Final Results

RNS Number : 7688W

Xtract Energy plc

24 November 2010

 



XTRACT ENERGY PLC

Annual Results for the year ended 30 June 2010

Notice of AGM

Xtract Energy Plc ("Xtract" or "the Company") is pleased to announce its audited annual results for the year ended 30 June 2010.

FINANCIAL HIGHLIGHTS

·      The Group's net cash position at 30 June 2010 is £6.87m (30 June 2009: £3.18m)

·      Loss after tax of £12.5 million (30 June 2009: £16.8 million)

·      Loss per share 1.47p (30 June 2010: 2.24p)

·      50.02% Ownership of Elko increased to 50.02% and is now recognised as a subsidiary.

·      50% Ownership of Extrem Energy increased to 50% and is now treated as a joint venture.

OPERATIONAL HIGHLIGHTS

Investment Portfolio

·      Strategic portfolio changes shift the near term focus of the Company towards Europe in partnership with internationally recognised industry participants such as Chevron, Santos and Noreco.

·      The Elko assets in Denmark and Netherlands offer considerable upside potential in the success case.

Elko: Denmark

·      Noreco farms in to 02/05 licence in Denmark. Noreco will pay Elko approx. USD 1 million in cash at completion.

·      Post farm in, the total net attributable prospective resources to Elko reported in the independent Competent Persons Report are 936 million barrels under an oil scenario.

·      Subsequent to period 02/05 licence partners apply for an adjoining area immediately to the west of the 02/05 licence area.

Elko: Netherlands

·      Independent Competent Persons Report on Blocks P1 and P2 identified un-risked best estimate net attributable hydrocarbon gas to Elko of 280 bcf (46.67 mmboe)contingent resources and of 291 bcf (48.50 mmboe) prospective resources.

·      Subsequent to period Chevron purchased Elko's licences in Blocks P1 and P2. Chevron will pay Euro 4.3 million in cash at completion plus Elko will receive an overriding royalty up to 5% of the sales value from Chevron hydrocarbons.

Extrem: Turkey

·      Geology of the Alasehir area proved much more complex than originally predicted and the drilling of Sarikiz-3, the re-entry of Alasehir-1 and attempts to establish long-term production from Sarikiz-2 each ultimately ended in failure.

·      A comprehensive review of the Turkish business, its assets and licence portfolio is under way.

Board of Directors

·      During the reporting period non-executive directors Rob Annells and John Conlon stepped down from the board and subsequent to year end Sue Wickerson stepped down from the board and on 5 July 2010 Andy Morrison resigned as a director and officer of the Company.

·      Peter Moir joined the board as an executive director in May 2010 and was appointed CEO on 5 July 2010 with Paul Butcher joining the board on the same date as a non-executive director. Alan Hume was appointed to the board as Group Finance Director on 1 October 2010.

Notice of Annual General Meeting

The Annual Report for the year ended 30 June 2010 will be sent to shareholders on 30 November 2010 and will be available on the Company's website on that date. Notice of the Company's Annual General Meeting will be posted be to shareholders with the Annual Report.

The Annual General Meeting of the Company to be held at 11 a.m. on 22 December 2010 at the offices of Trowers & Hamlins LLP, Sceptre Court, 40 Tower Hill, London EC3N 4DX.

Enquiries please contact:

Xtract Energy	Peter Moir, Director Alan Hume, Director	[phone]
Cenkos Securities Plc	Jon Fitzpatrick Beth McKiernan	[phone] [phone]

CHAIRMAN'S STATEMENT

The financial year saw gradually improving investment conditions in the oil and gas sector, with oil prices recovering from their lows to once again support the financing of good quality exploration and development projects. Whilst it is fair to say that not all investors are alike, the overall risk appetite in the market remains fairly low. In this environment, Xtract has continued its transformation from passive investor to one with a much more active involvement in the operations of its investee companies, and from having a diversified energy portfolio to one which is much more focused on traditional oil and gas.

Investment Portfolio

During the period, the Company increased its holdings in Turkey (Extrem Energy AS) and the North Sea (Elko Energy Inc).

On 5 August 2009, Xtract completed a second optional subscription payment of US$1.75m to Extrem, thereby increasing its ownership share from 20% to 34%. On 11 February 2010, Xtract acquired a further 16% of the issued capital of Extrem from partner Merty Energy ("Merty"), taking Xtract's overall share of the business to 50%. Mr Emir Safa was subsequently appointed to the board of Extrem as Xtract's second nominee director which established joint control of the board, in line with joint ownership. Mr Safa, aged 42, is a Turkish national and a Certified Public Accountant. His career has involved holding a number of senior finance positions with several international firms with operations and partnerships in Turkey. Mr Safa has been known in his professional capacity for a number of years by Mr Hume the Group Finance Director.

On 8 January 2010, Xtract announced that it had entered an agreement with Oakville Capital ET, LLC ("Oakville"), Elko's largest shareholder excluding Xtract. Under the terms of the agreement, Xtract acquired Oakville's entire holding in Elko, amounting to 13,200,000 ordinary shares. Consideration was comprised of a cash payment of US$1,342,000 and one new Xtract share for every Elko share. Following completion, Xtract's holding in Elko is 49,975,000 ordinary shares, representing just over 50% of Elko's issued capital.

The increased holdings in Extrem and Elko were funded through the sale of minority positions in MEO Australia Ltd ("MEO") and Wasabi Energy Ltd ("Wasabi"), and through a placement of 60 million new shares and warrants in December that raised £1.2 million before expenses. By 7 August 2009, the Company had sold all of its remaining shares in MEO. As a result of these disposals, Xtract no longer held any interest in MEO or Wasabi. These portfolio changes had the effect of shifting the focus of the Company towards Europe. The Company continues to hold its oil shale licences in Australia.

Xtract continued to hold a 25% interest in former subsidiary Zhibek Resources Ltd ("Zhibek") following the farm-out of the major share to Santos International Holdings Pty Ltd in October 2008. Seismic work over Zhibek's Tash Kumyr licence area in the Kyrgyz Republic was completed and interpreted by Santos as operator and plans were announced to drill a well in 2011. Further details are given in the CEO's review.

In Mexico, Xtract maintained its ownership of Sermines de Mexico and its licence portfolio of gold exploration interests. No significant activity was undertaken and steps have been taken to relinquish the licences in order to focus on the Company's oil and gas interests. Subsequent to year end, the company has relinquished its licence portfolio in Mexico. The relinquishment remains subject to regulatory process.

Elko Energy Inc.

On 26 August 2009, Elko disposed of 51% of Dragon Energy Inc ("Dragon"). Dragon held a 30.7% working interest in the Kotaneelee field in the Yukon Territory, Canada which is operated by Devon Energy. This disposal enabled Elko management to dedicate their efforts and financial resources to its North Sea assets. Elko completed technical work covering both its Danish and Dutch licence interests and commenced a marketing initiative in a difficult environment where the industry was still recovering from the financial crisis.

It is pleasing to be able to report that these marketing efforts were rewarded. In June 2010, it was announced that an agreement with Altinex Oil Denmark A/S ("Altinex") had been finalised under which Altinex farmed in to the 02/05 licence offshore Denmark. Altinex is part of the Noreco Group, being a 100% subsidiary of Norwegian Energy Company ASA ('Noreco'). Subsequent to the period end, in September 2010, it was confirmed that an agreement had been reached with Chevron Exploration and Production Netherlands B.V. ("Chevron") under which Chevron would take over licences P1 and P2 offshore Netherlands in exchange for an overriding royalty over future production from the blocks. Further details of the respective arrangements are given in the CEO's Review.

The strategic portfolio changes described above and the successful marketing effort has created an enviable set of high potential near and medium-term oil and gas assets in which the Company is partnered by internationally recognised industry participants such as Chevron, Santos and Noreco.

Extrem Energy A.S.

Set against these achievements was considerable disappointment in Turkey, where the early promise of commercial oil production at the time of acquisitionfrom the Alasehir licence area was not realised. The geology of the area proved much more complex than originally predicted and the drilling of Sarikiz-3, the re-entry of Alasehir-1 and attempts to establish long-term production from Sarikiz-2 each ultimately ended in failure. The Company has recognised losses in its accounts in relation to unsuccessful exploration activities as well as the impairment of its investment in Extrem. The unexpected failure to establish production led to a downward re-rating of the Xtract share price.

Towards the end of the financial year the Company entered a difficult period. The lack of projected cash flows from the Alasehir licence area meant that investment plans in other licence areas in Turkey had to be curtailed. 

Board of Directors

There were a number of board changes during the year. Non-executive directors Rob Annells and John Conlon stepped down from the Company board on 31 December 2009 and 31 March 2010, respectively, and Peter Moir joined the Company board as an executive director on 20 May 2010. Peter Moir had been and continues to be President and CEO of the Company's subsidiary, Elko. The addition of Peter Moir to the board and management team at Xtract added significant technical expertise and was a further step in the development of the Company into one that has a more active involvement with its underlying assets.

Board changes continued after the year end, when on 5 July 2010, the Company announced the appointment of Peter Moir as Chief Executive Officer, and Paul Butcher as independent non-executive director. Andy Morrison resigned as a director and officer of the Company and left the Company with effect from the same date. On 1 October 2010, Sue Wickerson stepped down as a director and Alan Hume was appointed to the Board as Group Finance Director.

I am pleased to welcome Peter Moir, Alan Hume and Paul Butcher to the board, and would like to express my appreciation to the outgoing directors for their contributions to the development of the Group during their service with the Company. We wish them success in their future endeavours.

Outlook

The outlook for the Company has improved since the end of the financial year. Although there are the usual exploration and appraisal risks associated with drilling in 2011, the Company has created a set of potentially valuable assets in Denmark, Netherlands and Central Asia and in the case of Denmark and Netherlands assets, offer considerable upside potential in the success case.

A comprehensive review of our Turkish business, its assets and licence portfolio, is under way by Xtract management with the support of external advisors where necessary, and is expected to be reported upon shortly. We hope that a path forward will be found by which returns obtained can be commensurate with the investment already made by shareholders. A further business review is in progress involving the independent directors of Xtract and Elko in which the two companies have agreed to form a joint task force to identify the strategic options open to both companies. The end goal is to unlock the optimum value for all shareholders in both companies.

The Company intends to continue to manage its investments as a portfolio in order to manage its cash position and optimise returns to investors. The board actively monitors the financial position of the Company and is prepared to take the necessary steps to maintain an appropriate balance between a strong growth orientation and the need for an acceptable risk profile.

23 November 2010

John Newton

CHIEF EXECUTIVE OFFICER'S REVIEW

During the course of the year, the Company consolidated some of its holdings through the partial acquisitions outlined in the Chairman's Review and Financial Review. As a result of these actions, the operations of the Company are now focused on the development of the core oil and gas asset portfolio in the geographical areas described below. The Company's interests in Denmark and Netherlands are held through Elko Energy Inc ("Elko"), now a subsidiary, and its interest in Turkey is held through a jointly controlled Turkish Joint Stock company Extrem Energy AS ("Extrem"). In Central Asia, the Company holds a 25% minority interest in former subsidiary Zhibek Resources Ltd ("Zhibek").

Denmark

Through its Danish subsidiary, the Company participates in the largest exploration licence in Denmark with an area of 1.3 million acres offshore.  During 2009, further technical studies were undertaken in order to attract a partner to help fund drilling in 2011.

Following the reprocessing of approximately 3,000 km² of seismic data, Gaffney Cline and Associates completed an evaluation of the chalk interval. The evaluation identified a large chalk channel some 90 km long by 10 km wide across the 02/05 licence. It has the potential to be good reservoir quality sediment and a possible conduit for hydrocarbon migration. The chalk channel was shown to have the potential to hold a considerable volume of hydrocarbons and to be in addition to the previously identified deeper Rotliegendes sandstone prospect.

On 1 June 2010, it was announced that an agreement with Altinex Oil Denmark A/S ("Altinex") had been finalised under which Altinex farmed in to the 02/05 licence offshore Denmark. Altinex is part of the Noreco Group, being a 100% subsidiary of Norwegian Energy Company ASA ('Noreco'). Noreco became operator of the 02/05 licence with 47% working interest, Elko retains 33% and the remaining 20% continues to be held by the previous partner, Danish North Sea Fund ("DNSF"). Under the terms of the arrangement, Noreco will pay Elko approximately USD 1 million in cash at completion, for its share of past costs. In the event of detecting hydrocarbons on the first exploration well, Noreco will cover Elko's share of the costs associated with the production testing phase. The effective date of the transaction is 1 April 2010. The transaction remains subject to closing conditions and regulatory approvals typical of transactions of this nature.

Noreco is a fast growing Norwegian, independent oil and gas company with offices in Stavanger, Copenhagen and Oslo. The company's focus is to explore, develop and produce oil and gas in the North Sea. Since incorporation in 2005, the company has grown rapidly through licence rounds and acquisitions. Noreco operates in Norway, Denmark and United Kingdom, and employs over 80 oil and gas professionals. Noreco is publicly listed on the Oslo Børs (ticker NOR).

Elko is very pleased to welcome Noreco as a partner that shares our vision for the 02/05 licence, has good regional knowledge and drilling experience as an operator. The partners see significant resource potential in the under-explored 02/05 licence and plan to drill the first exploration well in 2011.

The partners intend to test the overall play concept through the first well.  Although individual leads have a low overall probability of success, the chances of success in proving the overall play concept is judged by the partners to be considerably higher.  If the overall play concept is proven, this could be expected to attract considerable industry interest and lead to a corresponding increase in asset value.

In mid June 2010, an updated independent Competent Persons Report was prepared for Elko by TRACS International Ltd ("TRACS") covering the 02/05 licence area in order to quantify the hydrocarbon resource base.  Upon completion of the farm in, the total net attributable prospective resources to Elko reported in the CPR, become 3,557 billion cubic feet, under a gas scenario, 936 million barrels under an oil scenario.

Subsequent to year end, on 21 September 2010, it was announced that the 02/05 licence partners had submitted an application for an adjoining area immediately to the west of the 02/05 licence area. The application was made in the same working interest percentages as in the 02/05 licence, namely Noreco 47% and operator, DNSF 20% and Elko 33%.

Netherlands

In the Netherlands sector of the North Sea, Elko held two gas-bearing exploration blocks. Block P1 is located on the southern margin of Southern Permian Gas basin and covers approximately 209 km² (51, 645 acres).  Seven wells have been drilled by previous operators, of which five encountered gas. Block P2 is directly adjacent and east of Block P1 and covers approximately 416 km² (102,796 acres) Elko held a 60% interest in the two licences, with the Dutch State company, Energie Beheer Nederland B.V., as its  participating  partner.

In the Netherlands, the geology, geophysical and reservoir engineering definitions of the P1-FA field were developed to create an outline field development plan. The internal reservoir modelling of the P1 Block, P1-FA field concluded that the optimal development plan requires five long-reach horizontal wells to sustain a plateau production rate of 120 mmscf/d for up to 4 years.

Reprocessing of previous 3D seismic to Pre Stack Depth Migration (PSDM) on Block P2 was also completed. The data showed greatly improved imaging over the existing discoveries and prospects. Subsequent remapping of the eastern part of the block revealed several large undrilled structures, each with a high geological chance of success. The resulting larger resource estimate for Block P2 makes the whole development potentially more compelling given the lower incidence of carbon dioxide when compared to the P1-FA structure.

In mid June 2010, an updated independent Competent Persons Report ('CPR') was prepared by TRACS covering the existing discovered gas reservoirs and identified prospects on Blocks P1 and P2 in order to quantify the hydrocarbon resource base. 

Contingent Resources: Five confirmed discoveries have been assessed with an un-risked best estimate net attributable hydrocarbon gas to Elko of some 280 billion cubic feet (46.67 million barrels of oil equivalent). TRACS assigned commercial chance of success for the five discoveries in the range 40% to 75%. The chance of commercial success is the currently perceived chance, or probability, that these contingent resources will mature into reserves by means of a viable development scenario.

Prospective Resources: Six key prospects in the exploration portfolio amount to some 291 billion cubic feet (48.5 million barrels of oil equivalent) un-risked best estimate net attributable hydrocarbon gas to Elko. TRACS assigned probability of success for the six exploration prospects in the range of 45% to 65%. The estimated probability of success is the currently perceived chance, or probability, that the prospective resources will mature into contingent resources.

Subsequent to year end, on 21 September 2010, it was announced that an agreement had been finalised under which Chevron Exploration and Production Netherlands B.V. ("Chevron") purchased Elko's licences in Blocks P1 and P2. In consideration for their total interest in the Blocks, Elko will receive an overriding royalty up to 5% of the sales value from Chevron gas delivered into the Dutch National Transmission System and Chevron condensate delivered onshore.  Chevron anticipates drilling the first well on the acreage in 2011. Under the terms of the arrangement, Chevron will also pay Euro 4.3 million in cash at completion, for past costs. This transaction and transfer of operatorship is subject to closing conditions and regulatory approvals typical of transactions of this nature.

Chevron is the second-largest integrated company in the United States and among the largest corporations in the world. The company is engaged in every aspect of the crude oil and natural gas industry, including exploration and production, manufacturing, marketing and transportation, chemicals manufacturing and sales, geothermal energy, and power generation, and are also investing in renewables and advanced technologies. The company's diverse and highly skilled global workforce consists of approximately 60,000 employees and about 4,000 service station employees. Chevron is publicly listed on the New York Stock Exchange (ticker CVX).

Turkey

Extrem is a Turkish joint stock company in which Xtract now holds 50%. The remaining 50% is held by partner Merty Energy, Petroleum Exploration, Education and Services Inc ("Merty"). Extrem has a portfolio of onshore and offshore licence interests including 100% interests in offshore licences at Candarli Bay and in the Sea of Marmara.

Operations at Extrem during the period included completion of the production test at the Sarikiz-2 well, the re-entry of the Alasehir-1 well and the drilling of Sarikiz-3 well in the on-shore Alasehir licence area and seismic and geochemical surveys over other on-shore licence areas.

The initial production test at Sarikiz-2 was completed in July 2009. The prognosis was favourable and the well was shut in as a future production well pending the construction of the necessary surface facilities.

Based on the production test at Sarikiz-2, the well data was analysed together with seismic data, logs from the former Alasehir-1 and East Sarikiz-1 wells. It was decided to re-enter Alasehir-1 with a view to bringing it on as an additional producing well.  The well was re-entered in September 2009 and then suspended in November 2009. Well conditions encountered were worse than expected and several attempts to repair the cement bonds were unsuccessful.

In view of the disappointment at Alasehir-1, Extrem decided to drill a fresh well, Sarikiz-3 in what was considered to be a more promising location. Sarikiz-3 was spud in January 2010 with drilling and testing carried out until the end of April 2010. Unfortunately, the production test at Sarikiz-3 did not encounter hydrocarbons in recoverable quantities and the well was not considered to be commercial.

The drilling rig was then mobilized back to the Sarikiz-2 well site to conduct a work-over sequence intended to increase production from the well. The work-over involved cement repairs to isolate unproductive zones and again these proved more difficult and took longer than expected. 

Attempts were made to re-establish production under natural flow from the Sarikiz-2 well, however, the reservoir inflow performance of the well had deteriorated to the point where only small volumes of formation water with a trace of oil were produced. In August 2010, it was reluctantly concluded that there was no realistic prospect of achieving commercial oil production from this well, with or without down hole pumping. It was therefore decided to plug and abandon the well.

The evidence for a working petroleum system and good quality sands in the Alasehir licence area remains but the complex reservoir geology precludes immediate identification of an effective reservoir trap for the oil generated.

At the time of writing, Xtract is conducting a comprehensive review of its Turkish business, its assets and licence portfolio and the Company expects to provide an update on this review by year end 2010.

Kyrgyz Republic - Central Asia

Under the terms of the November 2008 farm-in agreement between Xtract and Santos, Santos acquired over 100 km of new 2D seismic data in the Tash Kumyr area commencing in late 2008; the seismic data was subsequently processed and interpreted during 2009. The Tash Kumyr licence is located on the eastern margin of Fergana Basin, which is a prolific hydrocarbon basin .

The seismic interpretation, which was conducted by Santos' technical team, identified a new prospect called Karagan, which is believed to be a fault controlled trap that sits between the producing Mailisai oil field nearby to the west and the Kyzyl Alma gas and Mailisu oil fields to the east. Karagan is on trend and analogous to the Kyzyl Alma gas field, which has been producing gas and gas liquids from Jurassic sandstones since 1968.

In May 2010, Zhibek advised that approval had been received for the commencement of drilling an exploration well in late 2010 or early 2011 by the joint venture company CJSC KNG Hydrocarbons ("KNG HC") on its Tash Kumyr licence area in the Kyrgyz Republic. Subsequent to year end, it was decided to delay drilling until the outcome of the Kyrgyz Republic parliamentary election is better understood and for recent ethnic unrest in the area to settle down. It is currently envisaged that drilling will not now commence until later in 2011.

The partners in KNG HC are Zhibek which owns 72% and CJSC Kyrgyzneftgaz which owns 28%. KNG HC's shareholders approved drilling of the Karagan-1 well at their April AGM. The Kyrgyz Government holds a controlling interest in CJSC Kyrgyzneftgaz. Xtract's net interest in the exploration well is 18% and its share of costs for the exploration drilling would be approximately US$1.5 million.

Karagan-1 is planned to target the same Jurassic sandstones that produce gas at Kyzyl Alma. There is also potential for hydrocarbons to accumulate at Karagan in overlying Cretaceous sandstones, which are well developed at Mailisai. Santos estimates that the Karagan prospective structure has a mean area of 12 square km and an anticipated net productive pay thickness of 20m. The expected depth for the top of the Jurassic sandstones is approximately 2600m.

The pre-drill mean estimate of the potential recoverable gas from a discovery at the Karagan prospect is 65 billion cubic feet (gross) (approximately 10.8 million barrels of oil equivalent). There is a local market for gas in the Kyrgyz Republic, which currently imports gas from Uzbekistan and other adjoining areas via an extensive regional pipeline network.

Business development

Through its subsidiary Xtract Oil Ltd ("XOL"), the Company continued to maintain mineral rights over its 2.12 billion barrels of indicated and inferred oil shale resources at Julia Creek in Queensland, Australia. By maintaining the mineral rights at limited cash expense, Xtract retains the option to exploit the resource when investment conditions are more supportive. No significant activity was undertaken during the period under review either in Queensland or in Morocco where the Company has a 70% interest in an oil shale block near Tarfaya, through Xtract Energy (Oil Shale) Morocco SA.

Xtract continues to focus on its strategy of identifying and building a portfolio of early stage oil and gas assets and businesses where the cost of entry is relatively low but where there is very considerable growth opportunity over the short, medium and longer term. Xtract works closely with the management teams of its investee companies to help them reach critical milestones and build value.

23 November 2010

Peter Moir

FINANCIAL REVIEW

Financial Summary Table	Year ended 30 June 2010 (£million)	Year ended 30 June 2009 (£million)
Consolidated income result from continuing operations (for the year)
Administrative and operating expenses	2.73	2.10
Other gains and losses	0.03	(18.81)
Loss after tax	(12.51)	(16.81)
Loss per share	(1.47p)	(2.24p)
Consolidated balance sheet position (as at)
Intangible assets - exploration and evaluation	4.41	-
Investment in associates Investment in joint venture	0.45 2.32	5.62 -
Financial assets	0.19	3.21
Cash	6.87	3.18
Total assets	14.83	16.11
Total equity	9.72	11.87
Total equity - number of issued shares	854,965,026 shares	751,765,026 shares

	No. of shares	£million
Listed portfolio information at market value (as at)
Rheochem Plc  (AIM:RHEP)	3,825,000	0.19

Income statement analysis

The Group reported a net loss after tax from continuing operations of £12,513,000 (2009: loss of £16,807,000) and basic loss per share of 1.47p (2009: 2.24p).  The Group reported a net loss after tax from discontinued and continuing operations of £12,513,000 (2009: £18,101,000) and basic and diluted loss per share of 1.47p (2009: basic and diluted loss per share of 2.41p).

During the year Xtract disposed of its remaining 14.4 million shares in MEO Australia Limited (MEO) for a total amount of A$7 million after brokerage. Xtract also sold its remaining shares in Wasabi Energy Limited receiving A$1.5 million. Losses totalling £1.0 million were recognised in the year from the disposal of these investments. 

Share of results of associates amounted to a loss of £0.60 million being recognised, primarily related to the share of the results of Extrem Energy loss of £0.34 million and Elko Energy of £0.24 million loss.

Share of results of joint ventures amounted to a loss of £9.58 million, which largely reflects the write off of exploration and evaluation assets in Extrem Energy.

Administrative and operating expenses amounted to £2.73 million for the year (2009: £2.10 million).

Acquisition and Investment Activity

During the year Xtract's investment in Extrem was increased from 20% at the start of the year to 27%, and then to 34%, by the payment of two tranches of $1.75m.

In February 2010 an additional 16% of Extrem and joint control of the entity was secured after a further payment of $4m and the delivery of 30,000,000 new shares in the Company to Mr Ongun Yoldemir.

In the first quarter of the reporting period, Xtract disposed of its entire MEO holding at an average price of A$0.49 for a total amount of A$7 million after brokerage fees.

During the year Xtract sold its remaining holding in Wasabi at A$0.011 per share for a total of A$1.50million after brokerage costs.

The Group's investment in Rheochem remained at 3,825,000 shares in the AIM listed company. At the year end the market value of this investment was £191,250.

In August 2009, Xtract acquired an additional 1.775 million Elko shares, by exchanging 26,625,000 Wasabi shares for Elko shares,increasing its holding in the company to approximately 36.81%.

In January 2010, Xtract entered into an agreement with Oakville Capital ET, LLC, (Oakville), to acquire its entire holding in Elko. Under the terms of the agreement, Xtract acquired the whole of Oakville's holding of 13,200,000 ordinary shares in Elko being approximately 13.2% of the outstanding shares. Consideration for the purchase was a combination of $1,342,000 and one new ordinary Xtract share for every Elko share. Following this transaction Xtract held 49,975,000 ordinary shares in Elko representing approximately 50.02% of the issued share capital.

Income Tax

Current income tax liabilities of £3.25 million at 30 June 2010 relate to estimated Australian capital gains tax payable on previous investment disposals, as well as UK corporation tax on the disposal profits not covered by Australian double taxation credits.

Cash position

The Group's net cash position was £6.87 million with no borrowings outstanding at 30 June 2010.

Going Concern

The Group is not currently generating revenues from its operations. Its forecasts and projections show that it would not have sufficient cash to make further investments in its existing and new projects in line with the Group's strategy as well as settle its current liabilities when due and meet its ongoing overheads without gaining access to additional funds. The Group continues to manage its investments as a portfolio, seeking to dispose of investments, bring in strategic partners and raise funds as appropriate to finance its obligations and to fund new investments. Management plans to address the Group's funding requirements through a combination of these measures. Management believes that it will be able to manage the Group's liquidity position successfully, but at this stage there is no committed transaction which would address the Group's cash requirements.

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

DIRECTORS' REPORT

The Directors present their report on the affairs of the group, together with the financial statements and auditors' report, for the year ended 30 June 2010. The Corporate Governance Statement is set out on page 17 and forms part of this report

Principal activities and business review

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

The company is required by the Companies Act to include a business review in this report. The information that fulfils the requirements of the business review can be found within the CEO's Review and the Financial Review on pages 04 to 11 which are incorporated in this report by reference.

Details of significant events since the balance sheet date are contained in note 28 to the financial statements.

Results and dividends

The net loss from continuing operations for the Group for the year ended 30 June 2010 amounts to £12,513,000 (2009: £16,807,000).

No dividends were paid or proposed by the Directors in either the current or previous periods.

Investment policy

The investment policy of Xtract Energy is to identify and invest in a portfolio of early stage oil and gas assets and business interests with very significant growth potential. We aim to engage actively with the associated management teams to achieve critical project milestones, to finance early stage asset and business development activity and to then finance the asset development phase or if appropriate to crystallise value for all shareholders at a suitable exit point. We aim to achieve returns for our shareholders through access to the significant upside rewards associated with our investments.

The Directors evaluate new investment opportunities from time to time and may engage the Company in additional businesses and projects in conventional and non-conventional fields such as oil shale. Opportunities considered may be greenfield and/or involve the acquisition of, or participation in, already existing businesses which may be quoted or unquoted. Due to the typically active nature of our engagement with investee companies, we expect that our portfolio will continue to be focused on a relatively limited number of significant investments rather than being very broadly spread.

 

Performance

The key indication of performance of the Group is the extent of its success in identifying, acquiring, progressing and divesting investments in projects so as to build shareholder value. At this stage in its development, the Group's performance is not readily measured using quantitative key performance indicators, however, a qualitative summary of performance in the period is provided in the Chairman's Statement and CEO's Review.

Capital structure

Details of the authorised and issued share capital, together with details of the movements in the Company's issued share capital during the year are shown in note 22. The company has one class of ordinary shares which carry no right to fixed income. Each share carries the right to one vote at general meetings of the Company.

There are no specific restrictions on the size of holding nor on the transfer of shares, which are both governed by the general provisions of the Articles of Association and prevailing legislation. The directors are not aware of any agreements between holders of the company's shares that may result in restrictions on the transfer of securities or on voting rights.

No person has any special rights of control over the company's share capital and all issued shares are fully paid.

With regard to the appointment and replacement of directors, the company is governed by its Articles of Association, the Companies Act and related legislation. The Articles themselves may be amended by special resolution of the share holders. The powers of directors are described in the Articles of Association and the Corporate Governance Statement on page 17.

 

Under its Articles of Association, the Company had authority to issue up to 2,000,000,000 ordinary shares. Pursuant to the Companies Act 2006 and with effect from 1 October 2009, the requirement for a company to have an authorised share capital has been abolished and the new Articles which the Company adopted at last year's AGM reflect this.  The Directors will still be limited as to the number of shares they can at any time allot because allotment authority continues to be required under the Companies Act 2006.

Directors

The Directors, who served throughout the year, were as follows:

Susan Wickerson was appointed on 9 November 2004, John Newton on 10 March 2006, Andy Morrison on 9 July 2007, Mark Nichols on 15 January 2008 and Peter Moir on 20 May 2010. Robert Annells was appointed as a Director on 11 November 2004 and resigned on 31 December 2009. John Conlon was appointed as a Director on 4 January 2007 and resigned on 31 March 2010.

Subsequent to year end, on 5 July 2010, Peter Moir was appointed as Chief Executive Officer and Paul Butcher was appointed as a Director. Andy Morrison resigned as a director and officer of the Company with effect from the same date. On 1 October 2010, Susan Wickerson resigned as a director and Alan Hume was appointed as a director and Group Finance Director of the Company. It was also announced on this date that John Newton would step down from Executive to Non-Executive Chairman effective from the end of the AGM.

John Newton, aged 63, Executive Chairman (Nominations and Remuneration Committee Member)

Mr Newton has a background in international stockbroking, accounting and corporate finance and has been a director of a number of quoted companies in Australia and Canada.  He has maintained a continued involvement in the Australian and International financial sector as an investment adviser and consultant.

Mark Nichols, aged 53, Non Executive Director (Nominations, Remuneration and Audit Committee Member)

Mr Nichols is a qualified accountant who has over 20 years' experience in the energy and chemicals sectors, with the major French oil company Total S.A. and with BOC Group Plc respectively. His most recent executive position was as Director of Strategy for Laing O'Rourke, the privately-owned construction firm. In addition to his role at Xtract Energy, Mark acts as a business consultant to a number of enterprises.

Peter Moir, aged 56, Chief Executive Officer (Nominations and Audit Committee Member)

Mr Moir's qualifications include BSc Civil Engineering and MEng Petroleum Engineering. He is a Chartered Engineer in the UK and has more than 30 years experience in technical, operational and commercial aspects of the Exploration and Production business. Mr Moir is also CEO and director of the Company's subsidiary, Elko Energy Inc.

Paul Butcher, aged 51, Non Executive Director (Remuneration and Audit Committee Member)

Mr Butcher holds a BSc in Earth Sciences, an MSc in Marine Geology and Geophysics and an MBA. Much of his career was spent at BP and Amoco where he spent 25 years, leading to a variety of senior strategic and operational leadership positions within the upstream business.

Alan Hume, aged 51, Group Finance Director

Mr Hume is a Fellow of the Chartered Institute of Management Accountants (FCMA) with over 20 years senior level finance and commercial experience.  He has significant international exposure and experience having held senior finance and commercial positions in Norway, South Africa and the Middle East. He is well acquainted with the needs of both start-up companies and established international oil and gas service organizations. Mr Hume is also CFO and a director of the Company's subsidiary, Elko Energy Inc.

Directors' remuneration

The Company remunerates the directors at a level commensurate with the size of the Company and the experience of its directors. During the year, the Remuneration Committee consisted of Susan Wickerson and Mark Nichols. They have reviewed the directors' remuneration and believe it upholds the objectives of the Company.

The remuneration paid to the directors of the Company for the 12 month period ended 30 June 2010 was £347,525 (30 June 2009: £330,405). The remuneration consists of directors' fees of £325,546, £19,294 of pension contributions for Andy Morrison and John Newton, and £2,685 of medical insurance for Andy Morrison. The remuneration for the highest paid Director for the year ended 30 June 2010 was £171,210 (2009: £168,525).

With effect from 1 July 2010, the following remuneration was agreed with the directors:

Director	Annual Salary from 1 July 2010	Annual salary to 30 June 2010
Robert Annells	-	£9,000
Andy Morrison	-	£157,500
Sue Wickerson	£18,000	£18,000
John Newton	£84,000	£109,546
John Conlon	-	£13,500
Mark Nichols	£18,000	£18,000
Peter Moir	£190,000	-
Alan Hume	£140,000	-

As at the date of this Director's Report, there has been no change in the fees set out above. In addition, the directors hold warrants as set out below.

Directors' interests

The directors who held office at 30 June 2010 have the following interests in the Company:

	30 June 2010		30 June 2009
	Ordinary Shares	Warrants	Ordinary Shares	Warrants
Andy Morrison1	-	9,300,000	-	3,000,000
Sue Wickerson	-	860,000	-	500,000
John Newton2	-	3,860,000	-	500,000
Mark Nichols3	2,840,000	1,110,000	2,270,000	750,000
Peter Moir	-	-	-	-

¹ Additionally as at 30 June 2009 Andy Morrison's Self Invested Personal Pension fund held 2,500,000 ordinary shares representing approximately 0.29 per cent of the Company's issued ordinary share capital.

²John Newton is a trustee and beneficiary of Drawone Superannuation Fund which holds 18,000,000 ordinary shares representing 2.11 per cent of the Company's issued ordinary share capital.

³During the year Mark Nichols acquired an additional 570,000 ordinary shares in the Company, taking his total holding to 2,840,000 shares representing approximately 0.33 per cent of the Company's issued ordinary share capital. 

The directors who held office at 30 June 2010 have the following interests in the Company's subsidiary, Elko Energy Inc:

	30 June 2010		30 June 2009
	Ordinary Shares	Options	Ordinary Shares	Options
Andy Morrison	-	460,000	-	150,000
Peter Moir	-	1,560,000	-	-

No Director had any interest in any other of the Company's subsidiaries at the beginning (or if later, the date of their appointment) or end of the reporting period.

Further details of the warrants in the Company can be found in note 22 of the Accounts.

Directors' indemnities

The Company has made qualifying third party indemnity provisions for the benefit of its directors which were made during the year and remain in force at the date of this report.

Directors' service contracts

Directors' contracts are continuous unless terminated and continue until terminated by either party upon 1 months' notice (12 months' notice for John Newton). In accordance with the Company's Articles, at forthcoming Annual General Meetings at least one third of the directors are required to resign by rotation.

Supplier payment policy

The group's policy is to settle the terms of payment with suppliers when agreeing the terms of the transaction, ensure that suppliers are made aware of the terms of payment and abide by the terms of payment. Trade creditors of the group at 30 June 2010 were equivalent to 30 (2009: 30) days' purchases, based on the average daily amount invoiced by suppliers during the year.

Charitable and political donations

No political contributions or donations for political purposes or charitable donations were made during the period.

 

Substantial shareholdings

Since the Disclosure and Transparency Rules of the FSA (the 'DTR') came into force, the Company has been notified or is aware of the following significant holdings (over 3%) of voting rights in its shares:

Name of holder	No. of ordinary shares	% of voting rights and issued capital
Cambrian Investment Holdings Limited	340,256,048	39.80
TD Waterhouse Nominees (Europe) Limited	53,562,723	6.26
L R Nominees Limited	37,684,471	4.41
Barclayshare Nominees Limited Lynchwood Nominees Limited	33,702,458 33,489,048	3.94 3.92
Mr Ongun Yoldemir	30,000,000	3.51
HSDL Nominees Limited	29,306,248	3.43

Cambrian Investment Holdings Limited is a wholly owned subsidiary of Western Coal Corporation which is headquartered in Vancouver, Canada and is listed on AIM and TSX.

Environmental responsibility

The Company recognises that the Group's exploration and development activities require it to have regard to the potential impact that it and its subsidiary companies may have on the environment. Wherever possible, the Company ensures that all related companies are encouraged to comply with the local regulatory requirements with regard to the environment.

Risks and uncertainties

The principal risks facing the Company are set out below. Risk assessment and evaluation is an essential part of the Group's planning and an important aspect of the Group's internal control system.

General and economic risks:

·      Contractions in the world economies or increases in the rate of inflation resulting from international conditions; movements in the equity and share markets in Australia, the United Kingdom and throughout the world,

·      Movements in global equity and share markets and changes in market sentiment towards the resource industry;

·      Currency exchange rate fluctuations and, in particular, the relative prices of the Australian dollar, US dollar, Turkish Lira, Danish Kroner and the UK Pound;

·      Adverse changes in factors affecting the success of exploration and development operations, such as increases in expenses, changes in government policy and further regulation of the industry; unforeseen major failure, breakdowns or repairs required to key items of plant and equipment resulting in significant delays, notwithstanding regular programs of repair, maintenance and upkeep; and unforeseen adverse geological factors or prolonged weather conditions.

Funding risk:

·      Xtract Energy or the companies in which it has invested may not be able to raise, either by debt or further equity, sufficient funds to enable completion of planned exploration, investment and/or development projects.

Commodity risk:

·      Commodities are subject to high levels of volatility in price and demand. The price of commodities depends on a wide range of factors, most of which are outside the control of the Company. Production costs depend on a wide range of factors, including commodity prices, capital and operating costs in relation to any operational site.

Exploration and development risks:

·      Exploration and development activity is subject to numerous risks, including failure to achieve estimated mineral resource, recovery and production rates and capital and operating costs.

·      Success in identifying economically recoverable reserves can never be guaranteed. The Company also cannot guarantee that the companies in which it has invested will be able to obtain the necessary permits and approvals required for development of their projects.

·      Some of the countries in which the Company operates have native title law which could affect exploration activities. The companies in which the Company has an interest may be required to undertake clean-up programs resulting from any contamination from their operations or to participate in site rehabilitation programs which may vary from country-to-country. The Group's policy is to follow all necessary laws and regulations and it is not aware of any present material issues in this regard.

Internal controls

The Board recognises the importance of both financial and non-financial controls and has reviewed the Company's control environment and any related shortfalls during the year. The Company has undergone, and continues to undergo, significant expansion and development which requires commensurate and ongoing development in the Company's financial reporting procedures and internal controls. Whilst they are aware that no system can provide absolute assurance against material misstatement or loss, continuing reviews of internal controls will be undertaken to ensure that adequate internal controls are implemented and that they operate effectively.

Relations with shareholders

The Board is committed to providing effective communication with the shareholders of the Company, with significant developments disseminated through stock exchange announcements. The Board sees the annual general meeting as a forum for communication between the Company and its shareholders and encourages their participation in its agenda.

Going concern

A review of the Group's going concern position, including a description of a material uncertainty relating to going concern, is included in the Financial Review on page 10 and in note 3.

General meeting

The Company will hold a general meeting by the end of December 2010 to lay the annual accounts before the shareholders and to deal with any other business for the consideration of the shareholders. The Company will distribute due notice of the meeting with full details of the business to be considered at that meeting.

Auditors

Each of the persons who is a director at the date of approval of this Annual Report confirms that:

·      so far as the director is aware, there is no relevant audit information of which the company's auditors are unaware; and

·      the director has taken all the steps that he/she ought to have taken as a director in order to make himself/herself aware of any relevant audit information and to establish that the company's auditors are aware of that information.

This confirmation is given and should be interpreted in accordance with the provisions of s418 of the Companies Act 2006.

Deloitte LLP have expressed their willingness to continue in office as the auditors and a resolution to reappoint them will be proposed at the next Annual General Meeting of the Company.

By Order of the Board                                    

Dated: 23 November 2010

Peter Moir

Chief Executive Officer

Independent Auditors' Report to the Members of Xtract Energy plc

We have audited the financial statements of Xtract Energy PLC for the year ended 30 June 2010 which comprise the Group Income Statement, the Group and Parent Company Statements of Comprehensive Income, the Group and Parent Company Statement of Financial Position, the Group and Parent Company Statement of Changes in Equity, the Group and Parent Company Cash Flow Statement, and the related notes 1 to 29. The financial reporting framework that has been applied in the preparation of the group financial statements is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union. The financial reporting framework that has been applied in the preparation of the parent company financial statements is applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice).

This report is made solely to the company's members, as a body, in accordance with Chapter 3 of Part 16 of the Company Act 2006. Out audit work has been undertaken so that we might state to the company's members those matters we are required to state to them in an auditors' report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company's members as a body, for our audit work, for this report, or for the opinions we have formed.

Respective responsibilities of the directors and auditors

As explained more fully in the Directors' Responsibilities Statement, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board's (APB's) Ethical Standards for Auditors.

Scope of the audit of the financial statements

An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the group's and the parent company's circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the directors; and the overall presentation of the financial statements.

Opinion on financial statements

In our opinion:

·      the financial statements give a true and fair view of the state of the group's and the parent company's affairs as at 30 June 2010 and of the group's loss for the year then ended;

·      the group financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union;

·      the parent company financial statements have been prepared in accordance with United Kingdom Generally Accepted Accounting Practice; and

·      the financial statements have been prepared in accordance with the requirements of the Companies Act 2006.

Emphasis of Matter

In forming our opinion on the financial statements, which is not qualified, we have considered the adequacy of the disclosure made in note 3 to the financial statements concerning the company's ability to continue as a going concern. These conditions identify that the Company is reliant on gaining access to additional funding in order to fund their planned investment strategy. These conditions, along with other matters explained in note 3 to the financial statements, indicate the existence of a material uncertainty which may cast significant doubt about the company's ability to continue as a going concern. The financial statements do not include the adjustments that would result if the company was unable to continue as a going concern.

Opinion on other matter prescribed by the Company Act 2006

In our opinion the information given in the Directors' Report for the financial year for which the financial statements are prepared is consistent with the financial statements.

Matters on which we are required to report by exception

We have nothing to report in respect of the following matters where the Companies Act 2006 required us to report to you if, in our opinion:

·      adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been received from branches not visited by us; or

·      the parent company financial statements are not in agreement with the accounting records and returns; or

·      certain disclosures of directors' remuneration specified by law are not made; or

·      we have not received all the information and explanations we require for our audit.

Bevan Whitehead (Senior Statutory Auditor)

For and on behalf of Deloitte LLP

Chartered Accountings and Statutory Auditors

London, United Kingdom

23 November 2010

Xtract Energy plc

Consolidated income statement

For the year ended 30 June 2010

	Notes	Year ended 30 June 2010    £'000	Year ended 30 June 2009    £'000
Continuing operations
Administrative and operating expenses		(2,730)	(2,101)
Share of results of associates		(604)	(1,431)
Share of results of joint venture		(9,578)	-
Operating loss		(12,912)	(3,532)
Investment revenue	5	153	124
Finance costs	10	(95)	(323)
Other gains and losses	5	31	(18,805)
Loss before tax		(12,823)	(22,536)
Tax credit	11	310	5,729
Loss for the year from continuing operations		(12,513)	(16,807)
Discontinued operations
Loss for the year from discontinued operations		-	(1,294)
Loss for the year	7	(12,513)	(18,101)
Attributable to:
Equity holders of the parent		(11,771)	(18,101)
Non controlling interest		(742)	-
		(12,513)	(18,101)
Net loss per share
From continuing operations
Basic (pence)	12	(1.47)	(2.24)
Diluted (pence)	12	(1.47)	(2.24)
From continuing and discontinued operations
Basic (pence)	12	(1.47)	(2.41)
Diluted (pence)	12	(1.47)	(2.41)

Consolidated and Company statements of comprehensive income

For the year ended 30 June 2010

		Group		Company
		Year ended 30 June 2010 £'000	Year ended 30 June 2009 £'000	Year ended 30 June 2010 £'000	Year ended 30 June 2009 £'000
Loss for the year		(12,513)	(18,101)	(13,810)	(7,984)
Gain/(loss) on revaluation of available-for-sale investments taken to equity		1,530	(9,098)	(243)	(1,095)
Deferred tax on revaluation of available-for-sale investments		-	2,616	-	215
Transferred to income statement on sale of available-for-sale investment		1,016	6,518	1,282	-
Minority interest movement due to a subsidiary becoming an associate		-	91	-	-
Exchange differences on translation of foreign operations		1,043	705	-	-
Other comprehensive gain/(loss) for the year		3,589	832	1,039	(880)
Total comprehensive loss for the year
		(8,924)	(17,269)	(12,771)	(8,864)
Attributable to:
Equity holders of the parent		(8,292)	(17,269)	(12,771)	(8,864)
Non controlling interest		(632)	-	-	-
		(8,924)	(17,269)	(12,771)	(8,864)

Consolidated and Company statement of financial position

As at 30 June 2010		Group		Company
	Notes	As at 30 June 2010 £'000	As at 30 June 2009 £'000	As at 30 June 2010 £'000	As at 30 June 2009 £'000
Non-current assets
Intangible assets	13	4,407	-	-	-
Property, plant and equipment	14	8	21	5	9
Investments in associates	17	445	5,619	-	1,465
Investment in joint venture	16	2,322	-	2,152	-
Investment in subsidiaries	15	-	-	13,644	13,641
Financial assets	18	191	3,215	191	1,429
Loans to subsidiaries		-	-	20	53
Deferred consideration		297	310	-	-
Deferred tax asset	20	-	284	-	127
		7,670	9,449	16,012	16,724
Current assets
Trade and other receivables	19	287	717	108	38
Advance payment	19	-	2,760	-	2,760
Cash and cash equivalents	24	6,869	3,182	1,964	687
		7,156	6,659	2,072	3,485
Total assets		14,826	16,108	18,084	20,209
Current liabilities
Trade and other payables	21	1,391	486	971	130
Current tax liabilities	21	3,248	3,740	2,587	363
Loans from subsidiaries	21	-	-	10,277	5,143
		4,639	4,226	13,835	5,636
Net current assets/(liabilities)		2,517	2,433	(11,763)	(2,151)
Non-current liabilities
Deferred tax liabilities	20	471	14	-	-
Total liabilities		5,110	4,240	13,835	5,636
Net assets		9,716	11,868	4,249	14,573
Equity Share capital	22	855	752	855	752
Share premium account		26,006	24,394	26,006	24,394
Warrant reserve		538	-	538	-
Share-based payments reserve	23	823	976	823	629
Available-for-sale reserve	23	(399)	(2,945)	(399)	(1,438)
Foreign currency translation reserve	23	1,704	1,516	-	-
Accumulated losses		(23,789)	(12,825)	(23,574)	(9,764)
Equity attributable to equity holders of the parent		5,738	11,868	4,249	14,573
Minority interest		3,978	-	-	-
Total equity		9,716	11,868	4,249	14,573

Consolidated and Company statements of changes in equity

Group

	Share Capital		Share premium         account	Warrant reserve	Share based payments reserve	Available-for-sale investments reserve	Revaluation reserve	Foreign currency translation  reserve		Retained Earnings	Non-controlling Interest	Total  Equity
	£'000		£'000	£'000	£'000	£'000	£'000	£'000		£'000	£'000	£'000
At 1 July 2008	752	24,394		-	956	(2,981)	962	811		5,276	(91)	30,079
Other comprehensive gain for the year	-	-		-	-	36	-	705		-	91	832
Share-based payments expense	-	-		-	20	-	-	-		-	-	20
Revaluation of intangible asset	-	-		-	-	-	(962)	-		-	-	(962)
Loss for the year	-	-		-	-	-	-	-		(18,101)	-	(18,101)
At 30 June 2009	752	24,394		-	976	(2,945)	-	1,516		(12,825)	-	11,868
Other comprehensive gain for the year	-	-		-	-	2,546	-	933		-	110	3,589
Share-based payments expense	-	-		-	193	-	-	-		-	-	193
Issue of share capital	103	1,612		-	-	-	-	-		-	-	1,715
Issue of warrants	-	-		538	-	-	-	-		-	-	538
Transfer of share-based payment reserves of associates on disposal	-	-		-	(807)	-	-	-		807	-	-
Movement in share-based payment reserve of associate	-	-		-	461	-	-	-		-	-	461
Associate becoming subsidiary	-	-		-	-	-	-	-		-	4,610	4,610
Transfer of associates' foreign currency translation reserve to income statement on disposal	-	-		-	-	-	-	(745)		-	-	(745)
Loss for the year	-	-		-	-	-	-	-		(11,771)	(742)	(12,513)
At 30 June 2010	855	26,006		538	823	(399)	-	1,704		(23,789)	3,978	9,716

Company

	Share capital	Share premium account	Warrant reserve	Share based  payments reserve	Available- for- sale reserve	Retained earnings	Total  Equity
	£'000	£'000	£'000	£'000	£'000	£'000	£'000
At 1 July 2008	752	24,394	-	611	(558)	(1,780)	23,419
Other comprehensive gain for the year	-	-	-	-	(880)	-	(880)
Share-based payments expense	-	-	-	18	-	-	18
Loss for the year	-	-	-	-	-	(7,984)	(7,984)
At 30 June 2009	752	24,394	-	629	(1,438)	(9,764)	14,573
Other comprehensive loss for the year	-	-	-	-	1,039	-	1,039
Share-based payments expense	-	-	-	194	-	-	194
Issue of share capital	103	1,612	-	-	-	-	1,715
Issue of warrants	-	-	538	-	-	-	538
Loss for the year	-	-	-	-	-	(13,810)	(13,810)
At 30 June 2010	855	26,006	538	823	(399)	(23,574)	4,249

Consolidated and Company cash flow statements

For the year ended 30 June 2010

		Group		Company
	Notes	Year ended 30 June 2010 £'000	Year ended 30 June 2009 £'000	Year ended 30 June 2010 £'000	Year  ended 30 June 2009 £'000
Net cash used in operating activities	24	(1,734)	(2,332)	(708)	(1,241)
Investing activities
Interest received	5	153	124	145	122
Government grants	5	213	179	-	-
Acquisition of intangible assets	13	(54)	-	-	-
Purchase of property, plant and equipment		(1)	(8)	(1)	(8)
Disposal of available-for-sale investments		4,305	3,668	783	-
Purchase of available-for-sale investments		-	(65)	-	(65)
Purchase of additional shares in associates		(2,366)	(1,465)	(2,366)	(1,465)
Purchase of joint venture		(3,911)	-	(3,911)	-
Prepayment for an associate		-	(2,760)	-	(2,760)
Purchase of trading investments		-	(590)	-	(590)
Acquisition of subsidiaries, net of cash acquired		4,784	-	(3)	-
Net cash from/(used in) investing activities		3,123	(917)	(5,353)	(4,766)
Financing activities
Proceeds on issue of shares and warrants		1,176	-	1,176	-
Loans to subsidiaries		-	-	(187)	(213)
Loans to subsidiaries made and written off		-	-	31	-
Loans from subsidiaries		-	-	5,134	850
Net cash from financing activities		1,176	-	6,154	637
Net increase/(decrease) in cash and cash equivalents		2,565	(3,249)	93	(5,370)
Cash and cash equivalents at beginning of year		3,182	6,362	687	6,201
Effect of foreign exchange rate changes		1,122	69	1,184	(144)
Cash and cash equivalents at end of year		6,869	3,182	1,964	687

Notes to the consolidated financial statements

For the year ended 30 June 2010 

1.     General information

Xtract Energy plc is a company incorporated in Great Britain under the Companies Act 2006. The address of the registered office is 55-56 St James Street, London SW1 1LA. The nature of the Group's operations and its principal activities are set out in the operating and financial review on pages 04 to 11.

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

2.     Adoption of new and revised Standards

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

Standards affecting presentation and disclosure

IAS 1 (revised 2007) Presentation of Financial Statements requires non-owner changes in equity to be shown in either one performance statement (the comprehensive income) or two statements (the income statement and statement of comprehensive income). The Group has elected to present one statement.        

Improving Disclosures about Financial Instruments (Amendments to IFRS 7 Financial Instruments: Disclosures) increases the disclosure requirements for fair value measurements and reinforces existing principles for disclosure of liquidity risk. The Group has elected not to provide comparative information for these expanded disclosures in the current year in accordance with the transitional reliefs offered in these amendments.

IFRS 8 Operating Segments requires that disclosure of financial information be made which is consistent with that used by the Group's Chief Executive for the purpose of resource allocation and assessment of segment performance.   The Group's reportable and geographical segments have not changed as a result of the adoption of IFRS 8. Further information regarding the Group's reportable segments is shown in Note 6.

The application of these disclosures does not require any restatement of the comparatives disclosed in these accounts.

Standards affecting the reported results and financial position

IFRS 3 (revised 2008) Business Combinations  makes a number of changes to the accounting for business combinations, including requirements that all payments to purchase a business are recorded at fair value at acquisition date, with some contingent payments subsequently re-measured at fair value through income statement; an option to calculate goodwill based on the parent's share of net assets only or to include goodwill related to the minority interest; and a requirement that all transaction costs be expensed. This revision is effective for business combinations for which the acquisition is in the first annual reporting period commencing after 1 July 2009. See Notes 15 and 16 for the application of this revised standard for the acquisition of additional interests in Elko and Extrem during the year.      

IAS 27 Consolidated and Separate Financial Statements requires the effects of all transactions with non-controlling interests to be recorded in equity if there is no change in control. The revised standard also specifies the accounting when control is lost. This revision is effective for accounting periods beginning on or after 1 July 2009.

IAS 23 (revised 2007) Borrowing Costs eliminates the option to expense all borrowing costs for qualifying assets. 

IAS 32 (amended) Puttable financial instruments results in some financial instruments that currently meet the definition of a financial liability being classified as equity as they represent a residual interest.    

IAS 38 (amendment) Intangible assets is effective for accounting periods beginning on or after 1 July 2009.  

IAS 39 Financial Instruments: recognition and measurement results in a revision applying retrospectively for accounting periods beginning on or after 1 July 2009 for eligible hedged items.

IFRIC 17 Distribution of non-cash assets to owners is effective for accounting periods beginning on or after

1 July 2009.    

IFRIC 18 Transfers of assets from customers is effective for accounting periods beginning on or after 1 July 2009.    

IFRS 5 (amendment) Non-current assets held for sale and discontinued operations is effectivefor accounting periods beginning on or after 1 July 2009.    

IFRIC 9 Reassessment of Embedded Derivatives and IAS 39 Financial Instruments: Recognition and Measurement  amendments clarify the accounting for embedded derivatives in the case of a reclassification of a financial asset out of the 'fair value through profit or loss' (FVTPL) category as permitted by the October 2008 amendments to IAS 39 Financial Instruments: Recognition and Measurement (see above).    

IFRIC 15 Agreements for the Construction of Real Estate addresses how entities should determine whether an agreement for the construction of real estate is within the scope of IAS 11 Construction Contracts or IAS 18 Revenue and when revenue from the construction of real estate should be recognised. 

IFRIC 16 Hedges of a Net Investment in a Foreign Operationprovides guidance on the detailed requirements for net investment hedging for certain hedge accounting designations.

Adopted IFRSs that are not effective for the financial year 

Certain adopted IFRSs have been issued at the date of approval of these financial statements but are not effective for the financial year ended 30 June 2010. The Company does not intend to apply any of the following pronouncements earlier than their respective effective dates. The list below includes only those issued IFRSs that, in the opinion of the Directors, are relevant to the activities of the Group. However, the Directors do not believe that any of the standards listed below would have had a material impact on these financial statements, had they been adopted in the current financial year.

       
Effective date of Issued IFRSs and Interpretations       

Amendments to IAS 1 Presentation of financialstatements are effective for accounting periods commencing on or after 1 January 2010.     

  
Amendments to IFRS 2 Group Cash-settled Share-based Payment Transaction are effective for accounting periods commencing on or after 1 January 2010.

      
Amendments to IAS 7 Statements of Cash Flows are effective for accounting periods commencing on or after 1 January 2010.       

     Effective date of Issued IFRSs and Interpretations (continued)

Amendments to IAS 18 Revenue are effective for accounting periods commencing on or after 1 January 2010.      

Amendments to IAS 36 Impairment of Assets are effective for accounting periods commencing on or after

1 January 2010.

Amendments to IAS 38 Intangible Assets are effective for accounting periods commencing on or after

1 January 2010.

       
IFRIC 19 Extinguishing Financial Liabilities with Equity Instruments* is effective for accounting periods commencing on or after 1 February 2010.      

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

1 January 2011.       

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

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

IFRS 9 Financial Instruments* is effective for accounting periods commencing on or after 1 January 2013.

* denotes standards yet to be endorsed by the EU   

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

3.     Significant accounting policies

Basis of accounting

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

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

 

Going concern

The Group's business activities, together with the factors likely to affect its future development, performance and position are set out in the Chairman's Statement on pages  02 to 0 3 and in the CEO's Review on pages  04 to  09. The financial position of the Group, its cash flows and liquidity position are described in the Financial Review on pages  10 to 11. In addition, note 27 to the financial statements includes the Group's objectives, policies and processes for managing its capital; its financial risk management objectives; details of its financial instruments; and its exposures to credit risk.

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

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

 

Parent only income statement

Xtract Energy plc has not presented its own income statement as permitted by section 230 (3) of the Companies Act 2006. The loss for the year was £13,810,324 (year ended 30 June 2009; loss £7,984,084).

 

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.

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.

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 except to the extent that the minority has a binding obligation and is able to make an additional investment to cover the losses.

Business combinations

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

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

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

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

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

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

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

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

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

Investment in associates

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

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

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

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

Joint ventures

The Group conducts part of its petroleum and natural gas exploration and production activities through joint ventures.

Jointly controlled entities

A jointly controlled entity involves the establishment of a separate legal entity in the form of a partnership, corporation or other entity. The entity controls the assets of the joint venture, incurs liabilities and expenses, and earns income. It maintains its own accounting records, enters into contracts in its own name and, generally, has an existence of the venturers, including the preparation of financial statements. The Group accounts for jointly controlled entities using the equity method as discussed above.

Non-current assets held for sale

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

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

Foreign currencies

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

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

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

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

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

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

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

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

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

Purchase of shares in controlled entity

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

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

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

Government grants

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

     Taxation

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

Current tax

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

Deferred tax

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

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

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

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

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

    Property, plant and equipment and intangible assets

Oil and gas properties and leases

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

Intangible exploration and evaluation expenditure assets

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

Other Property, Plant and Equipment

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

Average life in years

Office and computer equipment                  3-5

Plant and machinery                                                   7-20

Other Property, Plant and Equipment

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

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

Other intangible assets

Intangible assets acquired separately from a business 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:

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

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

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

Other intangible assets (continued)

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

Impairment of tangible and intangible assets excluding goodwill

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

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

If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (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.

             Financial instruments

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

Financial assets

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

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

Available-for-sale financial assets

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

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

The fair value of AFS monetary assets denominated in a foreign currency is determined in the foreign currency and translated at the spot rate at the balance sheet date. The foreign exchange gains and losses that are recognised in profit or loss are determined based on the amortised cost of monetary asset. Other foreign exchange gains and losses are recognised in other comprehensive income.

Loans and receivables

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

Impairment of financial assets

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

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

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

·      significant financial difficulty of the issuer or counterparty; or

·      default or delinquency in interest or principal payments; or

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

For certain categories of financial assets, such as trade receivables, assets that are assessed not to be impaired individually are, in addition, assessed for impairment on a collective basis. Objective evidence of impairment for a portfolio of receivables could include the Group's past experience of collecting payments, an increase in the number of delayed payments in the portfolio past the average credit period of 60 days, as well as observable changes in the national or local economic conditions that correlate with default on receivables.

Impairment of financial assets (continued)

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

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

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

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

Reclassification of financial instruments

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

De-recognition of financial assets 

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

Financial liabilities and equity

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

Equity instruments

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

Financial liabilities

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

Other financial liabilities

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

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

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

De-recognition of financial liabilities

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

             Share-based payments

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

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

4.        Critical accounting judgements and key sources of estimation uncertainty

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

 

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

Critical judgements in applying the Group's accounting policies

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

Impairment of intangible assets

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

Tax Provisions

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

Share-based payments

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

Fair values recognised in business combinations

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.

5.         Investment revenue and other gains and losses

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

		Group
		Year  ended 30 June 2010 £'000	Year  ended 30 June 2009 £'000
Investment revenue
Interest on bank deposits		153	124
Other gains and losses
Continued operations
Gain on disposal of associate		78	-
Transfer of foreign currency translation reserve on disposal of associate		745	-
Loss on disposal of available-for-sale assets		(1,016)	(9,312)
Other income		11	37
Research and development grants (a)		213	179
Intangible impairment		-	(9,431)
Write-down of investment in associate		-	(267)
Decrease  in the fair value of derivative financial instruments		-	(21)
Gain on dilution of interest in associates		-	10
Total other gains and losses from continuing operations		31	(18,805)
Discontinued operations
Dilution loss on the sale of subsidiary		-	(698)
Gains/Losses on disposal of fixed assets		-	(477)
Total other gains and losses from discontinued operations		-	(1,175)
Total other gains and losses		31	(19,980)

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

6.        Business and geographical segments

Adoption of IFRS 8, Operating Segments

The Group has adopted IFRS 8 Operating Segments with effect from 1 July 2009. IFRS 8 requires operating segments to be identified on the basis of internal reports about components of the Group that are regularly reviewed by the Chief Executive to allocate resources to the segments and to assess their performance. In contrast, the predecessor Standard (IAS 14 Segment Reporting) required the Group to identify two sets of segments (business and geographical), using a risks and returns approach, with the Group's system of internal financial reporting to key management personnel serving only as the starting point for the identification of such segments. The Group's reportable and geographical segments have not changed as a result of the adoption of IFRS 8 and therefore the application of these disclosures does not require any restatement of the comparatives disclosed in these accounts.

Business segments

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

             Principal activities are as follows:

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

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

·      investment and other - in various listed resource companies.

Segment information about businesses is presented below.

Year ended 30 June 2010

			Oil & Gas exploration and production			Oil shale exploitation		Investment and other		Consolidated
			£'000			£'000		£'000		£'000
	Segment revenue			-			-		-		-
	Administrative and operating expenses			(1,493)			(192)		(1,045)		(2,730)
	Share of results of associates			(604)			-		-		(604)
	Share of results of joint venture			(9,578)			-		-		(9,578)
	Segment result			(11,675)			(192)		(1,045)		(12,912)
	Investment revenue			3			4		146		153
	Finance costs			-			-		(95)		(95)
	Other gains and losses			9			213		(191)		31
	(Loss)/profit before tax			(11,663)			25		(1,185)		(12,823)
	Tax credit										310
	Loss for the year from continuing operations										(12,513)
	Loss for the year from discontinued operations										-
	Loss for the year										(12,513)
		Attributable to:
		Equity holders of the parent								(11,771)
		Non controlling interest								(742)
										(12,513)

Year ended 30 June 2010

					Oil & Gas exploration and production		Oil shale exploitation		Investment and other		Consolidated
					£'000		£'000		£'000		£'000
	Capital additions - property, plant and equipment			3			-		-		3
	Capital additions on acquisition of subsidiary - property, plant & equipment			4			-		-		4
	Depreciation and amortisation			2			14		4		20
	Balance sheet
	Assets
	Intangible assets			4,407			-		-		4,407
	Property, plant and equipment			3			-		5		8
	Interests in associates			445			-		-		445
	Interest in joint venture			2,322			-		-		2,322
	Financial assets			4,912			111		2,324		7,347
	Deferred consideration			297			-		-		297
	Consolidated total assets										14,826
	Liabilities
	Financial liabilities			290			2		4,347		4,639
	Deferred tax liability			-			-		471		471
	Consolidated total liabilities										5,110
Year ended 30 June 2009			Oil & Gas exploration and production			Oil shale exploitation		Investment and other		Discontinued  operations		Consolidated
			£'000			£'000		£'000		£'000		£'000
		Segment revenue	-			-		-		-		-
		Administrative and operating expenses	(119)			(440)		(1,661)		119		(2,101)
		Share of results of associates	(1,431)			-		-		-		(1,431)
		Loss on disposal of fixed assets	(477)			-		-		477		-
		Impairment loss	-			-		(9,431)		-		(9,431)
		Segment result	(2,027)			(440)		(11,092)		596		(12,963)
		Investment revenue	-			-		124		-		124
		Finance costs	-			-		(323)		-		(323)
		Other gains and losses	(698)			179		(9,553)		698		(9,374)
		Loss before tax	(2,725)			(261)		(20,844)		1,294		(22,536)
		Tax credit										5,729
		Loss for the year from continuing operations										(16,807)
		Loss for the year from discontinued operations										(1,294)
		Loss for the year										(18,101)

Discontinued operations relate entirely to oil and gas exploration and production.

Year ended 30 June 2009	Oil & Gas exploration and production	Oil shale exploitation	Investment and other	Consolidated
	£'000	£'000	£'000	£'000
Capital additions - property, plant and equipment	-	-	8	8
Depreciation and amortisation	-	11	4	15

	Balance sheet
	Assets
	Intangible assets	-	-	-	-
	Property, plant and equipment	-	12	9	21
	Interests in associates	5,619	-	-	5,619
	Financial assets	-	59	7,055	7,114
	Deferred consideration	310	-	-	310
	Advance payment	-	-	2,760	2,760
	Other unallocated corporate assets	-	-	-	284
	Consolidated total assets				16,108
	Liabilities
	Financial liabilities	-	-	486	486
	Unallocated corporate liabilities	-	-	-	3,754
	Consolidated total liabilities				4,240

Geographical segments

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

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

Year ended 30 June 2010

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

Year ended 30 June 2009

		Europe (including UK)	Central Asia	Australia	Total of segments
		£'000	£'000	£'000	£'000
	Segment revenue	-	-	-	-
	Segment assets	12,126	767	3,215	16,108
	Capital additions	8	-	-	8

6.         Loss for the year

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

                                                                             Continuing                        Discontinued       

                                                                             Operations                          Operations                                Total

	Year ended 30 June 2010 £'000	Year ended 30 June 2009 £'000	Year ended 30 June 2010 £'000		Year ended 30 June 2009 £'000	Year ended 30 June 2010 £'000	Year ended 30 June 2009 £'000
Net foreign exchange (gains)/losses	(59)	241	-	(194)		(59)	47
Research and development costs	12	371	-	-		12	371
Depreciation of property, plant and equipment	20	15	-	16		20	31
Share-based payments expense (see note 26)	193	20	-	-		193	20
Staff costs (see note 9)	701	520	-	112		701	632

7.     Auditors' remuneration

The analysis of auditors' remuneration is as follows:

	Year  ended 30 June 2010 £'000	Year ended 30 June 2009 £'000
Fees payable to the Company's auditors and their associates for the audit of the Group's annual accounts	93	68
Fees payable to the Company's auditors and their associates for the audit of the Company's subsidiaries pursuant to legislation	9	25
Total audit fees	102	93
Fees payable to the Group's auditors and its associates for other services:
- other services relating to taxation	13	20
- other assurance services relating to interim reporting	8	25
Total non-audit fees	21	45
	123	138

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

8.          Staff costs

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

	Year  ended 30 June 2010	Year ended 30 June 2009
	No.	No.
Corporate	12	8
	£'000	£'000
Their aggregate remuneration comprised:
Salaries and fees	566	454
Social security costs Other pension costs	104 31	26 40
	701	520

             Total remuneration for the highest paid Director was £171,210 (year ended 30 June 2009: £168,525).

The average number of employees (including directors) has increased due to the acquisition of a subsidiary, Elko Energy Inc. The employees of Elko Energy Inc have been included from the date of acquisition (see Note 15).

9.     Finance costs

	Year  ended 30 June 2010	Year  ended 30 June 2009
	£'000	£'000
Interest on current tax payable	95	323

10.  Tax

	Year  ended 30 June 2010	Year  ended 30 June 2009
	£'000	£'000
Corporation tax:
Current year	302	47
Adjustments in respect of prior years	(882)	-
Total current tax	(580)	47
Deferred tax	270	(5,776)
	(310)	(5,729)

UK corporation tax is calculated at 28% (2009: 28%) of the estimated assessable loss for the year. Taxation for other jurisdictions is calculated at the rates prevailing in the respective jurisdictions.

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

		Year ended 30 June 2010 £'000			Year ended 30 June 2009 £'000
	Loss before tax		(12,823)				(23,830)
	Tax at the UK corporation tax rate of 28% (2009: 28%)		(3,591)				(6,672)
	Tax effect of expenses that are not deductible in determining taxable profit		4,042				(839)
	Tax effect of  utilisation of tax losses not previously recognised and other   temporary differences		148				1,351
	Overseas taxes on disposal		299				47
	Double tax relief		(326)				(47)
	Adjustments in respect to prior years		(882)				-
	Tax effect of writing off non-taxable goodwill		-				431
	Tax credit for the year		(310)				(5,729)

12.      Loss per share

           From continuing and discontinued operations

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

				Year ended 30 June 2010 £'000		Year   ended 30 June    2009   £'000
			Loss for the purposes of basic and diluted earnings per share ("EPS") being net loss for the year attributable to equity holders of the parent	(11,771)		(18,101)
				Number of                 shares		Number      of shares
	Weighted average number of ordinary shares for purposes of basic EPS			801,017,629		751,765,026
	Effect of dilutive potential ordinary shares - options and warrants			-		-
	Weighted average number of ordinary shares for purposes of diluted EPS			801,017,629		751,765,026

From continuing operations

	Year ended 30 June 2010 £'000	Year  ended 30 June 2009 £'000
Loss for the purposes of basic and diluted earnings per share ("EPS") being net loss for the year attributable to equity holders of the parent	(11,771)	(16,807)
	Number	Number
Weighted average number of ordinary shares for purposes of basic EPS	801,017,629	751,765,026
Effect of dilutive potential ordinary shares - options and warrants	-	-
Weighted average number of ordinary shares for purposes of diluted EPS	801,017,629	751,765,026

             From discontinued operations

		Year ended 30 June 2010                      £	Year  ended 30 June 2009                          £
	Basic	-	0.17
	Diluted	-	0.17

13.       Intangible assets - exploration and evaluation

Group	Total
	£'000
Cost
At 1 July 2008	10,494
Foreign currency translation	(101)
Written-off during the year	(10,393)
At 30 June 2009	-
Acquisition of subsidiary	4,353
Additions	54
At 30 June 2010	4,407

Company	Total
	£'000
Cost
At 1 July 2008	406
Written-off during the year	(406)
At 30 June 2009	-
At 30 June 2010	-

14.       Property, plant and equipment

Group		Plant and machinery £'000	Office and computer equipment £'000	Total £'000
Cost
At 1 July 2008		40	31	71
Additions		1	7	8
At 30 June 2009		41	38	79
Additions		-	3	3
Acquired on acquisition of subsidiary		-	4	4
At 30 June 2010		41	45	86
Accumulated depreciation and impairment
At 1 July 2008		25	18	43
Charge for the year		11	4	15
At 30 June 2009		36	22	58
Charge for the year		5	15	20
At 30 June 2010		41	37	78
Carrying amount
At 30 June 2010		-	8	8
At 30 June 2009		5	16	21

14.       Property, plant and equipment (continued)

Company	Office fixtures & fittings £'000		Office and Computer Equipment   £'000		Total       £'000
Cost
At 1 July 2008	-	7		7
Additions	1	7		8
At 30 June 2009	1	14		15
Additions	-	-		-
Write-off of assets	-	(2)		(2)
At 30 June 2010	1	12		13
Accumulated depreciation and impairment
At 1 July 2008	-	2		2
Charge for the year	-	4		4
At 30 June 2009	-	6		6
Charge for the year	-	2		2
At 30 June 2010	-	8		8
Carrying amount
At 30 June 2010	1	4		5
At 30 June 2009	1	8		9

 

15.       Subsidiaries

Interests in subsidiaries		Company £'000
At 1 July 2008		19,101
Write-off during the year (a)		(5,460)
At 30 June 2009		13,641
Additions		3
At 30 June 2010		13,644
(a) During the year the Directors made a decision to write-down investments in Xtract Oil Limited and Sermines de Mexico SA de CV by £5,374,876 and £84,830 respectively as both subsidiaries were showing a net liability position. The accounting treatment is in line with Group Policy and IAS 36 Impairment.

Details of the Company's subsidiaries at 30 June 2010 are as follows:

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

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

Investment in Elko Energy Inc

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

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

Investment in Elko Energy Inc (continued)

As at 11 January 2010, Elko had 4,925,000 warrants outstanding with an exercise price of CAD$0.50 and an expiry date of December 2010 and 4,435,000 options outstanding with an average exercise price of CAD$0.37 with various expiry dates spread between February 2011 and June 2014. After 30 June 2010, Elko issued 3,100,000 million options with exercise price CAD$0.20 and 1,067,500 options with an exercise price CAD$0.40, all these options will expire between 15 July and 15 September 2015. In the past there was only one occurrence of options being exercised (275,000 at CAD$0.20). 

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

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

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

 

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

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

Net cash inflow arising on acquisition:

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

In the period from 11 January 2010 to 30 June 2010, Elko recorded a net loss before taxation of USD$2,263,647 (£1,485,315).

16.       Joint venture

Details of the Group's joint venture at 30 June 2010 are as follows:

		Group		Company
		As at 30 June 2010 £'000	As at 30 June 2009 £'000	As at 30 June 2010 £'000	As at 30 June 2009 £'000
	Opening balance	-	-	-	-
	Transferred from associates	7,019	-	6,591	-
	Investment in joint venture	4,613	-	4,613	-
	Impairment of investment in joint venture (a)	-	-	(9,052)	-
	Share of joint venture losses	(9,578)	-	-
	Exchange translation	268	-	-	-
		2,322	-	2,152	-

(a)   At 30 June 2010, the Directors made a decision to write down the investment in Extrem Energy A.S. to the book value of its assets. This was due to the write off of exploration expenditure in Extrem Energy A.S. during the period 15 February 2010 to 30 June 2010. The accounting treatment is in line with Group Policy and IAS 36 Impairment. 

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

Amounts relating to joint venture		As at 30 June 2010 £'000	As at 30 June 2009 £'000
Total assets		4,303	-
Total liabilities		3,709	-
Revenues		-	-
Loss		8,476	-

Investment in Extrem Energy

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

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

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

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

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

Since the acquisition to 30 June 2010, Extrem recorded a net loss before taxation of US$12,706,726 (£8,475,513).

17.       Associates

Details of the Group's associates at 30 June 2010 are as follows:

					Group				Company
					As at 30 June 2010 £'000		As at 30 June 2009 £'000		As at 30 June 2010 £'000	As at 30 June 2009 £'000
Opening balance					5,619		3,900		1,465	-
Investment in associates					5,329		1,465		5,126	1,465
Transferred from subsidiaries					-		470		-	-
Release of deferred consideration					43		263		-	-
Profit on dilution of interests in associates					-		10		-	-
Share of associates' losses for the year					(604)		(1,431)		-	-
Share of associates' share-based payments reserve					461		-		-	-
Impairment of investment in associate					-		(267)		-	-
Transferred to joint venture					(7,019)		-		(6,591)	-
Transferred to subsidiary					(3,395)		-			-
Gain on disposal of associate					78		-		-	-
Share of  associates' foreign currency translation reserve					(67)		1,209		-	-
					445		5,619		-	1,465
		Name	Place of incorporation and operation	Date associate interest acquired		Proportion of ownership & voting  power held %			Principal activities
						Group		Company
	Zhibek Resources                                    Limited		Great Britain/ Kyrgyzstan	17/11/2008		25		-	Oil & Gas exploration and production

Amounts relating to associates		As at 30 June 2010 £'000	As at 30 June 2009 £'000
Total assets		2,985	15,205
Total liabilities		780	5,893
Revenues		-	-
Loss		(116)	(4,112)

18.       Investments

	Group		Company
Available-for-sale investments	As at 30 June 2010 £'000	As at 30 June 2009 £'000	As at 30 June 2010 £'000	As at 30 June 2009 £'000
Opening balance	3,215	15,962	1,429	1,869
Acquired during the year	-	590	-	590
Rights issue purchased during the year	-	65	-	65
Disposed during the year	(4,554)	(4,304)	(995)	-
Movement in fair value	1,530	(9,098)	(243)	(1,095)
	191	3,215	191	1,429

Available-for-sale investments comprise the Group's investment in listed securities, which are held by the Group as strategic investments. The fair value of available-for-sale investments is based on the share price at 30 June 2010.  Available-for-sale investments held are subject to currency and market risk, refer to note 27.

	Group		Company
Derivative financial instruments	As at 30 June 2010 £'000	As at 30 June 2009 £'000	As at 30 June 2010 £'000	As at 30 June 2009 £'000
Opening balance	-	23	-	9
Expired during the year	-	(23)	-	(9)
	-	-	-	-

19.       Other financial assets

Trade and other receivables

	Group		Company
	As at 30 June 2010 £'000	As at 30 June 2009 £'000	As at 30 June 2010 £'000	As at 30 June 2009 £'000
Other debtors	236	676	69	12
Prepayments	51	41	39	26
	287	717	108	38

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

Advance payment

	Group		Company
	As at 30 June 2010 £'000	As at 30 June 2009 £'000		As at 30 June 2010 £'000		As at 30 June 2009 £'000
Advance payment	-	2,760		-		2,760

20.       Deferred tax

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

Group	Available-for-sale investments £'000	Investment in associates £'000		Intangible assets £'000		Investments in derivatives £'000		Unutilised losses £'000		Total £'000
As at 30 June 2008	(2,579)	595		(3,007)		(9)		-		(5,000)
Charge to income	2,741	(232)		2,977		6		284		5,776
Charge to equity	(176)	(363)		30		3		-		(506)
As at 30 June 2009	(14)	-		-		-		284		270
Charge to income	14	-		-		-		(284)		(270)
Acquisition of subsidiary	-	-		(471)		-		-		(471)
As at 30 June 2010	-	-		(471)		-		-		(471)
Company	Available-for-sale investments £'000		Investment in associates £'000		Intangible assets £'000		Investments in derivatives £'000		Total £'000
As at 30 June 2008	(97)		14		-		-		(83)
Charge to income	(5)		-		-		-		(5)
Charge to equity	215		-		-		-		215
As at 30 June 2009	113		14		-		-		127
Charge to income	(113)		(14)		-		-		(127)
Charge to equity	-		-		-		-		-
As at 30 June 2010	-		-		-		-		-

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

	Group		Company
	As at 30 June 2010 £'000	As at 30 June 2009 £'000	As at 30 June 2010 £'000	As at 30 June 2009 £'000
Deferred tax assets	-	284	-	127
Deferred tax liabilities	(471)	(14)	-	-
	(471)	270	-	127

At the balance sheet date, the Group has available unused UK tax losses of £1.7 million (2009: £2.9million) and available unused Australian tax losses of £0 million (2009: £0.9 million) available for offset against future profits. No related deferred tax asset on the UK losses due to the unpredictability of future profit streams. Losses may be carried forward indefinitely and may be recoverable if suitable taxable profits arise in future periods.

21.       Other financial liabilities

Trade and other payables

	Group		Company
	As at 30 June 2010 £'000	As at 30 June 2009 £'000	As at 30 June 2010 £'000	As at 30 June 2009 £'000
Trade creditors and accruals	1,391	486	971	130
Current tax payable	3,248	3,740	2,587	363
Amounts due to subsidiaries	-	-	10,277	5,143
	4,639	4,226	13,835	5,636

Trade creditors and accruals comprise amounts outstanding for trade purchases and other costs, as well as penalties and interest charges in relation to the current tax payable. The average credit period taken for trade purchases is 30 days. For most suppliers, no interest is charged on the trade payables for the first 30 days from the date of invoice. Thereafter, interest is charged on the outstanding balances at various interest rates. The Group has financial risk management policies in place to ensure that all trade creditors are paid within the pre-agreed credit terms.

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

22.       Share capital

		As at 30 June 2010			As at 30 June 2010
This comprises issued and fully paid ordinary shares of 0.1 pence each.			Number of shares			£'000
	At 1 July 2009			751,765,026			751,765
	Shares issued			103,200,000			103,200
	At 30 June 2010			854,965,026			854,965

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

Unlisted warrants

There were no warrants exercised during the year.

The following warrants expired during the year:

·      Issued 22 November 2006 - 7,213,475 exercisable at 5.5p per share

·      Issued 1 January 2007 to 1 June 2007 - 500,000 exercisable at 6p per share

The following warrants were issued during the year:

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

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

     The following warrants remain outstanding at 30 June 2010:

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

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

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

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

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

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

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

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

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

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

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

23.       Reserves

Share-based payments reserve

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

Available-for-sale reserve

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

Foreign currency translation reserve

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

24.       Notes to the cash flow statement

		Group		Company
		Year ended  30 June 2010 £'000	Year ended  30 June 2009 £'000	Year ended  30 June 2010 £'000	Year ended  30 June 2009 £'000
	Loss for the year	(12,513)	(18,101)	(13,810)	(7,984)
	Adjustments for:
	Share of results of associates	604	1,431	-	-
	Share of loss of joint venture	9,578	-	-	-
	Investment revenue	(153)	(124)	(145)	(122)
	Other (gains) and losses	182	20,158	10,522	6,848
	Income tax (credit)/expense	(310)	(5,729)	2,133	4
	Government grants	(213)	(179)	-	-
	Depreciation of property, plant and equipment	20	31	4	4
	Share-based payments expense	193	20	193	20
	Operating cash flows before movements in working capital	(2,612)	(2,493)	(1,103)	(1,230)
	(Increase)/Decrease in inventories	-	47	-	-
	(Increase)/Decrease in receivables	429	(573)	(68)	64
	Increase/(Decrease) in payables	414	192	841	(223)
	Cash used in operations	(1,769)	(2,827)	(330)	(1,389)
	Income taxes paid	-	-	-	-
	Interest expenses	95	323	351	13
	Foreign currency exchange differences	(60)	172	(729)	135
Net cash used in operating activities		(1,734)	(2,332)	(708)	(1,241)

 

Cash and cash equivalents

	Group		Company
	As at 30 June 2010 £'000	As at 30 June 2009 £'000	As at 30 June 2010 £'000	As at 30 June 2009 £'000
Cash held and on deposit	6,869	3,182	1,964	687

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

25.       Expenditure commitments

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

	Group		Company
	As at 30 June 2010 £'000	As at 30 June 2009 £'000	As at 30 June 2010 £'000	As at 30 June 2009 £'000
Capital expenditures
Within one year	456	3,847	456	3,847
Within the second to fifth years inclusive	6,115	908	1,470	-
	6,571	4,755	1,926	3,847

The expenditure commitments relate to work programme capital expenditures. The capital expenditure commitments are subject to possible variation on application to the relevant governmental authority.

26.       Share-based payments

The Company has issued share warrants to certain employees and officers of the Group, along with external third parties.  All warrants vest immediately, with the exception of one external contractor. If the warrants remain unexercised after the relevant time period from the date of grant the warrants expire.

Details of the share warrants outstanding during the year are as follows.

	Year ended 30 June 2010		Year ended 30 June 2009
	Number of share warrants	Weighted average exercise price  £	Number of share warrants	Weighted average exercise price  £
Outstanding at beginning of year	16,363,475	0.072	24,363,475	0.062
Granted during the year	71,100,000	0.029	-	-
Expired during the year	(7,713,475)	0.055	(8,000,000)	0.040
Outstanding at the end of the year	79,750,000	0.035	16,363,475	0.072
Exercisable at the end of the year	79,750,000		16,363,475

No share warrants were exercised during the year. The warrants outstanding at 30 June 2010 had a weighted average exercise price of £0.035 (2009: £0.072), and a weighted average remaining contractual life of 1.09 years (2009: 1.03 years). All share-based payments to Directors and employees are recognised as an expense in the income statement over the vesting period of the options.

For the year ended 30 June 2010, 11.1 million share warrants were granted on 14 August 2009. The aggregate of the estimated fair values of the warrants granted on that date is £192,033. There were no share warrants granted during the year ended 30 June 2009. The inputs into the Black-Scholes model for the share warrants issued on 14 August 2009 are as follows:

Share price                                                                    £0.0500                                              

Strike price                                                                    £0.0356

Expected volatility                                                       158.23%

Expected life                                                                    3 years

Risk free rate                                                                   0.076%

Expected dividends yield                                                     0%                                                

Expected volatility was determined by calculating the historical volatility of the Group's share price over the previous year.

The Group recognised total expenses of £193,490 and £19,673 related to equity-settled share-based payment transactions in 2010 and 2009 respectively. The amount recognised in equity relating to share-based payments at the balance sheet date was £822,917 (2009: £975,730).

The company issued a further 60 million share warrants, which accompanied placing of shares on

21 December 2009. The aggregate of the estimated fair values of the warrants granted on that date is £538,000. The inputs into the Black-Scholes model for these warrants are as follows:

Share price                                                                    £0.0232                                              

Strike price                                                                    £0.0250

Expected volatility                                                         92.12%

Expected life                                                                    18 months

Risk free rate                                                                   0.049%

Expected dividends yield                                                     0%                                   

The amount recognised in equity relating to the warrant reserve at the balance sheet date was £538,000 (2009: nil).

 

27.       Financial instruments

Capital risk management

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

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

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

Significant accounting policies

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

Categories of financial instruments

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

	Book value		Fair value
Group	2010 £'000	2009 £'000	2010 £'000	2009 £'000
Financial assets
Cash and cash equivalents (Level 1)	6,869	3,182	6,869	3,182
Available-for-sale financial assets (Level 2)	191	3,215	191	3,215
Loans and receivables (Level 2)	287	717	287	717
	7,347	7,114	7,347	7,114
Financial liabilities
Other (Level 2)	1,391	486	1,391	486

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

	Book value		Fair value
Company	2010 £'000	2009 £'000	2010 £'000	2009 £'000
Financial assets
Cash and cash equivalents (Level 1)	1,964	687	1,964	687
Available-for-sale financial assets (Level 2)	191	1,429	191	1,429
Loans and receivables (Level 2)	128	91	128	91
	2,283	2,207	2,283	2,207
Financial liabilities
Other (Level 2)	971	5,273	971	5,273

Market values have been used to determine the fair value of available-for-sale assets. The fair value of financial liabilities has been calculated by discounting the expected future cash flows at prevailing interest rates. The fair value of other financial assets has been calculated using market interest rates.

The above tables also provide an analysis of financial instruments that are measured subsequent to initial recognition at fair value, grouped into Levels 1 to 3 based on the degree to which the fair value is observable:

·      Level 1 fair value measurement are those derived from quoted prices (unadjusted) in active markets for identical assets or liabilities;

·      Level 2 fair value measurement are those derived from inputs other than quote prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and

·      Level 3 fair value measurements are those derived from valuation techniques that include inputs for the asset or liability that are not based on observable market date (unobservable inputs).

Market risk

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

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

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

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

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

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

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

Foreign currency risk management

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

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

	Liabilities		Assets
	2010	2009	2010	2009
	£'000	£'000	£'000	£'000
Australian dollar US dollar Danish kroner Euro Mexican peso Moroccan dirham	944 81 12 45 - 3	3,740 - -      27 -	1,963 4,762 41 95 1 26	2,769 399 - - 4 -
Canadian dollar	88	-	29	-

Foreign currency sensitivity analysis

The Group is mainly exposed to the US dollar currency and the Australian dollar currency.

The following table details the Group's sensitivity to a 10% increase and decrease in Sterling against the

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

	Australian Dollar impact		US Dollar impact
	2010	2009	2010	2009
	£'000	£'000	£'000	£'000
Profit or loss	(102)	97	(468)	(40)

Interest rate risk management

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

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

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

As at 30 June 2009	Less than one year £'000	Total £'000
Floating rate
Cash and cash equivalents	3,182	3,182

Interest rate risk management

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

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

As at 30 June 2009	Less than one year £'000	Total £'000
Floating rate
Cash and cash equivalents	687	687

Equity price sensitivity analysis

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

If equity prices had been 100% higher/lower at the year-end, other equity reserves would increase/decrease by £191,250 (2009: £1,677,881) for the Group before taxation effects, as a result of the changes in fair value of available-for-sale investments.

Credit risk management

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

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

28.       Events after the balance sheet date

On 5 July 2010, Peter Moir was appointed as Chief Executive Officer of the Company and Andy Morrison resigned as Director and Officer of the Company. Paul Butcher was also appointed as Non-Executive Director of the Company.

On 21 September 2010, an agreement was finalised under which Chevron Exploration and Production Netherlands B.V. ("Chevron") purchased Elko's licences in Blocks P1 and P2. In consideration for their total interest in the Blocks, Elko will receive an overriding royalty up to 5% of the sales value from Chevron gas delivered into the Dutch National Transmission System and Chevron condensate delivered onshore.  Chevron anticipates drilling the first well on the acreage in 2011. Under the terms of the arrangement, Chevron will also pay Euro 4.3 million in cash for past costs. This transaction and transfer of operatorship is subject to closing conditions and regulatory approvals typical of transactions of this nature.

On 21 September 2010, it was announced that the 02/05 licence partners had submitted an application for an adjoining area immediately to the west of the 02/05 block. The application was made in the same working interest percentages as in the 02/05 licence, with Elko holding 33%.

On 1 October 2010, Alan Hume was appointed as Finance Director of the Company and Susan Wickerson resigned as a Director of the Company. John Newton also announced that he would step down from Executive to Non-Executive Director with effect from the end of the AGM.

29.       Related party transactions

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

Transactions with associates

The Group was provided consulting services by one of its associates, Elko. These expenditures are measured at their fair value being the amount of consideration realised and agreed to by the parties.

		2010 £'000	2009 £'000
Administrative and operating costs		33	-

Remuneration of key management personnel

The remuneration of the Directors, who are the key management personnel of the Group, is set out below inaggregate for each of the categories specified in IAS 24 Related Party Disclosures.  Further information about the remuneration of individual directors is provided in the Directors' Report on pages 12 to 18.

		2010 £'000	2009 £'000
Short-term employee benefits		348	330
Share-based payments		193	18
		541	348

CORPORATE GOVERNANCE STATEMENT

 

The Board recognises the importance of sound corporate governance commensurate with the size of the Company and the interests of shareholders. The Company is not required to comply with the Combined Code on Corporate Governance issued by the Financial Reporting Council. However as the Company grows, the Directors intend that it should develop policies and procedures which reflect the Combined Code so far as is practicable, taking into account the size and nature of the Company.

The Board of Directors

During the year, and post year end, there have been some changes in the composition of the Xtract board. These changes have been made to allow a more operationally experienced team to oversee development of the asset portfolio of the company. The Board of Directors currently comprises five members, three executive directors, including the Executive Chairman, John Newton and two non executive directors. The Directors have significant experience in the evaluation, acquisition and commercialisation of oil and gas resource projects and the management of such investments, quoted and unquoted, both in the UK and overseas.

Board meetings

The Board will meet as and when required and ordinarily meets every two months, to provide effective leadership and overall management of the Company's affairs through the schedule of matters reserved for its decision. This includes the approval of the budget and business plan, major capital expenditure, acquisitions and disposals, risk management policies and the approval of the financial statements. Formal agendas, papers and reports are sent to the Directors in a timely manner, prior to the Board Meetings. The Board delegates certain of its responsibilities to the board committees which have terms of reference as listed below.

All Directors have access to the advice of the Company Secretary who is responsible for ensuring that all Board procedures are followed. Any Director may take independent professional advice at the Company's expense in the furtherance of his duties.

Corporate governance practices

The Company has adopted a Share Dealing Code that applies to Directors, senior management and any employee who is in possession of 'inside information'. All such persons are prohibited from trading in the Company's securities if they are in possession of 'inside information'.

The Board has established a Remuneration Committee, Audit Committee and Nominations Committee. The Remuneration Committee is currently made up of John Newton, Mark Nichols and Paul Butcher and is responsible for reviewing the performance of the executive directors and for setting the framework and broad policy for scale and structure of their remuneration taking into account all factors which it shall deem necessary. The Remuneration Committee will also determine allocations of share options and is responsible for setting any performance criteria in relation to the exercise of options granted under any share option schemes adopted by the Company. The Audit Committee is currently made up of Mark Nichols, Paul Butcher and Peter Moir and monitors the integrity of the Company's annual and interim financial statements. The committee also monitors and reviews the effectiveness of the management and the external auditors on accounting and internal control matters and recommends the appointment of, and reviews the fees of, the external auditors. Having monitored Deloitte's independence, objectivity and performance in 2010 as in prior years since Deloitte's original appointment, with reference to frequent reports during the year from Deloitte covering, inter alia, their team and required audit partner rotation plans, the overall audit strategy and the progress and results of the audit, the committee decided it was in the Group's and share owners' interests not to tender the external audit in 2011 and recommends the reappointment of Deloitte. The Nominations Committee is currently made up of John Newton, Peter Moir and Mark Nichols and has responsibility for identifying, evaluating and recommending candidates to join the Board and make recommendations on Board composition and balance.

STATEMENT OF DIRECTORS' RESPONSIBILITIES

The directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable law and regulations.

Company law requires the directors to prepare financial statements for each financial year.  Under that law the directors are required to prepare the group financial statements in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union and Article 4 of the IAS Regulation] and have also chosen to prepare the parent company financial statements under IFRSs as adopted by the EU.  Under company law the directors must not approve the accounts unless they are satisfied that they give a true and fair view of the state of affairs of the company and of the profit or loss of the company for that period. In preparing these financial statements, International Accounting Standard 1 requires that directors:

·              properly select and apply accounting policies;

·              present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information;

·              provide additional disclosures when compliance with the specific requirements in IFRSs are insufficient to enable users to understand the impact of particular transactions, other events and conditions on the entity's financial position and financial performance; and

·              make an assessment of the company's ability to continue as a going concern.

The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the company's transactions and disclose with reasonable accuracy at any time the financial position of the company and enable them to ensure that the financial statements comply with the Companies Act 2006.  They are also responsible for safeguarding the assets of the company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

The directors are responsible for the maintenance and integrity of the corporate and financial information included on the company's website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

Responsibility statement

We confirm that to the best of our knowledge:

·           the financial statements, prepared in accordance with International Financial Reporting Standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the company and the undertakings included in the consolidation taken as a whole; and

·           the management report, which is incorporated into the directors' report, includes a fair review of the development and performance of the business and the position of the company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face.

By order of the Board

Date: 23 November   

Chief Executive Officer                                                           

Peter Moir                                                        

 

END

 

 

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