Final Results

RNS Number : 2417M

Petroneft Resources PLC

20 May 2010

 



Progress Maintained and Q3 2010 Year-round Production Objective on Schedule

20 May 2010

PetroNeft Resources plc ("PetroNeft", "the Company" or "the Group"), (AIM: PTR) owner and operator of Licences 61 and 67, Tomsk Oblast, Russian Federation, is pleased to report its preliminary results for the year ended 31 December 2009.

Operational Highlights

·     Production pipeline nearing completion

·     Drilling of nine production wells ahead of schedule

·     Year round production to commence in third quarter of 2010

·     Exploration programme to re-commence in October 2010

·     New licence acquired

Financial Highlights

·     58% reduction in initial funding requirement of the Licence 61 Phase 1 development project

·     September 2009  equity placing US$27 million

·     Initial US$5 million debt facility signed in March 2010

·     New US$30 million debt facility nearing completion

Dennis Francis, CEO of PetroNeft commented:

"2009 was a year of major operational, financial and strategic progress for PetroNeft. This progress has been maintained in 2010 and we are very confident that we will achieve our objective of commencing year-round production from Licence 61 during the third quarter of 2010 which will transform the revenue base of the Group.

The acquisition of Licence 67 has provided us with a very exciting new opportunity and a further platform from which we look forward to continuing  to build our business and production in Russia over the coming years.

The new debt facility, once in place, combined with the Group's growing production revenues will give the Group the flexibility to accelerate the exploration and development of Licences 61 and 67."

 For further information, contact:

Dennis Francis, CEO, PetroNeft Resources plc	[phone]
Paul Dowling, CFO, PetroNeft Resources plc	[phone]
John Frain/Brian Garrahy, Davy (NOMAD and Joint Broker)	[phone]
Jeffrey Auld/Elijah Colby, Canaccord Adams Limited (Joint Broker)	[phone]
Martin Jackson, Citigate Dewe Rogerson	[phone]
Joe Murray/Ed Micheau, Murray Consultants	[phone]

Forward Looking Statements

This announcement contains forward-looking statements. These statements relate to the Company's future prospects, developments and business strategies. Forward-looking statements are identified by their use of terms and phrases such as 'believe', 'could', 'envisage', 'potential', 'estimate', 'expect', 'may', 'will' or the negative of those, variations or comparable expressions, including references to assumptions.

The forward-looking statements in this announcement are based on current expectations and are subject to risks and uncertainties that could cause actual results to differ materially from those expressed or implied by those statements. These forward-looking statements speak only as at the date of this announcement.

PetroNeft Resources Plc

Final Results 2009

Major progress achieved

Since incorporation, the primary strategy of PetroNeft has been to bring its existing oil fields to production, thereby generating sufficient cash flows to enable the exploration of the many remaining prospects on Licence 61. The development project is now well underway and 2010 is set to be a transformational year for the Group.

A secondary strategy has been the acquisition of new assets, both exploration and producing, that will bring about more rapid expansion of the Group. In December 2009 PetroNeft won a State Auction for a 100% interest in the Ledovy Licence No. 67, also in the Tomsk Region.  In January 2010, Arawak Energy Limited ('Arawak') exercised their option under our 2008 Area of Mutual Interest ('AMI') agreement to participate in the Ledovy Licence on a 50:50 basis.       

Significant cost savings achieved

In 2008 the total funding requirement for the Phase 1 project to develop the Lineynoye and West Lineynoye oil fields was estimated to be over US$60 million. Since the project was put on hold in October 2008, we have been successful in reducing the initial funding requirement by almost 60% to approximately US$25 million through the following key savings and efficiencies:

•              Use of only one drilling rig in the first year instead of two.

•              Revised pipeline route including utilisation of existing facilities at the pipeline tie-in point.

•              Reduction and modification of field facilities.

•              Substantial weakening of the Russian Rouble against the US dollar.

Transportation Agreement with Imperial Energy

In August 2009 PetroNeft entered into a 25 year Crude Oil Transportation and Custody Transfer agreement with Imperial Energy ('Imperial').  Under the terms of the agreement, Imperial will accept PetroNeft's crude oil using existing tank facilities at the Kiev-Eganskoye field and transport the crude to its custody transfer point at Zavyalovo for transfer into the Transneft system.  This agreement, particularly the inclusion of the use of tank facilities at Kiev-Eganskoye, was a key element in reducing costs associated with the development project.

Construction and commissioning of the approximately 60 km pipeline from Lineynoye to Kiev-Eganskoye will be completed in time for the commencement of year-round production in the third quarter of 2010.

Successful financing

PetroNeft successfully raised US$27.4 million in September 2009 through a placing of new shares which enabled us to commence the Phase 1 project to develop the Lineynoye and West Lineynoye oil fields and become self-financing.

This funding enabled the Group to enter into contracts for the construction of a 60km pipeline to Imperial Energy's facilities at Kiev-Eganskoye, construction of the necessary field facilities at the Lineynoye oil field and drilling of the first four wells of the 2010 nine well drilling programme. Subsequently the following issues created a potential additional funding requirement:

·      On finalising the drilling contract in early 2010 it became clear that the drilling contractor could drill at a much faster pace, taking as little as 18-20 days per well. While this more efficient schedule enabled more rapid production growth, it also necessitated a greater overall investment in advance of first production. Accordingly, PetroNeft had the choice of either delaying drilling or seeking further finance to allow the contractor to drill as many wells as possible before production commenced;

·      Also, in December 2009 we had the opportunity to bid for a new licence area, Licence 67, which we successfully acquired at a State Auction at a gross cost of US$1.42 million, which had not been previously budgeted for;

·      The Board was also keen to recommence exploration and delineation activities in Licence 61. In order for an exploration well to be drilled in 2010 a rig and the materials necessary for drilling the well would need to be moved to site in the winter months of early 2010.

Discussions with a number of international banks had been ongoing over the last number of years, a number of whom have visited our operations in Tomsk. This, combined with the effective execution of our development programme over the winter, enabled us to swiftly negotiate and conclude a US$5 million facility with Macquarie Bank in March 2010. This agreement gave us the capacity to purchase the necessary materials and mobilise a rig in March 2010 and to enter into negotiations for the drilling of an exploration well at Arbuzovskaya in October 2010.

Future funding of PetroNeft

The accelerated pace of the drilling of the nine planned production wells for 2010 has created an additional funding requirement. Assuming management elects to continue drilling at the current pace, and dependent on the timing of the receipt of Russian VAT refunds and the commencement of production, the total funding requirement could be as high as US$12 million. The Group has already signed a loan facility with Macquarie Bank Limited ('Macquarie') for up to US$5 million of which only US$2 million has been drawn. PetroNeft is in advanced negotiations with Macquarie to refinance this loan with a facility of up to US$30 million. All credit approvals have been received and the Board expects to execute the facility in the coming weeks. Should it not be possible to agree the refinancing in time to meet operational needs, plans are in place to moderate the pace of drilling and commence production in accordance with the original schedule with five wells (three new and two existing). Subsequently, the remaining wells can be completed using the proceeds of oil sales following the commencement of year round production in the third quarter.

The new facility, once in place, combined with the Group's growing production revenues will give the Group the flexibility to accelerate the exploration and development of Licences 61 and 67. The facility does not require, and the Board does not anticipate, that any incremental equity funding will be required to achieve this objective.

Key Financial Metrics
			2009		2008
			US$		US$
Overheads			3,430,687		2,871,339
Share-based payment expense			464,100		727,164
Foreign exchange loss on intra-Group loans			537,683		3,010,932
Other foreign exchange loss			410,056		1,225,010
Administrative expenses			4,842,526		7,834,445
Loss on oil and gas properties			1,552,350		-
Loss for the year attributable to equity holders of the Parent			6,471,552		7,911,968
Capital expenditure in the year			6,153,603		25,475,299
Net proceeds of equity share issues			25,863,882		17,516,291
Bank and cash balance at year-end			15,726,479		2,168,197

Net Loss                               

The net loss for the year decreased to US$6,471,552 from US$7,911,968 in 2008. The main reason for the decrease in losses relates to a decrease of US$2,473,249 in foreign exchange losses on intra-Group loans. These arose on US Dollar denominated loans from PetroNeft to its wholly owned subsidiaries, Stimul-T and Lineynoye whose functional currency is the Russian Rouble, and on other balances denominated in currencies other than US Dollar. In 2008 this loss arose due to the weakening of the Russian Rouble against the US Dollar in the last six months of the year. Once Stimul-T is earning income from oil sales, some of this income will be in US Dollars and Stimul-T will therefore be capable of repaying its US Dollar denominated debt out of US Dollar income.

The change in direction of our pipeline route meant it was necessary to write off certain costs associated with the previous route. This, combined with a small loss on the sale of excess pipe, gave rise to a loss on oil and gas properties of US$1,552,350.

Capital Investment

No major capital projects were completed in 2009. However, we entered into a number of major contracts in late 2009 for completion in 2010, principally to:

·      Construct a 60km pipeline from Lineynoye oil field to Imperial Energy's facility at Kiev-Eganskoye.

·      Construct oil processing, oil storage and crew facilities at the Lineynoye oil field.

·      Drill and complete nine new production wells at the Lineynoye oil field.

Russian VAT

Russian VAT refunds continued to take about four months to receive after the end of each VAT quarter. In January 2010 a new law was introduced which should speed up the process and enable receipt of refunds within about three weeks of the quarter end. To date we have not seen this operate in practice, but we are confident that this will be resolved in the coming months.

Corporate development

We have added a number of senior management positions to the Group this past year and we will add additional positions this coming year, as we move from an exploration to an exploration and production company.  These positions are carefully considered and we select candidates who meet both the immediate and long term needs of the Group.  We are especially pleased that Karl Johnson has joined the Group as Vice President for Business Development and Operations.

Founding Director, Des Burke, retired from the Company in March 2009 and I would like to thank him for his contribution to the development of PetroNeft and wish him well for the future.   

Summary

PetroNeft is now on course to begin year-round production in 2010. The commencement of production means that the Group will generate significant cash in the coming years to enable it to expand its reserve base both through exploration and delineation in current Licence areas and through business development opportunities in Tomsk, Russia and the FSU.

PetroNeft is fortunate to have a highly experienced and dedicated team and this knowledge and experience have enabled us to meet the array of challenges facing the Group in recent years. I am confident that this team, supplemented by new appointments as our business grows, will enable PetroNeft to continue to add shareholder value.

Annual report and AGM

The annual report will be published on the Company's website in the week commencing 24 May 2010. The annual general meeting will be held in Dublin on 23 June 2010.

Finally, I know that I speak for all the Directors, management and staff of the Group in giving sincere thanks to our shareholders, both old and new, for your confidence and continued support through the past year.

David Golder

Non-Executive Chairman

Consolidated Income Statement
For the year ended 31 December 2009
				2009				2008
		Note		US$				US$
Revenue				509,710				-
Cost of sales				(420,566)				-
Gross profit				89,144				-
Administrative expenses				(4,304,843)				(4,823,513)
Loss on oil and gas properties		3		(1,552,350)				-
Exchange loss on intra-Group loans				(537,683)				(3,010,932)
Operating loss				(6,305,732)				(7,834,445)
Finance revenue				173,296				128,487
Finance costs				(20,644)				-
Loss for the year for continuing operations before taxation				(6,153,080)				(7,705,958)
Income tax expense				(318,472)				(206,010)
Loss for the year attributable to equity holders of the Parent				(6,471,552)				(7,911,968)
Loss per share attributable to ordinary equity holders of the Parent:
Basic and diluted - US dollar cent		4		(2.53)				(3.81)
Consolidated Statement of Comprehensive Income
For the year ended 31 December 2009
				2009				2008
				US$				US$
Loss for the year attributable to equity holders of the Parent				(6,471,552)				(7,911,968)
Currency translation adjustments				(770,566)				(6,490,162)
Total comprehensive loss for the year attributable to equity holders of the Parent				(7,242,118)				(14,402,130)

Consolidated Balance Sheet
As at 31 December 2009
			2009		2008
	Note		US$		US$
Assets
Non-current Assets
Oil and gas properties	5		27,165,261		23,769,980
Property, plant and equipment	6		1,776,108		1,867,397
Exploration and evaluation assets	7		18,217,242		18,684,771
Leasehold land payments			176,825		181,009
			47,335,436		44,503,157
Current Assets
Trade and other receivables			4,909,915		3,067,736
Cash and cash equivalents			15,726,479		2,168,197
			20,636,394		5,235,933
Total Assets			67,971,830		49,739,090
Equity and Liabilities
Capital and Reserves
Called up share capital			4,724,013		2,919,041
Share premium account			81,328,170		57,193,950
Share-based payments reserve			2,368,929		1,904,829
Retained loss			(18,752,403)		(12,280,851)
Currency translation reserve			(5,794,636)		(5,024,070)
Other reserves			336,000		336,000
Equity attributable to equity holders of the Parent			64,210,073		45,048,899
Non-current Liabilities
Provisions			269,654		254,646
Deferred tax liability			826,129		546,984
			1,095,783		801,630
Current Liabilities
Trade and other payables			2,665,974		3,888,561
			2,665,974		3,888,561
Total Liabilities			3,761,757		4,690,191
Total Equity and Liabilities			67,971,830		49,739,090

Consolidated Statement of Changes in Equity
For the year ended 31 December 2009
	Share capital		Share premium		Other reserves		Currency translation reserve		Retained loss		Total
	US$		US$		US$		US$		US$		US$
At 1 January 2008	2,343,864		40,252,836		1,513,665		1,466,092		(4,368,883)		41,207,574
Loss for the year	-		-		-		-		(7,911,968)		(7,911,968)
Currency translation adjustments	-		-		-		(6,490,162)		-		(6,490,162)
Total comprehensive loss for the year	-		-		-		(6,490,162)		(7,911,968)		(14,402,130)
New share capital subscribed	532,538		16,619,782		-		-		-		17,152,320
Transaction costs on issue of share capital	-		(666,044)		-		-		-		(666,044)
Shares issued on exercise of warrant	41,621		958,379		-		-		-		1,000,000
Share options exercised	1,018		28,997		-		-		-		30,015
Share-based payment expense	-		-		727,164		-		-		727,164
At 31 December 2008	2,919,041		57,193,950		2,240,829		(5,024,070)		(12,280,851)		45,048,899
At 1 January 2009	2,919,041		57,193,950		2,240,829		(5,024,070)		(12,280,851)		45,048,899
Loss for the year	-		-		-		-		(6,471,552)		(6,471,552)
Currency translation adjustments	-		-		-		(770,566)		-		(770,566)
Total comprehensive loss for the year	-		-		-		(770,566)		(6,471,552)		(7,242,118)
New share capital subscribed	1,797,899		25,560,368		-		-		-		27,358,267
Transaction costs on issue of share capital	-		(1,494,385)		-		-		-		(1,494,385)
Remuneration and other emoluments paid in shares	7,073		68,237		-		-		-		75,310
Share-based payment expense	-		-		464,100		-		-		464,100
At 31 December 2009	4,724,013		81,328,170		2,704,929		(5,794,636)		(18,752,403)		64,210,073

Consolidated Cash Flow Statement
For the year ended 31 December 2009
			2009		2008
	Note		US$		US$
Loss before taxation			(6,153,080)		(7,705,958)
Adjustment to reconcile loss before tax to net cash flows
Non-cash
Depreciation and amortisation			215,693		238,013
Share-based payment expense			464,100		727,164
Unwinding of discount on decommissioning provision			20,644		17,062
Loss on disposal of oil and gas properties	5		1,552,350		-
Remuneration and other emoluments     paid in shares			75,310		-
Deduct finance revenue			(173,296)		(128,487)
Working capital adjustments
Decrease in trade and other receivables			1,988,854		475,005
(Decrease)/increase in trade and other payables			(408,533)		2,918,821
Income tax received/(paid)			23,163		(25,387)
Net cash flows used in operating activities			(2,394,795)		(3,483,767)
Investing activities
Purchase of oil and gas properties			(5,402,567)		(15,047,118)
Advance payments to purchase oil and gas properties			(2,635,111)		-
Advance payment to purchase License 67			(1,160,556)		-
Purchase of property, plant and equipment			(291,838)		(1,008,545)
Exploration and evaluation payments			(812,550)		(6,744,993)
Proceeds on disposal of oil and gas properties	5		-		-
VAT refunds			-		3,311,690
Finance revenue			137,930		128,487
Net cash used in investing activities			(10,164,692)		(19,360,479)
Financing activities
Proceeds from issue of share capital			27,358,267		17,152,320
Transaction costs of issue of shares			(1,494,385)		(666,044)
Proceeds from exercise of share options			-		30,015
Proceeds from exercise of warrant			-		1,000,000
Net cash received from financing activities			25,863,882		17,516,291
Net increase/(decrease) in cash and cash equivalents			13,304,395		(5,327,955)
Translation adjustment			253,887		(808,143)
Cash and cash equivalents at the beginning of the year			2,168,197		8,304,295
Cash and cash equivalents at the end of the year			15,726,479		2,168,197

                1.         Basis of Accounting and Presentation of Financial Information

While the financial information included in this preliminary announcement has been prepared in accordance with the Group's accounting policies under International Financial Reporting Standards (IFRS) as adopted by the European Union and as issued by the International Accounting Standards Board (IASB), this announcement does not itself contain sufficient information to comply with IFRS. The Company expects to distribute the full financial statements that comply with IFRS in June 2010.

The financial information set out above does not constitute the Company's statutory accounts for the years ended 31 December 2009 or 2008, but is derived from those accounts. Statutory accounts for 2008 have been delivered to the Registrar of Companies and those for 2009 will be delivered following the Company's annual general meeting. The auditors have reported on those accounts; their reports were unqualified, but the accounts for the year ended 31 December 2008 drew attention to going concern issues by way of emphasis of matter. No such emphasis of matter has been included in the audit report for the year ended 31 December 2009.

Adoption of new IFRS

A number of new IFRS and interpretations of the International Financial Reporting Interpretations Committee became effective for, and have been applied in preparing, the Group's 2009 financial statements. The main changes are described below. Other than these changes, the financial statements have been prepared on a basis consistent with the prior year published financial statements.

IFRS 8 Operating Segments replaced IAS 14 Segment Reporting. Following a review of its requirements, the Group has concluded that the operating segment determined in accordance with IFRS 8 is the same as the business segment previously identified under IAS 14.

IAS 1 Presentation of Financial Statements has been revised and introduces the statement of comprehensive income; it presents all items of recognised income and expense, either in one single statement or two linked statements. The Group has elected to present two statements, the Consolidated Income Statement and the Consolidated Statement of Comprehensive Income.

2.          Going Concern

As described in more detail in the Chairman's Statement above, the Board has approved a plan to raise the funding required to meet any shortfall that may arise if more than three production wells are completed before production commences, Russian VAT refunds are delayed or commencement of first production is delayed.

The Group have prepared budgets and forecasts until 31 December 2011 and, based on this, the maximum potential debt requirement is US$12 million. The Group has already signed an initial working capital facility agreement with Macquarie Bank ('Macquarie') for up to US$5 million. The Group is in advanced negotiations with Macquarie to refinance this loan with a facility of up to US$30 million and the Board is confident of a successful conclusion. To date the Directors have not received any indications that suggest that the required financing will not be available on acceptable terms. The Group has examined alternatives should the refinancing not be completed in time to meet operational needs. The Directors are of the opinion that these alternatives are reasonably practicable.

After making enquiries, the Directors have a reasonable expectation that the Group and the Company have adequate financial resources to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing the annual report and the consolidated financial statements.

3.          Loss on oil and gas properties

The loss on oil and gas properties of US$1,552,350 relates to expenditure connected with the previous pipeline route from Lineynoye to Lukpaiskaya in the Khanty-Mansiysk District, 65 km to the north of Licence 61. In August 2009 the Group entered into a new crude oil transportation agreement with Imperial Energy, which meant that the pipeline would now be built on a southerly 60km route to Imperial's facility at Kiev-Eganskoye. Certain costs incurred to date in respect of the engineering and design and permitting associated with the northerly route to Lukpaiskaya have therefore been written off. Also included is a US$168,333 loss on disposal of pipe not required in the new southerly route.

4.          Loss per Ordinary Share

Basic loss per Ordinary Share amounts are calculated by dividing net loss for the year attributable to ordinary equity holders of the parent by the weighted average number of Ordinary Shares outstanding during the year.

Basic and diluted earnings per Ordinary Share are the same as the potential Ordinary Shares are anti-dilutive.

				2009		2008
	Numerator			US$		US$
	Loss attributable to equity     shareholders of the Parent for basic and diluted loss			(6,471,552)		(7,911,968)
				(6,471,552)		(7,911,968)
	Denominator
	Weighted average number of Ordinary Shares for basic and diluted earnings per Ordinary Share			255,724,257		207,499,468
	Diluted weighted average number of shares			255,724,257		207,499,468
	Loss per share:
	Basic and diluted - US dollar cent			(2.53)		(3.81)

The Company has instruments in issue that could potentially dilute basic earnings per Ordinary Share in the future, but are not included in the calculation for the reasons outlined below:

·      Employee Share Options - 13,537,000 outstanding options as at 31 December 2009 (2008: 10,072,000) that could potentially dilute basic earnings per share in the future. These potential Ordinary Shares are anti-dilutive for the years ended 31 December 2009 and 2008.

5.	Oil and gas properties
						Oil and gas properties
						US$
	Cost
	At 1 January 2008					-
	Additions					16,767,510
	Transfer from exploration and evaluation assets					11,202,901
	Transfer from property, plant and equipment					281,243
	Translation adjustment					(4,481,674)
	At 1 January 2009					23,769,980
	Additions					6,003,466
	Disposals					(2,277,934)
	Transfer to property, plant and equipment					(10,642)
	Translation adjustment					(301,783)
	At 31 December 2009					27,183,087
	Depreciation
	At 1 January 2009					-
	Charge for the year					17,826
	At 31 December 2009					17,826
	Net book values
	At 31 December 2009					27,165,261
	At 31 December 2008					23,769,980

            In accordance with IFRS 6, once commercial viability is demonstrated the capitalised exploration and evaluation costs are transferred to oil and gas properties or intangibles, as appropriate after being assessed for impairment.

             Disposals consist of the write-off of expenses in relation to old pipeline routes of US$1,384,017 and the disposal of part of the pipe acquired in 2008. The cost of the disposed part of pipe was US$893,917 and it was sold for US$725,584 resulting in a loss of US$168,333. The proceeds on the disposal of the pipe were not received in cash but were offset against purchases made during the year, payable to the same party.

              Additions are salaries capitalised during the year, acquisition of remaining pipe and pipeline construction works.

5.	Oil and gas properties (continued)

              In assessing whether an impairment is required in the carrying value of an asset, its carrying value is compared with its recoverable amount. Assets are tested for impairment either individually or as part of a cash generating unit. The recoverable amount is the higher of the asset's fair value less costs to sell and value-in-use. The impairment calculation is most sensitive to the following assumptions:

·      Production volumes.

·      Discount rates.

·      Commodity prices.

Estimated production volumes are based on detailed data for the fields and take into account development plans for the fields agreed by management as part of the long-term planning process and estimated by Ryder Scott Petroleum Consultants in their report on the Group's reserves. It is estimated that, if all production were to be reduced by 15% for the whole of the next 15 years, this would not be sufficient to reduce the excess of recoverable amount over the carrying amounts of the oil and gas properties to zero. Consequently, management believes no reasonably possible change in the production assumption would cause the carrying amount of oil and gas properties to exceed their recoverable amount.

 The Group estimates fair value less costs to sell using a discounted cash flow model. The future cash flows are adjusted for risks specific to the asset and discounted using a pre-tax discount rate of 17%. Management also believes that currently there is no reasonably possible change in discount rate which would cause the carrying amount of the oil and gas properties to exceed their recoverable amount.

It is estimated that if the long-term price of Urals blend crude oil fell by 15% for the whole of the next 15 years, this would not be sufficient to reduce the excess of recoverable amount over the carrying amounts of the oil and gas properties to zero.

6.		Property, Plant and Equipment
		Group	Land and		Plant and		Motor
			buildings		machinery		vehicles		Total
			US$		US$		US$		US$
		Cost
		At 1 January 2008	372,474		1,191,016		74,563		1,638,053
		Additions	-		1,157,574		-		1,157,574
		Transfer to oil and gas properties	-		(281,243)		-		(281,243)
		Translation adjustment	(61,669)		(335,799)		(12,561)		(410,029)
		At 1 January 2009	310,805		1,731,548		62,002		2,104,355
		Additions	-		61,592		81,217		142,809
		Transfer from oil and gas properties	-		10,642		-		10,642
		Translation adjustment	(8,164)		(41,743)		2,513		(47,394)
		At 31 December 2009	302,641		1,762,039		145,732		2,210,412
		Depreciation
		At 1 January 2008	2,023		33,266		11,440		46,729
		Charge for the year	19,036		199,582		15,211		233,829
		Translation adjustment	(3,315)		(35,980)		(4,305)		(43,600)
		At 1 January 2009	17,744		196,868		22,346		236,958
		Charge for the year	7,872		174,591		11,220		193,683
		Translation adjustment	(65)		3,742		(14)		3,663
		At 31 December 2009	25,551		375,201		33,552		434,304
		Net book values
		At 31 December 2009	277,090		1,386,838		112,180		1,776,108
		At 31 December 2008	293,061		1,534,680		39,656		1,867,397
		At 31 December 2007	370,451		1,157,750		63,123		1,591,324

 

7.	Exploration and evaluation assets
	Group					Exploration & Evaluation Expenditure
						US$
	Cost
	At 1 January 2008					29,415,286
	Additions					7,550,215
	Transfer to oil and gas properties					(11,202,901)
	Russian VAT refund transferred to current assets					(3,311,690)
	Translation adjustment					(3,766,139)
	At 1 January 2009					18,684,771
	Additions					7,328
	Translation adjustment					(474,857)
	At 31 December 2009					18,217,242
	Net book values
	At 31 December 2009					18,217,242
	At 31 December 2008					18,684,771
	At 31 December 2007					29,415,286

Exploration and evaluation expenditure represents active exploration projects. These amounts will be written off to the Consolidated Income Statement as exploration costs unless commercial reserves are established, or the determination process is not completed and there are no indications of impairment. The outcome of ongoing exploration, and therefore whether the carrying value of these assets will ultimately be recovered, is inherently uncertain.

Prior to 2008, PetroNeft's Russian subsidiaries had not received any refunds of Russian VAT incurred on the work carried out to date. The amount due as at 31 December 2007 was US$3,311,690 and it had been accounted for at that date as part of exploration and evaluation expenditure as the Group was uncertain whether this amount would be recoverable. This matter was resolved during 2008 and the subsidiaries started receiving Russian VAT refunds in April 2008. All Russian VAT refunds due are now accounted for in current assets.

   8.      Important Events after the Balance Sheet Date

In January 2010 Licence 67 was registered thereby completing the acquisition. Arawak also exercised their option to participate as a 50% partner in the development, which will be operated by PetroNeft through a jointly controlled entity. The legal agreements and documentation relating to the jointly controlled entity are expected to be completed in June 2010.

In March 2010 PetroNeft signed a working capital facility with Macquarie Bank Limited for up to US$5 million. Associated with this agreement PetroNeft granted a warrant to acquire 4,700,000 Ordinary Shares at a strike price of £0.30.

9.      Approval of preliminary financial statements

         The preliminary financial statements were approved, and authorised for issue, by the Board of Directors on 19 May 2010.

 

END

 

 

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