Final Results

RNS Number : 4726E

Rockhopper Exploration plc

31 May 2012

 



Embargoed: 0700hrs 31 May 2012

Rockhopper Exploration plc

("Rockhopper," the "Company" or the "Group")

Final Results for the Year Ended 31 March 2012

Rockhopper Exploration, the North Falkland Basin oil and gas company, is pleased to announce results for the year ended 31 March 2012.

Enquiries:

Rockhopper Exploration plc

Sam Moody - Chief Executive

Peter Dixon-Clarke - Finance Director

Tel. [phone] (via M: Communications)

M: Communications

Patrick d'Ancona or Ben Simons

Tel. [phone]

Canaccord Genuity Limited

Robert Finlay / Henry Fitzgerald-O'Connor

Tel. [phone]

CHAIRMAN'S STATEMENT

DR PIERRE JUNGELS CBE

This year we successfully completed the appraisal campaign of the Sea Lion field and in the process made four more significant discoveries on our operated acreage. All the work was completed to the highest industry standards of Health, Safety and Environment, a credit to both our team and the many contractors with whom we work.

In the past, I have set out the value creation path of an exploration discovery and explained how the value of the field increases as we progress towards the Final Investment Decision ("FID"). The work required to reach FID has therefore been our priority and has focused on appraisal drilling and engineering studies.

The aim of the appraisal drilling has been to narrow the potential range of the estimated field size and the volumes of recoverable oil contained within it. To this end we drilled a further six wells, one of which was flow tested, and continued to build our understanding of all of the data collected.

The engineering studies help to define the basis of a robust development project and its expected cost and so we have undertaken a large amount of work, including seabed surveys, reservoir engineering, well design and flow assurance studies and discussions with Floating Production Storage and Offloading facility ("FPSO") and sub sea equipment suppliers.

The quality and value of the work undertaken was independently confirmed for us when Gaffney Cline & Associates ("GCA") published their Competent Person's Report ("CPR") on Rockhopper's operated acreage in April 2012. In the CPR, GCA rated the chance of the Sea Lion development going ahead as designed at a 90% probability, which is high, and on that basis, calculated the risked post tax net present values, at a 10% discount rate, of the 2C cash flows as being $3.5 billion for the Sea Lion field plus an additional $0.6 billion for the satellites.

It is clear to us, our consultants and our CPR provider that the Sea Lion field is commercial and is a play opener for the North Falkland Basin. In addition, recent 3D seismic and further interpretation of the older 3D indicates that the exploration potential of the basin is significant and I have no doubts that more discoveries will be made.

GOING FORWARD

With the technical work progressing well, the last piece required will be the financing of the development to first oil. The finance available to a development of this scale will reflect the experience of the operator and will need to be drawn from a range of sources. Given the current state of the capital markets and our wish to minimise dilution to existing shareholders, we feel that the first step in this process should be to secure a farm in partner with proven operating abilities from within the oil and gas industry. To this end, we opened a data room earlier in the year and whilst the location of our acreage has prevented some companies from being able to participate, I have been very pleased by the quality of those that are doing so.

DR PIERRE JUNGELS CBE

CHAIRMAN

30 MAY 2012

CHIEF EXECUTIVE OFFICER'S REVIEW

SAMUEL MOODY

The year under review has seen the culmination of the work required to confirm the significant value of the Sea Lion field. The additional data acquired by the 3D survey and appraisal drilling has been combined with the concept screening to enable the publication of a CPR. The CPR itself has confirmed that the Sea Lion field has a deterministic best estimate of 1.3 billion barrels of oil in place.

SEISMIC & DRILLING

In May 2011 we concluded an extensive 3D seismic acquisition programme. This was undertaken in conjunction with the two other operators in the basin and acquired a total of 4,500km² of data that was pre-traded across all the participants. The specific areas targeted by the group were the southern extent of the Sea Lion field, Ernest North, Weddell, Johnson and the open acreage to the north. The Sea Lion data were fast tracked and played a pivotal role in arriving at our Sea Lion volumes for the CPR. Much of the remaining data are still being processed but are expected to throw additional light on the future prospectivity of our acreage.

The appraisal programme has seen us drill a further six wells, each of which had a specific role in proving up the field and one of which was flow tested. Specifically:

-     Well 14/10-5 moved up-dip from the discovery well to penetrate the thick section of the stacked SL10 and SL20 fans and provide an optimal location for a flow test. The test itself gave a stabilised and a maximum flow rate of 5,508 and 11,000 barrels per day respectively.

-     Well 14/10-6 stepped out to the west of the structural saddle to prove the depositional model of the extensive mass flow fans and the hydrocarbon charge to the west.

-     Well 14/10-7 tested for reservoir presence in a lower amplitude and thinner part of the fan system at the edge of the amplitude bright and to determine whether that edge was delimited by amplitude or pinch out.

-     Well 14/10-8 appraised the south east part of the Sea Lion fan system where two additional fans, Casper and Kermit, could also be penetrated.

-     Well 14/10-9 stepped out to the south, into an area newly mapped by the fast track data, with the aim of expanding the proven discovery area by confirming reservoir continuity and confirming the presence of SL10 and SL20 as stacked fans above the oil-water contact.

-     Well 14/15-4 was our most ambitious step out and looked to test the southern extension of SL10 along with the presence of the Beverly and Casper South prospects, on acreage in which we had recently increased our interest to 60%.

We ended the drilling campaign with an appraised oil field in Sea Lion along with multiple additional oil and gas reservoir discoveries in Casper, Casper South, SL05, B15 and Beverley. Overall, seven of the ten wells drilled were considered successful.

OPERATIONS AND HSE

Operational activity peaked during the seismic campaign. During this period, in addition to the two seismic vessels and their five support vessels we were still operating a drilling rig, two anchor handling vessels and a platform supply vessel as well as two helicopters and a fortnightly charter, giving a maximum headcount of approximately 300 people.

In view of all the activity discussed above, we are particularly pleased with the safe and responsible nature in which the campaign was conducted. In all, this past year, we had one offshore and two onshore Lost Time Incidents. Equally satisfying was to see the steady improvement over the course of our campaign in the practices undertaken by the local contractors with whom we worked so successfully and productively. We can never allow ourselves to become complacent in this regard and we continue to place the highest Health, Safety and Environmental ("HSE") standards at the top of the group's objectives.

In addition to the seismic and drilling operations, we recently completed two seabed surveys. The first was a geotechnical soils survey, which demonstrated that the soil strength at the seabed makes suction piles a highly suitable option for FPSO mooring purposes, which was a very pleasing result. Secondly, we completed a post drilling and pre development environmental survey, collecting significant data, including seabed box cores, water profiles and chlorophyll samples along with video and seabed stills. Both surveys were completed without HSE incidents.

DEVELOPMENT

Concept screening progressed well during the year and was concluded during December 2011. The continued success of the appraisal drilling has increased the planning assumptions of the areal extent, recoverable volumes and field life of Sea Lion and we fully expect the field to be developed by means of a FPSO. In terms of well count and positioning, the work is ongoing but we expect the total number of wells to be between 28 and 34, being a combination of producers, water injectors, combination producer/injectors and a gas disposal well.

The assumption remains that, under a leased FPSO scenario, the cost to first oil would be in the region of $2 billion.

OUR ASSETS

Having completed the drilling campaign our asset base is as follows:

-     The Sea Lion field: an appraised oil field with a deterministic best estimate of 1.3 billion barrels in place.

-     Near field oil discoveries (all made and operated by Rockhopper): Casper, Casper South, B15 and SL05.

-     Near field gas discovery (also made by Rockhopper): Beverley, a discovery with low risk oil potential down dip.

-     The remainder of licences PL032 and PL004b: contain significant low risk exploration potential, with a best estimate of recoverable prospective resources of over 350 million barrels net to Rockhopper. This includes eight prospects, with a total best estimate of 187 million barrels and each with over a 20% chance of success, and additional prospectivity, including the George fan.

-     Further exploration on licence PL024: where we have yet to interpret our newly acquired 3D seismic data but expect to do so within this year.

-     Cash resources of $107 million.

COMPETENT PERSON'S REPORT ("CPR")

We published our CPR on 20 April 2012, almost exactly two years after spudding our discovery well. We felt that a development of this size warranted a provider of equal standing and so the work was undertaken by Gaffney Cline & Associates who bring a reputation for thoroughness to both reservoir data analysis and field development planning. The report is available in full on our website but in summary indicates total net contingent resources on our operated acreage of 225, 355 and 515 million barrels for 1C, 2C and 3C respectively. The report also indicates a deterministic best estimate in place for Sea Lion alone of 1.3 billion barrels.

The publication of the CPR confirms the value of our discoveries and will give considerable comfort to all stakeholders, present and future, which in turn will support the financing required in order to achieve first oil.

SAMUEL MOODY

CHIEF EXECUTIVE OFFICER

30 MAY 2012

BUSINESS REVIEW

OPERATING AND FINANCIAL

Operating review

The year ended 31 March 2012 has seen the successful conclusion of the group's appraisal of the Sea Lion field. This has included drilling activity and a 3D seismic survey that started just before the end of the previous financial year. The drilling campaign concluded on 8 January 2012 with the demobilisation of the Ocean Guardian rig which had operated continuously since its arrival in the basin in February 2010. In total the group has drilled ten operated wells, including a well as consideration for the farm in agreement with Desire Petroleum plc, and performed two drill stem tests.

The aforementioned farm in well gave the group operatorship and an aggregate interest of 60% in the north western acreage of licence PL004 now designated PL004b as well as an aggregate interest of 25% in the north eastern part of licence PL004, now designated PL004c.

The table sets out a high level summary of the change in the cash resources that have become available to the group during the year as well as the use of those resources.

	2012	2011
	$'millions	$'millions
Cash resources available b/f	305	64
Net funds received	71	396
E&E expenditure	(258)	(162)
Movement on payables	(6)	12
Movement on foreign exchange	1	5
Other expenditure	(6)	(10)
	107	305

Funding

A fundraising was conducted during the year as a non pre-emptive placing, raising a total of $73.5 million before expenses of $3.0 million by placing 25,814,000 new ordinary shares at a price of 180 pence each. In number just less than 10% of the ordinary shares already in issue. The money raised was partly used to finance the consideration well for the farm in agreement and also to ensure the group had sufficient funds to pay for the work programme required to get to a final investment decision.

Exploration and evaluation expenditure during the year

	2012	2011
	$'millions	$'millions
Exploration
- operated wells	110	92
- non operated wells	1	8
- other campaign costs	12	16
- seismic acquisition	10	14
	133	130
Appraisal
- operated wells	93	29
- other campaign costs	9	-
Other E&E expenditure	14	3
Development	9	-
	258	162

Note: exploration wells are defined as those drilled outside of the discovery area declared within licence PL032, whilst appraisal wells are those drilled within it.

Including the $204 million spent on exploration and appraisal to 31 March 2011, the total exploration, evaluation and development costs to 31 March 2012 are $462 million.

Operational performance

The group set its agreed financial expenditure for the dry hole cost of a well on a probabilistic basis with an aim to drill at the Pmean confidence level and a strong intent to remain within the P90 level. As most operational costs are incurred on a per day basis, the actual days required is a good proxy for judging the likely performance against the agreed financial expenditure.

	Expected
	days	Expected	Waiting on	Actual
	Pmean	days P90	weather	days
Prior year	161	195	9	176
14/10-5	62	73	4	76
14/10-6	40	49	1	34
14/10-7	31	38	5	36
14/10-8	27	33	1	32
14/10-9	41	51	1	34
14/15-4	42	52	2	36
Campaign total	404	491	23	424
Average days/well	40	49	2	42

For well 14/10-5, which included a successful well test, the scope was increased by three days to include extended wireline logging and, with four days lost to waiting on weather, the balance of the overrun was due to non-productive time.

Well 14/10-6 had its scope reduced by a day due to one less coring run. Otherwise the well was drilled quicker than expected and incurred negligible non-productive time.

Well 14/10-7 was the first well to use a simplified well design, being drilled to target depth in a 12¼ inch, as opposed to a 9¾ inch, hole. However the benefits of this were absorbed by waiting on weather.

Well 14/10-8 was drilled as expected, however a loss of power on the rig whilst lifting anchors meant seven days were lost whilst making the appropriate checks prior to resuming full operations.

Well 14/10-9 was drilled quicker than expected and incurred negligible downtime. The well included a sidetrack to take a core of reservoir encountered.

Well 14/15-4 includes the time spent performing a short offset sidetrack in order to obtain core in the Beverley, Casper South and Sea Lion formations encountered.

Financial review

Income statement

The group loss for the year decreased by $33.4 million from $87.2 million to $53.8 million.

Exploration and evaluation expenses for the period decreased $38.5 million from $85.7 million to $47.2 million. This was due, in the main, to a decrease in the impairment charge from $68.1 million to $26.4 million. Seismic acquisition costs fell $3.8 million from $14.1 million to $10.3 million as the majority of the 3D seismic campaign was incurred in the previous year but this has been more than offset by increased reallocated staff costs of $1.4 million and other exploration and evaluation expenses of $5.6 million. These increases have been driven by the increased staffing levels and activity interpreting the 3D seismic campaign as well as supporting the development activity of the Sea Lion field.

Administrative expenses have increased $0.5 million from $7.1 million to $7.6 million. The main area of expenditure is staff costs. Total staff costs have increased $0.4 million as the group has increased staff numbers, particularly at a senior management level. As a result of the increased levels of activity by the group all other costs have increased, except auditor's remuneration and other professional fees. The prior period included extensive advice provided around considering the financing options for the group following the oil discovery.

The share based payment charge has increased $0.8 million from $0.2 million to $1.0 million. This is mainly due to the issuance of further share appreciation rights to members of both the executive and senior management.

Foreign exchange movement for the year changed by $4.2 million from a profit of $4.7 million to a profit of $0.5 million as a result of the US$ weakening since October and thereby increasing the year end value of the GB£ balances raised by the placing in October. The group policy is still to match expected cash balances held against currency requirements.

Balance sheet

During the period the group capitalised $237.3 million of intangible assets compared to $144.6 million in the prior period an increase of $92.7 million. Of the amounts capitalised $202.7 million related to wells drilled and tested on operated acreage, $1.4 million related to wells drilled on non-operated acreage, $9.5 million related to development costs and $23.7 million related to other costs such as long lead items and equipment demobilisation costs.

Other receivables have fallen $1.5 million from $3.3 million to $1.8 million. The reduction is mainly due to a reduction in the amount of recoverable VAT. This is a direct result of the reduced level of activity at the end of the current year in comparison with the prior year when the drilling and seismic acquisition operations were both active.

Resources available for the campaign consist of payments on account, restricted cash, term deposits and cash & cash equivalents and these decreased by $197.8 million from $305.0 million to $107.2 million since the year end.

	2012	2011
	$'millions	$'millions
Payments on account	3	13
Restricted cash	1	23
Term deposits	57	92
Cash & Cash equivalents	46	177
	107	305

Payments on account are payments made to Desire to fund the elements of the campaign they operate. These funds are earmarked for the demobilisation of the campaign and with costs for this expected to be less than initially budgeted the majority of these funds should be refunded to the group. With the conclusion of the operated campaign, restricted cash which was mainly cash held by Diamond in respect of committed wells on operated acreage, now relates to some funds held by AGR, the well manager as well as a collateral account at RBS plc, to support the credit risk to the bank stemming from any forward currency purchases of the group.

Share capital and share premium increased by $70.8 million due mainly to the share placing on the 12 October 2011.

NEXT STEPS

With the successful conclusion of the field appraisal the group's main focus of activity has shifted to the development and financing of the Sea Lion field and the publication of the CPR has been another valuable milestone in our continuing discussions with the lending banks.

From a regulatory perspective we continue to work closely with the Falkland Islands Government to ensure that we have a full understanding of all their development legislation, fiscal or otherwise.

Overall the group has sufficient funds to get to a final investment decision in relation to the Sea Lion field. The publication on 20 April 2012 of a CPR has strongly reinforced our view of the potential of Sea Lion for commercial development and we continue to work to this end.

PETER DIXON-CLARKE

FINANCE DIRECTOR

30 MAY 2012

Group income statement

for the year ended 31 March 2012

		2012	2011
	Notes	$'000	$'000
Expenses
Exploration and evaluation expenses	3	(47,181)	(85,735)
Administrative expenses	4	(7,568)	(7,123)
Charge for share based payments	7	(1,005)	(237)
Foreign exchange movement	8	476	4,714
Total expenses		(55,278)	(88,381)
Finance income		1,496	1,194
Loss before tax		(53,782)	(87,187)
Income tax expense	9	-	-
Loss for the year attributable to the equity shareholders of the parent company		(53,782)	(87,187)
Loss per share: cents (basic & diluted)	10	(19.92)	(40.58)

All operating income and operating gains and losses relate to continuing activities.

Group statement of comprehensive income

for the year ended 31 March 2012

	2012	2011
	$'000	$'000
Loss for the year	(53,782)	(87,187)
Other comprehensive income for the year	-	-
TOTAL COMPREHENSIVE LOSS FOR THE YEAR	(53,782)	(87,187)

Group balance sheet

as at 31 March 2012

		31 March	31 March
		2012	2011
	Notes	$'000	$'000
Assets
Intangible exploration and evaluation assets	11	303,296	92,383
Property, plant and equipment	12	388	340
Other receivables	13	1,787	3,297
Payments on account	14	3,092	12,662
Restricted cash	15	802	23,565
Term deposits	16	57,554	92,177
Cash and cash equivalents	17	45,709	176,580
Total assets		412,628	401,004
Liabilities
Other payables	18	6,419	12,650
Total liabilities		6,419	12,650
Equity
Share capital	19	4,709	4,297
Share premium	20	578,658	508,299
Share based remuneration	20	3,093	2,168
Shares held by SIP trust	20	(139)	-
Merger reserve	20	(243)	(243)
Foreign currency translation reserve	20	4,123	4,123
Retained losses	20	(183,992)	(130,290)
Attributable to the equity shareholders of the company		406,209	388,354
Total liabilities and equity		412,628	401,004

These financial statements were approved by the directors and authorised for issue on 30 May 2012 and are signed on their behalf by:

Samuel Moody                                          

Chief Executive Officer

Peter Dixon-Clarke ACA

Finance Director

Group statement of changes in equity

for the year ended 31 March 2012

						Foreign
						currency
	Share	Share	Share based	Shares held	Merger	translation	Retained	Total
	capital	premium	remuneration	by SIP trust	reserve	reserve	losses	equity
	$'000	$'000	$'000	$'000	$'000	$'000	$'000	$'000
Balance at 31 March 2010	2,966	113,874	2,355	-	(243)	4,123	(43,527)	79,548
Total comprehensive loss for the year	-	-	-	-	-	-	(87,187)	(87,187)
Issue of shares	1,313	403,445	-	-	-	-	-	404,758
Cost of issue	-	(9,960)	-	-	-	-	-	(9,960)
Share based payments	-	-	237	-	-	-	-	237
Exercise of share options	18	940	(424)	-	-	-	424	958
Total contributions by owners	1,331	394,425	(187)	-	-	-	424	395,993
Balance at 31 March 2011	4,297	508,299	2,168	-	(243)	4,123	(130,290)	388,354
Total comprehensive loss for the year	-	-	-	-	-	-	(53,782)	(53,782)
Issue of shares	408	73,078	-	-	-	-	-	73,486
Cost of issue	-	(3,021)	-	-	-	-	-	(3,021)
Share based payments	-	-	1,005	-	-	-	-	1,005
Share issues in relation to SIP	1	169	-	(139)	-	-	-	31
Exercise of share options	3	133	(80)	-	-	-	80	136
Total contributions by owners	412	70,359	925	(139)	-	-	80	71,637
Balance at 31 March 2012	4,709	578,658	3,093	(139)	(243)	4,123	(183,992)	406,209

Group cash flow statement

for the year ended 31 March 2012

	2012	2011
	$'000	$'000
Cash outflows from operating activities
Net loss after tax	(53,782)	(87,187)
Adjustments to reconcile net losses to cash utilised:
Depreciation	155	60
Share based payment charge	1,005	237
Exploration impairment expenses	26,436	68,125
Interest	(653)	(696)
Foreign exchange	(889)	(3,867)
Operating cash flows before movements in working capital	(27,728)	(23,328)
Changes in:
Other receivables	1,430	(2,309)
Payables	(4,529)	7,195
Cash utilised by operating activities	(30,827)	(18,442)
Cash outflows from investing activities
Exploration and evaluation assets	(239,230)	(140,604)
Purchase of equipment	(203)	(352)
Interest	912	270
Investing cashflows before movements in capital balances	(238,521)	(140,686)
Changes in:
Payments on account	9,501	2,113
Restricted cash	22,398	13,654
Term deposits	34,755	(92,177)
Cash utilised by investing activities	(171,867)	(217,096)
Cash inflows from financing activities
Options exercised	136	958
Share incentive plan	31	-
Issue of share capital	73,486	404,758
Share issue costs	(3,021)	(9,960)
Cash generated from financing activities	70,632	395,756
Currency translation differences relating to cash and cash equivalents	1,191	1,877
Net cash inflow	(132,062)	160,218
Cash and cash equivalents brought forward	176,580	14,485
Cash and cash equivalents carried forward	45,709	176,580

NOTES TO THE GROUP FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 MARCH 2012

1 Accounting policies

1.1 Group and its operations

Rockhopper Exploration plc ('the company'), a public limited company quoted on AIM incorporated and domiciled in the United Kingdom ('UK'), together with its subsidiaries (collectively, 'the group') holds certain exploration licences granted in 2004 and 2005 for the exploration and exploitation of oil and gas. The registered office of the company is Hilltop Park, Devizes Road, Salisbury, SP3 4UF.

1.2 Statement of compliance

The consolidated financial statements are prepared in compliance with International Financial Reporting Standards (IFRS) as adopted by the European Union and applied in accordance with UK company law. The consolidated financial statements were approved for issue by the board of directors on 30 May 2012 and are subject to approval at the Annual General Meeting of shareholders on 11 September 2012.

1.3 Basis of preparation

The results upon which these financial statements have been based were prepared using the accounting policies set out below. These policies have been consistently applied unless otherwise stated.

These consolidated financial statements have been prepared under the historical cost convention except, as set out in the accounting policies below, where certain items are included at fair value.

Items included in the results of each of the group's entities are measured in the currency of the primary economic environment in which that entity operates (the "functional currency"). All members of the group have a functional currency of US$ and as such the selection for the consolidated accounts is an obvious choice and the use of US$ as functional currency is a generally accepted convention in the oil and gas industry.

All values are rounded to the nearest thousand dollars ($'000) or thousand pounds (£'000), except when otherwise indicated.

1.4 change in accounting policy

Changes in accounting standards

In the current year the following significant and new and revised standards, amendments and interpretations were effective but did not effect amounts reported in these financial statements but may affect future periods:

- IAS 24 Related Party Disclosure

- IFRIC 19 Extinguishing Financial Liabilities with Equity Instruments

At the date of authorisation of this report the following standards and interpretations, which have not been applied in this report, were in issue but not yet effective.

- IFRS 7 (Amended) Financial Instruments: Disclosures

- IFRS 9 Financial instruments

- IFRS 10 Consolidated Financial Statements

- IFRS 11 Joint Arrangements

- IFRS 12 Disclosures of Interests in Other Entities

- IFRS 13 Fair Value Measurement

- IAS 1 Presentation of Items in Other Comprehensive Income

- IAS 12 Recovery of Underlying Deferred Tax Assets

- IAS 19 Employee Benefits (amended 2011)

- IAS 27 Separate Financial Statements (2011)

- IAS 28 Investment in Associates and Joint Ventures (2011)

- IAS 32 (amended) Offsetting Financial Assets and Financial Liabilities

Management does not believe that the application of these standards, where applicable, will have an impact on the financial statements, except for the requirement of additional disclosures.

1.5 Going concern

At 31 March 2012 the group had available resources of $107.2 million, which it considers to be adequate to complete the committed programme and continue for the foreseeable future.

The financial statements have been prepared on a going concern basis as the directors are confident that the group will be able to raise funds when required in order to fund development of its assets and to continue in operation for the foreseeable future.

1.6 Significant accounting policies

(a) Basis of accounting

The group has identified the accounting policies that are most significant to its business operations and the understanding of its results. These accounting policies are those which involve the most complex or subjective decisions or assessments, and relate to the capitalisation of exploration expenditure. The determination of this is fundamental to the financial results and position and requires management to make a complex judgment based on information and data that may change in future periods.

Since these policies involve the use of assumptions and subjective judgments as to future events and are subject to change, the use of different assumptions or data could produce materially different results.

The measurement basis that has been applied in preparing the results is historical cost with the exception of financial assets, which are held at fair value.

The significant accounting policies adopted in the preparation of the results are set out below.

(b) Basis of consolidation

These consolidated results include the accounts of the company and all of its subsidiaries. Subsidiaries are those entities in which the company has the power to exercise control over financial and operating policies in order to gain economic benefits. Subsidiaries are consolidated from the date on which effective control was transferred to the group and are excluded from consolidation from the date of disposal or when control no longer exists over financial and operating policies.

The reversal of an existing trading group into a shell company, such as Rockhopper Exploration plc's acquisition of Rockhopper Resources Ltd, does not fall within the scope of IFRS3 Business Combinations since the acquirer is not a business per the definition used in that Standard. IFRSs contain specific guidance to be followed where a transaction falls outside the scope of IFRS. This guidance is included at paragraphs 10 to 12 of IAS8 Accounting Policies, Changes in Accounting Estimates and Errors. The directors may consider the most recent pronouncements of other standard setting bodies that use a similar conceptual framework to develop accounting standards. In this regard, it is noted that the United Kingdom Accounting Standards Board (ASB) has issued Financial Reporting Standard 6 'Acquisitions and Mergers' which deals with those business combinations that are not, in substance, the acquisition of one entity by another.

Accordingly the financial statements consolidate the results, cash flows and assets and liabilities of the company and its wholly owned subsidiary using book value accounting on the basis that there has been no business combination and in substance nothing has occurred.

On consolidation the difference between the nominal value of the shares issued with the nominal value of the shares received has been debited to a merger reserve.

All inter-company accounts and transactions have been eliminated on consolidation.

(c) Segmental reporting

Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision maker as required by IFRS8 Operating Segments. The chief operating decision maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the board of directors.

The group's operations are entirely focused on oil and gas exploration activities in the North Falkland Basin with its corporate head office in the UK. Based on risks and returns the directors consider that there is only one business segment that they use to assess the group's performance and allocate resources being oil and gas exploration activities in the North Falkland Basin and therefore the segmental disclosures for the group have already been given in these financial statements.

(d) Oil and Gas Assets

The group applies the successful efforts method of accounting for exploration and evaluation ("E&E") costs, having regard to the requirements of IFRS6 - 'Exploration for and evaluation of mineral resources'.

Intangible exploration and evaluation assets

All directly attributable costs are initially capitalised in well, field, prospect, or other specific, cost pools as appropriate, pending determination.

Pre-licence, geological and geophysical costs

Costs incurred prior to obtaining the legal rights to explore an area, geological and geophysical costs are expensed immediately to the income statement.

Exploration and evaluation ("E&E") costs

Costs of E&E such as exploration and appraisal drilling and testing are initially capitalised as E&E assets.

Tangible assets used in E&E activities are classified as property, plant and equipment. However, to the extent that such a tangible asset is consumed in developing an intangible asset, the amount reflecting the consumption is recorded as part of the cost of the intangible asset.

Treatment of intangible E&E assets at conclusion of appraisal activities

Intangible E&E assets related to each cost pool are carried forward until the existence, or otherwise, of commercial reserves have been determined, subject to certain limitations including review for indications of impairment. If commercial reserves have been discovered, the carrying value, after any impairment loss, of the relevant E&E assets, are then reclassified as development and production assets within property plant and equipment. However, if commercial reserves have not been found, the capitalised costs are charged to expense.

The group's definition of commercial reserves for such purpose is proved and probable reserves on an entitlement basis. Proved and probable reserves are the estimated quantities of crude oil, natural gas and natural gas liquids which geological, geophysical and engineering data demonstrate with a specified degree of certainty (see below) to be recoverable in future years from known reservoirs and which are considered commercially producible. There should be a 50% statistical probability that the actual quantity of recoverable reserves will be more than the amount estimated as proved and probable. The equivalent statistical probabilities for the proven component of proved and probable reserves are 90%.

Such reserves may be considered commercially producible if management has the intention of developing and producing them and such intention is based upon:

- a reasonable assessment of the future economics of such production;

- a reasonable expectation that there is a market for all or substantially all the expected hydrocarbon production;

- evidence that the necessary production, transmission and transportation facilities are available or can be made available; and

- the making of a final investment decision.

Furthermore:

(i)   Reserves may only be considered proved and probable if producibility is supported by either actual production or a conclusive formation test. The area of reservoir considered proved includes: (a) that portion delineated by drilling and defined by gas-oil and/or oil-water contacts, if any, or both; and (b) the immediately adjoining portions not yet drilled, but which can be reasonably judged as economically productive on the basis of available geophysical, geological and engineering data. In the absence of information on fluid contacts, the lowest known structural occurrence of hydrocarbons controls the lower proved limit of the reservoir.

(ii)  Reserves which can be produced economically through application of improved recovery techniques (such as fluid injection) are only included in the proved and probable classification when successful testing by a pilot project, the operation of an installed programme in the reservoir, or other reasonable evidence (such as, experience of the same techniques on similar reservoirs or reservoir simulation studies) provides support for the engineering analysis on which the project or programme was based.

Development and production assets

Development and production assets, classified within property, plant and equipment, are accumulated generally on a field‑by‑field basis and represent the costs of developing the commercial reserves discovered and bringing them into production, together with the E&E expenditures incurred in finding commercial reserves transferred from intangible E&E assets.

Depreciation of producing assets

The net book values of producing assets are depreciated generally on a field-by-field basis using the unit-of-production method by reference to the ratio of production in the year and the related commercial reserves of the field, taking into account the future development expenditure necessary to bring those reserves into production.

(e) Capital commitments

Capital commitments include all projects for which specific board approval has been obtained up to the reporting date. Projects still under investigation for which specific board approvals have not yet been obtained are excluded.

(F) Foreign currency translation

Functional and presentation currency:

Items included in the results of each of the group's entities are measured using the currency of the primary economic environment in which the entity operates, the functional currency. The consolidated financial statements are presented in US$ as this best reflects the economic environment of the oil exploration sector in which the group operates. The functional and presentational currency of all the group's entities is US$, as such there are no exchange rate differences arising on consolidation of foreign operations.

Transactions and balances:

Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year‑end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the income statement, except when deferred in equity as qualifying cash flow hedges and qualifying net investment hedges.

The year end rates of exchange actually used were:

	31 March 2012	31 March 2011
£ : US$	1.60	1.60

(g) Investment income

Investment income consists of interest receivable for the period. Interest income is recognised as it accrues, taking into account the effective yield on the investment.

(h) NON-DERIVATIVE Financial instruments

Financial assets and financial liabilities are recognised on the group's balance sheet when the group has become a party to the contractual provisions of the instrument.

(i)    Other receivables

        Other receivables are classified as loans and receivables and are initially recognised at fair value. They are subsequently measured at their amortised cost using the effective interest method less any provision for impairment. A provision for impairment is made where there is objective evidence that amounts will not be recovered in accordance with original terms of the agreement. A provision for impairment is established when the carrying value of the receivable exceeds the present value of the future cash flow discounted using the original effective interest rate. The carrying value of the receivable is reduced through the use of an allowance account and any impairment loss is recognised in the income statement.

(ii)   Term deposits

        Term deposits are disclosed separately on the face of the balance sheet when their term is greater than three months and they are unbreakable.

(iii)  Restricted cash

        Restricted cash is disclosed separately on the face of the balance sheet and denoted as restricted when it is not under the exclusive control of the group.

(iv)  Cash and cash equivalents

        Cash and cash equivalents comprise cash in hand and at bank and other short-term deposits held by the group including breakable and unbreakable deposits with terms of less than three months and breakable term deposits of greater terms than three months where amounts can be accessed within three months without material loss. They are stated at carrying value which is deemed to be fair value.

(v)   Financial liabilities and equity

        Financial liabilities and equity instruments are classified according to the substance of the contractual arrangements entered into. An equity instrument is any contract that evidences a residual interest in the assets of the group after deducting all of its liabilities.

 (vi) Trade payables

        Trade payables are initially recognised at fair value and subsequently at amortised cost using the effective interest method.

(vii) Equity instruments

        Equity instruments issued by the company are recorded at the proceeds received, net of direct issue costs.

The current tax expense is based on the taxable profits for the period, after any adjustments in respect of prior years. Tax, including tax relief for losses if applicable, is allocated over profits before tax and amounts charged or credited to reserves as appropriate.

Deferred taxation is recognised in respect of all taxable temporary differences that have originated but not reversed at the balance sheet date where transaction or events have occurred at that date that will result in an obligation to pay more, or a right to pay less or to receive more, tax, with the exception that deferred tax assets are recognised only to the extent that the directors consider that it is probable that there will be suitable taxable profits from which the future reversal of the underlying temporary differences can be deducted.

Deferred tax is measured on an undiscounted basis at the tax rates that are expected to apply in the periods in which temporary differences reverse, based on tax rates and laws enacted or substantively enacted at the balance sheet date.

(j) Share based remuneration

The group has two option schemes that have each granted options over the ordinary shares of the company, being an employee share option scheme ("ESOS") and a non-employee share option scheme ("NESOS").

Both schemes were created after 7 November 2002 and the group accounts for their cost until such time as they are fully vested in line with IFRS2: Share based payments. Under the method set out in this standard, the cost of providing for such schemes is based on the fair value of the options at the date of grant. The cost is charged to the income statement over the expected vesting period of the options and credited to a share based payment reserve. The said value of the options granted is measured using an option valuation model, taking into account the terms and conditions upon which the options are granted. The amount recognized as an expense is adjusted to reflect the actual number of awards for which the related service and non-market vesting conditions are expected to be met, such that the amount ultimately recognised as an expense is based on the number of awards that do meet the related service and non-market performance conditions at the vesting date. For share based payment awards with nonvesting conditions, the grant date fair value of the share based payment is measured to reflect such conditions and there is no true up for differences between expected and actual outcomes.

When new shares are issued, the proceeds, net of any transaction costs, are credited to share capital at nominal value and the balance to share premium. The related amount in the share based payment reserve is then credited to retained earnings.

During 2008, the group also created a scheme for share appreciation rights ("SARs"). These are accounted for and valued on the same basis as the options. During 2012, the group started an HMRC approved Share Incentive Plan ("SIP") which is available to all employees. Under the terms of the SIP, subscribing employees can be granted a free award of Ordinary Shares in the Company ("Shares") (the "Free Shares").

In addition, subject to employees purchasing Shares ("Partnership Shares"), an additional conditional award of Shares may be granted ("Matching Shares").

Shares to meet the future Free Share and Matching Share obligations of participants are issued to Capita IRG Trustees Limited the trustee of the SIP. The Free Shares and Matching Shares are held on trust for the participants and are not released, except in specific circumstances, until three years after the date of allotment.

The issue of Partnership Shares are made at fair value and do not have any vesting conditions. As such they are accounted for as an equity transaction rather than as a share based payment.

The Free Shares and Matching Shares are conditional on the continued employment of the individual for three years after grant, except under certain specific circumstances. As such they are a Share Based Payment and accounted for on the same basis as the options.

The trust that holds the Shares to meet participants' future entitlement to Free Shares and Matching Shares is aggregated into these financial statements.

(k) Equipment

Equipment is initially recorded at cost then depreciation is calculated on the straight line method to write down the cost of the asset to their residual values over their estimated useful lives as follows:

Office equipment: Three years

Leasehold improvements: Five years

(l) Current, non-current disclosure

The group does not present its balance sheet on the basis of current and non-current assets and liabilities as presentation broadly in order of liquidity is reliable and more relevant. All balances within receivables and payables are expected to be recovered or settled within twelve months of the balance sheet date.

(m) Leasing

Rentals payable under operating leases are charged to income on a straight-line basis over the term of the relevant lease.

Benefits received and receivable as an incentive to enter into an operating lease are also spread on a straight-line basis over the lease term.

2 Use of estimates, assumptions and judgements

The group makes estimates, assumptions and judgements that affect the reported amounts of assets and liabilities. Estimates, assumptions and judgements are continually evaluated and based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. The most material area relates to the capitalisation of intangible assets disclosed in note 11.

3 exploration and evaluation expenses

	2012	2011
	$'000	$'000
Allocated from administrative expenses (see note 4 below)	2,658	1,249
Capitalised exploration costs impaired (see note 11 below)	26,436	68,125
Seismic acquisition costs	10,314	14,156
Other exploration and evaluation expenses	7,773	2,205
	47,181	85,735

4 Administrative expenses

	2012	2011
	$'000	$'000
Directors' salaries and fees, including bonuses (see note 5 below)	2,528	3,049
Other employees' salaries	2,367	399
National insurance costs	632	464
Pension costs	135	57
Employee benefit costs	73	-
Total staff costs	5,735	3,969
Allocated to exploration and evaluation expenses	(2,658)	(1,249)
Total staff costs charged to administrative expenses	3,077	2,720
Auditor's remuneration (see note 6 below)	250	355
Other professional fees	1,973	2,948
Travel	852	362
Office rentals	233	92
Depreciation	155	60
Other	1,028	586
	7,568	7,123

The average number of staff employed during the year was 15 (2011: 8).

5 directors' remuneration

	2012	2011
	$'000	$'000
Executive salaries	1,161	895
Executive bonuses	910	1,883
Company pension contributions to money purchase schemes	116	57
Benefits	30	-
Non-executive fees	457	271
	2,674	3,106

During the prior year executive directors became entitled to contributions to money purchase pension schemes.

The total remuneration of the highest paid director was:

	2012	2011
	£	£
Annual salary	315,000	234,250
Bonuses	252,000	454,813
Money purchase pension schemes	31,500	15,750
Benefits	3,947	-
	602,447	704,813

Equivalent to $957,067 (2011: $1,089,336) at the prevailing rate of exchange.

Remuneration interest in outstanding share options and interest in outstanding SARs, by director, are separately disclosed in the directors' remuneration report within the published group accounts.

6 Auditor's remuneration

	2012	2011
	$'000	$'000
KPMG Audit Plc
Fees payable to the company's auditor for the audit of the company's annual financial statements	131	128
Fees payable to the company's auditor and its associates for other services:
Other services pursuant to legislation	32	26
Tax compliance services	13	26
Tax advisory services	25	-
Services relating to information technology	9	-
Services relating to corporate finance	40	175
	250	355

7 Share based Payments

The charge for share based payments includes options and share appreciation rights ("SARs") granted to employees of the company under the employee share option scheme ("ESOS"), and options granted to other third parties.

	2012	2011
	$'000	$'000
Charge for the options granted on 8 August 2005	-	12
Charge for the share appreciation rights granted on 25 November 2008	-	32
Charge for the share appreciation rights granted on 3 July 2009	-	22
Charge for the share appreciation rights granted on 11 January 2011	689	171
Charge for the share appreciation rights granted on 14 July 2011	71	-
Charge for the share appreciation rights granted on 16 August 2011	25	-
Charge for the share appreciation rights granted on 13 December 2011	22	-
Charge for the share appreciation rights granted on 17January 2012	198	-
	1,005	237

The values of the charges above have been calculated based on a binomial model and the key assumptions for each of the grants analysed above, are set out below:

Options
Options granted on:	8-Aug-05
Exercise/base price	42.00p
Number granted	5,650,000
Weighted average volatility	62%
Weighted average risk free rate	4.35%
Dividend yield	Nil
Max underlying price of the shares prior to exercise	200p
Number of employees that will leave prior to exercise	Nil
Illiquidity discount	5.00%
Expiry date	20-Apr-15

Weighted average volatility was based on the historical share price movement of the group.

The following movements occurred during the year on options:

		Exercise price	At 1 April			At 31 March
Issue date	Expiry date	(pence)	2011	Issued	Exercised	2012
11 April 2005	10 April 2015	10.00	425,000	-	-	425,000
10 May 2005	9 May 2015	10.00	17,820	-	990	16,830
8 August 2005	7 August 2015	42.00	4,250,000	-	200,000	4,050,000
			4,692,820	-	200,990	4,491,830

The weighted average price of the options exercised was 42 pence.

The 10p options granted on 11 April 2005 have all vested and have all been exercised other than 425,000 held by S J Moody.

The 10p options granted on 10 May 2005 were awarded to certain employees of businesses in the Falkland Islands owned by R F Visick, a former director.

The 42p options granted at the admission price of 42p were granted immediately prior to the admission to AIM and are exercisable in three equal tranches as follows:

Tranche 1    on or after the first anniversary of admission

Tranche 2    on or after the second anniversary of admission, following the company declaring that it has made a commercial discovery or all three wells which are the subject of the Desire farm in agreement having been drilled within 110% of approved financial expenditure

Tranche 3    on or after the third anniversary of admission, following an increase of at least 50% in the Company's share price since admission.

All three Tranches have vested and the options are exerciseable until they expire on 7 August 2015. Tranche 3 is considered to be a market based condition and therefore the vesting conditions are taken into account when estimating the fair value of the options.

Share appreciation rights
Date granted on:	14-Jul-11	11-Jan-11	3-Jul-09	25-Nov-08
Exercise/base price	239.75p	372.75p	30.87p	19.25p
Number granted	45,881	234,069	532,686	1,833,765
Weighted average volatility	110%	120%	120%	95%
Weighted average risk free rate	2.14%	2.44%	2.88%	3.36%
Dividend yield	Nil	Nil	Nil	Nil
Number of employees that will leave prior to exercise	Nil	Nil	Nil	Nil
Illiquidity discount	0.00%	0.00%	0.00%	0.00%
Expiry date	14-Jul-21	11-Jan-21	31-Dec-13	31-Dec-13
Date granted on:		17-Jan-12	13-Dec-11	16-Aug-11
Exercise/base price		303.75p	240.75p	237.00p
Number granted		367,279	31,152	17,932
Weighted average volatility		100%	100%	110%
Weighted average risk free rate		1.11%	1.18%	1.66%
Dividend yield		Nil	Nil	Nil
Number of employees that will leave prior to exercise		Nil	Nil	Nil
Illiquidity discount		0.00%	0.00%	0.00%
Expiry date		17-Jan-22	13-Dec-21	16-Aug-21

Weighted average volatility was calculated based on the historical share price movement of the group.

The options granted during 2011 were part of staffing up senior management. The team is now considered to be largely complete.

The following movements occurred during the year on SARs:

		Exercise price	At 1 April				At 31 March
Issue date	Expiry date	(pence)	2011	Issued	Lapsed	Exercised	2012
22 November 2008	31 December 2013	19.25	1,833,765	-	-	-	1,833,765
3 July 2009	31 December 2013	30.87	532,686	-	-	-	532,686
11 January 2011	11 January 2021	372.75	234,069	-	(21,428)	-	212,641
14 July 2011	14 July 2021	239.75	-	45,881	(2,294)	-	43,587
16 August 2011	16 August 2021	237.00	-	17,932	(897)	-	17,035
13 December 2011	13 December 2021	240.75	-	31,152	(1,558)	-	29,594
17 January 2012	17 January 2022	303.75	-	367,279	-	-	367,279
			2,600,520	462,244	(26,177)	-	3,036,587

On 20 November 2008 the remuneration committee agreed to amend the ESOS to enable the board of the company to grant SARs to executive directors and employees of the company. This was done because SARs help reduce the number of ordinary shares issued, thus limiting the dilutive effect of the ESOS on the company's issued share capital. Under the rules of the ESOS the number of ordinary shares which may be allocated by the company (excluding options over ordinary shares granted prior to the admission of the company's ordinary shares to trading on AIM) will continue to be limited to a maximum of 10% of the issued ordinary share capital of the company in any 10 year period.

A SAR is effectively a share option that is structured from the outset to deliver, on exercise, only the net gain in the form of new ordinary shares that would have been made on the exercise of a market value share option.

No consideration is payable on the grant of a SAR. On exercise, an option price of 1 pence per ordinary share, being the nominal value of the company's ordinary shares, is paid and the relevant awardee will be issued with ordinary shares with a market value at the date of exercise equivalent to the notional gain that the awardee would have made, being the amount by which the aggregate market value of the number of ordinary shares in respect of which the SAR is exercised, exceeds a notional exercise price, equal to the market value of the shares at the time of grant (the "base price").

Accordingly, if the price of an ordinary share at the date of exercise is 50% higher than the base price, then the number of ordinary shares issued upon exercise of a SAR award of 1% of the current issued share capital of the company would equate to only 0.33% of the current issued share capital of the company.

Likewise, a doubling of the ordinary share price from the base price would result in the issue of ordinary shares equal to 0.5% of the current issued share capital.

The base prices of the SARs granted on 25 November 2008 and 3 July 2009 were 19.25 and 30.87 pence per ordinary share respectively, being the middle market quotations of an ordinary share on the dealing days immediately preceding the dates of grant.

The company's remuneration committee made this award of SARs subject to performance conditions based on the group:

Tranche 1    raising funds to drill its outstanding commitment wells,

Tranche 2    negotiating and entering into drilling contract(s) and

Tranche 3    ensuring that the drilling campaign is completed in accordance with acceptable health and safety standards.

None of the above conditions are considered to be market based conditions and so the vesting conditions are not taken into account when estimating the fair value of the shares.

All three tranches of SARs have vested and exercisable up until they expire on 31 December 2013.

In total during the calendar year ended 31 December 2011, 329,034 SARs were awarded by the remuneration committee. The base prices of these SAR awards, as detailed above, were at the official closing price of an ordinary share on the dealing day immediately preceeding the date of the grant.

The company's remuneration committee made these awards subject to either continued employment by the employee for a year from date of grant or continued employment for a year as well as certain non market based performance conditions based on the group:

•     making satisfactory progress towards a declaration of commerciality; and

•     completing all operations in accordance with health and safety standards and without materially adverse environment impact.

The remuneration committee met on 17 January 2012 and determined that, for those SARs with performance conditions, whilst the targets had largely been achieved, they noted a lost time incident had occurred on the rig and so 90% of the SARs vested and the balance allowed to lapse. The remaining SARs awarded will now be exercisable a year after grant date.

On 17 January 2012 the remuneration committee awarded 367,279 SARs. The base price of these SAR awards, as detailed above, were at the official closing price of an ordinary share on the dealing day immediately preceeding the date of the grant.

The company's remuneration committee made these awards subject to continued employment by the employee for a year from date of grant and certain non market based performance conditions based on the group:

•     producing a competent person's report to a timetable which accords with the group's needs;

•     making satisfactory progress towards a final investment decision on the Sea Lion field; and

•     completing all operations in accordance with health and safety standards and without materially adverse environmental impact.

The remuneration committee will meet at the end of the calendar year and determine to what extent these SAR conditions have been met.

Share incentive plan

During the year, pursuant to authorities granted by shareholders at the AGM on 6 September 2011, the group launched an HMRC approved Share Incentive Plan ("SIP"). The SIP allows the group to award Free Shares to UK employees (including directors) and to award shares matching Partnership Shares purchased by employees, subject HMRC limits.

On 20 March 2012 the group announced a free award of £3,000 worth of Free Shares to eligible employees. In addition, subject to employees purchasing up to £1,500 worth of Shares each (the "Partnership Shares"), an additional conditional award of twice the number of Partnership Shares was granted (the "Matching Shares"). The Shares in relation to the SIP for the 2011/2012 tax year were allotted on 23 March 2012 and were satisfied by the allotment of new Shares based on the closing price of the Shares on the day before the allotment. This resulted in 14,544 Free Shares and 11,864 Matching Shares being issued under the SIP at a grant price of £3.30.

The fair value of the shares awarded: £3.30

Vesting: 100%

Dividend yield: Nil

Lapse due to withdrawals: Nil

The fair value of the shares awarded will be spread over the expected vesting period. Due to the awards being made so close to the year end this results in a negligible charge for the financial year ended 31 March 2012.

For the 2012/2013 tax year, employees will be eligible for monthly, or one off, participation in the SIP whereby they can acquire up to annual amount of £1,500 worth of Partnership Shares and will additionally be granted two Matching Shares for each Partnership Share. Any Free Share Award to be made in the 2012/2013 tax year is at the discretion of the Company's Remuneration Committee and would most likely be made in or around March 2013. Under the terms of the Company's share dealing code, employees will not be permitted to join or leave the SIP or change their contributions during close periods.

8 foreign exchange movement

	2012	2011
	$'000	$'000
Realised (losses)/gains	(208)	5,748
Unrealised gains/(losses)	684	(1,034)
	476	4,714

9 Taxation

	2012	2011
	$'000	$'000
Total tax:
Corporation tax on losses for the year	-	-
Tax on loss on ordinary activities	-	-
Loss on ordinary activities before tax	(53,782)	(87,187)
Loss on ordinary activities multiplied by the rate of corporation tax of 26% (2011: 28%)	(13,983)	(24,412)
Effects of:
Expenses not deductible	6,963	19,527
Depreciation in excess of capital allowances	-	(28)
Utilisation of losses	-	(1,273)
IFRS2 Share based remuneration cost	261	66
Pre trading expenditure carried forward	5,446	4,933
Losses carried forward	1,461	1,354
Other	(148)	(167)
Total tax charge for the year	-	-

The total carried forward losses and carried forward pre trading capital expenditures available for relief on commencement of trade at 31 March 2012 is $473.1 million (2011: $222.5 million).

No deferred tax asset has been recognised in respect of temporary differences arising on losses carried forward, outstanding share options or depreciation in excess of capital allowances due to the uncertainty in the timing of profits and hence future utilisation. Had an asset been recognised then it would have been based on the losses above at 26% (2011: 26%) for the prior year. This would give an undiscounted value of $123.0 million (2011: $57.8 million).

It has been announced that the UK tax rate will drop a further 1% per annum over the next two years reaching 22% effective from 1 April 2014. The impact of these subsequent corporation tax rate reductions will only be reflected as the relevant legislation is substantively enacted.

On the 26 March 2012 the subsidiary companies that hold the exploration licences made an election under S18A CTA 2009, exemption for profits or losses of foreign permanent establishments. This election will take effect for periods commencing from 1 April 2012 and all subsequent accounting periods. The election exempts any profits, gains or losses of foreign branches from UK corporation tax. To the extent that the companies only profitable activities are in the Falkland Islands then no UK tax should become payable.

10 Basic and diluted loss per share

	2012	2011
	Number	Number
Shares in issue brought forward	258,139,606	174,104,755
Shares issued during the period
- Issued during the prior year	-	84,034,851
- Issued on 14 July 2011	990	-
- Issued on 17 August 2011	200,000	-
- Issued on 17 October 2011	25,814,000	-
- Issued on 29 March 2012	32,340	-
Shares in issue carried forward	284,186,936	258,139,606
Weighted average shares in issue	270,043,689	214,858,552

	2012	2011
	$'000	$'000
Net (loss) after tax	(53,782)	(87,187)
Basic and diluted net (loss) per share - cents	(19.92)	(40.58)

The calculation of the basic loss per share is based upon the loss for the year and the weighted average shares in issue. As the group is reporting a loss for both years then in accordance with IAS33 the share options are not considered dilutive because the exercise of the share options would have the effect of reducing the loss per share.

11 intangible exploration and evaluation assets

	Licences	Licences	Licences*	31 March	31 March
	PL023	PL032	PL003	2012	2011
	PL024	PL033	PL004	$'000	$'000
Costs brought forward	25,443	119,981	15,084	160,508	15,912
Additions	(1,807)	206,181	32,975	237,349	144,596
	23,636	326,162	48,059	397,857	160,508
Impairments brought forward	(25,443)	(27,598)	(15,084)	(68,125)	-
Impairments arising in the period	1,807	(26,256)	(1,987)	(26,436)	(68,125)
	(23,636)	(53,854)	(17,071)	(94,561)	(68,125)
Net book value brought forward	-	92,383	-	92,383	15,912
Net book value carried forward	-	272,308	30,988	303,296	92,383

* See below.

With the campaign ending during this financial year the group has reallocated operator campaign costs to the licences on the basis of rig days on hire. Initial rig and equipment mobilisation costs were split 50:50 between licences PL023/24 and PL032/33 as it was expected there would be one well drilled on each licence. With the discovery being made on the Sea Lion prospect almost all of the group's activity has been on licence PL032/33 and the reallocation ensures that the associated costs reflect this activity. Details of the movements on a licence by licence basis are detailed immediately below. Details of licence terms and associated commitments are set out in note 21.

Licences PL023 & PL024

These licences represent the southern acreage that the group holds within the North Falkland Basin. The group holds these licences 100% and is the operator. During the period under review the group reallocated campaign costs, in relation to mobilisation and demobilisation of rig and equipment, as follows:

-    $1.8 million that had previously been allocated to exploration well 26/6-1, which was drilled on the Ernest prospect, has been reallocated to other licences. The well was declared a dry hole on 25 August 2010 and plugged and abandoned and therefore considered to be impaired. As these costs have been transferred to other licences the associated impairment has been reversed and has been credited to the income statement.

Licences PL032 & PL033

These licences represent the northern acreage that the group holds within the North Falkland Basin. The group holds these licences 100% and is the operator. During the period under review the group capitalised, including the allocated campaign costs in relation to mobilisation and demobilisation of rig and equipment, the following expenditure:

-    $4.6 million in respect of other costs, including costs provided for demobilisation, relating to wells 14/10-2, 14/10-3 and 14/15‑4. On 11 February 2011 the group announced that well 14/10-3 was not commercial on a standalone basis. As it is not on the Sea Lion field the costs of $1.2 million incurred during the year that were associated with this well have been impaired.

-    $68.4 million in respect of appraisal well 14/10-5 and the associated flow test, which was declared a successful appraisal on 1 June 2011. As the well is on the Sea Lion field, which is pending determination as to its commerciality, the cost of this well is carried as an intangible asset.

-    $31.9 million in respect of appraisal well 14/10-6, which was declared a successful appraisal on 9 August 2011. As the well is on the Sea Lion field, which is pending determination as to its commerciality, the cost of this well is carried as an intangible asset.

-    $31.7 million in respect of exploration well 14/10-7, which was declared a discovery on 14 September 2011. As the well is on the Sea Lion field, which is pending determination as to its commerciality, the cost of this well is carried as an intangible asset.

-    $24.4 million in respect of exploration well 14/10-8, which was declared to be water wet and a dry hole on 11 October 2011. As the well is separated from the main Sea Lion field by a fault, the cost of this is considered to be impaired and so has been expensed to the income statement.

-    $29.0 million in respect of exploration well 14/10-9, which was declared a discovery on 9 November 2011. As the well is on the Sea Lion field, which is pending determination as to its commerciality, the cost of this well is carried as an intangible asset.

-    $6.7 million of other costs incurred during the campaign.

-    $9.5 million of costs in relation to development work on the Sea Lion field.

Licences PL003 & PL004

On 12 October 2011 the group announced it had agreed the terms of a farm in agreement, subject to finance and to the approval of the Falkland Islands Government, with Desire Petroleum Plc to farm in to that part of the north-western acreage of licence PL004, now known as PL004b, which contains the extension to the Sea Lion field and the western part of the Beverley prospect, and into the north-eastern part of licence PL004, now known as PL004c, which the company believes contains the Jayne prospect and the eastern part of the Beverley prospect.

In consideration for paying the full cost of drilling well 14/15-4 in PL004b, the farm in agreement gave the group operatorship of PL004b and an earned interest of 52.5%, in aggregate 60%, when taken together with its existing 7.5% earned interest under licence PL004, in that area. The drilling of 14/15-4 also gave the group a 17.5% working interest, in aggregate 25% when taken together with its existing 7.5% earned interest under licence PL004, in PL004c. Operatorship of PL004c remains with Desire Petroleum Plc. The residual area of PL004, excluding PL004b and PL004c, is now known as PL004a.

The group has a 7.5% working interest in licences PL004a and PL003 and is not the operator.

During the period under review the group capitalised the following expenditure:

-    $0.4 million in respect of other costs, including costs provided for demobilisation, relating to wells 14/15-1 and 14/15-2. As Desire have not announced any firm plans to return to these prospects they are not considered to be pending determination and so the wells are considered to be impaired and have been expensed to the income statement.

-    $1.5 million in respect of exploration well 14/15-3, which was drilled on the Ninky prospect and declared on 18 April 2011 to have generally poor reservoir quality, then plugged and abandoned. As Desire has not announced any firm plans to return to the prospect it is not considered to be pending determination and so the well is considered to be impaired and has been expensed to the income statement.

-    $31.1 million in respect of exploration well 14/15-4, which was drilled on the Sea Lion and Beverley prospects, declared a discovery on 13 December 2011. As the well is on the Sea Lion field, which is pending determination as to its commerciality, the cost of this well is carried as an intangible asset.

12 property, plant and equipment

	Leasehold	Office
	improvements	equipment	2012	2011
	$'000	$'000	$'000	$'000
Cost at 1 April	199	275	474	122
Additions	77	126	203	352
Cost at 31 March	276	401	677	474
Accumulated depreciation at 1 April	(28)	(106)	(134)	(74)
Current year depreciation charge	(54)	(101)	(155)	(60)
Depreciation at 31 March	(82)	(207)	(289)	(134)
Net book value at 1 April	171	169	340	48
Net book value at 31 March	194	194	388	340

13 OTHER Receivables

	2012	2011
	$'000	$'000
Receivables	571	405
Prepayments	578	15
Accrued interest	167	426
Other	471	2,451
	1,787	3,297

The carrying value of receivables approximates to fair value. Receivables in the current year relates to the BHP contribution expected in respect of campaign demobilisation costs. These costs were initially funded by the group and Desire. In the prior year they related to recharges for seats taken on charter flights by other parties working within Falkland Islands territorial waters.

The significant increase in prepayments mainly relates to prepaid licence rentals of $375,000.

The accrued interest relates to unexpired fixed term deposits held at the year end.

Other relates to VAT, the significant decrease being due to decreased activity as a result of the end of the drilling campaign.

14 payments on account

	2012	2011
	$'000	$'000
Non-refundable funds held by third parties relating to non-operated activities	3,092	12,662

The amounts above relate to payments made in respect of the drilling campaign. The balance relates to monies paid to Desire in respect of farm in costs and the demobilisation of the rig and equipment.

15 Restricted cash

	2012	2011
	$'000	$'000
In respect of operated wells
-held in escrow by Diamond	-	23,192

- 

 

END

 

 

FR URVRRUKAVOUR