Audited Results

RNS Number : 2271K

Xtract Energy plc

12 July 2011

 



12  July 2011

XTRACT ENERGY PLC

("Xtract" or the "Company")

Audited results for the year ended 31 December 2010

Xtract announces that in accordance with the statement made on 24 June 2011 that the Company has changed its financial year end from 30 June to 31 December, the audited results to 31 December 2010 are published below.

The Board has taken the decision to change the financial year end to better align the reporting timeline of the Group with that of Elko Energy Inc, its 50% owned operating business, for which, as was previously announced on 12 June 2011, Xtract has offered to acquire the remaining share capital that it does not currently hold.

The audited results for the year ended 31 December 2010 will be posted to shareholders by close of business on 15 July 2011.

The audited accounts as at 31 December 2010 are being issued subsequent to the interim results for the same period which were released on 30 March 2011.

Availability of information and the audit process generally, have resulted in a small number of changes to the financial statements as noted below:

Consolidated Balance Sheet
At 31 December 2010	ANNUAL REPORT		INTERIMS
	As at 31 Dec 2010		As at 31 Dec 2010
	2010		2010
	£’000		£’000
Assets
Non-current assets
Intangible assets	2,047		2047
Property, plant and equipment	4		4
Interests in associates	400		428
Interests in JV (a)	65		2230
Investments - available for sale	497		497
Deferred consideration	291		291
	3,304		5,497
Current assets
Cash and cash equivalents (b)	8,766		8784
Trade and other receivables (b)	237		217
	9,003		9,001
Total assets	12,307		14,498
Current liabilities
Trade and other payables (c)	556		686
Current tax liabilities (d)	2,951		2778
	3,507		3,464
Non-current liabilities
Deferred tax liability	471		471
Total Liabilities	3,978		3,935
Net Assets	8,329		10,563
Equity
Capital and reserves
Share capital	855		855
Share premium reserve	26,006		26,006
Warrant Reserve	538		538
Share based payments reserve (e)	564		1,157
Available for sale reserve	(93)		(93)
Other comprehensive income	-
Foreign currency translation reserve	861		882
Retained earnings (e)	(23,229)		(23,790)
Current year P&L (a)	(1,528)		639
Equity shareholders' funds	3,974		6,194.00
Minority interests	4,355		4,369.00
Total equity	8,329		10,563

(a) In May 2011, the Group signed a Heads of Agreement with Merty Energy ("Merty") whereby Merty intends to acquire Xtract's 50% share ownership in Extrem. The consideration includes potential future royalties and other contingent future payments. The directors consider that this transaction provides new and better information about the overall recoverable amount of the Extrem investment as at the balance sheet date, and accordingly an impairment test was required. The carrying value of Extrem has been written down by £2,165,000 to £64,650 reflecting the firm cash consideration arising under the Heads of Agreement. Whilst the Group anticipates that further potential future consideration may arise, any such consideration is contingent and cannot be measured reliably. This treatment is also consistent with that applied in relation to the disposal of the Group's Dutch exploration licences in the year .

(b) Cash transferred to Elko Energy AS in relation to the Danish Joint Operating Agreement and held in Noreco's bank account was reclassified from cash in hand to other debtors and receivables following auditor recommendation.

(c ) A penalty in respect of the income tax liability that had been accrued in the interim results was reversed following receipt of confirmation from the Australian Tax Authorities that this amount would not be payable.

(d) The tax calculations estimated for the interim results were prepared and finalised by Ernst and Young post the release of the interim results

(e) On auditor recommendation share based payment valuations that had expired or lapsed at 31 December 2010 were reversed out of the share based payment reserve into retained earnings. This is not required by IFRS 2, however has been adopted as the preferred treatment for the audited financial statements.

- Ends -

Enquiries please contact:

Xtract Energy Plc	Peter Moir, CEO Alan Hume FD	[phone] [phone]
Cenkos Securities Plc	Jon Fitzpatrick Alan Stewart	[phone] [phone]
Financial Dynamics	Billy Clegg Edward Westropp Alex Beagley	[phone]

About Xtract

Xtract identifies and invests in a portfolio of early stage oil and gas assets and business interests with significant growth potential. The Company aims to work closely with the associated management teams to achieve critical project milestones, to finance early stage asset and business development activity, and then to finance the asset development phase, or if appropriate to crystallise value for all shareholders at a suitable exit point. Xtract aims to achieve returns for our shareholders through access to the significant upside rewards associated with our investments.

As announced on 21 June 2011, Xtract has offered to acquire all of the issued and outstanding common stock in Elko Energy Inc that it does not already own, for new ordinary shares in Xtract.  Subsequently, Xtract sought a suspension of trading in its shares until it is in a position to publish an Admission Document and, thereafter, it will re-apply for admission to AIM.  Accordingly, at the request of the Company, trading on AIM for the under-mentioned securities was suspended from 7:30am on 21 June 2011.

For further information on Xtract please visit www.xtractenergy.co.uk

A short description of the principal assets of Xtract is set out below. These assets are either held directly or through wholly owned subsidiaries of the Company.

Extrem Energy AS ("Extrem Energy")

Following execution of heads of terms it is anticipated that in the near term Xtract will enter into a fully termed Assignment Agreement and associated Royalty Agreement pursuant to which Xtract will hold a royalty interest over the license portfolio currently owned by Extrem Energy, onshore and offshore Turkey.

Elko Energy Inc. ("Elko")

Elko is a Canadian registered oil & gas exploration company which has interests in exploration and production licences in the Danish and Dutch North Sea. Its major asset in the Danish North Sea is a 33% working interest in an exploration and production licence 02/05 and a 33% working interest in an adjoining exploration and production licence 01/11, east of the prolific Central Graben oil kitchen. Technical work indicates the potential for significant resources on these combined licenses. Neither of those licences is currently being produced and accordingly no profits are attributable to them. Elko also holds a royalty interest in gas-bearing license blocks P1 and P2 in the Dutch North Sea. Xtract currently owns approximately 50% of Elko's issued share capital.

As announced on 21 June 2011, Xtract has offered to acquire all of the issued and outstanding common stock in Elko Energy Inc that it does not already own, for new ordinary shares in Xtract.  Subsequently, Xtract sought a suspension of trading in its shares until it is in a position to publish an Admission Document and, thereafter, it will re-apply for admission to AIM.

Zhibek Resources Ltd ("Zhibek Resources")

Zhibek Resources is an oil and gas exploration and production company which has a 72% interest in the Tash Kumyr exploration licence in the Kyrgyz Republic. Xtract has entered a farm-out agreement to fund a seismic and drilling programme for 2008-2011. Xtract owns 25.0% of the issued share capital of Zhibek Resources.

Xtract Oil Ltd ("XOL")

Xtract's wholly owned subsidiary, XOL, is focused on the development of the Company's oil shale resources in Australia and the technology for oil extraction from oil shale resources. Xtract has oil shale exploration rights over mining tenements in the Julia Creek area of Queensland. In addition to evaluating third party technologies, XOL has been developing proprietary technology for the commercial extraction of liquid hydrocarbon products from oil shale.

Xtract Energy (Oil Shale) Morocco SA ("XOSM")

XOSM is a joint venture with Alraed Limited Investment Holding Company WLL, a company controlled by His Highness, Prince Bandar Bin Mohd. Bin Abdulrahman Al-Saud of Saudi Arabia. XOSM has signed a Memorandum of Understanding with the Office National des Hydrocarbures et des Mines for the purposes of evaluation and possible development of an oil shale deposit near Tarfaya, in the south west part of Morocco. Xtract currently holds 70% of the joint venture.

Consolidated income statement For the six month period ended 31 December 2010
	Note	6m period ended 31 December 2010    £'000	Year ended 30 June 2010    £'000
Administrative and operating expenses	7	(1,949)	(2,790)
Share of results of associates	17	(39)	(604)
Share of results  and impairment of joint venture	16	(2,249)	(9,578)
Operating loss		(4,237)	(12,972)
Investment revenue	5	42	153
Finance income / (costs)	10	1,157	(35)
Other gains and losses	5	1,159	31
Loss before tax		(1,879)	(12,823)
Tax credit	11	485	310
Loss for the period / year	7	(1,394)	(12,513)
Attributable to:
Equity holders of the parent		(1,528)	(11,771)
Non controlling interest		134	(742)
		(1,394)	(12,513)
Net loss per share
Basic (pence)	12	(0.18)	(1.47)
Diluted (pence)	12	(0.18)	(1.47)

Consolidated and Company statements of comprehensive income For the six month period ended 31 December 2010
		Group		Company
		6m period ended 31 December 2010 £'000	Year ended 30 June 2010 £'000	6m period ended 31 December 2010 £'000	Year ended 30 June 2010 £'000
Comprehensive loss for the year		(1,394)	(12,513)	(1,750)	(13,810)
Gains / (losses )on revaluation of available-for-sale investments taken to equity		306	1,530	306	(243)
Exchange differences on translation of foreign operations		(735)	1,043	-	-
Other comprehensive loss for the year		(1,823)	(9,940)	(1,444)	(14,053)
Transferred to income statement on sale of available-for-sale investment		-	1,016	-	1,282
Total comprehensive loss for the year
		(1,823)	(8,924)	(1,444)	(12,771)
Attributable to:
Equity holders of the parent		(2,065)	(8,292)	(1,444)	(12,771)
Non controlling interest		242	(632)	-	-
		(1,823)	(8,924)	(1,444)	(12,771)

Consolidated and Company statement of financial position As at 31 December 2010
		Group		Company
	Note	As at 31 December 2010 £'000	As at 30 June 2010 £'000	As at 31 December 2010 £'000	As at 30 June 2010 £'000
Non-current assets
Intangible assets	13	2,047	4,407	-	-
Property, plant and equipment	14	4	8	3	5
Investment  in associate	17	400	445	-	-
Investment  in joint venture	16	65	2,322	65	2,152
Investment  in subsidiaries	15	-	-	13,641	13,644
Financial assets	18	497	191	497	191
Loans to subsidiaries		-	-	-	20
Deferred consideration	17	291	297	-	-
		3,304	7,670	14,206	16,012
Current assets
Trade and other receivables	19	237	287	119	108
Cash and cash equivalents	24	8,766	6,869	1,346	1,964
		9,003	7,156	1,465	2,072
Total assets		12,307	14,826	15,671	18,084
Current liabilities
Trade and other payables	21	556	1,391	304	971
Current tax liabilities	21	2,951	3,248	2,138	2,587
Loans from subsidiaries	21	-	-	10,258	10,277
		3,507	4,639	12,700	13,835
Net current assets/(liabilities)		5,496	2,517	(11,235)	(11,763)
Non-current liabilities
Deferred tax liabilities	20	471	471	-	-
Total liabilities		3,978	5,110	12,700	13,835
Net assets		8,329	9,716	2,971	4,249

Consolidated and Company statement of financial position (continued) As at 31 December 2010
		Group		Company
	Note	As at December 31 2010 £'000	As at June 30 2010 £'000	As at December 31 2010 £'000	As at June 30 2010 £'000
Equity
Share capital	22	855	855	855	855
Share premium account		26,006	26,006	26,006	26,006
Warrant reserve		538	538	538	538
Share-based payments reserve	23	564	823	429	823
Available-for-sale reserve	23	(93)	(399)	(93)	(399)
Foreign currency translation reserve	23	861	1,704	-	-
Accumulated losses		(24,757)	(23,789)	(24,764)	(23,574)
Equity attributable to equity holders of the parent		3,974	5,738	2,971	4,249
Non-controlling interest		4,355	3,978	-	-
Total equity		8,329	9,716	2,971	4,249

The financial statements of Xtract Energy plc, registered number 5267407, were approved by the board of directors and authorised for issue on 12 July 2011.  They were signed on its behalf by:

Peter Moir                       Director

Consolidated and Company statements of changes in equity

Group

	Share Capital	Share premium           account	Warrant reserve	Share based payments reserve	Available-for-sale investments reserve	Foreign currency translation  reserve	Retained Earnings	Non-controlling interest	Total  Equity
	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000
At 30 June 2009	752	24,394	-	976	(2,945)	1,516	(12,825)	-	11,868
Share-based payments expense	-	-	-	193	-	-	-	-	193
Issue of share capital	103	1,612	-	-	-	-	-	-	1,715
Issue of warrants	-	-	538	-	-	-	-	-	538
Transfer of share based payment reserves of associates on disposal	-	-	-	(346)	-	-	-	-	(346)
Associate becoming subsidiary	-	-	-	-	-	-	-	4,610	4,610
Gain  on revaluation of available-for-sale investments	-	-	-	-	1,530	-	-	-	1,442
Deferred tax on revaluation of available-for-sale investments	-	-	-	-	-	-	-	-	-
Transfer of available-for-sale revaluations to income statement on disposal	-	-	-	-	1,016	-	-	-	1,104
Transfer of deferred tax on revaluation of available-for-sale investments	-	-	-	-	-	-	-	-	-
Transfer of associates' share based payments reserve on disposal	-	-	-	-	-	-	807	-	807
Transfer of associate's foreign currency translation reserve to income statement on disposal	-	-	-	-	-	(745)	-	-	(745)
Loss for the year	-	-	-	-	-	-	(11,771)	(742)	(12,513)
Foreign currency translation differences	-	-	-	-	-	933	-	110	1,043
At 30 June 2010	855	26, 006	538	823	(399)	1,704	(23,789)	3,978	9,716
Gain on revaluation of available-for-sale investments	-	-	-	-	306	-	-	-	306
Share based payment expense	-	-	-	301	-	-	-	135	436
Other equity movements	-	-	-	(560)	-	-	560	-	-
Loss for the period	-	-	-	-	-	-	(1,528)	134	(1,394)
Foreign currency translation differences	-	-	-	-	-	(843))	-	108	(735)
As at 31 December 2010	855	26,006	538	564	(93)	861	(24,757)	4,355	8,329

Consolidated and Company statements of changes in equity (continued)

Company

	Share capital	Share premium account	Warrant reserve	Share based  payments reserve	Available for sale reserve	Retained earnings	Total Equity
	£'000	£'000	£'000	£'000	£'000	£'000	£'000
At 30 June 2009	752	24,394	-	629	(1,438)	(9,764)	14,573
Share-based payments expense	-	-	-	194	-	-	194
Issue of share capital	103	1,612	-	-	-	-	1,715
Issue of warrants	-	-	538	-	-	-	538
Gain on revaluation of available-for-sale investments	-	-	-	-	(243)	-	(201)
Deferred tax on revaluation of available-for-sale investments		-	-	-	-	-	-
Transfer of available-for-sale revaluations to income statement on disposal	-	-	-	-	1,282	-	1,240
Transfer of deferred tax on revaluation of available-for-sale investments	-
Loss for the year	-	-	-	-	-	(13,810)	(13,810)
At 30 June 2010	855	26,006	538	823	(399)	(23,574)	4,249
Issue of warrants	-	-	-	166	-	-	166
Expiry of warrants	-	-	-	(560)		560	-
Gain on revaluation of available-for-sale investments	-	-	-	-	306	-	306
Loss for the period	-	-	-	-	-	(1,750)	(1,750)
At 31 December 2010	855	26,006	538	429	(93)	(24,764)	2,971

Consolidated and Company cash flow statements For the six month period ended 31 December 2010
		Group		Company
	Note	6m period ended 31 December 2010 £'000	Year ended 30 June 2010 £'000	6m period ended 31 December 2010 £'000	Year  ended 30 June 2010 £'000
Net cash used in operating activities	24	(1,652)	(1,734)	(575)	(708)
Investing activities
Interest received	5	42	153	35	145
Government grants	5	-	213	-	-
Acquisition of intangible assets		(25)	(54)	-	-
Disposal of intangible assets		3,612	-	-	-
Purchase of property plant and equipment		-	(1)	-	(1)
Disposal of available-for-sale investments		-	4,305	-	783
Purchase of additional shares in associates		-	(2,366)	-	(2,366)
Purchase of joint venture		-	(3,911)	-	(3,911)
Acquisition of subsidiaries, net of cash acquired		-	4,784	-	(3)
Net cash from/(used in) investing activities		3,629	3,123	35	(5,353)
Financing activities
Proceeds on issue of shares and warrants		-	1,176	-	1,176
Loans to subsidiaries		-	-	-	(187)
Loans to subsidiaries written off		-	-	(80)	31
Loans from subsidiaries		-	-	2	5,134
Net cash from financing activities		-	1,176	(78)	6,154
Net increase/(decrease) in cash and cash equivalents		1,977	2,565	(618)	93
Cash and cash equivalents at beginning of year		6,869	3,182	1,964	687
Effect of foreign exchange rate changes		(80)	1,122	-	1,184
Cash and cash equivalents at end of year		8,766	6,869	1,346	1,964

Notes to the consolidated financial statements

For the six month period ended 31 December 2010

 

1.   General information

Xtract Energy plc is a company incorporated in Great Britain under the Companies Act 2006. The address of the registered office is 55-56 St James Street, London SW1 1LA. The nature of the Group's operations and its principal activities are set out in the operating and financial review on pages 4 to 11.

These financial statements are presented in pound sterling. Foreign operations are included in accordance with the policies set out in note 3.

2.   Adoption of new and revised Standards

In the 6 month period, the following new and revised Standards and Interpretations have been adopted and have affected the amounts reported in these financial statements.

IFRS 1 'First time adoption of International Financial Reporting Standards'

The Group has adopted amendments to IFRS 1 'First time adoption of International Financial Reporting Standards' relating to oil and gas assets and determining whether an arrangement contains a lease with effect from 1 July 2010.

The Group has adopted amendments to IFRS 1 'First time adoption of International Financial Reporting Standards' relating to a limited exemption from comparative IFRS 7 disclosures for first-time adopters with effect from 1 July 2010.

IFRS 2 'Share Based Payments'

The Group has adopted amendments to IFRS 2 'Share Based Payments' relating to group cash-settled share-based payment transactions with effect from 1 July 2010.

IFRS 3 'Business Combinations'

The Group has adopted amendments to IFRS 'Business Combinations' resulting from May 2010 annual improvements to IFRSs with effect from 1 July 2010.

IFRS 5 'Non-current Assets Held for Sale and Discontinued Operations'

The Group has adopted amendments to IFRS 5 ''Non-current Assets Held for Sale and Discontinued Operations' resulting from May 2008 Annual Improvements to IFRSs with effect from 1 July 2010.

IFRS 8 'Operating Segments'

The Group has adopted amendments to IFRS 8 'Operating Segments' resulting from April 2009 annual improvements to IFRSs with effect from 1 July 2010.

IAS 1 'Presentation of Financial Statements'

The Group has adopted amendments to IFRS 8 'Operating Segments' resulting from May 2008 annual improvements to IFRSs with effect from 1 July 2010.

IAS 7 'Statement of Changes in Cash Flow'

The Group has adopted amendments to IAS 7 'Statement of Changes in Cash Flow' resulting from April 2009 annual improvements to IFRSs with effect from 1 July 2010.

IAS 17 'Leases'

The Group has adopted amendments to IAS 17 'Leases' resulting from May 2010 annual improvements to IFRSs with effect from 1 July 2010.

IAS 27 'Consolidated and Separate Financial Statements'

The Group has adopted amendments to IAS 27 'Consolidated and Separate Financial Statements' resulting from May 2010 annual improvements to IFRSs from 1 July 2010.

IAS 32 'Financial Instruments: Presentation'

The Group has adopted amendments to IAS 32 'Financial Instruments: Presentation' relating to classification of rights issues with effect from 1 July 2010.

IAS 39 'Financial Instruments: Recognition and Measurement'

The Group has adopted amendments to IAS 39 'Financial Instruments: Recognition and Measurement' resulting from April 2009 annual improvements to IFRSs with effect from 1 July 2010.

IFRIC 19 ' Extinguishing Financial Liabilities with Equity Instruments'

The Group has adopted IFRIC 19 'Extinguishing Financial Liabilities with Equity Instruments' with effect from 1 July 2010.

Adopted IFRSs that are not effective for the financial year 

Certain adopted IFRSs have been issued at the date of approval of these financial statements but are not effective for the financial period ended 31 December 2010. The Company does not intend to apply any of the following pronouncements earlier than their respective effective dates. The list below includes only those issued IFRSs that, in the opinion of the Directors, are relevant to the activities of the Group. However, the Directors do not believe that any of the standards listed below would have had a material impact on these financial statements, had they been adopted in the current financial year.

       
Effective date of Issued IFRSs and Interpretations       

Amendments to IFRS 1 First-time Adoption of International Financial Reporting Standards  are effective for accounting periods commencing on or after 1 January 2011.     

        
Amendments to IFRS 7 Financial Instruments: Disclosures  are effective for accounting periods commencing on or after 1 January 2011.       

Amendments to IFRS 9 Financial Instruments*are effective for accounting periods commencing on or after 1 January 2013 (* denotes standards yet to be endorsed by the EU) .  

Amendments to IAS 1 Presentation of Financial Statements are effective for accounting periods commencing on or after 1 January 2011.

Amendments to IAS 12 Income Taxes are effective for accounting periods commencing on or after 1 January 2012.

       
IAS 24 (revised) Related Party Disclosures* is effective for accounting periods commencing on or after 1 January 2011.       

The directors do not expect that the adoption of these Standards and Interpretations in future periods will have a material impact on the financial statements of the Group.

3.   Significant accounting policies

Basis of accounting

The financial statements have been prepared in accordance with International Financial Reporting Standards (IFRSs). The financial statements have also been prepared in accordance with IFRSs adopted by the European Union and therefore the Group financial statements comply with Article 4 of the EU IAS Regulation.

The financial statements have been prepared under the historical cost convention modified for certain items carried at fair value, as stated in the accounting policies. A summary of the more important accounting policies is set out below.

 

Going concern

The Group's business activities, together with the factors likely to affect its future development, performance and position are set out in the Chairman's Statement on pages [ 2 ] to [ 3] and in the CEO's Review on pages [4 ] to [  11 ]. The financial position of the Group, its cash flows and liquidity position are described in the Financial Review on pages [10  ] to [  11 ]. In addition, note 27 to the financial statements includes the Group's objectives, policies and processes for managing its capital; its financial risk management objectives; details of its financial instruments; and its exposures to credit risk.

The Group is not currently generating revenues from its operations, and its forecasts and projections show that it would not have sufficient cash to make further investments in its existing and new projects in line with the Group's strategy nor settle its current liabilities when due and meet its ongoing overheads without gaining access to additional funds. The Group continues to manage its investments as a portfolio, seeking to dispose of investments, bring in strategic partners and raise funds as appropriate to finance its obligations and to fund new investments. Management plans to address the Group's funding requirements through a combination of these measures. Management believes that it will be able to manage the Group's liquidity position successfully and is currently pursuing a new equity line facility and a significant placing of its shares. However, these remain subject to agreement with the counterparties and the necessary Xtract shareholder approvals, and therefore at this stage there is no committed transaction which would address the Group's cash requirements.

The directors have concluded that, given that the general economic climate remains challenging, these circumstances represent a material uncertainty that casts significant doubt upon the Group's and the Company's ability to continue as a going concern and that, therefore the Company may be unable to realise its assets and discharge its liabilities in the normal course of business. Nevertheless after making enquiries, and considering the uncertainties above, the directors have a reasonable expectation that the Group and the Company have adequate resources to continue in operational existence for the foreseeable future. For these reasons, they continue to adopt the going concern basis in preparing the annual report and financial statements.

 

Parent only income statement

Xtract Energy plc has not presented its own income statement as permitted by section 408 of the Companies Act 2006. The loss for the six month period was £1,750,000 (year ended 30 June 2010: loss £13,810,000).

 

Basis of consolidation

The consolidated financial statements comprise the financial statements of the Company and entities controlled by the Company (its subsidiaries). These consolidated financial statements are made up for the six month transition period ended 31 December 2010 as a result of the change in the Company and Group year end (formerly 30 June).

Control is achieved where the Company has the power to govern the financial and operating policies of an investee entity so as to obtain benefits from its activities.

The results of subsidiaries acquired or disposed of during the period are included in the consolidated income statement from the effective date of acquisition or up to the effective date of disposal, as appropriate. Where

necessary, adjustments are made to the financial statements of subsidiaries to bring the accounting policies used into line with those used by the Group. All intra-group transactions, balances, income and expenses are eliminated on consolidation.

Non-controlling interests in the net assets of consolidated subsidiaries are identified separately from the Group's equity therein. Non-controlling interests consist of the amount of those interests at the date of the original business combination and their share of changes in equity since the date of the combination. Losses applicable to the non-controlling interest in excess of the non-controlling party's interest in the subsidiary's equity are allocated against the interests of the Group except to the extent that the non-controlling interest has a binding obligation and is able to make an additional investment to cover the losses.

Business combinations

Acquisitions of subsidiaries and businesses are accounted for using the acquisition method. The consideration for each acquisition is measured at the aggregate of the fair values (at the date of exchange) of assets given, liabilities incurred or assumed, and equity instruments issued by the Group in exchange for control of the acquiree. Acquisition-related costs are recognised in profit or loss as incurred.

Where applicable, the consideration for the acquisition includes any asset or liability resulting from a contingent consideration arrangement, measured at its acquisition-date fair value. Subsequent changes in such fair values are adjusted against the cost of acquisition where they qualify as measurement period adjustments (see below). All other subsequent changes in the fair value of contingent consideration classified as an asset or liability are accounted for in accordance with relevant IFRSs. Changes in the fair value of contingent consideration classified as equity are not recognised.

Where a business combination is achieved in stages, the Group's previously-held interests in the acquired entity are remeasured to fair value at the acquisition date (i.e. the date the Group attains control) and the resulting gain or loss, if any, is recognised in profit or loss. Amounts arising from interests in the acquiree prior to the acquisition date that have previously been recognised in other comprehensive income are reclassified to profit or loss, where such treatment would be appropriate if that interest were disposed of.

The acquiree's identifiable assets, liabilities and contingent liabilities that meet the conditions for recognition under IFRS 3 (2008) are recognised at their fair value at the acquisition date, except that:

·       deferred tax assets or liabilities and liabilities or assets related to employee benefit arrangements are recognised and measured in accordance with IAS 12 Income Taxes and IAS 19Employee Benefits respectively;

·       liabilities or equity instruments related to the replacement by the Group of an acquiree's share-based payment awards are measured in accordance with IFRS 2 Share-based Payment; and

·       assets (or disposal groups) that are classified as held for sale in accordance with IFRS 5 Non-current Assets Held for Sale and Discontinued Operations are measured in accordance with that Standard.

If the initial accounting for a business combination is incomplete by the end of the reporting period in which the combination occurs, the Group reports provisional amounts for the items for which the accounting is incomplete. Those provisional amounts are adjusted during the measurement period (see below), or additional assets or liabilities are recognised, to reflect new information obtained about facts and circumstances that existed as of the acquisition date that, if known, would have affected the amounts recognised as of that date.

       
The measurement period is the period from the date of acquisition to the date the Group obtains complete information about facts and circumstances that existed as of the acquisition date and is subject to a maximum of one year.

Investment in associates

An associate is an entity over which the Group has significant influence and that is neither a subsidiary nor an interest in a joint venture. Significant influence is the power to participate in the financial and operating policy decisions of the investee but is not control or joint control over those policies.

The results and assets and liabilities of associates are incorporated in these financial statements using the equity method of accounting, except when the investment is classified as held for sale, in which case it is accounted for in accordance with IFRS 5 Non-current Assets Held for Sale and Discontinued Operations. Under the equity method, investments in associates are carried in the consolidated statement of financial position at cost as adjusted for post-acquisition changes in the Group's share of the net assets of the associate, less any impairment in the value of individual investments. Losses of an associate in excess of the Group's interest in that associate (which includes any long-term interests that, in substance, form part of the Group's net investment in the associate) are recognised only to the extent that the Group has incurred legal or constructive obligations or made payments on behalf of the associate.

Any excess of the cost of acquisition over the Group's share of the net fair value of the identifiable assets, liabilities and contingent liabilities of the associate recognised at the date of acquisition is recognised as goodwill. The goodwill is included within the carrying amount of the investment and is assessed for impairment as part of that investment. Any excess of the Group's share of the net fair value of the identifiable assets, liabilities and contingent liabilities over the cost of acquisition, after reassessment, is recognised immediately in profit or loss.

Where a group entity transacts with an associate of the Group, profits and losses are eliminated to the extent of the Group's interest in the relevant associate.

Joint ventures

Jointly controlled entities

A jointly controlled entity involves the establishment of a separate legal entity in the form of a partnership, corporation or other entity. The entity controls the assets of the joint venture, incurs liabilities and expenses, and earns income. It maintains its own accounting records, enters into contracts in its own name and, generally, has an existence of the venturers, including the preparation of financial statements. The Group accounts for jointly controlled entities using the equity method as discussed above, except when the investment is classified as held for sale, in which case it is accounted for in accordance with IFRS 5 Non-current Assets Held for Sale and Discontinued Operations

Non-current assets held for sale

Non-current assets (and disposal groups) classified as held for sale are measured at lower of carrying amount and fair value less costs to sell.

Non-current assets and disposal groups are classified as held for sale if their carrying amount will be recovered through a sale transaction rather than through continuing use. This condition is regarded as met only when the sale is highly probable and the asset (or disposal group) is available for immediate sale in its present condition. Management must be committed to the sale which should be expected to qualify for recognition as a completed sale within one year from the date of classification.

3.        Significant accounting policies (continued)

Foreign currencies

The individual financial statements of each Group company are maintained in the currency of the primary economic environment in which it operates (its functional currency). For the purpose of the consolidated financial statements, the results and financial position of each Group company are expressed in pound sterling, which is the functional currency of the Company, and the presentation currency for the consolidated financial statements.

In preparing the financial statements of the individual companies, transactions in currencies other than the entity's functional currency (foreign currencies) are recorded at the rates of exchange prevailing on the dates of the transactions. At each balance sheet date, monetary assets and liabilities that are denominated in foreign currencies are retranslated at the rates prevailing on the balance sheet date. Non-monetary items carried at fair value that are denominated in foreign currencies are translated at the rates prevailing at the date when the fair value was determined. Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated.

Exchange differences are recognised in profit or loss in the period in which they arise except for:

·    exchange differences on foreign currency borrowings relating to assets under construction for future productive use, which are included in the cost of those assets when they are regarded as an adjustment to interest costs on those foreign currency borrowings;

·  exchange differences on transactions entered into to hedge certain foreign currency risks; and

·  exchange differences on monetary items receivable from or payable to a foreign operation for which settlement is neither planned nor likely to occur (therefore forming part of the net investment in the foreign operation), which are recognised initially in other comprehensive income and reclassified from equity to profit or loss on disposal of the net investment

For the purpose of presenting consolidated financial statements, the assets and liabilities of the Group's foreign operations are translated at exchange rates prevailing on the balance sheet date. Income and expense items are translated at the average exchange rates for the period, unless exchange rates fluctuate significantly during that period, in which case the exchange rates at the date of transactions are used. Exchange differences arising, if any, are recognised in other comprehensive income and accumulated in equity (attributed to non-controlling interest as appropriate).

On the disposal of a foreign operation (i.e. a disposal of the Group's entire interest in a foreign operation, or a disposal involving loss of control over a subsidiary that includes a foreign operation, loss of joint control over a jointly controlled entity that includes a foreign operation, or loss of significant influence over an associate that includes a foreign operation), all of the accumulated exchange differences in respect of that operation attributable to the Group are reclassified to profit or loss.

Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and translated at the closing rate. The Group has elected to treat goodwill and fair value adjustments arising on acquisitions before the date of transition to IFRSs as sterling denominated assets and liabilities.

Purchase of shares in controlled entity

The cost of the incremental acquisition is measured at the aggregate of the fair value of assets given at the date of exchange, liabilities incurred or assumed, and equity instruments issued by the Group in exchange for shares purchased in a controlled entity plus any costs directly attributable to the transaction. The identifiable assets, liabilities and contingent liabilities of a controlled entity are recognised at fair value at the date of the acquisition, but only to the extent of the incremental proportion of equity acquired.

3.        Significant accounting policies (continued)

Any goodwill arising on the purchase of shares in a controlled entity is recognised as an asset and initially measured at cost, being the excess of the additional cost of shares over the increase of the Group's interest in the net fair value of the identifiable assets, liabilities and contingent liabilities recognised.

If the increase in the Group's interest in the net fair value of the acquiree's identifiable assets, liabilities and contingent liabilities exceeds the cost of the shares purchased, the excess is recognised immediately in the income statement as negative goodwill.

Government grants

Government grants towards research and development costs are recognised as income over the periods necessary to match them with the related costs and are deducted in reporting the related expense.

Taxation

The tax expense represents the sum of the tax currently payable and deferred tax.

Current tax

The tax currently payable is based on taxable profit for the year. Taxable profit differs from net profit as reported in the income statement because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Group's liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date.

Deferred tax

Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary difference arises from the initial recognition of goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit.

Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries and associates, and interests in joint ventures, except where the group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future.

The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.

Deferred tax is calculated at the tax rates that are expected to apply in the year when the liability is settled or the asset is realised. Deferred tax is charged or credited in the income statement, except when it relates to items charged or credited directly to equity, in which case the deferred tax is also dealt with in equity.

Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when they relate to income taxes levied by the same taxation authority and the Group intends to settle its current tax assets and liabilities on a net basis.

   3.        Significant accounting policies (continued)

     Property, plant and equipment and intangible assets

Oil and gas properties and leases

The costs of oil and gas properties and leases include the cost of acquiring and developing oil and gas properties and leases, together with any costs reclassified from intangible exploration and evaluation. Oil and gas properties and leases are amortised from the commencement of production in proportion to the ratio of production in the year to remaining reserves as at the start of the year.

Intangible exploration and evaluation expenditure assets

The costs of exploration properties and leases, which include the cost of acquiring prospective properties and exploration rights, are capitalised as intangible assets. Exploration and evaluation expenditure is capitalised within exploration and evaluation properties until such time that the activities have reached a stage which permits a reasonable assessment of the existence of commercially exploitable reserves when they are transferred to oil and gas properties and leases. Capitalised exploration and evaluation expenditure is assessed for impairment in accordance with the indicators of impairment as set out in IFRS 6 Exploration for and Evaluation of Mineral Reserves. In circumstances where a property is abandoned, the cumulative capitalised costs relating to the property are written off in the year.

Other Property, Plant and Equipment

Other tangible fixed assets are recorded at cost, net of accumulated depreciation. Depreciation is provided on all such tangible fixed assets at rates calculated to write off the cost or valuation of each asset on a straight-line basis over its expected useful life or the life of the relevant licence, whichever is less, as follows:

Average life in years

Office and computer equipment                      3-5

Plant and machinery                                    7-20

Other Property, Plant and Equipment

Until they are brought into use, fixed assets and equipment to be installed are included within assets under construction.

The cost of maintenance, repairs and replacement of minor items of tangible fixed assets are charged to the income statement as incurred. Renewals and asset improvements are capitalised. Upon sale or retirement of tangible fixed assets, the cost and related accumulated depreciation are eliminated from the financial statements. Any resulting gains or losses are included in the income statement.

Other intangible assets

Intangible assets acquired separately from a business combinations are carried initially at cost. An intangible asset acquired as part of a business combination is recognised outside goodwill if the asset is separable or arises from contractual or other legal rights and its fair value can be measured reliably.  Expenditure on internally developed intangible assets, excluding development costs, is taken to the income statement in the year in which it is incurred.

3. Significant accounting policies (continued)

Other intangible assets (continued)

Expenditure relating to clearly defined and identifiable development projects is recognised as an intangible asset only after all the following criteria are met:

·      the project's technical feasibility and commercial viability can be demonstrated;

·      the availability of adequate technical and financial resources and an intention to complete the project have been confirmed; and

·      the correlation between development costs and future revenues has been established.

Expenditure on research activities is recognised as an expense in the period in which it is incurred. Following initial recognition, the historical cost model is applied, with intangible assets being carried at cost less accumulated amortisation and accumulated impairment losses. The carrying value of intangible assets is reviewed for impairment whenever events or changes in circumstances indicate the carrying value may not be recoverable.

Impairment of tangible and intangible assets excluding goodwill

At each balance sheet date, the Group reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where the asset does not generate cash flows that are independent from other assets, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs. An intangible asset with an indefinite useful life is tested for impairment annually and whenever there is an indication that the asset may be impaired.

Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted.

If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (or cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognised as an expense immediately, unless the relevant asset is carried at a revalued amount, in which case the impairment loss is treated as a revaluation decrease.

Where an impairment loss subsequently reverses, the carrying amount of the asset (cash-generating unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset (or cash-generating unit) in prior years. A reversal of an impairment loss is recognised as income immediately, unless the relevant asset is carried at a revalued amount, in which case the reversal of the impairment loss is treated as a revaluation increase.

          Financial instruments

Financial assets and financial liabilities are recognised in the Group's balance sheet when the Group becomes a party to the contractual provisions of the instrument.

Financial assets

All financial assets are recognised and derecognised on a trade date where the purchase or sale of a financial asset is under a contract whose terms require delivery of the financial asset within the timeframe established by the market concerned, and are initially measured at fair value, plus transaction costs, except for those financial assets classified as at fair value through profit or loss, which are initially measured at fair value.

3.        Significant accounting policies (continued)

Financial instruments (continued)

Financial assets are classified into the following specified categories: financial assets 'at fair value through profit or loss' (FVTPL), 'held-to-maturity' investments, 'available-for-sale' (AFS) financial assets and 'loans and receivables'. The classification depends on the nature and purpose of the financial assets and is determined at the time of initial recognition.

Available-for-sale financial assets

Listed shares and listed redeemable notes held by the Group that are traded in an active market are classified as being AFS and are stated at fair value. Gains and losses arising from changes in fair value are recognised in other comprehensive income and accumulated in the investments revaluation reserve with the exception of impairment losses which are recognised directly in profit or loss. Where the investment is disposed of or is determined to be impaired, the cumulative gain or loss previously recognised in the investment revaluation reserve is reclassified to profit or loss.

Dividends on AFS equity instruments are recognised in profit or loss when the Group's right to receive the dividends is established.

The fair value of AFS monetary assets denominated in a foreign currency is determined in the foreign currency and translated at the sport rate at the balance sheet date. Other foreign exchange gains and losses are recognised in other comprehensive income.

Loans and receivables

Trade receivables, loans, and other receivables that have fixed or determinable payments that are not quoted in an active market are classified as 'loans and receivables'.  Loans and receivables are measured at amortised cost using the effective interest method, less any impairment. Interest income is recognised by applying the effective interest rate, except for short-term receivables when the recognition of interest would be immaterial.

Impairment of financial assets

Financial assets, other than those at FVTPL, are assessed for indicators of impairment at each balance sheet date. Financial assets are impaired where there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the financial asset, the estimated future cash flows of the investment have been affected.

For listed and unlisted equity instruments classified as AFS, a significant or prolonged decline in the fair value of the security below its cost is considered to be objective evidence of impairment.

For all other financial assets, including redeemable notes classified as AFS and finance lease receivables, objective evidence of impairment could include:

·      significant financial difficulty of the issuer or counterparty; or

·      default or delinquency in interest or principal payments; or

·      it becoming probable that the borrower will enter bankruptcy or financial re-organisation.

For certain categories of financial assets, such as trade receivables, assets that are assessed not to be impaired individually are, in addition, assessed for impairment on a collective basis. Objective evidence of impairment for a portfolio of receivables could include the Group's past experience of collecting payments.

3.   Significant accounting policies (continued)

          Financial instruments (continued)

Impairment of financial assets (continued)

increase in the number of delayed payments in the portfolio past the average credit period of 60 days, as well as observable changes in the national or local economic conditions that correlate with default on receivables.

The carrying amount of the financial asset is reduced by the impairment loss directly for all financial assets with the exception of trade receivables, where the carrying amount is reduced through the use of an allowance account. When a trade receivable is considered uncollectible, it is written off against the allowance account. Subsequent recoveries of amounts previously written off are credited against the allowance account. Changes in the carrying amount of the allowance account are recognised in profit or loss.

When an AFS financial asset is considered to be impaired, cumulative gains or losses previously recognised in other comprehensive income are reclassified to profit or loss in the period.

With the exception of AFS equity instruments, if, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised, the previously recognised impairment loss is reversed through the profit or loss to the extent that the carrying amount of the investment at the date the impairment is reversed does not exceed what the amortised cost would have been had the impairment not been recognised.

In respect of AFS equity securities, impairment losses previously recognised in profit or loss are not reversed through profit or loss. Any increase in fair value subsequent to an impairment loss is recognised in other comprehensive income.

Reclassification of financial instruments

Reclassification of non-derivative financial assets out of held for trading to AFS financial assets is only permitted in rare circumstances and where the asset is no longer held for the purpose of selling in the short-term. In all cases, reclassifications of financial assets are limited to debt instruments. Reclassifications are accounted for at the fair value of the financial asset at the date of reclassification.

De-recognition of financial assets 

The Group de-recognises a financial asset only when the contractual rights to the cash flows from the asset expire, or when it transfers the financial asset and substantially all the risks or rewards of ownership of the asset to another entity. If the Group neither transfers nor retains substantially all the risks and rewards of ownership and continues to control the transferred asset, the Group recognises its retained interest in the asset, and an associated liability for amounts it may have to pay. If the Group retains substantially all the risks and rewards of ownership of a transferred financial asset, the Group continues to recognise the financial asset, and also recognises a collateralised borrowing for the proceeds received.

Financial liabilities and equity

Debt and equity instruments are classified as either financial liabilities or as equity in accordance with the substance of contractual arrangements.

Equity instruments

An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all its liabilities. Equity instruments issued by the Group are recognised at the proceeds received, net of direct issue costs.

3.        Significant accounting policies (continued)

Financial instruments (continued)

Financial liabilities

Financial liabilities are classified as either financial liabilities 'at FVTPL' or 'other financial instruments'.

Other financial liabilities

Other financial liabilities, including borrowings, are initially measured at fair value, net or transaction costs.

Other financial liabilities are subsequently measured at amortised cost using the effective interest method, with interest expense recognised on an effective yield basis.

The effective interest method is a method of calculating the amortised cost of a financial liability and of allocating interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash flow payments through the expected life of the financial liability, or, where appropriate, a shorter period, to the net carrying amount on initial recognition.

De-recognition of financial liabilities

The Group de-recognises financial liabilities when, and only when, the Group's obligations are discharged, cancelled or they expire.

          Share-based payments

Equity-settled share-based payments to certain directors, employees and others providing similar services are measured at the fair value of the equity instruments at the grant date. The fair value excludes the effect of non-market based vesting conditions. Details regarding the determination of the fair value of equity-settled share-based transactions are set out in note 26.

The fair value determined at the grant date of the equity-settled share-based payments is expensed on a straight-line basis over the vesting period, based on the Group's estimate of shares that will eventually vest and adjusted for the effect of non market-based vesting conditions.

4.        Critical accounting judgements and key sources of estimation uncertainty

In the application of the Group's accounting policies, which are described in note 3, the directors are required to make judgements, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates.

 

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods, if the revision affects both current and future periods.

4.        Critical accounting judgements and key sources of estimation uncertainty (continued)

Critical judgments in applying the Group's accounting policies

The following are the critical judgements, that the directors have made in the process of applying the Group's accounting policies and that have the most significant effect on the amounts recognised in the financial statements.

Impairment of intangible assets and investments

The assessment of intangible assets for any indications of impairment involves judgement. If an indication of impairment, as defined in IFRS 6 or IAS 36 as appropriate, exists, a formal estimate of recoverable amount is performed and an impairment loss recognised to the extent that carrying amount exceeds recoverable amount. Recoverable amount is determined as the higher of fair value less costs to sell and value in use. The calculation of recoverable amount requires an estimation of the value in use of the cash-generating units to which the intangible assets are allocated. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted.

Tax provisions

Assessing the outcome of uncertain tax provisions requires judgements to be made regarding the result of negotiations with and enquiries from tax authorities in a number of jurisdictions. The assessments made are based on the advice from independent tax advisers and the status of ongoing discussions with the relevant tax authorities.

Share-based payments

The estimation of share-based payment costs requires the selection of an appropriate valuation model and consideration as to the inputs necessary for the valuation model chosen. The Group has made estimates as to the volatility of its own shares, the probable life of options granted and the time of exercise of those options. The model used by the Group is the Black-Scholes model.

Fair values recognised in business combinations

Estimating fair values of oil and gas exploration rights and production licences' rights and any associated property, plant and equipment acquired in business combinations involves estimates over the quantities of minerals that may be recovered and the technical and commercial feasibility of extraction, which may be highly uncertain. Generally, fair values assigned to exploration and evaluation assets are limited so as not to generate negative goodwill where there is significant uncertainty over the estimates of fair value.

5.         Investment revenue and other gains and losses

An analysis of the Group's investment revenue and other gains and losses is as follows:

		Group
		6m period  ended 31 December 2010 £'000	Year  ended 30 June 2010 £'000
Investment revenue
Interest on bank deposits		42	153
Other gains and losses
Gains on disposals of associates		-	78
Transfer of foreign  currency translation reserve on disposal of associate		-	745
Disposal of intangible asset		1,119	-
Loss on disposal of available-for-sale assets		-	(1,016)
Other income		7	11
Research and development grants *		33	213
Total other gains		1,159	31

*Government grants received in relation to research and development expenditure on oil shale extraction technologies in Australia.

6.        Segmental Analysis

Adoption of IFRS 8, Operating Segments

The Group has adopted IFRS 8 Operating Segments with effect from 1 July 2009. IFRS 8 requires operating segments to be identified on the basis of internal reports about components of the Group that are regularly reviewed by the Chief Executive to allocate resources to the segments and to assess their performance. In contrast, the predecessor Standard (IAS 14 Segment Reporting) required the Group to identify two sets of segments (business and geographical), using a risks and returns approach, with the Group's system of internal financial reporting to key management personnel serving only as the starting point for the identification of such segments.

Business segments

For management purposes, the Group is currently organised into operating divisions - oil & gas exploration, evaluation and development, and oil shale exploitation. These divisions are the basis on which the Group reports its primary segment information.

          Principal activities are as follows:

·      oil & gas exploration, evaluation and development - of the Group's interests in Turkey, the Netherlands, Denmark and the Kyrgyz Republic;

·      oil shale exploitation - of the Group's interests in Queensland, Australia and Tarfaya, Morocco; and

·      investment and other - in various listed resource companies.

Segment information about businesses is presented below.

6.        Segmental Analysis (continued)

Business segments (continued)

6 month period ended 31 December 2010

			Oil & Gas exploration and production	Oil shale exploitation			Investment and other			Consolidated
			£'000	£'000			£'000			£'000
	Segment revenue	-			-			-			-
	Administrative and operating expenses	(1,207)			(93)			(649)			(1,949)
	Share of results of associates	(39)			-			-			(39)
	Share of results of joint venture (a)	(2,249)			-			-			(2,249)
	Segment result	(3,495)			(93)			(649)			(4,237)
	Investment revenue	6			1			35			42
	Finance costs	390			-			767			1,157
	Other gains and losses	1,126			33			-			1,159
	(Loss) / profit before tax	(1,973)			(59)			153			(1,879)
	Tax credit										485
	Loss for the period										(1,394)
	Attributable to:
	Equity holders of the parent										(1,528)
	Non controlling interest										134
											(1,394)

(a) Includes an impairment charge of £2,165,000 as discussed in note 16

6.   Segmental Analysis (continued)

        Business segments (continued)

        6 month period ended 31 December 2010

	Oil & Gas exploration and production	Oil shale exploitation	Investment and other	Consolidated
	£'000	£'000	£'000	£'000
Capital additions - property, plant and equipment	-	-	-	-
Capital additions on acquisition of subsidiary - property, plant & equipment	-	-	-	-
Depreciation and amortisation	2	-	2	4
Balance sheet
Assets
Intangible assets	2,047	-	-	2,047
Property, plant and equipment	1	-	3	4
Interests in associates	400	-	-	400
Interest in joint venture	65	-	-	65
Financial assets	7,927	94	1,479	9,500
Deferred consideration	291	-	-	291
Consolidated total assets				12,307
Liabilities
Financial liabilities	246	2	3,259	3,507
Deferred tax liability	-	-	471	471
Consolidated total liabilities				8,329

6.       Segmental Analysis (continued)

Business segments (continued)

Year ended 30 June 2010

	Oil & Gas exploration and production	Oil shale exploitation	Investment and other	Consolidated
	£'000	£'000	£'000	£'000
Segment revenue	-	-	-	-
Administrative and operating expenses	(2,155)	(192)	(443)	(2,790)
Share of results of associates	(604)	-	-	(604)
Share of results of joint venture	(9,578)	-	-	(9,578)
Segment result	(12,337)	(192)	(443)	(12,972)
Investment revenue	3	4	146	153
Finance costs	-	-	(35)	(35)
Other gains and losses	611	213	(793)	31
(Loss)/profit before tax	(11,723)	25	(1,125)	(12,823)
Tax credit				310
Loss for the year				(12,513)
Attributable to:
Equity holders of the parent				(11,771)
Non controlling interest				(742)
				(12,513)

6.       Segmental Analysis (continued)

Business segments (continued)

Year ended 30 June 2010

	Oil & Gas exploration and production	Oil shale exploitation	Investment and other	Consolidated
	£'000	£'000	£'000	£'000
Capital additions - property, plant and equipment	3	-	-	3
Capital additions on acquisition of subsidiary - property, plant & equipment	4	-	-	4
Depreciation and amortisation	2	14	4	20
Balance sheet
Assets
Intangible assets	4,407	-	-	4,407
Property, plant and equipment	3	-	5	8
Interests in associates	445	-	-	445
Interest in joint venture	2,322	-	-	2,322
Financial assets	4,912	111	2,324	7,347
Deferred consideration	297	-	-	297
Consolidated total assets				14,826
Liabilities
Financial liabilities	290	2	4,818	5,110
Consolidated total liabilities				5,110

6.       Segmental Anaylsis (continued)

Geographical segments

The Group's operations are located in Europe (including UK and Turkey), Central Asia and Australia.

The following table provides an analysis of the Group's revenue by geographical market, irrespective of the origin of the goods/services.

6 month period ended 31 December 2010

	Europe (including UK)	Central Asia	Australia	Total of segments
	£'000	£'000	£'000	£'000
Segment revenue	-	-	-	-
Segment assets	11,813	400	94	12,307
Capital additions	-	-	-	-
Capital additions  acquired on acquisition of subsidiary	-	-	-	-

Year ended 30 June 2010

	Europe (including UK)	Central Asia	Australia	Total of segments
	£'000	£'000	£'000	£'000
Segment revenue	-	-	-	-
Segment assets	14,270	445	111	14,826
Capital additions	3	-	-	3
Capital additions  acquired on acquisition of subsidiary	4	-	-	4

7.        Loss for the year

Loss for the year has been arrived at after charging/(crediting):

                                                                                                                                                                  Total

				6m period ended 31 December 2010 £'000	Year ended 30 June 2010 £'000
Research and development costs				10	12
Depreciation of property, plant and equipment (see note 14)				4	20
Share-based payments expense (see note 26)				430	193
Staff costs (see note 9)				620	701

8.   Auditors' remuneration

The analysis of auditors' remuneration is as follows:

	6m period  ended 31 December 2010 £'000	Year ended 30 June 2010 £'000
Fees payable to the Company's auditors and their associates for the audit of the Group's annual accounts	62	93
Fees payable to the Company's auditors and their associates for the audit of the Company's subsidiaries pursuant to legislation	49	9
Total audit fees	111	102
Fees payable to the Group's auditors and its associates for other services:
- other services relating to taxation	-	13
- other assurance services relating to interim reporting	9	8
Total non-audit fees	9	21
	120	123

Fees payable to Deloitte and their associates for non-audit services to the Company are not required to be disclosed because the consolidated financial statements are required to disclose such fees on a consolidated basis.

9.        Staff costs

The average monthly number of employees (including directors) was:

	6m period  ended 31 December 2010	Year ended 30 June 2010
	No.	No.
Corporate	9	12
	£'000	£'000
Their aggregate remuneration comprised:
Salaries and fees	400	566
Severance payments in respect of former director	172	-
Social security costs Other pension costs	40       8	104 31
	620	701

 

Total remuneration for the highest paid Director in the six month period was £182,500 (year ended 30 June 2010: £171,210).

10.  Finance costs

	6m period  ended 31 December 2010	Year  ended 30 June 2010
	£'000	£'000
Foreign exchange gains	(836)	(60)
Interest on current tax  (receivable) / payable	(321)	95
	(1,157)	35

11.  Tax

	6m period  ended 31 December 2010	Year  ended 30 June 2010
	£'000	£'000
Corporation tax:
Current year	75	302
Adjustments in respect of prior years	(560)	(882)
Total current tax	(485)	(580)
Deferred tax	-	270
	(485)	(310)

UK corporation tax is calculated at 28% (2010: 28%) of the estimated assessable (loss)/profit for the year. Taxation for other jurisdictions is calculated at the rates prevailing in the respective jurisdictions.

A number of changes to the UK Corporation tax system were announced in the June 2010 Budget Statement. The Finance (No.2) Act 2010 included legislation to reduce the main stream rate of corporation tax from 28% to 27% from 1 April 2011. As a result of the change the deferred tax balances have been re-measured. The change has had no impact on the deferred tax charge (see note 20).

Additional changes were announced in the March 11 Budget Statement to further reduce the main stream rate of corporation tax to 26% from 1 April 2011 and thereafter by 1% per annum to 23% by 1 April 2014. The changes had not been substantively enacted at the balance sheet date and therefore are not included in these financial statements.

The Group tax credit for the year can be reconciled to the (loss)/profit per the income statement as follows:

			6m period ended 31 December 2010 £'000			Year ended 30 June 2010 £'000
	Loss before tax	(1,879)			(12,823)
	Tax at the UK corporation tax rate of 28% (2010: 28%)	(526)			(3,591)
	Tax effect of expenses that are not deductible in determining taxable profit	631			4,042
	Tax effect of  utilisation of tax losses not previously recognised and other  temporary differences	(55)			148
	Tax effect of unrecognised tax  losses carried forward	27			-
	Difference in overseas tax rates	(2)			-
	Overseas taxes on disposal	-			299
	Double tax relief	-			(326)
	Adjustments in respect to prior years	(560)			(882)
	Tax credit for the year	(485)			(310)

12.      Loss per share       

The calculation of the basic and diluted earnings per share is based on the following data:

	6m period ended 31December 2010 £'000	Year   ended 30 June    2010   £'000
Profit / (loss) for the purposes of basic and diluted earnings per share (EPS) being net loss for the year attributable to equity holders of the parent	(1,528)	(11,771)
	Number of  shares	Number      of shares
Weighted average number of ordinary shares for purposes of basic EPS	854,965,026	801,017,629
Effect of dilutive potential ordinary shares - options and warrants	-	-
Weighted average number of ordinary shares for purposes of diluted EPS	854,965,026	801,017,629

The outstanding options and warrants at 31December 2010 and 30 June 2010 represent anti-dilutive potential Ordinary Shares with respect to earnings per share as the Group was loss making. Therefore, basic and diluted earnings per share is the same for the current period and prior year.

13.     Intangible assets - exploration and evaluation

Group	Total
	£'000
Cost
At 1 July 2009	-
Acquisition of subsidiary	4,353
Additions	54
At 30 June 2010	4,407
Additions	25
Disposals (a)	(2,438)
Amortisation	(1)
Effects of  foreign currency translation	54
At 31 December 2010	2,047

(a) In September 2010 an agreement was finalised under which Chevron purchased Elko's licences in Blocks P1 and P2. In consideration for their total interest in the Blocks, Elko will receive an overriding royalty up to 5% of the sales value from Chevron gas delivered into the Dutch National Transmission System and Chevron condensate delivered onshore. The transaction completed in December 2010 and Elko received 4.3 million Euro cash from Chevron for past costs, resulting in a pre tax gain of £1.1m.

The carrying value above of ₤2,047,000 all relates to Licence 02/05 offshore Denmark  which the Group holds through its Danish subsidiary, Elko Energy A/S.

The Company holds no intangible assets.

14.     Property, plant and equipment

Group		Plant and machinery £'000	Office and computer equipment £'000	Total £'000
Cost
At 1 July 2009		41	38	79
Additions		-	3	3
Acquired on acquisition of subsidiary		-	4	4
At 30 June 2010		41	45	86
At 31 December 2010		41	45	86
Accumulated depreciation and impairment
At 1 July 2009		36	22	58
Charge for the year		5	15	20
At 30 June 2010		41	37	78
Charge for the year		-	4	4
		41	41
At 31 December 2010		41	41	82
Carrying amount
At 31 December 2010		-	4	4
At 30 June 2010		-	8	8

14.     Property, plant and equipment (continued)

Company	Office fixtures & fittings £'000	Office and Computer Equipment   £'000		Total       £'000
Cost
At 1 July 2009	1	14	15
Additions	-	(2)	(2)
At 30 June 2010	1	12	13
At 31 December 2010	1	12	13
Accumulated depreciation and impairment
At 1 July 2009	-	6	6
Charge for the year	-	2	2
At 30 June 2010	-	8	8
Charge for the year	1	1	2
At 31 December 2010	1	9	10
Carrying amount
At 31 December 2010	-	3	3
At 30 June 2010	1	4	5

 

15.     Subsidiaries

Interests in subsidiaries		Company £'000
At 1 July 2009		13,641
Additions		3
At 30 June 2010		13,644
Write-off during the year		(3)
At 31 December 2010		13,641
(a) During the period the Directors made a decision to write down the investment in Xtract Energy Spain by £2,739 as the subsidiary was showing a net liability position. The accounting treatment is in line with Group Policy and IAS 36 Impairment.

15.     Subsidiaries (continued)

Details of the Company's subsidiaries at 31 December 2010 are as follows:

Name	Place of Incorporation and Operation	Date controlling interest acquired	Proportion of ownership & voting  power held %		Principal Activity
			Group	Parent
Sermines de Mexico S.A. de C.V.	Mexico	08/08/2005	100	100	Mining exploration
Xtract Oil Limited	Australia	17/02/2006	100	100	Mining exploration and technology development
Xtract International Limited	Great Britain	15/11/2006	100	100	Holding Company
Xtract Energy Spain SL	Spain	10/09/2009	100	100	Holding Company
Xtract Energy Holdings Limited	Great Britain	03/12/2007	100	100	Holding Company
Xtract Energy (Oil Shale) Morocco SA	Morocco	23/07/2008	70	-	Mining exploration
Elko Energy Inc	Canada	11/01/2010	50.02	-	Oil & Gas exploration and evaluation
Elko Energy International	Cayman Islands	11/01/2010	50.02	-	Holding Company
Elko MEA	Cayman Islands	11/01/2010	50.02	-	Holding Company
Elko Americas	Cayman Islands	11/01/2010	50.02	-	Holding Company
Elko Europe	Cayman Islands	11/01/2010	50.02	-	Holding Company
Elko (UK) Limited	Great Britain	11/01/2010	50.02	-	Holding Company
Elko Energy Business Services Ltd	Great Britain	11/01/2010	50.02	-	Administration services
Elko Energy A/S	Denmark	11/01/2010	50.02	-	Oil & Gas exploration and evaluation
RPK Finance & Holdings BV	The Netherlands	11/01/2010	50.02	-	Holding Company
Elko Energy BV	The Netherlands	11/01/2010	50.02	-	Oil & Gas exploration and evaluation
Elko Exploration BV	The Netherlands	11/01/2010	50.02	-	Oil & Gas exploration and evaluation

All of these subsidiaries have been consolidated for the period of ownership.

Investment in Elko Energy Inc

At 30 June 2009, the Company, through its subsidiary Xtract International Limited, had a 35.03% interest of Elko Energy Inc (Elko). In the period to 27 August 2009 there were additional acquisitions of Elko shares increasing Xtract International Limited's holding in Elko to 36.81%.

On 11 January 2010, Xtract acquired the entire holding of 13,200,000 ordinary shares from Oakville Capital ET, LLC, Elko's largest shareholder after Xtract. The consideration comprised  a cash payment of US$1,342,000 and one new Xtract share for every Elko share. Following completion, Xtract's holding in Elko was 49,975,000 ordinary shares, representing 50.02% of Elko's issued capital.

15.     Subsidiaries (continued)

Investment in Elko Energy Inc (continued)

At the point of Xtract acquiring control, 11 January 2010, Elko had 4,925,000 warrants outstanding with an exercise price of CAD$0.50 and an expiry date of December 2010 and 4,435,000 options outstanding with an average exercise price of CAD$0.37 with various expiry dates spread between February 2011 and June 2014.

Since 30 June 2010, Elko has issued 3,100,000 options with an exercise price of CAD$0.20, and 1,067,500 options with an exercise price of CAD$0.40 with expiry dates spread between 15 July and 15 September 2015.

Under IFRS 3 (revised), the transaction was accounted for as a step acquisition. The Group has consolidated Elko as a subsidiary with a 49.98% non-controlling interest from 11 January 2010. Xtract's original equity interest of 36.81% has been revalued to fair value (based upon the purchase consideration, resulting in an income statement loss on disposal of associate of £628,067 in the year to 30 June 2010.

          The acquisition had the following effect on the Group's assets and liabilities.

Elko net assets at acquisition date	Book value		Fair value	Fair value
	IFRS		adjustments	£'000
	£'000		£'000
Intangible exploration and evaluation assets	3,410		943	4,353
Property plant and equipment	4		-	4
Trade and other receivables	204		-	204
Cash and cash equivalents	5,644		-	5,644
Trade and other payables	(509)		-	(509)
Deferred tax	-		(471)	(471)
Net assets	8,753		472	9,225
less: Non-controlling Interest				4,610
less: Fair value of share acquired in previous step acquisitions				3,395
Share of net assets acquired				1,220
Total consideration				1,220
Satisfied by:
a) Cash of USD$1,342,000				844
b) 13.2m Xtract Energy plc ordinary shares (i)				376
				1,220

 

(i)         The fair value of the 13,200,000 ordinary shares issued as a part of consideration paid for Elko was determined on the basis of market value of Xtract Energy Plc ordinary shares at the date of acquisition (£0.0285) multiplied by the number of shares.

The fair value adjustment reflects the uplift to intangible mineral rights to the value the directors consider is appropriate based on the consideration paid for the acquisition of the controlling interest of Elko after taking into account the fair values of other assets and liabilities acquired and ensuing deferred tax adjustments.

15.     Subsidiaries (continued)

Investment in Elko Energy Inc (continued)

          Net cash inflow arising on acquisition:

	£
Cash consideration	(842,548)
Cash and cash equivalents acquired	5,644,130
	4,801,582

In the 6 month period from 1 July to 31 December 2010, Elko recorded a net profit before taxation of USD$493,686 (£316,512). In the period from 11 January to 30 June 2010, Elko recorded a net loss before taxation of US$2,263,647 (£1,485,315).

16.     Joint venture

Details of the Group's joint venture at 31 December 2010 are as follows:

	Group		Company
	As at 31 December 2010 £'000	As at 30 June 2010 £'000	As at 31 December 2010 £'000	As at 30 June 2010 £'000
Opening balance	2,322	-	2,152	-
Transferred from associates	-	7,019	-	6,591
Investment in joint venture	-	4,613	-	4,613
Share of joint venture losses	(83)	(9,578)	-	-
Exchange translation	(9)	268	-	-
Impairment of investment in joint venture (a)	(2,165)	-	(2,087)	(9,052)
Closing balance	65	2,322	65	2,152

16.     Joint venture (continued)

Name	Place of incorporation and operation	Date joint venture interest acquired	Proportion of ownership & voting  power held %		Principal activities
			Group	Company
Extrem Energy A.S.	Turkey	15/02/2010	50	50	Oil & Gas exploration and production

Amounts relating to joint venture		As at 31 December 2010 £'000	As at 30 June 2010 £'000
Total assets		4,862	4,303
Total liabilities		4,452	3,709
Revenues		-	-
Loss		166	8,476

Investment in Extrem Energy

At 30 June 2009, the Group held a 20% interest in Extrem Energy A.S. (Extrem) from Turkish partners Merty Energy (Merty). On 1 July 2009 and 5 August 2009 there were two 7% step acquisitions of Extrem of $1,750,000 each, which have increased Xtract's holding in Extrem to 34%.

On 11 February 2010, Xtract entered into a further agreement with Merty. Under the terms of the agreement, Xtract acquired from Merty a further 16% of the issued capital of its Turkish associate company Extrem, taking Xtract's overall share of the business to exactly 50%, with the other 50% held by Merty shareholders. Consideration for the transfer consisted of staged payments by Xtract of US$4 million to Merty and 30 million new ordinary shares in Xtract. The fair value of the shares issued as part of consideration paid for Extrem, £702,000 was determined on the basis of market value of the Company's ordinary shares at the date of acquisition (£0.0234) multiplied by the number of shares.

As a result of the change in Xtract's holding in Extrem, Xtract and Merty have equal board representation with two directors each. The directors are therefore of the opinion that Xtract has joint control of Extrem. On this basis, the accounts of Xtract will continue to equity account for Extrem.

Under IFRS 3 (revised), the transaction was accounted for as a step acquisition. Xtract's original equity interest was revalued to fair value (based upon the purchase consideration for the 16% interest in Extrem), resulting in an income statement gain on disposal of investment in associate of £706,396 in the year to 30 June 2010.

The last 16% of Extrem acquired is recognised at fair value on the acquisition date. A fair value adjustment of £14,550,882 arose as a result of the premium consideration over the book value of net assets and has been allocated to the investment. Deferred taxation has been provided on the premium.

In the 6 month period to 31 December 2010 Extrem recorded a net loss before taxation of US$261,289  /£165,900. (From the acquisition to 30 June 2010 US$12,706,726 /£8,475,513 ).

(a)  In May 2011, the Group signed a Heads of Agreement with Merty Energy ("Merty") whereby Merty intends to acquire Xtract's 50% share ownership in Extrem. Details of the consideration, which includes potential future royalties and other contingent future payments, are provided in note 28. The directors consider that this transaction provides new and better information about the overall recoverable amount of the Extrem investment as at the balance sheet date, and accordingly an impairment test was required. The carrying value of Extrem has been written down by £2,165,000 to £64,650 reflecting the firm cash consideration arising under the Heads of Agreement. Whilst the Group anticipates that further potential future consideration may arise, any such consideration is contingent and cannot be measured reliably. This treatment is also consistent with that applied in relation to the disposal of the Group's Dutch exploration licences in the year (see note 13).

17.     Associates

Details of the Group's associates at 31 December 2010 are as follows:

	Group		Company
	As at 31 December 2010 £'000	As at 30 June 2010 £'000	As at 31 December 2010 £'000	As at 30 June 2010 £'000
Opening balance	445	5,619	-	1,465
Investment in associates	-	5,329	-	5,126
Transferred from subsidiaries	-	-	-	-
Release of deferred consideration	6	43	-	-
Share of associates' losses for the year	(39)	(604)	-	-
Share of associates' share-based payments reserve	-	461	-	-
Transferred to joint venture	-	(7,019)	-	(6,591)
Transferred to subsidiary	-	(3,395)
Gain on disposal of associate	-	823	-	-
Transfer of foreign currency translation reserve of associate on disposal	-	(745)	-	-
Share of  associates' foreign currency translation reserve	(12)	(67)	-	-
	400	445	-	-

Name	Place of incorporation and operation	Date associate interest acquired	Proportion of ownership & voting  power held %		Principal activities
			Group	Company
Zhibek Resources                                    Limited	Great Britain/ Kyrgyzstan	17/11/2008	25	-	Oil & Gas exploration and production

Amounts relating to associates		As at 31 December 2010 £'000	As at 30 June 2010 £'000
Total assets		3,054	2,985
Total liabilities		950	780
Revenues		-	-
Loss		(158)	(116)

Deferred Consideration

Based on the terms of the Farm In Subscription Agreement between Xtract Energy Plc and Santos International Holdings Pty Ltd ('Santos'), consideration received for the deemed disposal of 75% of Xtract's interest in Zhibek has been established as the minimum excess funding to be provided by Santos over and above their ownership stake, being US$1 million .

The consideration was discounted using a rate of 15%, a rate deemed appropriate by the directors given the circumstances of the transaction, over the estimated time required to complete the near term exploration programme. Accordingly the net present value of the deferred consideration for this transaction was calculated at £609,000 and is being released as Santos provides excess funds under the agreement.

As at 31 December 2010 the amount that is still to be released is £291,000. (June 2010  £297,000).

18.     Investments

	Group		Company
Available-for-sale investments	As at 31 December 2010 £'000	As at 30 June 2009 £'000	As at 31 December 2010 £'000	As at 30 June 2010 £'000
Opening balance	191	3,215	191	1,429
Disposed during the year	-	(4,554)	-	(995)
Movement in fair value	306	1,530	306	(243)
	497	191	497	191

Available-for-sale investments comprise the Group's investment in listed securities, which are held by the Group as strategic investments. The fair value of available-for-sale investments is based on the share price at 31 December 2010.  Available-for-sale investments held are subject to currency and market risk, refer to note 27.

19.     Other financial assets

Trade and other receivables

	Group		Company
	As at 31 December 2010 £'000	As at 30 June 2010 £'000	As at 31 December 2010 £'000	As at 30 June 2010 £'000
Other debtors	166	236	80	69
Prepayments	71	51	39	39
	237	287	119	108

The directors consider that the carrying amount of trade and other receivables approximates their fair value.

20.      Deferred tax

The following are the major categories of deferred tax liabilities and assets recognised by the Group and movements thereon during the current year and prior reporting period.

Group	Available-for-sale investments £'000	Investment in associates £'000	Intangible assets £'000	Unutilised losses £'000	Total £'000
As at 30 June 2008	(14)	-	-	284	270
Charge to income	14	-	-	(284)	(270)
Acquisition of subsidiary	-	-	(471)	-	(471)
As at 30 June 2010	-	-	(471)	-	(471)
As at 31 December 2010	-	-	(471)	-	(471)

Company	Available-for-sale investments £'000	Investment in associates £'000	Total £'000
As at 30 June 2009	113	14	127
Charge to income	(113)	(14)	(127)
As at 30 June 2010	-	-	-
As at 31 December 2010	-	-	-

Deferred tax assets and liabilities are offset where the Group has a legally enforceable right to do so. The following is the analysis of the deferred tax balances (after offset) for financial reporting purposes:

	Group		Company
	As at 31 December 2010 £'000	As at 30 June 2010 £'000	As at 31 December 2010 £'000	As at 30 June 2010 £'000
Deferred tax assets	-	-	-	-
Deferred tax liabilities	(471)	(471)	-	-
	(471)	(471)	-	-

At the balance sheet date, the Group has available unused UK tax losses of £2.4 million (June 2010: £1.7 million), available unused Canadian tax losses of £5.1 million and available unused Denmark tax losses of £1.9m available for offset against future profits. No related deferred tax asset is recognised on the UK, Canadian or Denmark losses due to the unpredictability of future profit streams. UK and Denmark losses may be carried forward indefinitely and may be recoverable if suitable taxable profits arise in future periods.  If unutilised, the Canadian losses will expire between 2014 and 2030.

21.     Other financial liabilities

Trade and other payables

	Group		Company
	As at 31 December 2010 £'000	As at 30 June 2010 £'000	As at 31 December 2010 £'000	As at 30 June 2010 £'000
Trade creditors and accruals	556	1,391	304	971
Current tax payable *	2,951	3,248	2,138	2,587
Amounts due to subsidiaries	-	-	10,258	10,277
	3,507	4,639	12,700	13,835

The directors consider that the carrying amount of trade payables approximates their fair value.

* Current tax payable comprises capital gains tax liabilities in Australia and the United Kingdom, and interest thereon. The liability arose on the disposal of listed investments during  the years ended 30 June 2007, 2008, 2009 and 2010.

22.     Share capital

	As at 31 December 2010	As at 30 June 2010
This comprises issued and fully paid ordinary shares of 0.1 pence each.	Number of shares	£'000
At 1 July 2010	854,965,026	751,765
Shares issued		103,200
At 31 December 2010	854,965,026	854,965

The Company has one class of ordinary shares which carry no right to fixed income.

22.     Share capital (continued)

Unlisted warrants/share options

There were no warrants or share options exercised during the year.

The following share options expired during the year:

·      Issued 1 July 2007 to 1 March 2008 - 900,000 exercisable at 6p per share

·      Issued 9 July 2007 - 4,500,000 exercisable at 8p per share

The following share options were issued during the period:

·      Issued 7 December 2010 - 26,400,000 exercisable at 2.5p per share

     The following warrants and share options remain outstanding at 31 December 2010:

·      Issued 9 July 2007 - 1,000,000 exercisable at 10p per share

·      Issued 9 July 2007 - 1,000,000 exercisable at 12p per share

·      Issued 15 January 2008 - 250,000 exercisable at 8p per share

·      Issued 15 January 2008 - 250,000 exercisable at 10p per share

·      Issued 15 January 2008 - 250,000 exercisable at 12p per share

·      Issued 21 January 2008 - 500,000 exercisable at 8p per share

·      Issued 14 August 2009 - 11,100,000 exercisable at 5.0p per share

·      Issued 21 December 2009 - 60,000,000 exercisable at 2.5p per share

·      Issued 7 December 2010 - 26,400,000 exercisable at 2.5p per share

All of the above warrants/share options entitle the holder to one fully paid share in the Company upon payment of the warrant/share option exercise price per share. All warrants/share options vest either immediately or within three years of issue and expire within three years of vesting.

23.     Reserves

Share-based payments reserve

The share-based payments reserve is used to recognise the equity component of share-based payments.

Available-for-sale reserve

The available -for-sale reserve is used to recognise fair value movements on available-for-sale investments until they are disposed of, or become impaired.

Foreign currency translation reserve

The foreign currency translation reserve is used to record exchange differences arising from the translation of the financial statements of foreign subsidiaries, joint ventures and associates.

24.     Notes to the cash flow statement

	Group		Company
	6m period   31 December 2010 £'000	Year ended  30 June 2010 £'000	6m period  31 December 2010 £'000	Year ended  30 June 2010 £'000
(Loss) for the year	(1,394)	(12,513)	(1,750)	(13,810)
Adjustments for:
Share of results of associates	39	604	-	-
Share of loss of joint venture	2,249	9,578	-	-
Investment revenue	(42)	(153)	(35)	(145)
Other (gains) and losses	(1,119)	182	-	10,522
Income tax (credit)/expense	(485)	(310)	(604)	2,133
Interest (income) / expense	(321)	95	(298)	351
Government grants	(33)	(213)	-	-
Depreciation of property, plant and equipment	3	20	2	4
Amortisation of intangibles	1	-	-	-
Impairment of investment in subsidiary	-	-	2,090	-
Loans written off	-	-	80	-
Share-based payments expense	430	193	166	193
Operating cash flows before movements in working capital	(672)	(2,517)	(349)	(752)
(Increase)/Decrease in receivables	87	429	(22)	(68)
Increase in payables	(231)	414	(85)	841
Cash used in operations	(816)	(1,674)	(456)	21
Foreign currency exchange differences	(836)	(60)	(119)	(729)
Net cash used in operating activities	(1,652)	(1,734)	(575)	(708)

 

Cash and cash equivalents

Cash and cash equivalents comprise cash held by the Group and short-term bank deposits with a maturity of three months or less. The carrying amount of these assets approximates their fair value.

25.     Expenditure commitments

At the balance sheet date the Group and Company have outstanding capital expenditure commitments, which fall due as follows:

	Group		Company
	As at 31 December 2010 £'000	As at 30 June 2010 £'000	As at 31 December 2010 £'000	As at 30 June 2010 £'000
Capital expenditures
Within one year	6,106	456	1,159	456
Within the second to fifth years inclusive	-	6,115	-	1,470
	6,106	6,571	1,159	1,926

The expenditure commitments relate to work programme capital expenditures in relation to  the Group's exploration and evaluation properties. The capital expenditure commitments are subject to possible variation on application to the relevant governmental authority.

26.     Share-based payments

The Company has issued share options and warrants to certain employees and officers of the Group, along with external third parties.  All share options/ warrants vest immediately or within three years of the issue date. If the share options/warrants remain unexercised after the relevant time period from the date of grant the share options/warrants expire.

Details of the Company's share options/warrants outstanding during the year are as follows.

	6m period ended 31 December 2010		Year ended 30 June 2010
	Number of share options / warrants	Weighted average exercise price  £	Number of share options / warrants	Weighted average exercise price  £
Outstanding at beginning of period/year	79,750,000	0.035	16,363,475	0.072
Granted during the period/year	26,400,000	0.025	71,100,000	0.029
Expired during the period/year	(5,400,000)	0.078	(7,713,475)	0.055
Outstanding at the end of the period/year	100,750,000	0.030	79,750,000	0.035
Exercisable at the end of the year period/year	100,750,000		79,750,000

No share options/warrants were exercised during the year. The share options/warrants outstanding at 31 December 2010 had a weighted average exercise price of £0.030 (June 2010: £0.035), and a weighted average remaining contractual life of 1.37 years (June 2010: 1.09 years). All share-based payments to Directors and employees are recognised as an expense in the income statement over the vesting period of the options.

26.     Share-based payments (continued)

For the 6 month period ended 31 December 2011, 26.4 million share options were granted on 7 December 2010. The aggregate of the estimated fair values of the warrants granted on that date was £166,308.

In the year to 30 June 2010, 11.1 million options were granted on 14^th August 2009 and 60 million warrants were granted on 21^st December 2009. The aggregate of the estimated fair value of the options/warrants granted on those dates was £192,033 and £538,000 respectively.

The inputs to the Black-Scholes model are as follows:

 

	6m period to Dec 2010	Year to 30 June 2010	Year to 30 June 2010
Date of issue	07/12/2010	21/12/2009	14/08/2009
No. share options/warrants issued	26.4 million	60 million	11.1 million
Share price	£0.0165	£0.0232	£0.0500
Strike price	£0.0250	£0.0250	£0.0356
Expected volatility	87.06%	92.12%	158.23%
Expected life	3 years	18 months	3 years
Risk free rate	1.04%	0.049%	0.076%
Expected dividends yield	0%	0%	0%

Expected volatility was determined by calculating the historical volatility of the Group's share price over the previous year. The expected life used in the model has been adjusted, based on management's best estimate, for the effects of non-transferability, exercise restrictions, and behavioural considerations.

The total amount recognised in equity by the Group relating to share-based payments at the Balance sheet date is £564,000 in the share based payments reserve and £538,000 in the warrants reserve after the reversal of expired and lapsed share options and warrants.

The total amount recognised in equity at 30 June 2010 was £823,000 in the share based payments reserve and £538,000 in the warrants reserve.

27.     Financial instruments

Capital risk management

The Group manages its capital to ensure that entities in the Group will be able to continue as going concerns. The Group is not subject to externally imposed capital requirements.  The capital structure of the Group consists of cash and cash equivalents and equity attributable to equity holders of the parent, comprising issued capital, reserves and retained earnings.

The Group manages its liquidity through orderly and planned realisation of existing investments in order to fund investment in new opportunities and provide working capital for operating costs and overheads. 

The Group currently has no debt and as such does not review its gearing ratio at present.

Significant accounting policies

Details of the significant accounting policies and methods adopted (including the criteria for recognition, the basis of measurement and the basis for recognition of income and expenses) for each class of financial asset, financial liability and equity instrument are disclosed in note 3.

Categories of financial instruments

The Group calculates the fair value of assets and liabilities by reference to amounts considered to be receivable or payable at the balance sheet date. The Group's financial assets and liabilities, together with their fair values are as follows:

	Book value		Fair value
Group	December 2010 £'000	June 2010  £'000	December 2010 £'000	June 2010 £'000
Financial assets
Cash and cash equivalents	8,766	6,869	8,766	6,869
Available-for-sale financial assets (Level 1)*	497	191	497	191
Loans and receivables	237	287	237	287
	9,500	7,347	9,500	7,347
Financial liabilities
Other	556	1,391	556	1,391

The Company's financial assets and liabilities, other than trade receivables and payables, together with their fair values are as follows:

	Book value		Fair value
Company	December2010 £'000	June 2010 £'000	December 2010 £'000	June 2010 £'000
Financial assets
Cash and cash equivalents	1,346	1,964	1,346	1,964
Available-for-sale financial assets (Level 1)*	497	191	497	191
Loans and receivables	119	128	119	128
	1,962	2,283	1,962	2,283
Financial liabilities
Other	304	971	304	971

27.     Financial instruments (continued)

* Level 1 fair value measurements are amounts derived from quoted prices (unadjusted) in active markets for identical assets or liabilities

Market risk

The Group's activities expose it primarily to the financial risks of changes in the market prices of equities and changes in foreign currency exchange rates.  The Group applies a continuous review process to manage its exposure to foreign currency and equity price risk:

·      Equity prices of the Group's holdings are monitored by senior management on a daily basis;

·      The Board has established strategies for each of the respective holdings based on their expectations of likely movements in equity prices and the desired balance of the Group's investment portfolio;

·      These strategies are updated on a regular basis to reflect actual market data and the changing needs of the business;

·      The respective exchange rates of the currencies for which the Group holds significant balances are monitored on a daily basis; and

·      Known cash requirements in the respective currencies in which the Group transacts are matched against cash reserves and any short falls are addressed through transfers throughout the longest practical timeframes in order to minimise as best as possible foreign currency risk.

There has been no change to the Group's exposure to market risks or the manner in which these risks are managed and measured.

27.     Financial instruments (continued)

Foreign currency risk management

The Group undertakes transactions denominated in foreign currencies and consequently exposures to exchange rate fluctuations arise.

The carrying amounts of the Group's foreign currency denominated monetary assets and monetary liabilities (including tax liabilities) at the reporting date are as follows:

	Liabilities		Assets
	Dec 2010	June  2010	Dec    2010	June           2010
	£'000	£'000	£'000	£'000
Australian dollar US dollar Danish kroner Euro Mexican peso Moroccan dirham	1,092 8 63 17 4 -	944 81 12 45 - 3	1,370 4,677 40 1,198 6 23	1,963 4,762 41 95 1 26
Canadian dollar	6	88	9	29

Foreign currency sensitivity analysis

The Group is mainly exposed to the US Dollar currency and Australian Dollar currency risk. At 31 December 2010 the Group held a significant cash balance in Euros following receipt of €4.3 million from Chevron in December 2010. Subsequent to the period end, these Euros were converted into US Dollars. Accordingly the Group has no significant ongoing Euro foreign currency risk exposure.

The following table details the Group's sensitivity to a 10% increase and decrease in Sterling against the US dollar and Australian dollar. 10% represents management's assessment of a realistic potential increase or decrease in both exchange rates. The sensitivity analysis includes only outstanding foreign currency denominated monetary items and adjusts their translation at the year end for a 10% change in foreign currency rates.  A positive number below indicates an increase in the profit and other equity where the Sterling strengthens against the relevant currency. For a 10% weakening there would be an equal and opposite impact on the profit and other equity.

	Australian Dollar impact		US Dollar impact
	Dec                 2010	June       2010	Dec                       2010	June 2010
	£'000	£'000	£'000	£'000
Profit or loss	(27)	(102)	(467)	(468)

27.     Financial instruments (continued)

Interest rate risk management

The Group's exposure to interest rate risk is limited to its cash and cash equivalents.

The following table sets out the carrying amount, by maturity, of the Group's financial instruments that are exposed to interest rate risk:

As at 31 December 2010	Less than one year £'000	Total £'000
Floating rate
Cash and cash equivalents	8,766	8,766

As at 30 June 2010	Less than one year £'000	Total £'000
Floating rate
Cash and cash equivalents	6,869	6,869

The following table sets out the carrying amount, by maturity, of the Company's financial instruments that are exposed to interest rate risk:

As at 31 December 2010	Less than one year £'000	Total £'000
Floating rate
Cash and cash equivalents	1,346	1,346

As at 30 June 2010	Less than one year £'000	Total £'000
Floating rate
Cash and cash equivalents	1,964	1,964

Equity price sensitivity analysis

The sensitivity analysis below has been determined based on the exposure to equity price risks at the reporting date. The chosen sensitivity is a 100% increase/decrease in equity prices, based on management's assessment of the underlying assets in the portfolio and the current market conditions.

If equity prices had been 100% higher/lower at the period end, other equity reserves would increase/decrease by £497,250 (June 2010: £191,250) for the Group before taxation effects, as a result of the changes in fair value of available-for-sale investments.

27.     Financial instruments (continued)

Credit risk management

Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Group. The Group's principal financial assets are cash deposits with financial institutes. An allowance for impairment is made where there is an identified loss event, which is evidence of a reduction in the recoverable cash flows.

The credit risk on liquid funds is limited because the counterparties are banks with high credit-ratings assigned by international credit-rating agencies.

28.     Events after the balance sheet date

On 12 January 2011, Xtract Energy Plc announced that 20,000,000 ordinary shares of 0.1p each had been issued following an exercise of warrants at an exercise price of 2.5p.

On 27 January 2011, Xtract Energy Plc announced that 20,000,000 ordinary shares of 0.1p each had been issued following an exercise of warrants at an exercise price of 2.5p.

On 1 February 2011, Elko Energy announced that the 02/05 Danish licence group had been awarded a new licence 01/11 covering 1,900 square km, immediately to the West of the original 02/05 licence. The 02/05 licence group has relinquished 3,645 square km of the original 02/05 licence. The balance of 1,745 square km of the original 02/05 licence area combined with the new licence totals 3645 square km. The new licence 01/11 requires that an exploration well is drilled no later than 24 months after issuance of the licence. The 01/11 licence is for an overall six year period and has a series of work programme commitments and options as are typical in licences of this nature. The 01/11 partners have already selected the specific well location and intend to drill the well in 2011.

On 7 February 2011, Elko Energy Inc issued 100,000 ordinary shares following an exercise of options at an exercise price of CAD$0.20. This increase in the number of ordinary shares of Elko Energy Inc reduced Xtract's proportion of ownership from 50.02% to 49.97%. The directors have determined that this does not constitute a loss of de facto control as Xtract continues to govern the financial and operating policies of Elko due to the joint management of both companies and the dispersed nature of the remaining shareholdings. Xtract's proportion of ownership in Elko is expected to increase above 50% in the near future.

On 11 February 2011, Xtract Energy Plc announced that 20,000,000 ordinary shares of 0.1p each had been issued following an exercise of warrants at an exercise price of 2.5p.

On 18th March 2011, Elko Energy Inc announced that the revised 02/05 Licence has now been extended until January 27, 2013, which corresponds to the Phase 1 deadline in the 01/11 Licence. Danish Legislation does not allow extension of more than two years at a time. If by the end of this extension period the 02/05 Licence partners want to apply for a further extension , the work programme associated with such an extension shall be co-ordinated with the 01/11 Licence.

On 28th March 2011, Elko Energy Inc announced that all approvals and conditions pertaining to the 02/05 farm in agreement had been satisfied and that the agreement closed on March 23 2011. Noreco has paid Elko circa US$1.1 million cash for its share of past costs.

On 4^th May  2011, Elko Energy Inc announced, following the earlier release relating to the 02/05 Danish Licence group on 1 February 2011, that the 01/11 partners expect the Luna well drilling programme to commence mid August and be about 1 month in duration.

In the same announcement Elko Energy Inc announced as an update to operations in the Netherlands that Chevron intends to drill the first well on the P2 licence since acquisition, in the fourth quarter of 2011.

On 4^th May 2011 Xtract Energy Plc released an update on its tax liabilities following clarification with the Australian Tax Office and HMRC. The tax liability that was the result of gains made on sales of investments, particularly MEO is now reduced to £1.2 million following tax payments of £1.5 million since 1 January 2011. There is no additional liability for either interest or penalties and a payment schedule has been agreed with the relevant tax authorities.

On 4^th May 2011 Xtract Energy Plc announced that a Heads of Agreement was signed between Xtract, Extrem, Merty and the Yoldemir family, whereby Merty intends to acquire Xtract's 50% share ownership in Extrem giving Merty and the Yoldemir family complete control of Extrem Energy AS, the Group's joint venture in Turkey (see note 16). If a binding sale agreement is reached, Xtract will receive a completion payment of US$100,000, farm in success payments per licence,  processing royalties and  gross overriding royalty interest  payments in consideration of the assignment of Xtract's 50% share in Extrem and will retain a significant upside participation in potential successful commercial production scenarios through royalty agreements.

On 7th June 2011 Xtract announced it had contracted Worley Parsons to provide a technical study on the various technologies which are being used or developed to extract hydrocarbons from oil shale, as applicable for the exploitation of the Julia Creek tenements in Queensland, Australia. The study which is anticipated to be completed by the end of 2011 will assist Xtract to review the commercial options available for the exploitation of its oil share resources.

On 21st June 2011 Xtract announced that it has offered to acquire all of the issued and outstanding common stock in Elko that it does not already own, for new ordinary shares in Xtract on the basis of seven Xtract shares for every Elko share. The transaction will result in Xtract issuing 350,245,343 new ordinary shares to the holders of Elko common stock. In addition Elko has warrants and options outstanding representing, in total 8,277,500 which will be converted into rights over Xtract shares on similar terms. The acquisition of the issued and to be issued shares in Elko will mean that Xtract will no longer be considered as an investing company. Under the AIM Rules the transaction is deemed to be a reverse takeover. Xtract has sought suspension of trading in its shares until it is in a position to publish an Admission Document and, thereafter, it will re-apply for admission to AIM. Accordingly, at the request of the Company, trading on AIM of Xtract shares was suspended on 21 June 2011 at 7:30am.

On 24th June 2011 Xtract announced that it had changed its financial year end from 30 June to 31 December, effective 31 December 2010.The Board made the decision in order to align the reporting timeline of the Group with that of Elko Energy Inc, its 50% owned operating business, for which as mentioned above Xtract offered to acquire the remaining share capital that it does not already own.

On 30th June 2011 Xtract announced that Dr George Watkins was replacing John Newton as Non-Executive Chairman from 1 July 2011 and effective the same date Mark Nichols stepped down as non-executive director.  

On 6^th July 2011 Xtract announced that the Heads of Agreement between Xtract, Extrem, Merty and the Yoldemir family that was signed as per the announcement made of the 4^th May 2011 has been extended.  The original was only signed for a 60 day period and the 30 day extension is to enable the parties to finalise the agreements.

29.     Related party transactions

Balances and transactions between the Company and its subsidiaries, which are related parties, have been eliminated on consolidation and are not disclosed in this note. Transactions between the Group and its associates are disclosed below.

Transactions with associates

The Group was provided consulting services by its associate Elko in the year to 30 June 2010.

The expenditure in the table below is measured at  fair value, being the amount of consideration realised and agreed to by the parties and only reflects services provided prior to Elko becoming a subsidiary.

		Dec 2010 £'000	June 2010 £'000
Administrative and operating costs		-	33

Director Transactions

HMRC has recently completed an investigation into the PAYE and NIC responsibilities of Xtract Energy Plc which began several years ago. In the final settlement an amount of £31,178 relating to income tax which should have been deducted from John Newton's directors fees, during the tax year 2005/2006 to 2009/2010, is payable. As at 31 December 2010 this amount is included in Trade and other payables.

John Newton is personally liable for the amount owing and on receipt of a tax certificate from HMRC, which has been requested, he will reimburse Xtract £31,178. As at 31 December 2010 this offsetting receivable from John Newton is included in Trade and other receivables.

Remuneration of key management personnel

The remuneration of the directors, who are the key management personnel of the Group, is set out below in aggregate for each of the categories specified in IAS 24 Related Party Disclosures. 

		Dec 2010 £'000	June 2010 £'000
Short-term employee benefits		296	348
Termination		172	-
Share-based payments		297	193
		765	541

 

END

 

 

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