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Paladin Resources (PLR)

  Print      Mail a friend       Annual reports

Thursday 17 March, 2005

Paladin Resources

Final Results

Paladin Resources PLC
17 March 2005

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

Preliminary Results for the year ended 31 December 2004

Record financial results for 2004 - Group production set to increase by some 20
per cent in 2005 and a £135 million investment programme planned to deliver
further organic production growth


Record results:

- Cash flow from operations increased 20 per cent to £171.9 million (2003:
  £143.1 million)
- Pre-tax profit increased 29 per cent to £109.7 million (2003: £84.8 million)
- Profit after tax increased 26 per cent to £35.8 million (2003: £28.4 million)
- Earnings per share increased 24 per cent to 11.06 pence (2003: 8.92 pence)
- Proposed final dividend of 1.14 pence per share to give a total for the year
  of 1.7 pence per share (2003: 1.575 pence per share), an increase of 
  8 per cent


- Production averaged 41,410 boepd
- Proven and probable reserves increased to 139.9 MMboe
- Good progress on MonArb capital investment programme
- Exploration and appraisal drilling successes in the UK and Tunisia

Business development:

- Alignment of interests in acreage adjacent to MonArb Fields
- Acquisition of operated stakes in Blane and Enoch developments
- Operated stake in Yme Field redevelopment opportunity and adjacent acreage
  secured in Norwegian licensing round
- Disposal of non-core interests in Ross and Blake Fields
- Acquisition of interests in the Laminaria and Corallina Fields, offshore
  north-western Australia, from BHP Billiton and Shell

Outlook for 2005:

- Group production to increase by some 20 per cent compared to 2004
- Brechin Field development on track for first oil in mid-year
- Montrose Field infill drilling programme underway
- Wood, Blane and Enoch development plans targeted for regulatory approvals by
- Group capital investment programme of some £135 million
- Exploration programme of some £15 million with participation in up to eight

Malcolm Gourlay, Chairman of Paladin, commented:

"The positive trend in Paladin's performance established over the past few years
has continued in 2004, with another set of record financial results and strong
operating results. The Company is in robust financial health and is well set for
2005 and beyond, given current commodity prices, the strength of our near-term
production and our portfolio of organic growth opportunities."

                                                                   17 March 2005

Paladin Resources plc                                Tel: 020 7024 4500
Roy A. Franklin, Chief Executive
Cuth McDowell, Finance Director

College Hill                                         Tel: 020 7457 2020
Jim Joseph
Ben Brewerton

About Paladin Resources plc:

Paladin is an independent oil and gas exploration and production company with
producing interests in the UK, Danish and Norwegian sectors of the North Sea,
Australia, Indonesia and Tunisia.

Chairman's Statement

I am pleased to report that the positive trend in the Company's performance
established over the past few years has continued in 2004, with another set of
record financial results and strong operating results.

In addition, good progress has been made on a significant capital investment
programme to deliver material production growth in the coming years, a number of
attractive acquisitions have been made which complement the existing portfolio,
and the Company has had exploration and appraisal drilling success in the UK and


The Group continued to benefit from high commodity prices, although the impact
was partially offset by a weakening of the US$/£ exchange rate from 1.63 to
1.83. Operating cash flow (before interest, tax and depreciation but after
administration costs and working capital movements) increased by 20 per cent to
£171.9 million (2003: £143.1 million) and profit before tax increased by 29 per
cent to £109.7 million (2003: £84.8 million). Net profit for the year rose by 26
per cent to £35.8 million (2003: £28.4 million), resulting in earnings per share
of 11.06 pence (2003: 8.92 pence).


In line with its established progressive dividend policy, the Board will
recommend payment of a final dividend of 1.14 pence per share for 2004 to
shareholders for approval at the Annual General Meeting, making a total dividend
payment for 2004 of 1.7 pence per share (2003: 1.575 pence per share). If
approved by shareholders, the final dividend will be paid on 27 May 2005 to
those shareholders on the register on 29 April 2005.


Net production for the year totalled 14.2 MMbbl of oil and NGL and 5.6 Bscf of
gas. This represents a combined average of 41,410 boepd, in comparison to the
42,006 boepd achieved in 2003, the benefits of an active investment programme
compensating for the natural production decline from the Company's more mature

Overall, the Group invested £77.2 million on production and development projects
(2003: £59.8 million): £41.6 million in the UK, £21.7 million in Norway, £11.2
million in Denmark, £1.9 million in Indonesia and £0.8 million in Tunisia.


The Group invested £10.4 million on exploration activities in the UK, Norway,
Denmark, Indonesia, Romania and Tunisia during the year (2003: £9.8 million).

Business development

Once again the Company was active on the business development front, both in
established and new areas.

In the UK, the Company completed the acquisition of Shell's operated interests
in the Blane and Enoch oil discoveries and an innovative deal with our partner
in the Montrose, Arbroath and Arkwright Fields to align equity interests in the
acreage adjacent to those fields. Excellent progress has been made with the UK
and Norwegian authorities to approve the development of Blane and Enoch, both of
which straddle the UK/Norwegian median line, and the equity alignment agreement
has already simplified discussions on the capital investment programme in the
MonArb area.

Since year-end, the Company has announced the disposal of its interests in the
Ross and Blake Fields for US$75 million. Whilst both fields have performed in
line with our original expectations, contribution to Group production from the
Company's interests in these fields is no longer material in a corporate

In Norway, we have continued to build our portfolio of interests through
licensing rounds. In particular, the award in June of a 50 per cent interest and
operatorship of four blocks and one part block in the relatively under-explored
Egersund Basin is a significant addition to our Norwegian portfolio. Both the
scope for redeveloping the abandoned Yme Field, which lies within these blocks,
and the potential of adjacent exploration acreage are under active evaluation.

In mid-November, the Company announced the planned acquisition of BHP Billiton's
interests in the Laminaria and Corallina Fields in the Timor Sea, offshore
north-western Australia, for US$150 million.

This transaction established material production from a new area for Paladin,
with scope for added value through further investment in both fields and for
follow-on deals. In respect of the latter, I am pleased to note the recent
announcement of our acquisition of part of Shell's interests in the Laminaria
and Corallina Fields, with the remainder being acquired by the operator,
Woodside. The deal was financed by the successful placing of 13 million ordinary
shares for cash. Taken in conjunction with the refinancing of the debt facility
in July, this leaves the Company in excellent shape to fund its on-going capital
investment programme, as well as providing significant headroom to fund further


Proven and probable reserves (on an entitlement basis) at 31 December 2004 were
139.9 MMboe compared to 132.7 MMboe at 31 December 2003, a 5.4 per cent
increase. Net positive revisions, notably in the MonArb area and in the Njord
Field, totalled 9.6 MMboe, replacing 63 per cent of production in the year. The
acquisition of interests in the Laminaria and Corallina Fields added a further
12.8 MMboe to the Group's reserve base.

Oil and gas reserves constitute 83.4 per cent and 16.6 per cent respectively of
the overall reserve base.

Strategy and outlook

Since 1997, Paladin has followed a consistent strategy focusing principally on
the acquisition of interests in oil and gas fields which offer attractive
incremental investment opportunities. In combination with a disciplined
exploration programme, this strategy has delivered excellent returns for
shareholders as well as material growth in the Company's asset base.

The consistent implementation of our strategy, combined with discipline in the
evaluation and pricing of acquisition opportunities, has served the Group well
to date and will continue to do so in the future. Notwithstanding current
commodity prices and political uncertainties, we continue to plan and evaluate
acquisition opportunities using a long-run Brent oil price in the low US$20s per
barrel in real 2005 terms.

After taking account of the disposal of our interests in the Ross and Blake
Fields referred to above, annualised Group production for 2005 is expected to
rise by some 20 per cent compared to 2004, principally reflecting an active
investment programme in the MonArb area, the two acquisitions of interests in
the Laminaria and Corallina Fields and a full year's contribution from the
Goldeneye Field.

With regard to longer term prospects, the Group plans to invest some £135
million on its existing asset base in 2005 to deliver further significant
organic production growth in 2006 and 2007. The Group also anticipates spending
some £15 million on its exploration programme, the primary focus being on
Scandinavian and UKCS activity with participation in up to eight wells.

Paladin remains in robust financial health, particularly given current commodity
prices and the strength of our near-term production, and we are well placed to
make further acquisitions which complement the existing portfolio as and when
attractive and material opportunities present themselves.

2004 has been another very active and successful year, and Paladin is in
excellent shape for the future. This is due in large part to the professionalism
and efforts of the executive team and their staff, and I would like to take this
opportunity on behalf of shareholders to thank them all for their contribution
to the Company's ongoing success.

J. Malcolm Gourlay
            17 March 2005

Operational Review

Paladin's 2004 production totalled 14.2 MMbbl of oil and 5.6 Bscf of gas from
its interests in the UK, Norwegian and Danish sectors of the North Sea,
Indonesia and Tunisia, together with a minor contribution in late December from
the recently acquired assets in Australia.

Production levels have been maintained at close to 2003 levels due to the
positive results of an active investment programme offsetting the underlying
natural production decline of the more mature assets in the portfolio. Total
investment in projects and developments during 2004 was £77.2 million compared
with £59.8 million in 2003. Further organic growth is anticipated during 2005,
when we expect to invest some £135 million in our existing asset base.

Exploration activity also increased during 2004, with total investment being
£10.4 million compared with £9.8 million in 2003. We anticipate spending £15
million on exploration projects during 2005, the primary focus being on
Scandinavian and UKCS activity with participation in up to eight wells.

Further details for each region are given below.

United Kingdom

Our UK interests contributed 14,826 boepd to total Group production in 2004
(2003: 11,713 boepd).

2004 was a period of intense activity on our operated MonArb Fields
concentrating on two fronts: improving the reliability of the production
facilities and progressing the capital investment programme to boost production
and to find and develop additional commercial reserves. Production net to
Paladin from the fields during the year was 9,988 boepd.

During the early part of the year, the Company entered into an innovative
agreement with its joint venture partner in the fields to align ownership
interests in the adjacent acreage, thereby minimising potential conflicts of
interest. This has already resulted in the more rapid development of reserves in
the area.

During the year, an appraisal well was drilled into the northern extension of
the Montrose Field, proving additional oil reserves which are not being drained
by the current development scheme. Plans are in hand for the development of
these reserves. A new hydraulic drilling unit has been installed on the Montrose
platform and work has commenced on an infill drilling/sidetrack programme to
increase production capacity and add to the commercial reserves of the Montrose
Field. This programme will continue until mid-2006.

Two infill wells and two workovers were completed on the Palaeocene reservoir in
the Arbroath Field using a heavy duty jack-up rig. This programme successfully
increased the production capacity of the field and restored well integrity. One
of the infill wells was deepened to the underlying oil-bearing Zechstein
formation constituting the Carnoustie Field; this deeper reservoir has been
tested at rates in excess of 2,000 bopd, and discussions are underway to
commingle this production with production from the Palaeocene reservoir.

The Brechin exploration well, drilled in May, discovered oil in a structure to
the east of the Arkwright Field. A development plan for this discovery has been
rapidly progressed, and DTI approval for the development of the Brechin Field as
a single subsea well tie-back through the Arkwright manifold was secured in
November. The development is proceeding on schedule and budget and first oil is
expected in July 2005, only 14 months after discovery.

Plans for the development of the Wood Field and for export of gas from the
MonArb field complex have also been advanced to the point of project sanction
and submission of the development plan to the DTI. This project involves the
tie-back of a single subsea production well to a new gas compression module on
the Montrose platform and should increase production capacity by 9,000 boepd
gross (5,300 boepd net to Paladin) starting in late 2006.

No further capital investment activities were undertaken in 2004 on the Ross and
Blake Fields, which contributed a total of 2,585 boepd net to Paladin during the

On 17 January 2005, Paladin announced the sale of its 30.82% interest in the
Ross Field and its 2.4% interest in the Blake Field, together with its interests
in five exploration blocks in the vicinity, to a subsidiary of Sumitomo
Corporation. The economic effective date of the transaction is 1 July 2004 and
completion is expected during the second quarter of 2005.

The development of the Goldeneye Field (939 boepd annualised average net to
Paladin in 2004) and the onshore processing facilities progressed to schedule
and budget during the year, resulting in first production in early October.
Following build-up to plateau production, the field has been producing at
stabilised rates of 320 MMscfd and 18,000 bpd of condensate since December. The
development concept for Goldeneye, involving the transportation of the entire
production stream under well pressure over a significant distance to onshore
processing facilities, has been a major success in proving technological

The performance of the Bittern Field (1,314 boepd net to Paladin in 2004)
continued to exceed expectations.

The Blane Field, which straddles the UK/Norwegian median line, was discovered in
1989 and has remained undeveloped since. Paladin already owned an interest in
the Norwegian portion of the field through its acquisitions in 2002 and acquired
its 30.49% operated interest in the UK sector from Shell in March 2004. Since
this time, significant progress has been made in reaching a pre-unit agreement
with the UK and Norwegian joint venture partners, in defining the development
concept and in advancing negotiations with the owners of a potential host
facility. In addition, the UK and Norwegian Governments have reached agreement
on the cross-border regulatory issues. Consequently, it is anticipated that the
development of the field will be sanctioned in the first half of 2005, leading
to first production in mid-2006. The first step in this process was taken with
the submission of an Environmental Impact Assessment to the Norwegian
authorities in February.

The Enoch Field also straddles the UK/Norwegian median line and has remained
undeveloped since its discovery in 1985. Paladin's 30% operated interest in the
UK sector was acquired from Shell in March 2004. Since then, significant
progress has been made with the Norwegian owners in reaching agreement on the
commercial terms and development concept for the field. Negotiations are also
well advanced with the owners of a host facility. These advances, together with
the progress made by the respective Governments, mean that the development of
the field is scheduled for sanction in mid-2005, with first production
anticipated in the latter part of 2006. An Environmental Impact Assessment will
be submitted to the UK authorities during March.

An exploration well on the Skate prospect (Paladin 10%) in Block 13/29b to the
east of the Ross Field was unsuccessful.



Our Norwegian interests contributed 18,082 boepd to total Group production in
2004 (2003: 20,170 boepd).

An infill drilling and well workover programme in the Veslefrikk Field (7,478
boepd net to Paladin in 2004) continued throughout the year, successfully
stemming the natural decline in production. A further programme of infill
drilling, based on the results of 4D seismic interpretation, has been identified
and it is anticipated that this will continue to curb the natural production

Infill drilling continued throughout 2004 in the Brage Field (5,906 boepd net to
Paladin during the year), including a long reach well into the north-western
extent of the field. Production was slightly lower than anticipated, due to a
delay in bringing this well on to production because of drilling difficulties.
Since the year-end, an unsuccessful exploration well has been drilled on the
Idun prospect to the east of the field.

Production from the Njord Field (4,356 boepd net to Paladin in 2004) has been
improved through achievement of better process uptime and a programme of infill
drilling and workovers. A programme of sidetracks using through tubing rotary
drilling techniques is planned for the early part of 2005. This will enable
enhanced recovery from smaller isolated fault blocks at lower cost.

Plans to develop and export gas from the field received joint venture and
Government approvals. Paladin has secured the transport capacity for its share
of gas export and is in advanced negotiations with potential buyers. Investment
in this project has now started, and gas sales are scheduled to begin in 2007.

Production from the Huldra Field (342 boepd net to Paladin in 2004) continued to
meet expectations.

During the year, Paladin was awarded a 50% operated interest in four blocks and
one part block in the under-explored Egersund Basin, offshore Norway, which has
a proven working hydrocarbon system. Paladin is currently undertaking a
feasibility study to assess the potential for redevelopment of the
decommissioned Yme Field, which lies within the blocks, and a reinterpretation
of existing 3D seismic data to define drillable exploration prospects. The
Company also plans to acquire additional 3D seismic across the acreage during

An unsuccessful exploration well was drilled on the Beluga stratigraphic
prospect (Paladin 10%).

In November, the Company agreed to assign to BG a 30% interest in licence PL143
and a 20% interest in licences PL143CS and PL298, which contain the Hummer
prospect, for a post-tax consideration of US$2 million. Paladin retained
interests in all three licences and operatorship of PL143CS and PL298. Plans are
well in hand to drill the Palaeocene Hummer prospect in late 2005, subject to
drilling rig availability.


Our Danish interests contributed 3,572 bopd to total Group production in 2004
(2003: 4,798 bopd).

Reservoir performance in the Siri and Stine Fields (3,572 bopd net to Paladin in
2004) was in line with expectations, although production was lower than
anticipated due to unplanned process downtime, gas capacity constraints and a
delay in bringing the Stine-1 Field on to production. A new gas compressor has
been installed on the platform and, after some initial teething problems, is now
performing effectively.

An appraisal well was drilled on the Sofie prospect (Paladin 30%), some 20 km
north of the Siri Field. This confirmed producible oil in a separate culmination
to the Sofie-1 discovery. Studies are now underway to assess the economic
viability of the field.

An exploration well on the Sissel prospect (Paladin 30%) is currently being



On 13 November 2004, the Company announced that it had entered into a sale and
purchase agreement with BHP Billiton to acquire a 32.6125% interest in the
Laminaria Field and a 25% interest in the Corallina Field with effect from 1
July 2004 for a consideration of US$150 million. All pre-conditions for
completion were met in mid-December 2004 and a contribution of 289 boepd has
therefore been included in the Company's 2004 annual production, being the
annualised net production from that time to the year-end. The acquisition was
completed on 14 January 2005. Since the end of the year, the Company has entered
into a sale and purchase agreement with Shell to acquire a further 7.4875%
interest in the Laminaria Field, an additional 8.33% interest in the Corallina
Field and a 15% interest in a neighbouring exploration permit, AC/P8, with
effect from 1 July 2004 for a total consideration of US$47 million.

In 2005, following a rig programme to undertake well and flowline repairs, it is
planned to drill an infill well in the Laminaria Field to improve reservoir
drainage and boost production potential, and an exploration well on the North
Petalonia prospect in AC/P8.

Paladin plans to open an office in Perth during 2005 to manage our acquired
interests and to identify new business opportunities.


Our Indonesian interests contributed 3,969 boepd to total Group production in
2004 (2003: 5,156 boepd). Approximately half of the year-on-year comparative
decrease is a result of the impact of higher oil prices on reported entitlement
barrels, while the balance is due to natural production decline.

Infill drilling activity resumed in the South East Sumatra PSC (2,916 bopd
Paladin net entitlement in 2004), but not at a pace sufficient to arrest the
natural decline of the fields. Further technical work is underway to identify
development opportunities.

At the end of 2004 a gas sale and purchase agreement was signed with PLN, the
electricity generating company. This contract will lead to the sale of 80 BBtud
of gas over a 13 year period starting in 2006. An engineering, procurement,
construction and installation contract has been awarded for the facilities
required for the gas development.

In the Offshore North West Java PSC (1,053 boepd Paladin net entitlement in
2004), development of the APN gas fields was progressed, with a view to meeting
the increased capacity required for the renewed gas sales contract. Technical
studies have continued to identify infill opportunities in the oil fields.

Preliminary discussions are being held with potential gas buyers to enable
commercialisation of the remaining uncontracted gas.


Our Tunisian interests contributed 672 boepd to total Group production in 2004
(2003: 170 boepd).

Production from the Adam Field continued to exceed expectations, resulting in
the further development of the field through a third production well, brought
on-stream in early 2005. A second successful development well was also drilled
during the year on the Hawa Field, leading to increased production and reserves.
A third discovery, the Dalia Field, was made in mid-2004. Production from this
field is through the discovery well, which was brought on-stream within one
month of being drilled. A further exploration well, Nour, has recently spudded
in the concession area.

Agreement has been reached with STEG, the Tunisian state electricity and gas
company, to purchase associated gas from the concession. Gas sales commenced in
early 2005 under this arrangement, leading to an additional 1,000 boepd gross of
commercial production (70 boepd net to Paladin). In all three fields,
non-associated gas has been technically proven but has not yet been developed.
It is planned to continue commercial discussions during 2005 with respect to the
production and sale of this non-associated gas.


In August, Paladin entered into a participation agreement with Forest Oil to
earn a 20% interest in the Gryphon Marin permit, which is situated in shallow
water offshore southern Gabon. It lies within a prospective part of the Gabon
Coastal Basin, a proven hydrocarbon province, close to a number of existing oil
fields and recent discoveries.

Reprocessing of existing seismic data is underway and the acquisition of new 3D
seismic surveys across the southern and north-eastern parts of the permit have
recently been completed. Exploration drilling is planned for 2006 following the
processing and interpretation of these data.


The Midia and Pelican licences remained in suspension during 2004, as part of
the acreage falls within an area subject to a maritime border dispute between
Romania and Ukraine. The licences will be reactivated once the dispute has been
formally resolved. The Company is reassessing the commerciality of the Doina
discovery, which lies in undisputed acreage, in the light of the changing fiscal
and commercial environment in Romania.

Roy A. Franklin
Chief Executive
17 March 2005

Financial Review

Production and profits

Group production averaged 41,410 boepd (2003: 42,006 boepd). The average
realised price for the year, excluding the effect of hedging, increased to
$37.39 per boe (2003: $28.30 per boe). After taking into account the effects of
hedging, the average realised price for the year was $33.64 per boe (2003:
$27.29 per boe), although a weaker average US dollar/sterling exchange rate of
$1.83/£1 (2003: $1.63/£1) offset some of the benefit of the increased price.
Tariff income was slightly lower at £11.5 million (2003: £12.4 million). The
combination of these factors resulted in an uplift of 8 per cent in turnover to
£290.0 million (2003: £268.2 million).

Production costs were broadly unchanged in sterling terms and the increase in
average costs from $11.84 per boe in 2003 to $13.17 per boe in 2004 largely
reflects the weakness of the US dollar against sterling and the Norwegian

The depletion and depreciation charge was marginally lower in 2004, primarily
reflecting the decrease in production. US dollar rates per boe increased from
$6.31 per boe in 2003 to $6.90 per boe in 2004, again largely reflecting
movements in exchange rates.

Administrative costs were £4.0 million (2003: £4.1 million). Net interest
expense increased to £10.2 million (2003: £7.1 million), of which £4.2 million
(2003: £3.9 million) related to the unwinding of the discount rate on the
decommissioning provision. The increased costs reflect higher US dollar interest
rates and costs of refinancing Group borrowing.

Profit before tax was 29 per cent higher at £109.7 million (2003: £84.8


The Group's overall effective tax rate was 67.4 per cent (2003: 66.4 per cent).
The increase in the overall rate arises mainly from the increase in exchange
losses on tax balances that are included in the tax charge and also the
reduction in the lower taxed Danish profits.

Profit after taxation and earnings per share

Profit for the year increased by 26 per cent to £35.8 million (2003: £28.4

Earnings per share increased to 11.06 pence (2003: 8.92 pence).


In line with its stated progressive dividend policy, the Company paid an interim
dividend of 0.56 pence per share (1H 2003: 0.525 pence per share). The Board
will recommend payment of a final dividend of 1.14 pence per share (2003: final
dividend of 1.05 pence per share) to shareholders for approval at the Annual
General Meeting, which would bring the total dividend for 2004 to 1.7 pence per
share (2003: 1.575 pence per share).

Cash flow and net debt

Cash flow from operating activities before working capital movements increased
by 16 per cent to £177.0 million (2003: £153.5 million). After working capital
movements, cash flow from operating activities was £171.9 million (2003: £143.1
million). Net interest paid, including refinancing costs, amounted to £7.3
million (2003: £3.6 million). As a result of improved profitability, cash taxes
increased to £60.8 million, leading to cash flow after tax and interest of
£103.8 million (2003: £86.6 million).

Total cash expenditure on capital projects was £88.7 million, comprising £78.9
million incurred on development expenditure and £9.8 million on exploration

Expenditure on asset acquisitions amounted to £13.6 million, of which £5.6
million related to the acquisition from Shell of interests in the Blane and
Enoch Fields and £8.0 million was the deposit paid to BHP Billiton in respect of
the acquisition of its interests in the Laminaria and Corallina Fields. Since
the year-end, an additional amount of £60 million has been paid in respect of
these acquisitions and this amount was included in creditors in the 31 December
2004 Group Balance Sheet.

The dividend payment of £5.2 million comprises the final dividend in respect of
2003 and the interim dividend for the first half of 2004.

In July, the Company announced that it had entered into a new US$600 million
credit facility with a syndicate of 16 major international energy lending banks
led by J. P. Morgan plc.

Year-end net debt was lower at £107.3 million (2003: £110.0 million), including
finance lease liabilities of £4.4 million. Given the strength of the Group's
projected cash flow and notwithstanding the significant capital investment
programme over the coming years, the Board is comfortable with current and
projected levels of net debt. All debts and other liabilities arising from the
Group's activities are included in the Group Balance Sheet.

Risk management

The Group has continued with its commodity price and currency risk management
policies. With regard to commodity price risk, the Group's policy is to hedge up
to a maximum of 50 per cent of forecast production (excluding that from
Indonesia, Norway, Tunisia and Australia, where price risk is mitigated by
relatively high Government taxes). During 2002 and 2003, the Group entered into
oil price swaps for 2004 (based on dated Brent) covering 3.75 million barrels at
an average fixed price of $23.20 per barrel. These hedges reduced turnover by
£31.0 million in 2004.

A summary of the hedges entered into for the period 1 January 2005 to 31
December 2007, including those entered into after the year-end, is given below.
These hedges represent, on average, approximately 40 per cent of the Group's
forecast lower taxed production over this period and less than 20 per cent of
total forecast Group production.

Oil Hedges

Period                             Volume (bbl)            Average swap price ($/bbl)
2005                               3,150,000               26.21
2006                               2,550,000               30.59
2007                               2,100,000               39.28

Gas Hedges

Period            Volume (therm)        Swap price (pence/therm)          Put option (pence/therm)
2006 Q1           2,250,000             50.50
2006 Q1           2,250,000                                               40.00

Currency risk is managed by matching borrowings with the currency in which
income is generated. At year-end, 67 per cent of bank debt was denominated in US
dollars and 33 per cent in sterling, the latter associated primarily with
Goldeneye Field development costs.

The Group also sells US dollars and enters into short-term forward purchases of
Norwegian and Danish kroner to match the currency in which tax is paid in those

No interest rate swaps were outstanding at year-end and none was entered into
during the year.

International Financial Reporting Standards

The Group will adopt IFRS with effect from 1 January 2005 and the 2005 interim
figures will be prepared on the new basis. Comparative figures for 2004 will
also be restated in accordance with IFRS.

An exercise to restate the 2004 figures has commenced and a full restatement of
2004 figures, and a reconciliation between UK GAAP and IFRS figures, will be
sent to shareholders during 2Q 2005.

On the basis of our current understanding, the Group figures are likely to be
affected in the following areas:

-          unrealised gains or losses on oil price hedges will be included in
the balance sheet but will not be recognised in profits until realised;

-          under and over liftings of production will be included as an
adjustment to cost of sales rather than turnover but this will have no impact on
net profits;

-          the basis of valuing share-based payments will change, resulting in a
charge to profits when they are granted;

-          the treatment of certain gains and losses on non-functional currency
deferred tax balances.

Any changes in interpretation of the relevant standards, by either the
International Accounting Standards Board or the industry as a whole, could
affect our understanding of the impact of the adoption of IFRS.

Cuth McDowell
Finance Director
17 March 2005

Production and Reserves

Production                                                 2004                            2003

Oil                                               Mbbl            bopd            Mbbl            bopd

UK                                               5,013          13,696           4,062          11,128
Scandinavia                                      7,698          21,031           8,838          24,213
Australia                                          106             289               -               -
Indonesia                                        1,183           3,232           1,563           4,282
Tunisia                                            246             672              62             170
Total                                           14,246          38,920          14,525          39,793

Gas                                                Bscf           MMscfd             Bscf           MMscfd

UK                                                  2.5              6.8              1.3              3.5
Scandinavia                                         1.4              3.7              1.7              4.5
Australia                                             -                -                -                -
Indonesia                                           1.7              4.4              1.9              5.3
Tunisia                                               -                -                -                -
Total                                               5.6             14.9              4.9             13.3

                                                   Mboe            boepd             Mboe            boepd

Total Oil Equivalent Production                  15,156           41,410           15,332           42,006

Proven and Probable Reserves
                                                                 2004                2003

at 31 December                                                   MMbbl               MMbbl


UK                                                                45.2

Scandinavia                                                       39.8                45.7
Australia                                                         12.7                   -
Indonesia                                                         18.2                24.8
Tunisia                                                            0.8                 0.9
Total Oil Reserves                                               116.7               116.0

Gas                                                                Bscf                Bscf

UK                                                                 51.3                53.2
Scandinavia                                                        54.3                11.8
Australia                                                             -                   -
Indonesia                                                          32.9                35.6
Tunisia                                                             0.5                   -
Total Gas Reserves                                                139.0               100.6
Total Reserves Oil Equivalent                                     139.9               132.7

Notes to Production and Reserves:

1.         UK reserves as of 31 December 2004 include Ross and Blake.

2.         Oil includes NGL.

3.         Quantification of reserves is based on the Company's own estimates
supported by operators' and third party experts' estimates. In addition, a
report on the Group's reserves is conducted annually by an independent engineer
as part of the Company's obligations to its bankers. The reserves in the tables
above and below represent the Group's entitlement to commercial proven plus
probable reserves, as defined in the SORP. On a working interest basis,
Indonesian reserves at 31 December 2004 would increase by 8.1 MMboe to 31.8
MMboe and total Group reserves would increase to 148 MMboe. As was the case in
previous years, the Company has assumed that the Indonesian PSCs will be
extended to enable all commercial reserves to be produced.

4.         Quantities of oil equivalent are calculated on an energy equivalent
basis for the purpose of the above tables and for depreciation and depletion
calculations. A gas-to-oil conversion factor of 6,000 standard cubic feet of
natural gas per barrel of oil equivalent is used.

5.         The following movements in proven and probable reserves occurred in
2004, with comparative figures provided for 2003:

                                                                    2004                2003

                                                                   MMboe               MMboe

Reserves at 1 January                                             132.7               108.2
Produced during the year                                          (15.2)              (15.3)
Acquisitions                                                       12.8                37.5
Disposals                                                             -                (1.2)
Revisions to estimates                                              9.6                 3.5
Reserves at 31 December                                           139.9               132.7

Profit and Loss Account

for the year ended 31 December                                                              2004          2003

                                                                          Notes             £000          £000
Turnover                                                                       3        290,003       268,173

Cost of sales
Production costs                                                                       (109,024)     (111,049)
Depletion and depreciation                                                              (57,109)      (59,222)
Exploration expenditure written off                                                           -        (1,958)
                                                                                       (166,133)     (172,229)
Gross profit                                                                            123,870        95,944
Administrative expenses                                                                  (4,020)       (4,100)
Operating profit                                                             3/6        119,850        91,844
Net interest expense                                                                    (10,188)       (7,092)
Profit on ordinary activities before taxation                                           109,662         84,752
Taxation                                                                                (73,880)      (56,306)
Profit on ordinary activities after taxation                                             35,782        28,446

Dividend                                                                       5         (5,483)       (5,033)
Retained profit for the year                                                             30,299        23,413
Earnings per share                                                             4
Basic                                                                                     11.06p         8.92p
Diluted                                                                                   10.87p         8.82p
Dividend per ordinary share                                                    5           1.70p        1.575p

Group Statement of Total Recognised Gains and Losses
for the year ended 31 December                                                              2004          2003

                                                                                            £000          £000
Profit for the year                                                                      35,782        28,446
Foreign exchange differences                                                             (9,251)      (23,498)
Total recognised gains for the year                                                      26,531         4,948

The effect of the UITF 38 and UITF 17 (revised) prior year adjustment had no net
material impact on reported reserves at 1 January 2004.
Group Balance Sheet
at 31 December                                                                              2004            2003

                                                                                                     as restated

                                                                                            £000            £000
Fixed assets
Intangible assets                                                                        49,113          50,603
Tangible assets                                                                         379,078         296,523
Investments                                                                                   -               -
                                                                                        428,191         347,126
Current assets
Stock                                                                                     1,542           1,003
Debtors                                                                                  63,661          41,641
Cash at bank and in hand                                                                    939           1,270
                                                                                         66,142          43,914
Creditors: amounts falling due within one year                                         (142,094)        (64,101)
Net current liabilities                                                                 (75,952)        (20,187)
Total assets less current liabilities                                                   352,239         326,939
Creditors: amounts falling due after more than one year                                (107,324)       (110,556)
Provisions for liabilities and charges                                                  (75,312)        (68,735)
Net assets                                                                              169,603         147,648
Capital and reserves
Called up share capital                                                                  32,471          32,196
Share premium account                                                                    80,248          79,328
Other reserves                                                                           (1,035)         (1,416)
Profit and loss account                                                                  57,919          37,540
Equity shareholders' funds                                                              169,603         147,648

The financial statements were approved by the Board of Directors on 16 March
2005 and signed on its behalf by:

J M Gourlay                 C J McDowell
Chairman                    Finance Director

Group Cash Flow Statement

For the year ended 31 December                                                       Notes        2004         2003

                                                                                                  £000         £000
Cash flow from operating activities                                                      6    171,884      143,092

Returns on investments and servicing of finance

Interest received                                                                                 221           23
Interest paid                                                                                  (7,560)      (3,599)
Net cash outflow from returns on investment and servicing of finance                           (7,339)      (3,576)

Taxation                                                                                      (60,789)     (52,896)

Capital expenditure and financial investments
Ongoing capital expenditure (excludes capitalised interest)                                   (88,666)     (69,776)
Acquisition of oil and gas fixed assets                                                       (13,552)    (113,121)
Proceeds from sale of oil and gas interests and rights                                              -        3,168
Net cash outflow from capital expenditure                                                    (102,218)    (179,729)

Equity dividend paid                                                                           (5,190)      (4,823)

Net cash outflow before financing                                                              (3,652)     (97,932)


Investment in own shares                                                                         (225)      (1,164)

Issue of shares                                                                                 1,195       41,742

Increase in borrowings                                                                        309,327      163,506
Decrease in borrowings                                                                       (305,697)    (104,645)
Finance lease payments                                                                         (1,400)      (1,301)
Net cash inflow from financing                                                                  3,200       98,138
(Decrease)/increase in cash in the year                                                          (452)         206
Reconciliation of net cash flow to movement in net debt

(Decrease)/increase in cash in the year                                                          (452)         206

Increase in borrowings                                                                       (309,327)    (163,506)
Decrease in borrowings                                                                        305,697      104,645
Finance lease payments                                                                          1,400        1,301
Change in net debt resulting from cash flows                                                   (2,682)     (57,354)
Exchange differences                                                                            5,459        8,932
Movement in net debt in the year                                                                2,777      (48,422)
Net debt at the start of the year                                                            (110,041)     (61,619)
Net debt at the end of the year                                                              (107,264)    (110,041)


(forming part of the financial statements)

1        The financial information set out above does not constitute the
Company's statutory accounts for the years ended 31 December 2004 or 2003 but is
derived from those accounts. Statutory accounts for 2003 have been delivered to
the Registrar of Companies, and those for 2004 will be delivered following the
Company's Annual General Meeting. The auditors have reported on these accounts;
their reports are unqualified and did not contain statements under section 237
(2) or (3) of the Companies Act 1985.

2        Accounting policies

During the year the Group adopted UITF 38, Accounting for ESOP Trusts, which
requires that own shares held through an ESOP trust should no longer be shown as
the sponsoring company's assets but should be presented as a deduction from
shareholders' funds within a newly created reserve. Own shares are held in
connection with the Company's Long Term Incentive Plan. The Group also adopted
UITF 17 (revised), which requires that the cost of the shares associated with
this plan be provided for on the basis of the share price ruling when the shares
were awarded, rather than at the expected purchase price for the shares. In
addition, accruals for awards under the Long Term Incentive Plan have been
included in reserves. The adoption results in an increase of £300,000 in profits
after tax for 2004 but had no material impact on the prior year. The Company has
taken advantage of the exemption under UITF 17 in respect of Inland Revenue
approved SAYE schemes.

3        Segmental analysis

The Group's main business is that of oil and gas exploration, development and
production, which is carried out in the areas below:

(All continuing operations)
                                   UK     Scandinavia    Indonesia    Australia   Tunisia   Rest of        Total
                                 £000            £000         £000         £000      £000      £000         £000
Oil and gas production        82,973         165,863       22,203        2,312     5,165         -

Tariff income                  8,250           3,237            -            -         -         -       11,487

Turnover                      91,223         169,100       22,203        2,312     5,165         -      290,003

Cost of sales                (68,530)        (79,431)     (15,005)        (936)   (1,878)     (353)    (166,133)
Gross profit/(loss)           22,693          89,669        7,198        1,376     3,287      (353)     123,870
Administrative expenses       (4,020)              -            -            -         -         -       (4,020)
Operating profit/(loss)       18,673          89,669        7,198        1,376     3,287      (353)     119,850

                                      UK     Scandinavia    Indonesia   Tunisia    Rest of        Total
                                    £000            £000         £000      £000       £000         £000
Oil and gas production           64,035         162,747       27,882     1,094          -      255,758
Tariff income                    10,008           2,407            -         -          -       12,415
Turnover                         74,043         165,154       27,882     1,094          -      268,173

Cost of sales                   (58,306)        (93,326)     (18,270)     (369)    (1,958)    (172,229)
Gross profit/(loss)              15,737          71,828        9,612       725     (1,958)      95,944
Administrative expenses          (4,100)              -            -         -          -       (4,100)
Operating profit/(loss)          11,637          71,828        9,612       725     (1,958)      91,844

4        Earnings per share and dividends

The basic and diluted earnings per share are calculated on a profit after tax of
£35,782,000 (2003: profit of £28,446,000) and, for the basic earnings per share,
the weighted average number of 323,381,480 ordinary shares (2003: 318,773,203

          The weighted average number of shares for the purpose of the
calculation of the diluted earnings per share is calculated as follows:

                                                                       2004 thousands  2003 thousands
Basic weighted average number of shares                                       323,381         318,773
Dilutive potential ordinary shares:
Employee share options                                                          5,854           3,897
                                                                              329,235         322,670

5        Dividend

An interim dividend of 0.56 pence per share was paid in October 2004 and the
Board recommend the payment of a final dividend of 1.14 pence per share. If
approved by shareholders, the final dividend will be paid on 27 May 2005 to
those shareholders on the register on 29 April 2005. The interim dividend paid
was £1,796,000 (2003: £1,672,000) and the proposed final dividend is £3,687,000
(2003: £3,361,000).

6          Reconciliation of operating profit to operating cash flows
                                                                                 2004          2003

                                                                                 £000          £000
Operating profit                                                             119,850        91,844
Depreciation and depletion charge                                             57,382        59,222
Exploration expenditure written off                                                -         1,958
(Decrease)/increase in provisions                                               (183)          457
Operating cash flow before movement in working capital                       177,049       153,481
(Increase)/decrease in stocks                                                   (539)          804
(Increase) in debtors                                                        (19,308)      (14,564)
Increase in creditors                                                         14,682         3,371
Net cash inflow from operating activities                                    171,884       143,092

7          Post balance sheet events

In January 2005, the Company announced that it had entered into a sale and
purchase agreement with a subsidiary of Sumitomo Corporation to sell its
interests in the Blake and Ross Fields and neighbouring exploration acreage for
a base consideration of $75 million. Completion is expected during the second
quarter of 2005.

In March 2005, the Company announced that it had entered into a sale and
purchase agreement with a company in the Royal Dutch/Shell Group to acquire
interests in the Laminaria and Corallina Fields for a base consideration of $47
million. Completion is expected during April.

In March 2005, the Company placed 13 million ordinary shares at a price of
173.5p per share. Placing proceeds net of expenses were £22 million.

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