Final Results

Xtract Energy plc 22 October 2007 22 October 2007 AIM: XTR XTRACT ENERGY PLC ('Xtract' or the 'Company') Preliminary Audited Results for the 18 month period ended 30th June 2007 Financial Highlights â€¢Net profit after tax of Â£7.5 million (2005: Â£0.2 million loss for 12 months) â€¢Market value of listed portfolio at 30 June 2007 of Â£48.6 million (2005:nil) â€¢Earnings per share of 1.49p (2005: Loss per share (0.21)p) â€¢Net assets up Â£30.6 million to Â£32.4 million (2005: Â£1.8m) Corporate Highlights â€¢Successful placing in November 2006 raised approximately Â£5.5 million cash. â€¢Completion of acquisition of 100 per cent. of Cambrian Oil & Gas plc. â€¢At 30 June 2007, the share price of key investment, MEO Australia Ltd, had increased by 532 per cent. since initial group investment. â€¢Increased holding in Wasabi Energy Ltd to approximately 34.5 per cent.. â€¢Strengthened Board including appointment of new CEO. Andy Morrison, CEO of Xtract, commented, 'I am delighted to have joined Xtract at such a key and exciting stage in its development. An enormous amount has been achieved to reach our current healthy position; a position from which we look to the future with real confidence and optimism.' Enquiries please contact: Xtract Energy plc Andy Morrison, CEO +44 (0) 20 7079 1798 Smith & Williamson David Jones +44 (0) 20 7131 4000 Corporate Finance Limited Azhic Basirov Scott Harris Stephen Scott +44 (0) 20 7653 0030 Annabel Michie Xtract identifies and invests in a diversified portfolio of early stage energy sector technologies and businesses with very significant growth potential. Xtract is supported by its cornerstone investor, Cambrian Mining Plc (AIM:CBM) a diversified resource investment house which holds 51.6% of Xtract's issued share capital. For further Information on Xtract please visit www.xtractenergy.co.uk CHAIRMAN'S STATEMENT The past eighteen months have proven both exciting and challenging for Xtract and the results achieved during this period now place the Company in a sound and promising position to create wealth for its shareholders. We now hold a diversified and strong portfolio of energy assets and technologies which, with the addition of significant holdings in MEO Australia Ltd and Elko Energy Inc, now includes five key areas of interest. We achieved very positive results from the initial validation tests of Xtract's oil shale extraction technology. These results indicated the potential of doubling crude oil recovery from our shale oil deposits in Australia. We have also announced several new additions to the Board, strengthened with individuals who have both mining and business development experience. The Company finalised two major acquisitions during the period, including the acquisition of Cambrian Oil & Gas Plc by way of scheme of arrangement in mid 2007 and the purchase of the remaining 78.3 per cent. of Xtract Oil Ltd in February 2006. A placing of close to 110 million ordinary shares raising approximately Â£5.5 million cash was finalised in November 2006 and at this time Xtract acquired significant holdings in Wasabi Energy Ltd (Wasabi) and Aviva Corporation Ltd (Aviva). Both of these companies are listed on the Australian Stock Exchange (ASX). In order to simplify our corporate structure, it was proposed during the financial period to exchange Xtract's Aviva shareholding together with an interest in a steel making technology, to Wasabi for 175 million new shares and 25 million options in Wasabi. This transaction was approved by Wasabi shareholders on 2 August 2007. As a result of this transaction, Xtract now holds 34.5 per cent. of Wasabi, which in turn holds approximately 18 per cent. of Aviva. MEO Australia Ltd (MEO) MEO is an Australian listed company that is focused on off-shore gas exploration and developing gas-to-liquids (GTL) projects in the Australian waters of the Timor Sea, in an area of shallow water known as Tassie Shoal. It has secured Commonwealth Government environmental approvals for two large scale (1.8 million tonnes per annum (mtpa)) methanol plants (50 per cent. interest) and a 3 mtpa Liquefied Natural Gas plant (100 per cent. interest). Tassie Shoal is adjacent to the Evans Shoal gas field. MEO has successfully farmed out some of its interest in NT/P68, a nearby exploration permit, in order to help fund a critical drilling campaign which has commenced on schedule in the fourth quarter of 2007. From a timing perspective, we view this as the most advanced project in the Xtract portfolio. As in any drilling activity there is a range of possible outcomes, but the existence of 3D seismic and the interest of farm-in partners is promising. As at 19 October 2007, Xtract holds an interest in approximately 71.4 million shares in MEO, representing approximately 21.3 per cent. of the issued capital. Elko Energy Inc. Elko Energy Inc. (Elko) is a privately held oil and gas exploration company which has an interest in a 5,370 km2 exploration and production licence in the Danish North Sea, an interest in a gas-bearing block in the Dutch North Sea and a majority holding in Dragon Energy Inc, a private Canadian company, with a 30 per cent. share in a producing field in Canada and a development project in Gansu Province, China. Subsequent to the end of the reporting period, Xtract increased its interest in Elko to 21.8 million shares, representing approximately 36.5 per cent. of the issued capital. Wasabi Energy Ltd Wasabi is an Australian listed company that has a portfolio of early-stage energy assets and technologies where the upside potential is significant. Wasabi's portfolio includes both traditional and clean energy investments with interests covering coal, uranium, biodiesel, geothermal power and industrial waste heat recovery. Its interests in geothermal and waste heat recovery are founded on its position as the major shareholder of Exergy Inc., the developer and owner of patents for the Kalina Cycle technology. We see our interest in Wasabi as both valuable in its own right and as an additional source of opportunities for Xtract. Central Asia Xtract's Central Asian interests include a production sharing agreement with Kyrgyzneftegaz to instigate a water injection project on the Beshkent - Togap oil field. Xtract also holds interests in several exploration licences in the Tash Kumyr area and in the Toktogul exploration licence. Oil Shale Xtract has oil shale and related petroleum product exploration rights over mining tenements in the Julia Creek area of Queensland and has recently been granted an exploration permit which gives the right to explore for oil shale in an area in South Island, New Zealand. In conjunction with Australian research group Commonwealth Scientific and Industrial Research Organisation ('CSIRO'), the Company's wholly owned subsidiary Xtract Oil Ltd has continued to develop the Xtract technology, being a method of processing oil shale in the presence of hydrogen and solvents, known as supercritical solvent extraction. The initial validation tests, comprising small scale batch extractions of oil from the shale, have demonstrated that recovery from Xtract's Julia Creek deposits may be much higher than could be achieved using conventional retort recovery techniques. This has resulted in a doubling of the oil potential and an estimated in situ oil resource of over 1.6 billion barrels of oil. Board and management Xtract continued to strengthen the Board with individuals who possess significant experience in the energy sector. I became Executive Chairman in July of this year following the appointment of Andy Morrison as our new Chief Executive Officer. Andy has over 25 years experience in the energy and related services sectors, most recently with The BOC Group as a Group Director for New Business Development. He has an excellent track record in the energy sector and we believe he can help the company develop and implement its future strategy. Additionally John Conlon joined as a non-executive director in January 2007. John has a depth of mining experience in various locations throughout the world, where he has taken projects through from feasibility to construction and production. Financial Results The Group reported a net profit after tax of Â£7.5 million (2005: loss of Â£0.2 million) and basic earnings per share of 1.49p (2005: loss of 0.21p) for the eighteen month period. Other gains totalling Â£6.0 million resulted from the fair value assessment of options held in MEO and realised gains from MEO option sales during the period. The value of these options is now reflected in the carrying value of the MEO associate investment following their conversion into ordinary shares in April 2007 at A$0.25. Negative goodwill of Â£5.7 million arose on the acquisition of Cambrian Oil & Gas plc ('COIL') during the period as detailed in note 16 to the preliminary financial statements. The negative goodwill is primarily attributable to the increase in the fair value of COIL's MEO shares between the date of initial investment in MEO, and the effective dates of Xtract's business combination with COIL (November 2006 and April 2007). The Group's net asset position increased significantly during the period to Â£32.4 million as a result of acquisition activity during the period. This strong balance sheet position is further supported by cash of Â£1.6 million and an MEO Australia investment market value of Â£45.3 million at 30 June 2007. Outlook During the forthcoming year the Board will continue to identify and invest in early stage energy sector technologies and businesses with significant growth potential. We aim to work closely with the associated management teams to achieve critical project milestones, to finance later development stages and to build and crystallise value for all shareholders and partners. We believe that the company has now invested in a strong and promising portfolio with the necessary balance between short and longer-term growth positions. With this platform in place we are looking forward to a rewarding and successful future. John Newton Chairman CEO's REVIEW I am delighted to have joined Xtract at such an exciting stage in its development. I very much look forward to getting to know our shareholders, the various management teams around the world, our partners and our people, and most importantly I look forward to delivering our shared aspirations. Key developments MEO Australia Limited (MEO) Xtract's investment story in MEO is an example of successfully implementing the Company's strategy of identifying and supporting early stage energy sector projects with significant growth potential. With the benefit of Xtract's financial and strategic support, MEO has been able to further develop and progress its business plan over the last eighteen months. During the September quarter 2006, Xtract's wholly owned subsidiary Cambrian Oil & Gas plc (COIL) acquired a substantial shareholding in MEO through on market trades and a share placement at A$0.225 (Australian dollars) per share. Subsequent to this placement, and the exercise of approximately 28.6 million options at A$0.250 per share in April 2007, COIL increased its shareholding in MEO and currently holds approximately 21.3 per cent. The MEO business plan is centred on the development of gas-to-liquids (GTL) projects in the Australian waters of the Timor Sea, approximately 275 km northwest of Darwin, in an area known as Tassie Shoal. The company has secured Australian Commonwealth Government environmental approvals for two large-scale methanol plants (1.8 mtpa) and an LNG plant (3 mtpa) that are valid until 2052. Tassie Shoal is an area of shallow water adjacent to the Evans Shoal gas field and is located around 25km east of MEO's exploration permit, NT/P68. MEO has identified five large structures in NT/P68 and has estimated that the total potential gas in place of the permit's prospects and leads could exceed 14 tcf. Two of these structures were intersected by the Heron-1 well drilled in 1972, confirming gas columns. The resources potentially contained in NT/P68 provide significant valuation upside by potentially providing a feedstock for the GTL projects as an alternative to existing third party gas supply from nearby resources. Tassie Shoal GTL Projects MEO's Tassie Shoal GTL projects which have been designed to share infrastructure, logistic support systems, provide significant process synergies and many operational advantages. Tassie Shoal provides an enviable offshore location, not only in terms of development economics, but also proximity to rapidly expanding markets and strong demand for GTL products such as methanol and LNG in North East Asia. The Tassie Shoal Methanol Project (TSMP) proposes the phased construction of two 1.8 mtpa methanol plants, and includes: â€¢ Natural gas supply pipelines from the sub sea gas production well heads to Tassie Shoal; â€¢ Methanol production plant and utilities mounted on a concrete gravity base structure (GBS), which also contains methanol storage tanks; â€¢ Accommodation and control platform adjacent to the production facilities connected by bridge-link; and â€¢ A single point mooring (SPM) system for loading methanol into export tankers. MEO and Air Products and Chemicals, Inc. continue to develop the TSMP under the terms of the joint development agreement executed in 2004. MEO's proposed Tassie Shoal LNG Project is designed to have the capacity to produce 3 mtpa of LNG and includes: â€¢ Natural gas pipelines from the supply gasfield and the associated gas production facilities; â€¢ Conventional nickel steel LNG tank constructed on a gravity base structure (GBS), sited in an approximate seawater depth of 14 metres; â€¢ LNG process module constructed on a self installing platform; â€¢ Open sea jetty or Calm Buoy system for loading LNG into export tankers; and â€¢ Seawater cooling system for LNG production process. Appraisal of gas resources in NT/P68 Heron-1 (drilled in 1972) encountered a 52 metre gas-bearing zone within the Darwin Formation on the Epenarra structure, which is a broad, flat anticline with a mapped closure exceeding 1,200 km2. MEO has estimated a potential gas-in-place Contingent Resource of 5.6 tcf (P50) for Epenarra. MEO has successfully completed the acquisition of new 3D seismic data over Epenarra. MEO estimates a further 5.5 tcf (P50) gas in place Contingent Resource in the underlying Heron North and Heron South Elang/Plover Formation structures. The 3D seismic data displays a flat event in the Elang/Plover Formation that MEO believes may be indicative of the gas-water contact. The maximum gas column height within these structures is estimated at over 300 metres. Heron-1 intersected a gas charged sand towards the base of the well in the deeper structures. MEO intends drilling up to three wells (Heron-2, Heron-3 and potentially Blackwood-1) in the permit area. A new jack-up rig (the West Atlas) has been contracted to undertake the appraisal drilling which commenced as expected in October 2007. Note: MEO defines 'P50' as a probabilistic indicator used to quantify contingent and prospective resources where the low risk estimate is assessed as P90, the mean estimate is assessed as P50 and the high risk estimate is assessed as P10 in the relevant category. MEO defines 'Contingent Resource' as those resources which relate to quantities of petroleum (oil or gas) which are estimated, on a given date, to be potentially recoverable from a known accumulation but which are not currently considered to be proven or commercially recoverable. As an ASX listed company, MEO is not subject to the AIM Rules and the references to Contingent Resources and resources are not reported against a 'Standard' nor reviewed by a 'qualified person' as defined and required by the AIM Guidance Note for Mining Oil & Gas companies. New farm-in partner In addition to its equity raising activities during the year, MEO was able to secure a farm- in partner to provide additional funding and technical expertise for the current drilling programme. Petrofac Resources Limited (Petrofac) farmed into NT/P68 by agreeing to meet 25 per cent. of the well programme appraisal drilling costs to earn a 10 per cent. interest, with an option to increase the interest to 15 per cent. by funding 37.5 per cent. of the well costs. Petrofac has also been granted an option to participate in the proposed Tassie Shoal GTL projects at the same equity participation level as the NT/P68 farm-in. Petrofac's participating interest in the methanol project would reduce Air Product's 50 per cent. interest (MEO will retain its current 50 per cent. interest). Petrofac's participating interest in the LNG project would reduce MEO's current 100 per cent. interest. Petrofac would earn its interests in the GTL projects by contributing to the initial front-end engineering and design (FEED) costs and paying a net profit interest royalty to MEO from the Petrofac share of the project's eventual operating profits. Petrofac brings strong engineering, procurement, construction and operational expertise to the NT/P68 joint venture ahead of the drilling programme. Following the completion of the 2007 drilling campaign and approval of the 2008 work program, Petrofac will assume the role of permit operator to manage the subsequent full appraisal of any resources confirmed in the permit and would operate the eventual upstream hydrocarbon production facilities. MEO has been a very successful investment to date for shareholders in Xtract. Clearly, the drilling programme currently underway will be critical to the future value of the MEO business and we will be watching developments eagerly. Elko Energy Inc. (Elko) As at the end of the reporting period, Xtract had an interest in approximately 32 per cent. of the issued capital of Elko (which is held through wholly owned subsidiary COIL), a Canadian oil and gas exploration company formed in 2005. Elko's exploration and appraisal activities are guided by a management team with many years of technical and commercial experience in the oil and gas industry. Elko's area of focus covers North West Europe, North Africa and the Middle East. In October 2005, Elko acquired an 80 per cent. interest in a 5,370 km2 exploration and production license in close proximity to the prolific Central Graben in the Danish North Sea. The licence covers 26 Danish licence blocks with a 6 year exploration term and 30 years for exploitation. Elko is an approved offshore operator in Denmark and has set up a Danish subsidiary to hold the licence. The current partnership is Elko (80 per cent.) and Nordsoen - a Danish government entity (20 per cent.). Elko has undertaken a programme of technical work that has confirmed the presence of eight structures with substantial potential reserves. Drilling is expected to be carried out in 2008. In early 2007, Elko applied for two off-shore blocks in the Dutch sector of the North Sea, both of which contain a number of drilled and tested gas bearing structures. Block P1 has now been awarded to a consortium in which Elko will be the operator and will retain 33 per cent. interest. Award of adjacent Block P2 is pending and discussions continue to secure additional acreage. The known gas discoveries were not developed by the original licencees for reasons likely to include low gas prices, low per well productivity, the carbon dioxide content of gas and better projects available to license holders at the time. Gas prices are now significantly higher, per well productivity has been resolved in adjacent block K17 through the use of modern horizontal drilling techniques and carbon dioxide removal has become proven offshore technology. Elko's Dutch license partner Horizon Energy Partners BV was involved in the K17 development project. The development of both the Danish and Netherlands interests will require significant funding over the coming years. We believe that Elko's technical expertise and Xtract's experience in fund-raising will be a powerful combination that will help deliver the projects and secure superior returns to shareholders. In addition to its exploration assets, Elko owns 51 per cent. of Dragon Energy Inc. (Dragon), a private Canadian company. Dragon's principal assets are a 30 per cent. share of the producing Kotaneelee gas field in Canada and a joint venture agreement in respect of the Ma-Ling oilfield in Gansu province, China. Most of the effort to date has been spent in obtaining the necessary permits at regional and national level to commence with operations. This process has taken much longer than expected, but efforts are underway to move the permit process forward during next year. Subsequent to the period end, Xtract (through COIL) participated in a private equity placement in Elko following which COIL increased its total holding to 21.8 million shares, representing approximately 36.5 per cent. of the issued capital of Elko. Wasabi Energy Limited (Wasabi) Xtract currently holds approximately 34.5 per cent. of Wasabi, an Australian listed company with interests in both traditional and clean energy technologies and businesses. In many ways Wasabi can be seen as a microcosm of Xtract, and has been going through a similar period of restructuring. There are a number of developments that we consider to be particularly promising. Global Geothermal Ltd (GGL) In August 2007, Wasabi completed a number of agreements leading to the formation of GGL, a joint venture with AMP Capital Partners LLC (AMP), a U.S. based private equity fund. Under the terms of the agreements, GGL acquired from AMP a Delaware corporation, Recurrent Engineering LLC, that is focused on the delivery of highly efficient geothermal and waste heat power stations and technology and which was granted an option over Wasabi's shareholding in Exergy Inc, owner of rights over the patented Kalina Cycle technology for which Recurrent Engineering is world wide licensee. Kalina Cycle technology has been developed since the 1980's with numerous patents now in force worldwide. The Kalina Cycle is a process for converting heat to electrical power more efficiently and effectively than previous processes, using an ammonia/water mixture instead of water (Rankine Cycle) or organic fluids (Organic Rankine Cycle). It can be implemented using standard electrical power generation and refrigeration equipment components as evidenced by the various Kalina power plants that have had operating experience to date. These transactions bring together the necessary component parts to create a world-scale business and we look forward to its development during the next year. Wasabi's current interest in GGL is 70 per cent.. Rum Jungle Uranium Ltd (Rum Jungle) Wasabi's subsidiary Rum Jungle is focused on exploration for economic uranium deposits in a variety of geological settings in the Northern Territory of Australia. Rum Jungle's approach to exploration is based on the known geological and geophysical characteristics of major uranium deposits like Ranger, Jabiluka and Rum Jungle and sedimentary style deposits, such as Angela. Potential also exists for the presence of economic precious and base metal deposits associated with uranium mineralisation or, indeed, separate from uranium, providing further upside potential. Rum Jungle's exploration rights include Exploration Licenses 24917 (Alice Springs) and 24939 (Woolner Dome), acquired during the period. Due diligence was conducted on the Woolner Dome tenement, including reprocessing geophysical images obtained from data acquired after the most recent uranium exploration carried out in a joint venture between E.Z./Peko and CRA in the late 1970's. Rum Jungle completed a detailed airborne magnetic and radiometric survey around the Woolner Dome in early 2007 and plans to expand the survey area. Consultant geophysicists have identified several prospective structural targets and drilling is expected to commence in December 2007. Wasabi Energy announced the intention to list Rum Jungle on the Australian Stock Exchange, ASX, on 1 June 2007 and a prospectus has recently been issued to raise up to A$12 million (of which A$8 million is underwritten). Rum Jungle intends to use the funds raised from the offer to fund exploration projects and as working capital. The Northern Territory provides the dual opportunity of exploring in an area containing large uranium deposits as well as providing a stable environment offering secure development opportunity. Aviva Corporation Ltd (Aviva) Wasabi currently owns approximately 18 per cent. of Aviva, a company listed on the Australian Stock Exchange. Following the deregulation of the Western Australian power industry in March 2006, prospects for Aviva have improved considerably. Aviva has positioned itself as an integrated energy company providing long-term certainty for the coal producers and power generators. In February 2007 Aviva made its first international move, signing an agreement to enter into a joint venture over the Mmamantswe coal deposit in Botswana. A drilling programme targeting 600 metres began in June 2007. Aviva is confident that its integrated energy strategy can be translated successfully to Southern Africa. In addition to these three interests, Wasabi has an active pipeline of promising businesses in areas such as biodiesel and clean coal technologies. Whilst recognising that not all early stage businesses will ultimately succeed, we believe that Wasabi will continue to develop strongly, to the benefit of Xtract shareholders. Central Asian Interests Xtract's Central Asian interests are held through its wholly owned subsidiary COIL. COIL is managed from Australia with offices in Bishkek, the capital of the Kyrgyz Republic, and in the regional Kyrgyz city of Kochkor Ata, which is also the operational base for the company's partner, Kyrgyzneftegaz, the national Kyrgyz oil company. COIL's interests in the Kyrgyz Republic are held by a further wholly owned subsidiary Zhibek Resources Plc (Zhibek) and include: 1. a 72 per cent. interest in JSC KNG Hydrocarbons (KNG-HC), which holds a number of exploration licences in the Kyrgyz Republic; 2. a 100 per cent. direct interest in the Toktogul exploration licence in the Kyrgyz Republic; and 3. a production sharing agreement, between Zhibek and Kyrgyzneftegaz, to develop a water injection project for increasing oil recovery at the Beshkent-Togap Field. In 2005, KNG-HC acquired approximately 100km of 2D seismic data over previously identified prospects and leads in the Task Kumyr exploration concession. A further 55km of 2D seismic data was acquired in late 2006. A revised structural interpretation of the 2D seismic data has been completed for both the shallow and deeper layers. The structural depth map for the deeper underthrust Paleogene layer shows improved definition of the KNG-HC's primary South Karagundai prospect in the south west region of the map. The crest of this prospect is shown as occurring at about 3200 metres and will require a well to be drilled to approximately 4,000 metres to test this prospect. This is considerably deeper than previously anticipated. The greater depth will mean higher drilling costs than originally anticipated. A revised structural interpretation of the South Karagundai prospect and other exploration prospects and leads was completed after 55 km of 2D seismic data and additional Gore Surveys were acquired in late 2006. Improved definition of the South Karagundai prospect has been achieved. This prospect remains the prime focus for COIL's forward exploration programme and future drilling. Several lines of 2D seismic were also run over the Pishkaran prospect to test the quality of seismic data that might be possible over the older rock sequence in this area and over a large positive Gore Survey anomaly over major parts of this prospect. In late 2006, a Gore Survey was completed over the Toktogul structure. A number of areas show positive indications of hydrocarbon presence at depth within the bounds of the large surface mapped Toktogul anticline. A pilot water injection project commenced operations in May 2006. Water is injected into selected wells to displace oil in the reservoir towards adjoining oil production wells. Two oil wells have been converted to water injection wells and other facilities installed to source water for injection. Gold Exploration, Mexico Xtract also holds a 100 per cent. interest in Sermines de Mexico S.A. de C.V. which owns mineral exploration and development rights in three concessions in the California-Sonora Gold Belt in Sonoro Province, Mexico. The concessions include gold mineralisation located in the historic Esperanza goldfield which has not been the subject of modern exploration but is the location of untested anomalous gold geochemistry as determined by regional exploration surveys conducted during the mid-1990's. Xtract has commenced sampling and surveying programmes which may lead to drill testing of prospective targets. Oil Shale Xtract's wholly owned subsidiary, Xtract Oil Limited has acquired oil shale and related petroleum product exploration rights over twelve mining tenements in the Toolebuc-Julia Creek area of Queensland. The Julia Creek oil shale deposits are known to contain substantial quantities of kerogen which can be converted to oil. The oil shale deposits located within EPM's 14803 and 14806, at the location known as 'The Pit', were subject to detailed evaluation by CSR Limited (1968-1988) and more recently, in the early 1990's, by CRA Exploration Limited. The investigations provided geological and analytical data to support in-situ resource calculations in an independent report by Nolan (Geology and Resources of Oil Shale within Intermin Farm-in Area, Julia Creek, North-western Queensland, Oct 2005) indicating up to 410 million barrels of oil in situ extractable by conventional retorting methods and having an average Fischer Assay analysis of 74 litres /tonne. GHD Pty Ltd in their report titled 'Julia Creek Independent Geological Assessment' dated 9 January 2006, evaluated EPM 14806 beyond 'The Pit' area and identified a substantial area where the oil shale is close to the surface but below the oxidation zone and which is sufficiently well drilled to determine an additional inferred resource estimated as 415 million barrels of shale oil in situ. Wide spaced drilling demonstrates that further extensive deposits of oil shale are present in the project area with Fischer Assay testing indicating in-situ oil levels ranging from 30 to 110 litres per tonne as determined on dry oil shales. The combined shale oil inferred resource in these two contiguous areas is estimated as 825 million barrels in situ. The oil shale at Julia Creek is a 40-50 million year old sedimentary rock that contains kerogen, a solid hydrocarbon precursor. The hydrocarbon component can be extracted through a heating process (known as retorting), which results in the release of hydrocarbons as vapour. When the vapour cools, it becomes liquid oil and gas. Xtract Oil Ltd together with Monash University and the Commonwealth Scientific and Industrial Research Organisation of Australia (CSIRO) has designed and is operating an experimental programme to carry out extractions using representative oil shale samples and assess the key risks inherent in the process. Both Monash and CSIRO have the demonstrated capability to work on a project of this type and have an extensive track record of industry participation and in oil shale related research. Initial validation tests have shown that the recovery of light crude oil products from the Julia Creek deposits may be much higher than could be achieved using conventional retort recovery techniques. The initial solvent extraction tests have demonstrated that recovery from Julia Creek shales could be approximately twice that as indicated by Fischer Assays. This results in a doubling of the oil potential and an estimated in situ oil resource of over 1.6 billion barrels of oil. +--------------------------------------------------------------+---------------+ |Estimated combined indicated and inferred shale oil resource | 825 million | |based on Fischer Assays |barrels of oil | +--------------------------------------------------------------+---------------+ |Estimated combined indicated and inferred shale oil resource | 1.6 billion | |based on increased oil extraction as indicated by Xtract's |barrels of oil | |supercritical solvent extraction test work | | +--------------------------------------------------------------+---------------+ Xtract has also been granted an exploration permit encompassing the Nevis Valley oil shale deposits located in South Island, New Zealand. The permit, EP 40-805 (10,450 ha), includes locations of known oil shale occurrences. The area will be investigated to determine the economic significance of the deposits. The in-situ resources are the tonnage of oil shale, with a 40 l/t. cut-off and the theoretical quantity of shale oil which is within that tonnage of oil shale. The resources are categorised into: â€¢ Indicated Resources - comprise most of The Pit area because drill-hole spacing is usually one kilometre or between one and about 1.5 kilometres. Correlation of the oil shales and main stratigraphic units is possible down-dip, from east to west across the area but trends are not uniform along a cross-section. The variation between bores is such that further information is required to increase the confidence of estimation of the quantity of oil shale present. The sub-crop of the oil shale units beneath the weathered zone require further delineation for accurate determination of oil shale resources. Additional points of observation and/or more detailed assessment of variation of the oil shale units would be expected to raise the resources to Measured Resources category. â€¢ Inferred Resources - marginal to and down-dip from the Indicated Resources. The present borehole spacing of two kilometres or more is sufficient only to prove the existence of oil shale at the localities and to infer the thickness and yield. The continuation of those properties between the points of observation can only be inferred. Additional observation may be expected to increase the confidence level of the estimation of the in-situ resources and to raise at least portion of these resources to Indicated status. Within those areas of oil shale resources, the density of oil shale is assumed to be 1.85 tonnes per cubic metre (t/m3) when dry; the same basis used for reporting oil yield. The thicknesses and oil yields have been weighted over those areas to provide the averages quoted. The assessment conducted by Nolan & Associates Pty Ltd has verified the thickness and degree of continuity of the oil-bearing strata and has allowed for categorization of Oil Shale and Shale Oil Resources according to the Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves - The JORC Code - 2004 Edition. Note: the information relating to Julia Creek and oil shale has been reviewed and approved by Dr. John E Shirley, (Managing Director of Xtract Oil Limited) who has a BSc and PhD in Geophysics from the University of Tasmania, over 40 years experience in the resources and energy sector and is a member of the Society of Petroleum Engineers. Looking forward The Company has assembled a very promising portfolio of interests. Not only do these assets have quantifiable current value, but in MEO, Elko Energy and Oil Shale, there are realistic scenarios that offer investors considerable upside potential over the short, medium and longer-term. We continue to benefit from a strong flow of potential deals arising from our links to our major shareholder Cambrian Mining Plc and from our own independent prospecting. As existing investments mature, and subject to our screening criteria, we will be in a position to reinvest in new and exciting assets and technologies. Andy Morrison Chief Executive Officer Consolidated income statement 18 months ended 30 June 2007 Note Period Year ended ended 30 June 31 December 2007 2005 Â£'000 Â£'000 Administrative and operating expenses (2,124) (221) Share of results of associates 11 (362) (24) Other revenue 4 66 - Gain on disposal of fixed assets 4 10 - ------ ------ Operating loss (2,410) (245) Investment revenue 4 99 25 Finance costs (128) - Other gains and losses 4 5,968 - Negative goodwill on acquisition of subsidiary 16 5,730 - ------ ------- Profit / (loss) before tax 9,259 (220) Tax expense 6 (1,787) - ------ ------- Profit / (loss) for the period / year 7,472 (220) Attributable to: Equity holders of the parent 6,284 (220) Minority interest 1,188 - ------ ------- 7,472 (220) ====== ======= Net gain / (loss) per share Basic (pence) 7 1.49 (0.21) ====== ======= Diluted (pence) 7 1.29 (0.21) ====== ======= The Group's profit/(loss) relates entirely to continuing operations in both periods. Consolidated statement of recognised income and expenditure 18 months ended 30 June 2007 Period Year ended ended 30 June 31 December 2007 2005 Â£'000 Â£'000 Gains on revaluation of available-for-sale 15 782 - investments taken to equity Revaluation of intangible assets - acquisition of 15 962 - subsidiaries Exchange differences on translation of foreign operations 15 (18) - Tax on items taken directly to equity 15 (235) - ----- ----- Net income recognised directly in equity 1,491 - Profit / (loss) for the period / year 15 7,472 (220) ----- ------ Total recognised income and expense for the period / year 8,963 (220) ===== ====== Attributable to: Equity holders of the parent 7,775 (220) Minority interests 1,188 - ----- ------ 8,963 (220) ===== ====== Consolidated balance sheet As at 30 June 2007 Note As at As at 30 June 31 December 2007 2005 Â£'000 Â£'000 Non-current assets Intangible assets 8 11,601 81 Property, plant and equipment 9 231 - Investments in associates 11 23,818 412 Investments in subsidiaries 10 - - Financial assets 12 3,206 - Deferred tax asset 13 312 - ------ ------ 39,168 493 ------ ------ Current assets Inventories 16 - Financial assets 12 9 - Trade and other receivables 293 13 Cash and cash equivalents 1,582 1,321 ------ ------ 1,900 1,334 ------ ------ Total assets 41,068 1,827 ====== ====== Current liabilities Trade and other payables 375 59 Current tax liabilities 698 - ------ ------ 1,073 59 ------ ------ Net current assets 827 1,275 ------ ------ Non-current liabilities Deferred tax liabilities 13 7,616 - ------ ------ Total liabilities 8,689 1,334 ====== ====== Net assets 32,379 1,768 ====== ====== Note As at As at June 30 31 December 2007 2005 Â£'000 Â£'000 Equity Share capital 14, 15 704 199 Share premium account 15 23,800 1,756 Share based payments reserve 15 411 33 Available for sale reserve 15 547 - Revaluation reserve 15 962 - Exchange translation reserve 15 (18) - Retained earnings 15 6,064 (220) ------ ------- Equity attributable to equity holders of the parent 32,470 1,768 Minority interest 15 (91) - ------ ------- Total equity 32,379 1,768 ====== ======= Consolidated cash flow statement Period ended 30 June 2007 Note Period Year ended ended 30 June 31 December 2007 2005 Â£'000 Â£'000 Net cash used in operating activities 17 (1,634) (74) Investing activities Interest received 4 99 25 Government grants 4 66 - Purchase of property plant and equipment 9 (65) - Disposal of property plant and equipment 11 - Acquisition of intangible assets (282) (21) Disposal of trading investments 2,326 - Purchase of trading investments 12 (406) - Acquisition of associates 11 (2,973) (436) Acquisition of subsidiaries, net of cash acquired 16 (149) (82) ------- ------- Net cash used in investing activities (1,373) (514) ------- ------- Financing activities Interest paid (80) - Proceeds on issue of shares - placing 14 5,500 2,010 Proceeds on issue of shares - warrants 14 1,004 - Proceeds received on exercise of options in subsidiary 16 639 - Short term loan repayments (3,436) - Share issue expenses (354) (101) ------ ------ Net cash from financing activities 3,273 1,909 ------ ------ Net increase in cash and cash equivalents 266 1,321 Cash and cash equivalents at beginning of period/year 1,321 - Effect of foreign exchange rate changes (5) - ------- ------ Cash and cash equivalents at end of period / year 1,582 1,321 ======= ====== Notes to the preliminary announcement at 30 June 2007 1. General information Xtract Energy plc is a company incorporated in the United Kingdom under the Companies Act 1985. The address of the registered office is 27 Albemarle Street, London W1S 4DW. The nature of the Group's operations and its principal activities are set out in the CEO's review. The Company has changed its accounting reference date to 30 June in order to align with its ultimate parent company, Cambrian Mining plc. This preliminary announcement is presented in pounds sterling. Foreign operations are included in accordance with the policies set out in note 2. The financial statements for the period ended 30 June 2007 were approved by the directors on 19 October 2007. This preliminary announcement of the results for the period ended 30 June 2007 contains information derived from the forthcoming 2007 Annual Report & Accounts and does not constitute the statutory accounts for either the period ended 30 June 2007 or the year ended 31 December 2005 for the purposes of section 240(3) of the Companies Act 1985. The results for the period ended 30 June 2007 are extracted from the audited accounts for that year which have not yet been filed with Companies House. The comparative figures for the year ended 31 December have been extracted from the accounts for that year which have been delivered to Companies House. The auditors' reports in respect of both years were unqualified and do not contain a statement under section 237(2) or (3) of the Companies Act 1985. The results for the period ended 30 June 2007 have been prepared in accordance with relevant IFRS. The accounting policies applied in the preparation of the financial statements which this announcement is based on have been replicated in Note 2 below. 2. Significant accounting policies Basis of accounting The financial statements have been prepared in accordance with International Financial Reporting Standards ('IFRS') and IFRIC interpretations and with those parts of the Companies Act 1985 applicable to companies reporting under IFRS. Accordingly, the Group complies with all IFRS, including those adopted for use in the European Union. The financial statements have been prepared under the historical cost convention modified for certain items carried at fair valued, as stated in the accounting policies. A summary of the more important accounting policies is set out below. Basis of consolidation The consolidated financial statements incorporate the financial statements of the Company and entities controlled by the Company (its subsidiaries) made up to 30 June each year. Control is achieved where the Company has the power to govern the financial and operating policies of an investee entity so as to obtain benefits from its activities. Minority interests in the net assets of consolidated subsidiaries are identified separately from the Group's equity therein. Minority interests consist of the amount of those interests at the date of the original business combination and the minority's share of changes in equity since the date of the combination. Losses applicable to the minority in excess of the minority's interest in the subsidiary's equity are allocated against the interests of the Group only to the extent that the minority has a binding obligation and is able to make an additional investment to cover the losses. The results of subsidiaries acquired or disposed of during the year are included in the consolidated income statement from the effective date of acquisition or up to the effective date of disposal, as appropriate. 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. Business combinations The acquisition of subsidiaries is accounted for using the purchase method. The cost of the 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, plus any costs directly attributable to the business combination. The acquiree's identifiable assets, liabilities and contingent liabilities that meet the conditions for recognition under IFRS 3 are recognised at their fair value at the acquisition date. Goodwill arising on acquisition is recognised as an asset and initially measured at cost, being the excess of the cost of the business combination over the Group's interest in the net fair value of the identifiable assets, liabilities and contingent liabilities recognised. If, after reassessment, the Group's interest in the net fair value of the acquiree's identifiable assets, liabilities and contingent liabilities exceeds the cost of the business combination, the excess is recognised immediately in income statement as 'negative goodwill on acquisition'. The interest of minority shareholders in the acquiree is initially measured at the minority's proportion of the net fair value of the assets, liabilities and contingent liabilities recognised. Investments in associates An associate is an entity over which the Group is in a position to exercise significant influence, but not control or joint control, through participation in the financial and operating policy decisions of the investee. 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 classified as held for sale. Investments in associates are carried in the balance sheet at cost as adjusted by 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 the associates in excess of the Group's interest in those associates are not recognised. Any excess of the cost of acquisition over the Group's share of the fair values of the identifiable net assets of the associate at the date of acquisition is recognised as goodwill. Any deficiency of the cost of acquisition below the Group's share of the fair values of the identifiable net assets of the associate at the date of acquisition (i.e. discount on acquisition) is credited in profit or loss in the period of acquisition. Where a Group company transacts with an associate of the Group, profits and losses are eliminated to the extent of the Group's interest in the relevant associate. Losses may provide evidence of an impairment of the asset transferred in which case appropriate provision is made for impairment. Revenue recognition Revenue is measured at the fair value of the consideration received or receivable and represents amounts receivable for goods and services provided in the normal course of business, net of discounts, VAT and other sales-related taxes. Interest income is accrued on a time basis, by reference to the principal outstanding and at the effective interest rate applicable, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to that asset's net carrying amount. Foreign currencies The individual financial statements of each Group company are presented 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 arising on the settlement of monetary items, and on the retranslation of monetary items, are included in profit or loss for the period. Exchange differences arising on the retranslation of non-monetary items carried at fair value are included in profit or loss for the period except for differences arising on the retranslation of non-monetary items in respect of which gains and losses are recognised directly in equity. For such non-monetary items, any exchange component of that gain or loss is also recognised directly in equity. 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 classified as equity and transferred to the Group's translation reserve. Such translation differences are recognised as income or as expenses in the period in which the operation is disposed of. 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. Where a monetary item forms part of a net investment in a foreign operation, exchange differences are recognised in equity. 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. 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. Taxation The tax expense represents the sum of the tax currently payable and deferred tax. Current tax 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 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 tax profit nor the accounting profit. Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is realised. Deferred tax is charged or credited in the income statement, except when it relates to items charged or credited directly to equity, in which case the deferred tax is also dealt with in equity. 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. 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 period to remaining reserves as at the start of the period. 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 period. 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 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 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. Expenditure relating to clearly defined and identifiable development projects is recognised as an intangible asset only after all the following criteria are met: â€¢ the project's technical feasibility and commercial viability can be demonstrated â€¢ the availability of adequate technical and financial resources and an intention to complete the project have been confirmed; and â€¢ the correlation between development costs and future revenues has been established. Following initial recognition, the historic 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 (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 (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. Research and development expenditure Expenditure on research activities is recognised as an expense in the period in which it is incurred. Inventories Inventories are stated at the lower of cost and net realisable value. Cost comprises direct materials, and where applicable, direct labour costs and those overheads that have been incurred in bringing the inventories to their present location and condition. Cost is calculated using the weighted average method. Net realisable value represents the estimated selling price less all estimated costs of completion and costs to be incurred in marketing, selling and distribution. 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. Trade receivables Trade receivables are measured at initial recognition at fair value, and are subsequently measured at amortised cost using the effective interest rate method. Appropriate allowances for estimated irrecoverable amounts are recognised in the income statement when there is objective evidence that the asset is impaired. The allowance recognised is measured as the difference between the asset's carrying amount and the present value of estimated future cash flows discounted at the effective interest rate computed at initial recognition. Investments Investments are recognised and derecognised on a trade date where a purchase or sale of an investment is under a contract whose terms require delivery of the investment within the timeframe established by the market concerned, and are initially measured at cost, including transaction costs. Investments are classified as either held-for-trading or available-for-sale, and are measured at subsequent reporting dates at fair value. Where securities are held for trading purposes, gains and losses arising from changes in fair value are included in net profit or loss for the period. For available-for-sale investments, gains and losses arising from changes in fair value are recognised directly in equity, until the security is disposed of or is determined to be impaired, at which time the cumulative gain or loss previously recognised in equity is included in the profit or loss for the period. Impairment losses recognised in profit or loss for equity investments classified as available-for-sale are not subsequently reversed through profit or loss. Impairment losses recognised in profit or loss for debt instruments classified as available-for-sale are subsequently reversed if an increase in the fair value of the instrument can be objectively related to an event occurring after the recognition of the impairment loss. Cash and cash equivalents Cash and cash equivalents comprise cash on hand and demand deposits, and other short-term highly liquid investments that are readily convertible to a known amount of cash and are subject to an insignificant risk of changes in value. Financial liabilities and equity Financial liabilities and equity instruments are classified according to the substance of the contractual arrangements entered into. An equity instrument is any contract that evidences a residual interest in the assets of the Group after deducting all of its liabilities. Trade payables Trade payables are initially measured at fair value, and are subsequently measured at amortised cost, using the effective interest rate method. Equity instruments Equity instruments issued by the Company are recorded at the proceeds received, net of direct issue costs. Derivative financial instruments The Group's activities expose it primarily to the financial risks of changes in foreign currency exchange rates. The Group continues to assess the use of foreign exchange forward contracts to hedge these exposures. The Group does not use derivative financial instruments for speculative purposes. The use of financial derivatives is governed by the Group's policies approved by the board of directors, which provide written principles on the use of financial derivatives. Derivatives embedded in other financial instruments or other host contracts are treated as separate derivatives when their risks and characteristics are not closely related to those of host contracts and the host contracts are not carried at fair value, with gains or losses reported in the income statement. Share-based payments The Group issues equity-settled share-based payments to certain directors and officers and service providers. Equity-settled share-based payments are measured at fair value (excluding the effect of non market-based vesting conditions) at the date of grant. 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. Where the value of the goods or services received in exchange for the share-based payment cannot be reliably estimated the fair value is measured by use of the Black-Scholes model. 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. Operating leases Leases where the lessor retains a significant portion of the risks and benefits of ownership of the asset are classified as operating leases and rentals payable under operating leases are charged in the income statement on a straight line basis over the lease term. Borrowing costs Borrowing costs are recognised in the income statement in the period in which they are incurred. 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. Loans and borrowings Loans are initially measured at fair value less directly attributable transaction costs. After initial recognition, interest bearing loans are subsequently measured at amortised cost using the effective interest method. Interest payable is accrued in the income statement using the effective interest rate method. 3. Critical accounting judgements and key sources of estimation uncertainty Critical judgments in applying the Group's accounting policies In the process of applying the Group's accounting policies, which are described in note 2, management has made the following judgements that have the most significant effect on the amounts recognised in the financial statements (apart from those involving estimations, which are dealt with below). Impairment of intangible assets The assessment of intangible assets for any indications of impairment involves judgement. If an indication of impairment 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. Key sources of estimation uncertainty The preparation of financial statements requires management to make estimates and assumptions that affect the amounts reported for assets and liabilities as at the balance sheet date and the amounts reported for revenues and expenses during the year. The nature of estimation means that actual outcomes could differ from those estimates. The key sources of estimation uncertainty that have a significant risk of causing material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below. 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. Measurement of fair value for held for trading and available for sale assets. The estimation of fair value for held for trading assets and available for sale assets is determined based on quoted market prices for assets where quoted market prices exist. For share options held that are not traded on an open market and therefore have no quoted market price, an appropriate valuation model is required to be selected and consideration given to the inputs required for that model. In calculating the fair value of share options held by the Group, the Black-Scholes model has been adopted. Fair values recognised in business combinations The estimation of 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. 4. Revenue and other gains and losses An analysis of the Group's revenue and other gains and losses is as follows: Period Year ended ended 30 June 31 December 2007 2005 Â£'000 Â£'000 Other operating revenue: - Research and development grants i) 66 - Investment revenue: - Interest on bank deposits 99 25 --- --- Total revenue 165 25 === === Other gains and losses - Trading investments: - Realised gains on sale of held for trading 1,233 - investments - Unrealised gains on held for trading investments 5,091 - - Loss on dilution from subsidiary share issue (see (356) - note 16) ----- --- 5,968 - Gains on disposal of fixed assets 10 - ----- --- Total other gains and losses 5,978 - ===== === i) Government grants received in relation to research and development expenditure on oil shale extraction technologies in Australia. 5. Profit/(Loss) for the period / year Profit/(Loss) for the period / year has been arrived at after charging/ (crediting): Period Year ended ended 30 June 31 December 2007 2005 Â£'000 Â£'000 Net foreign exchange losses/(gains) 39 (1) Research and development costs 269 - Depreciation of property, plant and equipment 11 - Share based payments expense 152 79 Staff costs 230 12 Research and development grants (see note 4) (66) - Gain on disposal of property, plant, and equipment (10) - ==== === 6. Tax Period Year ended ended 30 June 31 December 2007 2005 Â£'000 Â£'000 Current tax 698 - Deferred tax (note 13) 1,089 - ----- --- 1,787 - ===== === Corporation tax is calculated at 30 % (2005: 30 %) of the estimated assessable profit for the year. Taxation for other jurisdictions is calculated at the rates prevailing in the respective jurisdictions. The Group tax charge for the period/year can be reconciled to the profit/(loss) per the income statement as follows: Period Year ended ended 30 June 31 December 2007 2005 Â£'000 Â£'000 Profit / (loss) before tax: 9,259 (220) ----- ---- Tax at the UK corporation tax rate of 30% (2005: 30%) 2,778 (66) Tax effect of expenses not deductible in determining 45 31 taxable profit / (loss) Tax effect of utilisation of tax losses not previously 682 35 recognised Tax effect of non-taxable negative goodwill (1,718) - ------- ----- Tax expense for the period / year 1,787 - ======= ===== 7. Earnings per share Period Year ended ended 30 June 31 December 2007 2005 Â£'000 Â£'000 Earnings/(loss) for the purposes of basic and diluted 6,284 (220) earnings per share ('EPS') being net profit/(loss) for ----- ------ the period attributable to equity holders of the parent Number Number Weighted average number of ordinary shares for purposes 420,569,934 102,744,761 of basic EPS Effect of dilutive potential ordinary shares - options 67,143,088 - and warrants Weighted average number of ordinary shares for purposes 487,713,022 102,744,761 of diluted EPS =========== =========== Where a loss has occurred, basic and diluted earnings per share are the same because the outstanding share options and warrants are anti-dilutive. 8. Intangible assets Total Â£'000 At 1 January 2005 - Additions 81 ------ At 1 January 2006 81 Additions 602 Acquired on acquisition of subsidiaries 10,918 ------ At 30 June 2007 11,601 ====== Costs of exploration and evaluation are capitalised and carried forward during the exploration and evaluation stage. No amortisation is charged prior to the commencement of production. 9. Property, plant and equipment Plant and Office and computer machinery equipment Total Â£'000 Â£'000 Â£'000 Cost At 1 January 2005 and 31 December - - - 2005 ------ ------ ----- At 1 January 2006 - - - Additions 48 17 65 Acquisition of subsidiary 178 - 178 Disposals - (1) (1) ------ ------ ------ At 30 June 2007 226 16 242 ------- ------ ------ Accumulated depreciation and impairment At 1 January 2005 and 31 December - - - 2005 ------- ------ ------ At 1 January 2006 - - - Charge for the year 6 5 11 ------- ------ ------ At 30 June 2007 6 5 11 ------- ------ ------ Carrying amount At 30 June 2007 220 11 231 ======= ======= ====== At 31 December 2005 - - - ======= ======= ====== 10. Subsidiaries Details of the Company's subsidiaries consolidated at 30 June 2007 are as follows: Name Place of Date Proportion of Principal Incorporation controlling ownership & Activities and Operation interest voting power acquired held % Sermines de Mexico S.A. Mexico 08/08/05 100 Mining de C.V. exploration Xtract Oil Limited Australia 17/02/06 100 Mining exploration and technology development Cambrian Oil & Gas plc UK 15/11/06 100 Holding Company Zhibek Resources plc i) UK 15/11/06 100 Oil & gas exploration, development and production CSJC KNG Hydrocarbons ii) Kyrgyz 15/11/06 72 Oil & gas Republic exploration CSJC Zhibek Hydrocarbons Kyrgyz 15/11/06 85 Oil & gas ii) Republic exploration i) Interest held through wholly owned subsidiary Cambrian Oil & Gas plc, acquired on 15 November 2006. ii) Interest held through wholly owned Group on acquisition of Cambrian Oil plc on 15 November 2006. Information relating to acquisition of subsidiaries during the period is included in note 16. All of these subsidiaries have been consolidated for the period of ownership. 11. Interests in associates Details of the Group's associates at 30 June 2007 are as follows: As at 30 As at 31 June 2007 December 2005 Â£'000 Â£'000 Opening balance 412 - Acquired on acquisition of subsidiary (a) 10,093 - Revaluation on acquisition of minority interest 3,481 - Investment in associate - 436 Exercise of options in associate (b) 2,973 - Transferred from trading investments (c) 7,628 - Transferred to investment in subsidiary (d) (407) - Share of associates losses for the period (362) (24) ------- ----- 23,818 412 ======= ===== (a) Fair value of shares in associates acquired during the period on acquisition of subsidiary (see note 16). (b) Cost of exercising options in associate. (c) Fair value of options transferred from held for trading assets on exercise of options at (b). (d) During the period to 30 June 2007 Xtract Oil Limited (an associate in 2005) became a 100% owned subsidiary of Xtract and the investment in associates cost was transferred to be included in the acquisition cost of the subsidiary. See note 16 for further details. Name Place of Date Proportion of Principal Incorporation and associate ownership & Activities Operation interest voting power acquired held % MEO Australia Limited Australia 15/11/06 24 Oil & gas i) exploration Elko Energy Limited Canada 15/11/06 32 Oil & gas i) exploration i) Interest held through wholly owned subsidiary Cambrian Oil & Gas plc, acquired on 15 November 2006. Aggregated amounts relating to associates As at As at 31 30 June December 2007 2005 Â£'000 Â£'000 Total assets 39,175 156 Total liabilities 773 - ====== ====== Revenues 378 - Loss (1,707) (111) ======= ====== The fair value of the Company's associate investment in MEO Australia Limited at 30 June 2007 is Â£45.3 million. This fair value is based on the closing ASX market price of MEO Australia Limited shares (ASX:MEO) at balance date. 12. Financial assets Available-for-sale investments As at 30 As at 31 June 2007 December 2005 Â£'000 Â£'000 Opening balance - - Acquired during the period 2,424 - Movement in fair value (a) 782 - ----- ----- 3,206 - ===== ===== (a) Fair value of available for sale investments is based on the listed market share price at 30 June 2007. Trading investments As at 30 As at 31 June 2007 December 2005 Â£'000 Â£'000 Opening balance - - Other 9 - Purchased during the period 406 - Acquired on acquisition (a) 3,639 - Disposals (b) (1,093) - Fair value increase (c) 5,082 - Transferred to investments in associates (d) (7,628) - Transferred to investment in subsidiary on acquisition of (406) - subsidiary (e) ------- ------ 9 - ------- ------ (a) Fair value of share options acquired during the period on acquisition of subsidiary. See note 16 for further details. (b) Fair value of share options transferred to the income statement upon disposal during the period. (c) Fair value increase in trading investments during the period. Fair value has been calculated using the Black-Scholes model. (d) Fair value of share options transferred to investments in associates upon exercise of options. (e) As part of the acquisition of the minority interest of COIL, warrants held by Xtract in COIL were cancelled and the value of the warrants was included as part of the costs of acquisition. Refer to note 16 for further detail. 13. Deferred tax As at As at 30 June 31 December 2007 2005 Â£'000 Â£'000 Deferred tax assets 312 - Deferred tax liabilities (7,616) - ------- ----- (7,304) - ======= ===== The following are the major deferred tax liabilities and assets recognised by the Group and movements thereon during the current and prior reporting period. Group Available for Investment Intangible Investments Total sale in assets held for investments associates trading Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Charge to income - (110) - 1,199 1,089 Charge to equity 235 - - - 235 Acquisition of subsidiary - 3,334 2,646 - 5,980 ----- ----- ----- ----- ----- As 30 June 2007 235 3,224 2,646 1,199 7,304 ===== ===== ===== ===== ===== At the balance sheet date, the Group has available unused tax losses of Â£3.2 million (2005: Â£0.1million) available for offset against future profits. No related deferred tax asset has been recognised due to the unpredictability of future profit streams. Losses may be carried forward indefinitely and will be recoverable if suitable taxable profits arise in future periods 14. Share capital Company Authorised: As at As at 31 30 June December 2007 2005 Â£'000 Â£'000 1,000,000,000 (2005:1,000,000,000) ordinary shares 1,000 1,000 of Â£0.1p each ===== ===== Issued and fully paid: Number of Â£'000 shares This comprises issued and fully paid ordinary shares of Â£0.1p each At 1 January 2006 199,088,550 199 Issued for access to mining tenement rights (a) 32,000,000 32 Share consideration for Xtract Oil Limited at 7p per 57,471,250 57 share (b) Shares issued as payment for services (c) 250,000 2 Share consideration for Cambrian Oil and Gas plc at 29,090,909 29 6.375p per share (d) Share consideration for Cambrian Oil and Gas plc at 115,016,676 115 5.675p per share (e) Conversion of loan note at 5.5p per share (f) 61,113,291 61 Placing at 5.5p per share (g) 109,795,800 109 Issue for warrants exercised at 1p per share (h) 100,400,000 100 ----------- --- At 30 June 2007 704,226,476 704 =========== === (a) Consideration for the assignment of mining tenements in Australia from Intermin Resources Limited. (b) On 17 February 2006, the Company issued 57,471,250 shares of 0.1p each valued at Â£4,022,988 based on the market value of 7p per share, as part consideration for acquiring 78.3% of the issued share capital in Xtract Oil Limited (note 16). (c) 250,000 shares of 0.1p each issued as consideration to brokers for services in relation to acquisition of Xtract Oil Limited. (d) On 15 November 2006, the Company issued 29,090,909 shares of 0.1p each valued at Â£1,854,545 based on the market value of 6.375p per share, as consideration for the purchase of 53.3 million shares in Cambrian Oil and Gas plc ('COIL') from Cambrian Mining Plc. Refer to note 16 for the detailed disclosures relating to this business combination. (e) On 23 April 2007 the company issued 115,016,676 shares of 0.1p each valued at Â£6,527,196 based on the market value of 5.675p, as consideration to COIL shareholders (other than Xtract) for the acquisition of all minority interest owned COIL shares by way of scheme of arrangement under section 425 of the Companies Act 1985 (the 'Scheme'). Under the terms of the Scheme, COIL shareholders received 9 new Xtract shares for every 10 COIL shares. The consideration forms the cost of the acquired shares in COIL (note 16). (f) On 21 September 2006 the Company entered into a convertible loan arrangement in settlement of the purchase of shareholdings from the Company's ultimate parent company Cambrian Mining Plc and its subsidiaries. The value of the loan of Â£3.4 million, including interest payable of Â£48,498, was converted into 61,113,291 new ordinary shares of 0.1p each at the placing price of 5.5p a share on 17 November 2006. There were no additional costs associated with the convertible loan issue or subsequent conversion. (g) On 22 November 2006 the Company completed a placing and open offer of 109,795,800 new ordinary shares of 0.1p each at 5.5p per share generating proceeds of Â£6,038,769, before expenses. These comprised Â£5,500,000 cash plus Â£538,769 in relation to 9,785,800 shares placed with Cambrian Mining Plc settled by way of offset against short-term loan amounts due to Cambrian Mining Plc. (h) During the period 100,400,000 new ordinary shares of 0.1p each were issued and allotted following the exercise of warrants in the Company. The exercise price was 1p per share issued. The company has one class of ordinary shares which carry no right to fixed income. Unlisted warrants Shares issued as a result of warrants exercised generated cash proceeds of Â£1,004,000 during the period. After exercises and further grants during the period, the following warrants remain outstanding at 30 June 2007: Issued 29 March 2005 - 33,688,550 exercisable at 1p per share Issued 29 March 2005 - 50,000,000 exercisable at 2p per share Issued 29 March 2005 - 3,000,000 exercisable at 1.5p per share Issued 24 April 2006 - 5,000,000 exercisable at 5.5p per share Issued 22 November 2006 - 7,213,475 exercisable at 5.5p per share Issued 1 January 2007 to 30 June 2007 - 600,000 exercisable at 6p per share Each one of the above warrants vested immediately and expires within three years of issue, entitling the holder to one fully paid share in the Company upon payment of the warrant exercise price per share. In addition to the above, in April 2007 Xtract issued shares in exchange for all minority owned shares in COIL. As part of this transaction 231,150 COIL options exercisable at 5p, 6,150,000 COIL options exercisable at 7p and 1,500,000 COIL warrants exercisable at 3p continue in accordance with their terms except that COIL option and warrant holders are entitled to receive Xtract shares upon exercise of such options and warrants on the basis of 9 new Xtract ordinary shares for every 10 COIL shares which the option or warrant holder is entitled to under the terms of the option or warrant. 15. Reconciliation of Changes in Equity Share Share Share Available Revaluation Foreign Retained Minority Total capital premium based for sale reserve currency earnings Interest Equity account payments reserve translation reserve reserve Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 At 1 January - - - - - - - - - 2005 Balance on - - - - - - - - - incorporation Issue of 199 1,857 - - - - - - 2,056 shares Share based - - 33 - - - - - 33 payments expense Share issue - (101) - - - - - - (101) expenses Loss for the - - - - - - (220) - (220) period ---- ----- ---- ----- ---- ---- ----- ----- ------ At 31 199 1,756 33 - - - (220) - 1,768 December 2005 Issue of 505 22,641 - - - - - - 23,146 shares Share based - - 378 - - - - - 378 payments expense Share issue - (597) - - - - - - (597) expenses Gain on - - - 782 - - - - 782 revaluation of available for sale investments Deferred tax - - - (235) - - - - (235) on revaluation of available for sale investments Revaluation - - - - 962 - - - 962 on acquisition of subsidiaries Exchange - - - - - (18) - - (18) differences on translation Minority - - - - - - - 5,007 5,007 interest arising on acquisition of subsidiary Issue of - - - - - - - 995 995 shares by subsidiary Acquisition - - - - - - - (7,281) (7,281) of minority interest Profit for - - - - - - 6,284 1,188 7,472 the period ---- ------ ---- ---- ---- ---- ----- ----- ------ At 30 June 704 23,800 411 547 962 (18) 6,064 (91) 32,379 2007 ==== ====== ==== ==== ==== ===== ===== ===== ====== Available for sale reserve The available for sale reserve is used to recognise fair value changes on available-for-sale investments Foreign Currency Translation reserve The foreign currency translation reserve is used to record exchange differences arising from translation of the financial statements of foreign subsidiaries. Share based payments reserve The share based payments reserve is used to recognise the equity component of share base payments. 16. Acquisition of subsidiaries Xtract Oil Limited On 17 February 2006 the Company acquired 78.3% of the issued share capital of Xtract Oil Limited ('Xtract Oil') increasing its holding to 100% for consideration of Â£4.9 million including expenses. Xtract Oil has interests in oil shale mining tenements in Australia and is researching technologies to commercially extract oil from shale through a liquid solvent process. The consideration and net assets acquired were as follows: Book Fair value value adjustments Fair value Â£000 Â£000 Â£000 Net assets acquired: Trade receivables 69 - 69 Bank and cash balances 65 - 65 Mining rights - 8,820 8,820 Deferred tax liability - (2,646) (2,646) ---- ------ ------- 134 6,174 6,308 Less revaluation reserve - 962 962 ---- ------ ------- 134 5,212 5,346 ==== ======= ======= Satisfied by: Cash 817 Directly attributable costs 99 ------ 916 Fair value of shares issued (refer to note 14) 4,023 ------ Total consideration 4,939 Carrying value of associate brought forward 407 ------ 5,346 ====== Net cash outflow arising on acquisition: Cash and cash equivalents acquired 65 Cash paid for shares (817) Directly attributable costs (99) ------ (851) ====== The fair value of mining rights held by Xtract Oil at the date of acquisition were determined based on the purchase consideration (Â£4.9 million) paid on 17 February 2006. The purchase consideration represents 78.3% of the fair value of the mining rights prior to deferred tax of 30%. Xtract Oil contributed to the Group's 12 month consolidated results, an operating loss of Â£0.4 million and a loss before tax of Â£0.3 million for the period between the date of acquisition and the balance sheet date. If the acquisition of Xtract Oil had been completed on the first day of the financial period, Group revenues for the period would have been Â£0.2 million and Group profit attributable to equity holders of the parent would have been Â£7.2 million. Cambrian Oil and Gas Plc During the eighteen month period, the Company acquired 100% of the issued share capital of Cambrian Oil & Gas PLC ('COIL') for total consideration of Â£13,641,000 including expenses. The acquisition occurred in two stages, being the purchase of a controlling interest of 65.5% on 15 November 2006 and purchase of the remaining minority interest 23 April 2007. The book values of other assets held by Xtract Oil at the date of acquisition are assumed to equate their fair value. COIL is a PLC that with its subsidiary and associate undertakings ('COIL group') is involved in investment in and financing of oil and gas exploration and development assets. COIL group includes a subsidiary with interests in Kyrgyzstan and two associates: 24% in MEO Australia Ltd ('MEO'), listed on the Australian Stock Exchange, and 32% of Elko Energy Inc, based in Canada. Purchase of controlling interest (65.5% of issued share capital) As at 15 November 2006, Xtract acquired a controlling interest of 65.5% in COIL are as follows: Effective date Number of Percent Consideration shares acquired Â£'000 15 November 2006 202,964,102 65.5% 6,544 Expenses 35 ----- Total Investment 6,579 ===== The net assets of the COIL Group acquired in the first step of the acquisition are as follows: Book value Fair value Fair value adjustments Â£'000 Â£'000 Â£'000 Mining rights and 2,098 - 2,098 exploration costs Investment in associates 6,100 3,993 10,093 Property, plant and 178 - 178 equipment Deferred tax asset - 268 268 Investments - held for 3,639 - 3,639 trading Inventories 14 - 14 Trade and other receivables 385 - 385 Cash and cash equivalents 2,716 - 2,716 Trade and other payables (2,169) - (2,169) Deferred tax liability (1,092) (1,467) (2,559) ------- ------- ------- 11,869 2,794 14,663 ------- ------- -------- Excess of acquirer's (3,077) interest in net assets of acquiree over cost Minority interest (5,093) Minority interest in 86 subsidiary acquired ------ 6,579 ====== Satisfied by: Cash 1,850 Directly attributable costs 35 Convertible loan 889 Short-term loan 1,950 Fair value of shares issued 1,855 ----- Total consideration 6,579 ===== Net cash outflow arising on acquisition Cash paid (1,885) Cash and cash equivalents 2,716 acquired ------ 831 ====== The fair value of COIL's associate investment in MEO has been based on the market value of MEO shares (ASX:MEO) at the date of acquisition. The fair value of COIL's other assets and liabilities is assumed to approximate their carrying values at the date of acquisition. As the fair value of the Company's share in net assets at the date of acquisition exceeds the total consideration paid for the 65.5% interest acquired, negative goodwill of Â£3.1 million arises on acquisition. The COIL Group contributed to the Group's results for the period an operating profit of Â£1.2 million and a profit before tax of Â£0.9 million for the period between the date of acquisition and the balance sheet date. If the acquisition of COIL had been completed on the first day of the financial period, Group revenues (excluding other gains and losses) for the period would have been Â£0.2 million and Group profit attributable to equity holders of the parent would have been Â£9.8 million. Dilution of interest in COIL between 15 November 2006 and 23 April 2007 During the period between 15 November 2006 and 23 April 2007, 16,499,993 warrants and 4,266,670 options in COIL were exercised by parties other than Xtract, resulting in a dilution of Xtract's interest in COIL from 65.5% to 61.4%. Proceeds to COIL from the exercise of warrants and options totalled Â£0.6 million and a loss on dilution of Â£0.4 million has been recognised in the income statement for the period. Purchase of minority interest (38.6% of issued share capital) On 23 April 2007 the company acquired the remaining 38.6% minority interest of COIL by way of a scheme of arrangement through the issue of shares to the value of Â£6.5 million - see note 14(e). The total cost of acquisition including the value of COIL share warrants held by Xtract that were cancelled as part of the transaction was as flows: Effective date Number of Percent Consideration shares acquired Â£'000 April 2007 127,796,382 38.6% 6,527 COIL share warrants held by Xtract 406 cancelled Expenses 129 ----- Total investment 7,062 ===== Acquiring shares in a controlled entity does not meet the definition of a business combination and therefore does not fall within the scope of IFRS 3 Business Combinations. Accordingly a policy has been developed in accordance with IAS 8 Accounting Policies Changes in Accounting Estimates and Errors, which is also consistent with generally accepted accounting practice. This policy recognises an increase in the fair value of the entity to the extent of the further ownership interest acquired. As a result, shares in the associate MEO have been further revalued upwards by Â£3.5 million and deferred tax liabilities increased by Â£1.0 million a net revaluation of Â£2.5 million. The negative goodwill arising on the purchase of the revalued minority interests is Â£2.6 million and the transaction gave rise to cash outflow of Â£129,000. 17. Notes to the cash flow statement Period ended Year ended 30 June 31 December 2007 2005 Â£'000 Â£'000 Profit/(loss) for the period/year 7,472 (220) Adjustments for: Share of results of associates 362 24 Investment revenue (99) (25) Other gains and losses (5,968) - Income tax expense 1,787 - Government grants (66) Depreciation of property, plant and equipment 11 - Amortisation of intangible assets - 21 Negative goodwill released to income (5,730) - Share-based payments expense 152 79 Gain on disposal of property, plant and equipment (10) - ------ ---- Operating cash flows before movements in working capital (2,089) (121) Increase in inventories (2) - Increase in receivables 175 (12) Increase in payables 172 59 ------- ----- Cash used in operations (1,744) (74) Income taxes paid - - Interest paid 128 - Foreign exchange differences (18) - ------- ------- Net cash used in operating activities (1,634) (74) ======== ======== 18. Events after the balance sheet date Authorised share capital of the Company On 31 July 2007, shareholder approval was obtained for the authorised share capital of the Company to be increased from Â£1,000,000 divided into1,000,000,000 ordinary shares of 0.1p each to Â£2,000,000 divided into 2,000,000,000 ordinary shares of 0.1p each by the creation of 1,000,000,000 new ordinary shares of 0.1p each such shares to rank pari passu in all respects with the existing ordinary 0.1p shares in the capital of the Company Issue of share options On 9 July 2007 5,500,000 options were granted to directors. 3,500,000 options have an exercise price of Â£0.08 per share and are exercisable for a three year term and expire on 8 July 2010. 1,000,000 options have an exercise price of Â£0.10 per share and are exercisable for a three year term from 9 July 2008 and expire on 8 July 2011. 1,000,000 options have an exercise price of Â£0.12 per share and are exercisable for a three year term from 9 July 2009 and expire on 8 July 2012. Investment activity On 2 August 2007, the Company was issued with 175 million new ordinary shares in Wasabi Energy Ltd ('Wasabi') together with 25 million options exercisable on or before 30 June 2008 at a price of A$0.03 per Wasabi share (ASX:WAS) in exchange for 12.3 million ordinary shares in Aviva Corporation, together with an interest in a steel making technology. Following this transaction the Company holds 256,511,422 Wasabi ordinary shares (representing approximately 34.5% of Wasabi's issued share capital). As a result, Wasabi will become an associate of the Group, previously recorded as an available for sale investment. On 24 September, the Company announced a further investment of US$2.0 million in Elko Energy Inc (Elko) through a private placement. Pursuant to the private placement, the Company's wholly owned subsidiary Cambrian Oil and Gas Plc (COIL) received 4 million new common shares in Elko at a cost of US$0.50 each in cash. Following the placement and the issue of an additional 300,000 common shares to COIL in consideration for a due diligence fee payable by Elko to COIL, COIL's total holding represents approximately 36.5% of the issued capital of Elko, previously 32%. On 28 September 2007, the Company announced that it reduced its interest in MEO Australia Ltd ('MEO'). COIL sold 5 million shares in MEO at A$1.10 per share for cash. Following this disposal COIL retains 71,366,814 shares in MEO representing 21.3% of the issued capital of MEO. This information is provided by RNS The company news service from the London Stock Exchange

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