been equity settled as defined
by IFRS 2. The fair value of these awards has been determined at the date of
grant of the award allowing for the effect of any market-based performance
conditions. The fair value, adjusted by the Group's estimate of the number of
awards that will eventually vest as a result of non-market conditions, is
expensed uniformly over the vesting period.
The fair values were calculated using a binomial option pricing model with
suitable modifications to allow for employee turnover after vesting and early
exercise. Where necessary this model was supplemented with a Monte Carlo model.
The inputs to the model include: the share price at date of grant; exercise
price; expected volatility; expected dividends; risk free rate of interest; and
patterns of exercise of the plan participants.
Share options
In accordance with IAS 37 'Provisions, Contingent Liabilities and Contingent
Assets', the Company provides in full for the employer's national insurance
liability estimated to arise on the future exercise of share options granted.
1. Reconciliation of UK GAAP to IFRS
Consolidated Income Statement for the year ended 31 December 2006
UK GAAP IFRS 6 IAS 21 IFRS
$'000 $'000 $'000 $'000
Notes a b c
Revenue 10,845 - (34) 10,811
Cost of sales (8,306) - 21 (8,285)
----------------------- -------- ------- ------ --------
Gross profit 2,539 - (13) 2,526
Ukraine settlement costs (54,801) - - (54,801)
Share based charge (387) - - (387)
Other administrative expenses (14,378) (6,150) 61 (20,467)
----------------------- -------- ------- ------ --------
Total administrative expenses (69,566) (6,150) 61 (75,655)
Other operating income 861 - (3) 858
----------------------- -------- ------- ------ --------
Operating loss (66,166) (6,150) 45 (72,271)
Impairment of financial asset (43,700) - - (43,700)
Finance revenue 1,183 - (1) 1,182
Finance costs (2) - - (2)
----------------------- -------- ------- ------ --------
Loss on ordinary activities before
taxation (108,685) (6,150) 44 (114,791)
Tax on loss on ordinary activities (491) - 2 (489)
----------------------- -------- ------- ------ --------
Loss for the financial period (109,176) (6,150) 46 (115,280)
----------------------- -------- ------- ------ --------
Loss per ordinary share (cents)
Basic and diluted (85.0) (4.8) - (89.8)
----------------------- -------- ------- ------ --------
Consolidated Balance Sheet as at 31 December 2006
UK GAAP IFRS 6 IAS 21 IAS 38 IAS 16 IFRS
$'000 $'000 $'000 $'000 $'000 $'000
Notes a b c d e
Non-current assets
Intangible assets 26,867 (6,336) - 141 - 20,672
Property, plant and
equipment - - - - 29,620 29,620
Tangible assets 29,761 - - (141) (29,620) -
----------------- -------- ------- ------ ------ ------- -------
56,628 (6,336) - - - 50,292
Current assets
Inventories 37 - - - - 37
Trade and other
receivables 3,368 - - - - 3,368
Cash and cash 13,048 - - - - 13,048
equivalents
----------------- -------- ------- ------ ------ ------- -------
16,453 - - - - 16,453
----------------- -------- ------- ------ ------ ------- -------
Current liabilities
Trade and other (2,171) - - - - (2,171)
payables -------- ------- ------ ------ ------- -------
-----------------
Net current assets 14,282 - - - - 14,282
----------------- -------- ------- ------ ------ ------- -------
Non-current
liabilities
Provisions (950) - - - - (950)
----------------- -------- ------- ------ ------ ------- -------
----------------- -------- ------- ------ ------ ------- -------
Net assets 69,960 (6,336) - - - 63,624
----------------- -------- ------- ------ ------ ------- -------
Equity
Called up share 10,934 - - - - 10,934
capital
Share premium account 217,640 - - - - 217,640
Other reserves 10,644 - (46) - - 10,598
Equity reserves 49,049 - - - - 49,049
Profit and loss (218,307) (6,336) 46 - - (224,597)
account -------- ------- ------ ------ ------- -------
-----------------
Total equity 69,960 (6,336) - - - 63,624
----------------- -------- ------- ------ ------ ------- --------
Consolidated Cash Flow Statement for the year to 31 December 2006
UK GAAP IFRS 6 IAS 38 IAS 16 IFRS
$'000 $'000 $'000 $'000 $'000
Notes a b d e
Operating activities
Cash generated from operations (11,840) (6,184) - - (18,024)
Interest received 1,183 - - - 1,183
Interest paid (2) - - - (2)
Taxation paid (491) - - - (491)
---------------------- -------- ------- ------- ------- -------
Net cash from operating (11,150) (6,184) - - (17,334)
activities -------- ------- ------- ------- -------
----------------------
Investing activities
Proceeds from sale of intangible
fixed assets 4,245 - - - 4,245
Purchase of intangible assets (14,100) 6,184 (50) - (7,966)
Purchase of property, plant and
equipment - - - (1,926) (1,926)
Purchase of tangible assets (1,976) - 50 1,926 -
---------------------- -------- ------- ------- ------- -------
Net cash from investing (11,831) 6,184 - - (5,647)
activities -------- ------- ------- ------- -------
----------------------
Financing activities
Funds received in connection with
share options 80 - - - 80
---------------------- -------- ------- ------- ------- -------
Net cash from financing 80 - - - 80
activities -------- ------- ------- ------- -------
----------------------
Net decrease in cash and cash
equivalents (22,901) - - - (22,901)
Cash and cash equivalents at
beginning of year 34,916 - - - 34,916
Effect of foreign exchange rate
changes 1,149 - - - 1,149
Other non-cash movements (116) - - - (116)
---------------------- -------- ------- ------- ------- -------
Cash and cash equivalents at end
of year 13,048 - - - 13,048
---------------------- -------- ------- ------- ------- -------
Consolidated Income Statement for the six months ended 30 June 2006
UK GAAP IAS 21 IFRS
$'000 $'000 $'000
Notes a c
Revenue 4,967 (106) 4,861
Cost of sales (4,175) 89 (4,086)
----------------------- -------- ------ ------
Gross profit 792 (17) 775
Share based credit 91 - 91
Administrative expenses (5,193) 11 (5,182)
----------------------- -------- ------ ------
Total administrative expenses (5,102) 11 (5,091)
----------------------- -------- ------ ------
Operating loss (4,310) (6) (4,316)
Finance revenue 679 - 679
Finance costs (1) - (1)
----------------------- -------- ------ ------
Loss on ordinary activities before taxation (3,632) (6) (3,638)
Tax on loss on ordinary activities (33) 1 (32)
----------------------- -------- ------ ------
Loss for the financial period (3,665) (5) (3,670)
----------------------- -------- ------ ------
Loss per ordinary share (cents)
Basic and diluted (2.9) - (2.9)
----------------------- -------- ------ ------
Consolidated Balance Sheet as at 30 June 2006
UK GAAP IFRS 6 IAS 21 IAS 38 IAS 16 IFRS
$'000 $'000 $'000 $'000 $'000 $'000
Notes a b c d e
Non-current assets
Intangible assets 20,735 (475) - 227 - 20,487
Property, plant and
equipment - - - - 33,321 33,321
Tangible assets 33,548 - - (227) (33,321) -
Financial asset 43,700 - - - - 43,700
----------------- -------- ------ ------ ------ ------- -------
97,983 (475) - - - 97,508
Current assets
Inventories 40 - - - - 40
Trade and other
receivables 3,515 - - - - 3,515
Investments 117 - - - - 117
Cash and cash 25,478 - - - - 25,478
equivalents
----------------- -------- ------ ------ ------ ------- -------
29,150 - - - 29,150
----------------- -------- ------ ------ ------ ------- -------
Current liabilities
Trade and other (3,086) - - - - (3,086)
payables
----------------- -------- ------ ------ ------ ------- -------
Net current assets 26,064 - - - - 26,064
----------------- -------- ------ ------ ------ ------- -------
Non-current
liabilities
Provisions (207) - - - - (207)
----------------- -------- ------ ------ ------ ------- -------
----------------- -------- ------ ------ ------ ------- -------
Net assets 123,840 (475) - - - 123,365
----------------- -------- ------ ------ ------ ------- -------
Equity
Called up share 10,934 - - - - 10,934
capital
Share premium account 217,640 - - - - 217,640
Other reserves 8,289 - 5 - - 8,294
Profit and loss (113,023) (475) (5) - - (113,503)
account
----------------- -------- ------ ------ ------ ------- -------
Total equity 123,840 (475) - - - 123,365
----------------- -------- ------ ------ ------ ------- --------
Consolidated Cash flow Statement for the six months to 30 June 2006
UK GAAP IFRS 6 IAS 38 IAS 16 IFRS
$'000 $'000 $'000 $'000 $'000
Notes a b d e
Operating activities
Cash generated from operations (2,872) (2) - - (2,874)
Interest received 678 - - - 678
Interest paid (1) - - - (1)
Taxation paid (34) - - - (34)
----------------------- -------- ------- ------ ------ -------
Net cash from operating activities (2,229) (2) - - (2,231)
----------------------- -------- ------- ------ ------ -------
Investing activities
Purchase of intangible assets (4,078) 2 (48) - (4,124)
Purchase of property, plant and
equipment - - - (3,168) (3,168)
Purchase of tangible assets (3,216) - 48 3,168 -
----------------------- -------- ------- ------ ------- -------
Net cash from investing activities (7,294) 2 - - (7,292)
----------------------- -------- ------- ------ ------- -------
Net decrease in cash and cash
equivalents (9,523) - - - (9,523)
Cash and cash equivalents at
beginning of period 34,916 - - - 34,916
Effect of foreign exchange rate
changes 202 - - - 202
----------------------- -------- ------- ------ ------- -------
Cash and cash equivalents at end
of period 25,595 - - - 25,595
----------------------- -------- ------- ------ ------- -------
Consolidated Balance Sheet as at 1 January 2006
UK GAAP IFRS 6 IAS 38 IAS 16 IFRS
$'000 $'000 $'000 $'000 $'000
Notes a b d e
Non-current assets
Intangible assets 14,731 (473) 221 - 14,479
Property, plant and equipment - - - 29,135 29,135
Tangible assets 29,356 - (221) (29,135) -
Financial asset 43,700 - - - 43,700
----------------- -------- ------ ------ ------- -------
87,787 (473) - - 87,314
Current assets
Inventories 38 - - - 38
Trade and other receivables 4,995 - - - 4,995
Investments 136 - - - 136
Cash and cash equivalents 34,796 - - - 34,796
----------------- -------- ------ ------ ------- -------
39,965 - - - 39,965
----------------- -------- ------ ------ ------- -------
Current liabilities
Trade and other payables (2,267) - - - (2,267)
----------------- -------- ------ ------ ------- -------
Net current assets 37,698 - - - 37,698
----------------- -------- ------ ------ ------- -------
Non-current liabilities
Provisions (196) - - - (196)
----------------- -------- ------ ------ ------- -------
----------------- -------- ------ ------ ------- -------
Net assets 125,289 (473) - - 124,816
----------------- -------- ------ ------ ------- -------
Equity
Called up share capital 10,934 - - - 10,934
Share premium account 217,640 - - - 217,640
Other reserves 6,073 - - - 6,073
Profit and loss account (109,358) (473) - - (109,831)
----------------- -------- ------ ------ ------- -------
Total equity 125,289 (473) - - 124,816
----------------- -------- ------ ------ ------- --------
Notes to reconciliations
The following notes explain the reconciliations between the UK GAAP financial
statements and the IFRS comparative financial information.
a Amounts described as 'UK GAAP' have been reclassified to conform with IFRS
format.
b IFRS 6: 'Exploration for and Evaluation of Mineral Resources'
Under UK GAAP all costs incurred prior to having obtained the licence rights
were included within intangible assets. Under IFRS such expenditure has to be
written off in full in the year in which it occurs. This has resulted in an
adjustment of $473k to retained earnings for the opening balance sheet, an
additional adjustment of $2k to 30 June 2006 and an adjustment of $6.15m to
other administrative expenses for the year ended 31 December 2006. The total
adjustment for the year ended 31 December 2006 is $6.658m, however $322k
(included in the opening balance sheet adjustment and subsequent expenditure
during 2006) was impaired during 2006 which now reverses resulting in a net
adjustment of $6.336m.
On the cash flow statement for the year ended 31 December 2006, the pre-licence
costs were shown within 'Capital expenditure and financial investment'. Since
such costs are being expensed under IFRS, they have been classified within
operating cash flows.
The adoption of the successful efforts method of accounting for oil and gas
assets has resulted in no adjustment to Intangible Assets or to the Income
Statement/Retained Earnings.
c IAS 21: 'Effect of Changes in Foreign Exchange Rates'
Under UK GAAP the profit and loss account of a foreign entity could be
translated at the closing rate for consolidation purposes. IAS 21 requires
revenues and expenses to be translated at actual rates or appropriate averages.
Cumulative exchange differences are then recognised as a separate component
within equity.
At transition date, the Group has taken advantage of the exemptions offered
under IFRS 1 and deemed cumulative translation differences to be zero.
For later periods, this change has resulted in a restatement of the income
statement with the corresponding adjustment recognised within equity.
d IAS 38: 'Intangible Assets'
In accordance with IAS 38, the Group has reclassified computer software from
property, plant and equipment to intangible assets as the software component is
not an integral part of the related hardware of a computer.
This adjustment is also reflected within the cashflow statement as a
reclassification from fixed assets to intangible assets.
e IAS 16: 'Property, Plant and Equipment'
Under UK GAAP, tangible fixed assets comprised oil and gas properties for which
the existence or otherwise of commercial reserves had been established and other
fixed assets including non oil and gas specific fixtures and fittings, office
equipment and motor vehicles.
Under IFRS, all amounts previously classified as tangible assets have been
recorded as Property, Plant and Equipment.
Independent Auditors' Report
INDEPENDENT AUDITORS' REPORT TO REGAL PETROLEUM PLC
ON THE PRELIMINARY COMPARATIVE IFRS FINANCIAL INFORMATION
We have audited the preliminary comparative IFRS financial information of Regal
Petroleum plc for the year ended 31 December 2006 which comprises the group
income statement, group balance sheet, group changes in net equity, group cash
flow statement and the transition date (1 January 2006) group balance sheet, all
of which are set out in section 5 and which have been prepared on the basis set
out in sections 3 and 4.
This report is made solely to the company in accordance with our related
engagement letter and solely for the purpose of assisting with the transition to
IFRS. Our audit work has been undertaken so that we might state to the company,
those matters we are required to state to it in an auditors' report and for no
other purpose. To the fullest extent permitted by law, we will not accept or
assume responsibility to anyone other than the company for our audit work, for
our report, or for the opinions we have formed.
Respective responsibilities of Directors and auditors
The company's Directors are responsible for ensuring that the Group maintains
proper accounting records and for the preparation of the preliminary comparative
IFRS financial information on the basis set out in sections 3 and 4, which
describe how IFRS will be applied under IFRS 1 and the policies expected to be
adopted, when they prepare its first complete set of IFRS financial statements
as at 31 December 2007.
Our responsibility is to audit the preliminary comparative IFRS financial
information in accordance with relevant legal and regulatory requirements and
International Standards on Auditing (UK and Ireland) and report to you our
opinion as to whether the preliminary comparative IFRS financial information is
prepared, in all material respects, on the basis set out in sections 3 and 4.
We read the other information contained in the preliminary comparative IFRS
financial information for the above year as described on the contents page and
consider the implications for our report if we become aware of any apparent
misstatements or material inconsistencies with the preliminary comparative IFRS
financial information.
Basis of audit opinion
We conducted our audit in accordance with International Standards on Auditing
(UK and Ireland) issued by the Auditing Practices Board. An audit includes
examination, on a test basis, of evidence relevant to the amounts and
disclosures in the preliminary comparative IFRS financial information. It also
includes an assessment of the significant estimates and judgements made by the
Directors in the preparation of the preliminary comparative IFRS financial
information and of whether the accounting policies are appropriate to the
circumstances of the Group, consistently applied and adequately disclosed.
We planned and performed our audit so as to obtain all the information and
explanations which we consider necessary in order to provide us with sufficient
evidence to give reasonable assurance that the preliminary comparative IFRS
financial information is free from material misstatement, whether caused by
fraud or other irregularity or error. In forming our opinion, we also evaluated
the overall adequacy of the presentation of information in the preliminary
comparative IFRS financial information.
We draw attention to the fact that, under IFRS, only a complete set of financial
statements comprising an income statement, balance sheet, cash flow statement,
statement of recognised income and expense and statement of changes in
shareholders' equity, together with comparative financial information and
explanatory notes, provide a fair presentation of the Group's financial
position, results of operations and cash flow in accordance with IFRS.
Opinion
In our opinion the preliminary comparative IFRS financial information is
prepared, in all material respects, on the basis set out in sections 3 and 4
which describes how IFRS will be applied under IFRS 1, and the policies expected
to be adopted, when management prepares its first complete set of IFRS financial
statements at 31 December 2007.
UHY Hacker Young LLP
Registered Auditors
Chartered Accountants
London
18 September 2007
Independent Review Report
INDEPENDENT REVIEW REPORT TO REGAL PETROLEUM PLC
ON THE PRELIMINARY IFRS FINANCIAL INFORMATION FOR THE SIX MONTHS ENDED 30 JUNE
2006
Introduction
We have reviewed the preliminary IFRS consolidated financial information of
Regal Petroleum Plc for the six months ended 30 June 2006 which comprises the
group
income statement, the group consolidated cash flow statement, the group balance
sheet and the group statement of changes in equity as at 30 June 2006.
This report is made solely to the company in accordance with guidance contained
in Bulletin 1999/4 'Review of interim financial information' issued by the
Auditing Practices Board. To the fullest extent permitted by the law, we do not
accept or assume responsibility to anyone other than the company for our work,
for this report, or for the conclusions we have formed.
Directors' responsibilities
The preliminary IFRS financial information is the responsibility of the
company's Directors and has been prepared as part of the company's conversion to
IFRS. It has been prepared in accordance with the basis of preparation set out
in sections 3 and 4 which describe how IFRS has been applied under IFRS 1,
including the policies expected to be adopted, when management prepares its
first complete set of IFRS financial statements as at 31 December 2007.
Review work performed
We conducted our review in accordance with guidance contained in Bulletin 1999/4
'Review of interim financial information' issued by the Auditing Practices Board
for use in the United Kingdom. A review consists principally of making enquiries
of group management and applying analytical procedures to the financial
information and underlying financial data, and based thereon, assessing whether
the accounting policies and presentation have been consistently applied, unless
otherwise disclosed. A review excludes audit procedures such as tests of
controls and verification of assets of assets, liabilities and transactions. It
is substantially less in scope than an audit performed in accordance with
International Standards on Auditing and therefore provides a lower level of
assurance than an audit. Accordingly we do not express an opinion on the
preliminary IFRS financial information.
We draw attention to the fact that, under IFRS only a complete set of financial
statements with comparative financial information and explanatory notes can
provide a fair presentation of the company's financial position, results of
operations and cash flows in accordance with IFRS.
Review conclusion
On the basis of our review we are not aware of any material modifications that
should be made to the preliminary IFRS financial information as presented for
the six months ended 30 June 2006.
UHY Hacker Young LLP
Chartered Accountants
London
18 September 2007
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