FOGL Preliminary Results

Falkland Islands Holdings PLC
12 March 2008



Wednesday 12 March 2008



                          Falkland Islands Holdings plc

                Falkland Oil and Gas Limited Preliminary Results


Falkland Islands Holdings plc ('FIH'), the international services Group which
owns essential services businesses focused on transport and logistics and which
has a 16.2% strategic shareholding in Falkland Oil and Gas ('FOGL'), notes the
announcement issued today by FOGL, the full text of which is outlined below.







                          Falkland Oil and Gas Limited

                           ('FOGL' or 'the Company')



            Preliminary Results for the year ended 31 December 2007



FOGL, the oil and gas exploration company focused on its extensive licence areas
to the South and East of the Falkland Islands, announces Preliminary Results for
the year ended 31 December 2007.



The year 2007 has seen significant progress:



•        Exploration activity further de-risks the project
     -    Over 750 kms of CSEM data were acquired over 12 prospects delivering
          encouraging results
     -    9,950 kms of additional 2D seismic data were acquired allowing
          improved definition of the key prospects


•        Positive results confirm the high potential of the project
     -    A short list has been produced of prospects which offer the lowest
          exploration risk but also could contain large potential hydrocarbon 
          resource volumes
     -    FOGL's top ranked prospects have the potential to contain hydrocarbon
          resources in excess of 10 billion barrels oil equivalent (mean, 
          un-risked)


•        BHP Billiton farm-in deal adds credibility to the exploration assets
         and includes a commitment to drill a minimum of two exploration wells
     -    Following an extensive review of the exploration data, BHP Billiton
          acquired a 51% interest and operatorship of FOGL's licences
     -    BHP Billiton paid $12.75 million cash and will pay 68% of the costs of
          the first two wells in the drilling programme

     -    BHP Billiton has extensive deepwater drilling expertise



•        FOGL is poised to participate in the first drilling campaign in the
         basin
     -    FOGL's licence areas are in the basins to the South and East of the
          Islands which, to date, have never been drilled


•        FOGL is substantially funded through its share of this programme
     -    Cash balance of £12.5 million at year end


•        Preparation work for drilling  is in progress
     -    Enhanced processing and interpretation of CSEM results is nearing
          completion
     -    Work on key prospects is ongoing in readiness for drilling
     -    Site surveys are expected to be carried out in second half 2008
     -    BHP Billiton is currently reviewing a number of  rig options





Tim Bushell, Chief Executive of FOGL, said:



'FOGL is now within touching distance of realising the potential of what is
probably one of the most exciting high impact exploration projects currently
being undertaken anywhere in the world.



'We have brought in a credible partner with the resources and experience to
undertake the drilling programme.  The rewards for success could be substantial
given the large resource volumes of the prospects being targeted.'



Enquiries:


Falkland Oil and Gas                                       [phone]
Tim Bushell, Chief Executive

KBC Peel Hunt (Nominated Advisor)                          [phone]
Jonathan Marren / Matt Goode

Financial Dynamics                                         [phone]
Ben Brewerton / Ed Westropp






Chairman's Statement



Since FOGL embarked on its journey in 2004 it has undertaken a great deal of
work to demonstrate the potential of the licence areas to hold very significant
hydrocarbon resources.



The farm-out agreement signed with BHP Billiton in October 2007 was the
culmination of this initial phase of work.



Under the terms of the farm-out agreement, BHP Billiton acquired a 51% interest
in FOGL's entire exploration acreage and took over the operatorship. In return,
 BHP Billiton will pay four thirds of 51% (68%) of the costs of the near term
work programme, including the drilling of two exploration wells and all other
associated work to the completion of this drilling programme. In addition, BHP
Billiton has paid FOGL US$12.75 million in relation to certain costs already
incurred by FOGL.



FOGL's cash balance at the year end was £12.5 million, following exploration
expenditure during the year of £11 million. As a result, FOGL is funded through
a significant proportion of the near term exploration programme.



The Company has retained a significant equity interest which provides the
flexibility for a second farm-out deal to be considered.  Since announcing the
agreement with BHP Billiton, FOGL has been approached by a number of other
parties potentially interested in farming in to the area. A second farminee
could offer FOGL the possibility of funding additional exploration and/or
appraisal wells. We will however, balance the benefits of another farm-out with
the retention of sufficient equity in the licences to provide substantial
benefits to shareholders from a successful drilling campaign.



FOGL is poised to enter the exploration drilling phase with a major interest in
what may well be a significant new petroleum region in the South Atlantic.






Chief Executive's Review





Overview



Since 2004, £22 million has been invested in exploration activity by the Company
to define and further de-risk the project.  A significant proportion of that has
now been recouped from BHP Billiton in a land mark deal for FOGL.



In the year under review, the Company undertook a CSEM survey and a 2D infill
seismic survey.  The results of both surveys were positive. Over 750kms of CSEM
data were acquired along 7 lines, over a total of 12 prospects. 'Positive' CSEM
anomalies, indicating the possible presence of trapped hydrocarbons, were
recognised over a number of the best prospects. The most encouraging CSEM
anomalies have been identified over seven prospects, which also benefit from
seismically-derived direct hydrocarbon indications. Each of these prospects
could contain large amounts of oil and gas, of up to 3.5 billion barrels (mean
unrisked recoverable resource).



The 2007 2D seismic survey acquired a total of 9,950km.  The survey was designed
to infill the existing seismic grid in order to better define known leads and
prospects. The new data also led to the identification of a significant new lead
located in quadrant 61. Other leads have been developed into substantial
prospects.





Ongoing activity



The company has entered into a new phase of operations where future work, with
BHP Billiton as operator, will lead into the drilling programme. The data from
the CSEM survey will undergo enhanced processing and interpretation over the
next few months to produce results which will be fully integrated with the
existing data and with the recent 2D infill seismic.



Site surveys are expected to be carried out in the second half of 2008. BHP
Billiton is currently reviewing a number of potential rig options and an update
on this will be provided at a future point. If appropriate, discussions will be
held with the other Falkland operators with respect to rig sharing.





Licence Terms



The Falkland Islands Government ('FIG') has consented to the assignment of a 51%
licence interest to BHP Billiton and approved BHP Billiton as licence operator.
Under the revised licence terms agreed by FIG, Phase 1 of the licences has been
extended by 3 years to December 2010 and Phase 2 extended by 2 years to December
2015. In return FOGL and BHP Billiton have agreed to make a 50% relinquishment
of Area B of the 2004 licences and a 25% relinquishment of Area A of the 2004
licences. However even after these surrenders, in the opinion of FOGL all the
significant leads and prospects have been retained within the 2004 licence area.
No further relinquishment of the 2002 licences was required. The total retained
area of the 2002 and 2004 licences comprises a significant 48,853 square
kilometres, equivalent to over 220 UK North Sea blocks.





Financials



FOGL started the year with £14.9 million in cash, of which £11 million was
invested in the exploration programme and £2 million was used to cover operating
costs.   At the end of the year, we received US$12.75 million (£6.4 million)
from BHP Billiton under the terms of the farm-out agreement bringing the year
end cash balance to £12.5 million.





Outlook



This project has been described as high-impact/high-risk by some commentators in
the past.  While it is clearly high-impact, we have worked hard to mitigate the
risks.



As a result of our technical work and data gathering we believe that the
exploration risk has been significantly reduced. Deep water, harsh weather and
the remote location have all been cited as potential obstacles to success.
However, the environment is very similar to West of Shetland, UK Northern North
Sea and the Norwegian Sea. In all of these areas, oil and gas have been
successfully discovered



and exploited and the drilling and production technologies that have made this
possible are readily applicable to FOGL's prospects.  Most of them lie in
water-depths of 600 to 1500 metres; whereas recent wells in the Gulf of Mexico
have been drilled in water-depths of up to 6000 metres. Furthermore, the wells
will be conventional (i.e. they are not high temperature or high pressure).
Whilst the North Falklands basin drilling campaign of 1998 was not a commercial
success, it demonstrated that offshore drilling operations could be effectively
supported from a shorebase in the Falkland Islands.



Despite its perceived remoteness, the Falkland Islands is located between key
oil and gas markets.  It is well-positioned for North and South America, South
Africa and Asia.  Extensive development case modelling by FOGL based on the use
of floating production, storage and offloading vessels ('FPSOs'), has been
carried out using various sizes and types of discovery.  FPSOs would be able to
operate effectively in the licence areas and oil would be exported by shuttle
tankers. Using such a development concept, even moderate sized discoveries would
be commercially viable, even at oil prices substantially less than today's
market prices. The favourable fiscal terms offered by the Falkland Islands
Government and the Islands' political stability further enhance the
attractiveness of this area.



Exploration drilling is now expected to commence in 2009 and given the potential
of the short-listed prospects, we believe that the chances of a commercially
viable discovery have improved further.






Unaudited income statement

for the year ended 31 December 2007


                                                     Unaudited          Audited
                                                          Year      Nine months
                                                         ended            ended
                                                    31/12/2007       31/12/2006
                                                             £                £
Administrative expenses                             (1,768,316)      (1,458,285)
Loss from operations                                (1,768,316)      (1,458,285)
Finance income                                         456,871          437,505
Finance costs                                         (571,326)          (4,240)
Loss for the year before taxation                   (1,882,771)      (1,029,260)
Taxation expense                                       (70,946)         (84,703)
Loss for the year                                   (1,953,717)      (1,113,963)
Loss per ordinary share - Basic and diluted             (2.12p)          (1.21p)





The operating loss for the year arose from continuing operations.





Unaudited statement of recognised income and expense
for the year ended 31 December 2007


                                                    Unaudited          Audited
                                                  31 December      31 December
                                                         2007             2006
                                                            £                £
Loss for the financial period                      (1,953,717)      (1,113,963)
Total recognised income and expense for the 
financial period Attributable                      (1,953,717)      (1,113,963)
to: Equity shareholders






Unaudited balance sheet
at 31 December 2007

                                                    Unaudited          Audited
                                                  31 December      31 December
                                                         2007             2006
                                                            £                £
Non- current assets                           
Intangible assets                                  15,914,105       11,326,049
Property, plant and equipment                          74,393          100,111
                                                   15,988,498       11,426,160

Current assets
Trade and other receivables                           193,712        2,717,477
Cash and cash equivalents                          12,461,430       14,924,915
                               
Total assets                                       28,643,640       29,068,552

Current liabilities
Trade and other payables                             (453,049)      (5,581,780)
Current tax payable                                   (83,189)        (282,260)
Net current assets                                 12,118,904       11,778,352

Non Current liabilities
Long term borrowings                               (6,013,486)      (1,295,688)
Total liabilities                                  (6,549,724)      (7,159,728)

Net assets                                         22,093,916       21,908,824

Capital and reserves attributable to shareholders
Share capital                                           1,846            1,839
Share premium                                      23,631,383       24,130,993
Other reserve                                       2,500,975                0
Retained earnings                                  (4,040,288)      (2,224,008)
                                 
Total equity                                       22,093,916       21,908,824




Unaudited cash flow statement
for the year ended 31 December 2007


                                                                                     Unaudited         Audited
                                                                                          Year          Period
                                                                                         ended           ended
                                                                                    31/12/2007      31/12/2006
                                                                                             £               £
Operating activities

Loss for the year before taxation                                                  (1,882,771)     (1,029,260)
Finance income                                                                       (456,871)       (437,505)
Finance expense                                                                        571,326           4,240
Net cash outflow from operating activities; Loss from operations                   (1,768,316)     (1,462,525)
Adjustment for:
Depreciation                                                                            38,082          27,840
FX differences                                                                          42,116         116,920
Share based payment expense                                                            137,437         121,233
Net cash flow from operating activities before changes in working capital          (1,550,681)     (1,196,532)

Decrease in trade and other receivables                                              2,523,765         277,888
Decrease in trade and other payables                                               (5,128,733)       (161,640)
Cash flow generated from operating activities before taxation paid                 (4,155,649)      1,082,284)
Taxation paid                                                                        (270,016)           (186)
Net cash outflow from operating activities                                         (4,425,665)     (1,080,470)

Investing activities
Interest received                                                                      456,871         412,294
Expenditure in respect of property, plant and equipment                               (12,364)         (6,536)
Expenditure in respect of intangible assets                                       (10,971,657)       (199,778)
Reimbursement of past costs                                                          6,383,601
Cash outflow used in investing activities                                          (4,143,549)         205,980

Financing activities
Proceeds from issue of Convertible Loan notes                                        6,000,000       2,000,000
Finance costs relating to issue of Convertible Loan notes                              (2,155)        (58,950)
Issue of ordinary share capital                                                        150,000               -
Net cash flow from financing activities                                              6,147,845       1,941,050

Net increase (decrease) in cash and cash equivalents in the period                 (2,421,369)       1,066,560
Cash and cash equivalents at start of year                                          14,924,915      13,974,275
Effect of foreign exchange rate changes on cash and cash equivalents                  (42,116)       (115,920)
Cash and cash equivalents at end of year                                            12,461,430      14,924,915






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