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Paladin Resources (PLR)

  Print      Mail a friend       Annual reports

Wednesday 24 March, 2004

Paladin Resources

Final Results

Paladin Resources PLC
24 March 2004

                            PALADIN RESOURCES plc

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

            Preliminary Results for the year ended 31 December 2003

Paladin, the oil and gas exploration and production company with interests in
the UK, Danish and Norwegian sectors of the North Sea, Indonesia and Tunisia,
announces its preliminary results for the year ended 31 December 2003


•    Record results:

-    Turnover increased 58 per cent to £268.2 million (2002: £170.2 million)

-    Cash flow from operations increased 49 per cent to £143.1 million 
     (2002: £96.3 million)

-    Pre-tax profit increased 28 per cent to £84.8 million (2002: £66.0 million)

-    Profit after tax increased 41 per cent to £28.4 million (2002: 
     £20.1 million)

-    Earnings per share increased 15 per cent to 8.92p (2002: 7.76p)

-    Proposed final dividend of 1.05p per share to give a total for the year 
     of 1.575p per share (2002: 1.5p per share)

•    Operational highlights:

-    Production increased 44 per cent to 42,006 boepd (2002: 29,117 boepd)

-    Proven and probable reserves increased 23 per cent to 132.7 MMboe

-    Successful integration of operated Montrose, Arbroath and Arkwright 
     Field interests, with significant improvement in operational uptime

-    Exploration successes in Tunisia and Denmark, the former now in production

•    Business development:

-    Equity swap of acreage bordering the Montrose, Arbroath and Arkwright 
     Fields to facilitate future capital investment

-    Acquisition from Shell of operated stakes in two potential development 
     opportunities, Blane and Enoch, adjacent to the UK-Norwegian median line

•    Outlook for 2004:

-    Active capital investment programme of some £75 million planned, to 
     enhance reserves and production from existing fields

-    First gas production from Goldeneye Field expected in 3Q 2004

-    Group production set to increase by around 10 per cent compared to 2003

-    Exploration programme of some £11 million planned, to include participation 
     in up to eight exploration wells: two in the UK, three in Norway, two in 
     Denmark and one in Tunisia

Malcolm Gourlay, Chairman of Paladin, commented:

"2003 was another excellent year for the Company, with record results, the
successful integration of our first major operatorship and two oil discoveries.
We are set to make further good progress in 2004, with an active capital
investment programme to increase production and reserves complemented by an
exploration programme in which Paladin will participate in up to eight wells."

                                                                   24 March 2004


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

College Hill                                                  Tel: 020 7457 2020
James Henderson/Nick Elwes

Chairman's Statement

I am pleased to report that 2003 has been another excellent year for your
Company and that we are set to make further good progress in 2004.

The combination of record levels of Group production, more than 40 per cent
higher than in 2002, and continuing high commodity prices has resulted in
another set of strong operating and financial results and a robust year-end
financial position, notwithstanding an active capital investment programme in
the Group's portfolio of oil and gas field interests.

In May, the Group completed the $153 million acquisition of BP's and Amerada's
interests in the Montrose, Arbroath and Arkwright Fields in the UK sector of the
North Sea and, as a result, took on its first major operatorship of producing
fields. This acquisition was financed in part by a placing and open offer of new
shares, which raised approximately £40.5 million in January 2003. I am pleased
to report that the integration of this asset package into the Group's portfolio
has gone extremely well and that we have already achieved a significant
improvement in the operational uptime of the assets working in conjunction with
our operating alliance partners, Petrofac and Helix RDS. In December, we agreed
the alignment of our equity interests and those of our joint venture partner,
Energy North Sea, in acreage adjacent to the fields. This will simplify
discussions on future investment plans, and 2004 sees the start of a significant
capital investment programme to maximise the value of these fields.

Further business development activity in 2003 resulted in the recently completed
acquisition of Shell's operated interests in the Blane and Enoch oil discoveries
in the UK Central North Sea, adjacent to the UK-Norwegian median line. These
discoveries present the Company with attractive potential development
opportunities, particularly in the light of the planned new Framework Treaty for
cross-border activity and our active involvement on both sides of the median

Exploration continues to form an integral part of the Company's strategy, 2003
seeing drilling success in Denmark with the Sofie-1 oil discovery, and in
Tunisia with the Hawa-1 oil and gas discovery. Preliminary analysis of the
results from the former would suggest that it can be developed as a satellite to
the Siri Field, whilst the latter has already been developed and, as recently
announced, brought into production.


A 44 per cent increase in production combined with continuing high commodity
prices led to operating cash flow of £143.1 million (2002: £96.3 million) and
profit before tax of £84.8 million (2002: £66.0 million). Profit for the year
was £30.4 million before an exploration write-off of £2.0 million in respect of
unsuccessful exploration costs relating to the Group's Romanian interests,
giving a net profit of £28.4 million (2002: £20.1 million), a rise of 41 per
cent. Resulting earnings per share were 8.92 pence (2002: 7.76 pence). These
excellent results have been achieved after accounting for the impact of the
Group's oil price hedging programme and an eight per cent fall in the $:£
exchange rate.


The Board's stated dividend policy is that the level of payment should be
progressive in real terms but also sustainable in a lower oil price environment.
In line with this policy, the Board will recommend payment of a final dividend
of 1.05 pence per share for 2003 to shareholders for approval at the Annual
General Meeting, making a total dividend payment for 2003 of 1.575 pence per
share (2002: 1.5 pence per share). If approved by shareholders, the final
dividend will be paid on 21 May 2004 to those shareholders on the register on 23
April 2004.

Production and development

Net production for the year totalled 14.5 MMbbl of oil and NGL and 4.9 Bscf of
gas, a combined average of 42,006 boepd, which is a new record for Paladin and
represents an increase of 44 per cent from 29,117 boepd in 2002.

Overall, the Group invested £59.8 million (2002: £26.4 million) on production
and development projects: £24.6 million in the UK, £22.7 million in Norway, £7.6
million in Denmark, £4.4 million in Indonesia and £0.5 million in Tunisia.
Further details are provided in the Operational Review.


The Group invested £9.8 million on exploration activities in the UK, Norway,
Denmark, Indonesia, Romania and Tunisia during the year (2002: £3.6 million),
with exploration drilling success in both Denmark and Tunisia.

Good progress was made during 2003 in expanding the Group's portfolio of
exploration interests, particularly in the UK and Norway, where successful
applications were made for a number of blocks in licensing rounds.


Proven and probable reserves (on an entitlement basis) at 31 December 2003 were
132.7 MMboe compared to 108.2 MMboe at 31 December 2002, a 23 per cent increase.
Net positive revisions of 3.5 MMboe replaced 23 per cent of production in the
year, while acquisitions in the UK added a further 37.5 MMboe to the Group's
reserve base.

Oil and gas reserves constitute 87 per cent and 13 per cent respectively of the
overall reserve base.

On a working interest basis, Group reserves increased to 150.9 MMboe (2002:
127.6 MMboe).

Board positions

Dr George Watkins CBE joined the Board as an independent director on 21 February
2003. This followed a distinguished career with the Conoco Group, which he
joined in 1973, subsequently holding several senior appointments both in the UK
and abroad and finally serving as Chairman and Managing Director of Conoco UK
Ltd. from 1993 until his retirement in 2002. He is also a past President of the
UK Offshore Operators Association.

On 30 November 2003, Cuth McDowell assumed the Group Finance Director's
responsibilities, in addition to his existing commercial and business
development responsibilities, following the departure of Daniel Stewart-Roberts.

Strategy and outlook

Paladin's strategy is to grow through both acquisition and exploration with the
objective of securing reserves and production on a commercially attractive basis
for shareholders.

The natural sellers of interests purchased by Paladin are major oil companies
for whom the interests are no longer material. In that respect, we are their
natural counterparties in maturing hydrocarbon provinces, such as the North Sea.
We remain confident that there will be continuing opportunities to add reserves
and production on terms that will contribute to the further development of the
Group for the economic benefit of shareholders. Notwithstanding the current oil
price and the political uncertainties in the Middle East, we continue to plan
and evaluate acquisition opportunities using a long-run  Brent oil price of
below $20 per barrel in real 2000 terms.

Our portfolio of exploration interests has expanded considerably over the past
few years, mirroring the growth in our production base and consistent with
stated corporate strategy. We have already had exploration drilling successes in
Tunisia and Denmark and 2004 will see further increases in exploration activity,
with Paladin participating in up to eight exploration wells.

This time last year, the Company set new targets for continued growth, namely to
increase production and reserves to 100,000 boepd and 250 MMboe respectively by
2008 through a combination of organic growth from the existing portfolio of
assets and further acquisitions. This year, we have a substantial capital
investment programme of some £75 million planned, which we anticipate will
result in an increase of around ten per cent in 2004 Group production compared
to last year and further raise production in subsequent years from the existing
asset base. We remain confident that the challenging targets set for continued
growth over the next few years can be achieved through consistent application of
our strategy and discipline both in the evaluation and pricing of future
acquisition opportunities and in the ranking of capital investment projects in
the existing asset base.

2003 has been another very successful year for Paladin and I would like to take
this opportunity on behalf of shareholders to thank the executive team, all our
staff and our alliance partners for the commitment and hard work over the last
twelve months which have made a significant contribution to this success.

            J. Malcolm Gourlay
            24 March 2004

Operational Review

Paladin's 2003 production totalled 14.5 MMbbl of oil and NGL and 4.9 Bscf of gas
from its field interests in the UK, Norwegian and Danish sectors of the North
Sea, complemented by production from Indonesia and Tunisia. Daily average
production of 42,006 boepd was a new record and an increase of 44 per cent from
29,117 boepd in 2002.

Much of the Company's near-term production growth has been driven by the initial
impact of acquisitions; however, the overriding reason for those acquisitions
has been the associated investment opportunities to enhance production and
ultimate recoverable reserves. In that respect, 2003 was a particularly active
year, with the Group investing £59.8 million on production and development
projects compared to £26.4 million in 2002. That trend is set to continue in
2004 when we anticipate investing some £75 million on developments and projects
designed to improve recovery from existing fields.

Consistent with the Company's stated strategy, exploration activity also
increased substantially with £9.8 million invested in 2003 in comparison to £3.6
million in 2002. We anticipate a further rise in exploration spend to some £11
million in 2004 on a range of activities, including exploration wells in the UK,
Norway, Denmark and Tunisia.

Further details of our activities in each region are given below.

United Kingdom

Montrose, Arbroath and Arkwright (Paladin 58.97%)

In May 2003, Paladin completed its purchase of the interests of BP and Amerada
Hess in Blocks 22/17, 22/18, 22/22a and 22/23a including the Montrose, Arbroath
and Arkwright Fields and the Carnoustie and Wood discoveries. The operatorship
was safely and successfully transferred from BP to Paladin on completion.
Paladin's new office in Aberdeen is now well established and staff from our
operating alliance partners, Petrofac Facilities Management and Helix RDS, are
fully integrated into Paladin's operating organisation.

Paladin's annualised 2003 net production from the fields was 6,995 boepd.
Excellent progress has been made since operatorship transfer in improving
production efficiency, with average combined gross production capacity from the
three fields of around 22,000 bopd (13,000 bopd net to Paladin).

A significant investment programme has also begun, which will progress various
opportunities in the area. Drilling of an appraisal well into the northern
extension of the Montrose Field is imminent, to be followed by an exploration
well to test the Brechin prospect, to the east of the Arkwright Field. At the
same time, a heavy-duty jack-up rig will drill an infill well and work-over two
wells on the Arbroath Field. Paladin is also actively evaluating the potential
development of the Wood gas condensate discovery, in conjunction with associated
gas from the existing fields.

Ross (Paladin 30.82%)

Gross production for the year from the Ross Field averaged 6,881 bpd of oil and
NGL and 7 MMscfd of gas (2,452 boepd net to Paladin). A planned infill well was
successfully drilled and brought on-stream in December at a rate of over 2,000
bopd, somewhat lower than initially expected. The results of this well will be
monitored and used to update the understanding of the reservoir with a view to
identifying future infill drilling opportunities.

Paladin is also continuing to benefit from the better than expected performance
of the Blake Field through the tariff income paid by those field owners to the
Ross Field partners for the processing and transportation of Blake crude through
the Bleo Holm FPSO.

Bittern (Paladin 2.42%)

Gross production for the year from the Bittern Field averaged 51,336 bpd of oil
and NGL and 49 MMscfd of gas (1,441 boepd net to Paladin). The field is now
performing ahead of initial expectations and, following the acquisition of
additional seismic data, an infill well location has been identified and
approved for drilling in 2004. Bittern production was also enhanced during 2003
by the high operating efficiency now being experienced on the Triton FPSO. The
recent tie-in of PetroCanada's Clapham and Pict Fields to the vessel will lower
Bittern's future share of the FPSO operating costs, as these are shared on a
throughput basis.

Blake (Paladin 2.4%)

Gross production for the year from the Blake Field averaged 34,364 bopd of oil
(825 bopd net to Paladin). The development of the Blake flank area progressed as
planned with drilling operations beginning in March and first oil being achieved
in September. The two Blake flank producing wells and one water injection well,
together with the excellent performance of the main reservoir, have now lifted
overall Blake Field production capacity to over 40,000 bopd.

Blane, Enoch and J1 (Paladin 30.49%/30%)

In January 2004, Paladin announced that it had entered into a sale and purchase
agreement with companies in the Royal Dutch/Shell Group to acquire their
operated interests in the Blane and Enoch oil discoveries and the J1 gas
condensate discovery in the Central North Sea. The transaction, which was
completed recently, involved Paladin acquiring the following interests:

A 30.49 per cent interest in Block 30/3a (Upper), which lies adjacent to the
UK-Norwegian median line and contains part of the Blane oil discovery. The
Company already owns a 65 per cent interest in the Norwegian block containing
the extension of the discovery into Norwegian waters; and

A 30 per cent interest in Block 16/13a, which lies adjacent to the UK-Norwegian
median line immediately to the south east of the Brae and Miller Fields. This
block contains the Enoch oil discovery and the J1 gas condensate discovery.

The acquisition provides Paladin with attractive development opportunities,
particularly in the light of its involvement on both sides of the median line
and the planned new Framework Treaty on cross-border activity.

Goldeneye (Paladin 7.5%)

The development of this gas and condensate field progressed on schedule and
within budget during 2003. The pipeline and unmanned offshore platform were
successfully installed and commissioned during the summer months and drilling
activities commenced in September. All of the five planned production wells have
now been drilled and are being completed. The remaining development activities
are focused on the construction and commissioning of the onshore processing
facilities at St Fergus, which will be ready for first gas production in the
third quarter of 2004. Paladin's net gas production from Goldeneye will rise to
22.5 MMscfd plus liquids (approximately 4,000 boepd) when the field reaches its
planned production level of 300 MMscfd towards the end of 2004.


Paladin was awarded three production licences in the 21st Offshore Licensing
Round, comprising a 20 per cent interest in Blocks 13/22c and 13/27 (part),
located immediately adjacent to the Ross Field in which Paladin already holds a
30.82 per cent interest, and a 100 per cent interest in Blocks 22/12b, 22/16b,
22/24c and 22/25c located adjacent to the Montrose, Arbroath and Arkwright
Fields, which Paladin operates with a 58.97 per cent interest.

During 2003, Paladin entered into an agreement with Energy North Sea Limited,
which holds the remaining 41.03 per cent interest in the Montrose, Arbroath and
Arkwright Fields, to align their respective interests in the exploration areas
around the fields. As a result, Paladin's interest in each of Blocks 22/17, 22/
18, 22/22a, 22/23a, 22/12b, 22/16b, 22/24c and 22/25c is now 58.97 per cent and
Energy North Sea's 41.03 per cent. In addition, Energy North Sea will fund the
first £5 million of exploration and appraisal expenditure in the blocks, which
will include the cost of drilling the Brechin exploration prospect.

As part of the acquisition of interests in the Blane, Enoch and J1 discoveries
from the Royal Dutch/Shell Group referred to above, Paladin also acquired a
41.08 per cent operated interest in Block 22/16a which lies immediately to the
west of the Montrose and Arbroath Fields.

Plans are well advanced to drill the Brechin prospect (Paladin 58.97 per cent
and operator) in Block 22/23a during the second quarter of the year. Any
discovery would be tied back to the Montrose/Arbroath Field infrastructure for
production. The Skate prospect (Paladin 10 per cent) in Block 13/29b is also
expected to be drilled in the second quarter and, if successful, could be tied
back to the Blake/Ross Field infrastructure.


Veslefrikk (Paladin 27%)

Gross production for the year from the Veslefrikk Field averaged 29,724 bpd of
oil and NGL and 18 MMscfd of gas (8,235 boepd net to Paladin).

Two infill production wells and one water injection well were drilled during
2003 which, together with an active work-over programme, helped maintain
production levels. A 4D seismic survey was processed and interpreted and this
will be used to plan the 2004 and 2005 infill drilling programme. Paladin has
been working actively with Statoil, the operator of Veslefrikk, to develop an
operating cost reduction plan for the field, the first phase of which will be
implemented during 2004.

Brage (Paladin 20%)

Gross production for the year from the Brage Field averaged 33,893 bpd of oil
and NGL and 8 MMscfd of gas (7,031 boepd net to Paladin).

An infill drilling programme was undertaken in 2003 and it is anticipated that
the positive production impact of this will be seen in 2004. Reservoir
performance has exceeded expectations since the asset was acquired and this has
led to a further increase in booked remaining reserves.

A cost reduction programme has been successfully implemented on Brage and the
field is now a top quartile performer in North Sea operating cost benchmarking.

Njord (Paladin 15%)

Gross production for the year from the Njord Field averaged 30,415 bopd (4,562
bopd net to Paladin).

Two infill wells were drilled during 2003, including the horizontal tri-lateral
well A-10BY. This well commenced production at the forecast initial rate of
40,000 bopd but declined more rapidly than expected; it has now stabilised at a
rate in line with original expectations. Both these wells increased production
from the field and will also have a positive impact on 2004 production.
Additional well work-overs, including two successful gas shut-off operations,
were also undertaken to enhance oil production. Engineering studies and the
preparation of a plan of development for a gas blow-down project on the Njord
Field continued, with a view to the project being sanctioned in late 2004 and
first gas in 2007. In the meantime, further infill drilling on Njord to maximise
oil recovery is planned for the second half of 2004. This will comprise the use
of lower cost, through-tubing drilling of multi-lateral wells.

Huldra (Paladin 0.5%)

Gross production for the year from the Huldra Field averaged 287 MMscfd and
20,846 bpd of condensate (342 boepd net to Paladin).


Paladin has added significantly to its portfolio of exploration interests in
Norway in 2003, through a combination of licence applications, farm-ins and
acquisitions. Three production licences comprising four exploration blocks were
awarded to Paladin in April in the Norwegian North Sea Awards 2002: Blocks 4/1
and 4/2, which lie approximately 15 to 20 kilometres to the north of the Danish
Nini Field adjacent to the Norwegian-Danish median line, Block 3/7, also
adjacent to the Norwegian-Danish median line, and Block 31/4, which lies
immediately to the east of the Brage Field.

During 2003, the Company acquired from Norsk Hydro and Statoil a 65 per cent
interest in Block 1/2, which contains an extension of the Blane oil discovery.
Paladin was approved as operator of this block by the Norwegian authorities. In
addition, the Company acquired from Norsk Hydro a 20 per cent interest in Block
7/1, where a 3D seismic survey was acquired to improve the definition of
exploration leads, and a 25 per cent stake from Statoil in Blocks 4/4 and 4/5
adjacent to the Norwegian-Danish median line. Paladin has also farmed-in to an
eight block area to the east of the Jotun Field and will earn a 10 per cent
interest in these blocks by paying for 22.5 per cent of the cost of the Beluga
exploration well, which is expected to spud in the near future.

A further three licences were awarded to Paladin in December 2003 as part of the
APA 2003 Licensing Round. These comprised Block S 7/11, which lies immediately
to the north of Block 1/2, Block 30/12, adjacent to licences PL266 and PL267,
and Block S 16/10, immediately to the north of Block 7/1. These three licences
all contain extensions of either prospects or geological plays that have already
been identified within blocks in which Paladin holds an interest.

The Brage joint venture is planning to drill the Idun prospect (Paladin 20 per
cent) by means of a vertical well in late 2004. In the event of success, the
discovery could be developed from the Brage platform.


Siri/Stine (Paladin 30%)

Gross production for the year from the Siri and Stine Fields averaged 15,991
bopd (4,798 bopd net to Paladin).

In April 2003, an additional production well was successfully drilled into the
Stine-2 oil accumulation to enhance recovery from this satellite field.

The development of the Stine-1 Field, as a subsea satellite to the Siri
platform, continued during 2003. First production is expected in the second
quarter of 2004, following the drilling of an appraisal and development well.

The nearby Nini and Cecilie Fields came on-stream in August 2003. Although the
Group has no direct stake in these fields, it benefits from their contribution
to Siri operating costs and from the tariff income paid by them.


The Sofie-1 exploration well (Paladin 30 per cent), some 20 kilometres to the
north east of the Siri Field, was drilled in May 2003, and discovered oil in
Palaeogene sandstones. Preliminary analysis of the well results suggests that
the discovery can be developed as a satellite to the Siri Field. The Siri
partners are currently considering a plan of development submission for Sofie in
mid-2004, with first oil anticipated in 2005.

A further exploration well is expected to be drilled in late 2004, and the joint
venture is currently considering whether to commit to a second well.


South East Sumatra (Paladin 7.48%)

Gross production from the PSC averaged 94,900 bopd during the year (Paladin net
entitlement 3,868 bopd). The infill drilling programme was held back during
2003, to enable further technical work to be carried out to identify new
targets. This resulted in a faster decline in oil production but this trend
should reverse as drilling activity picks up during 2004.

Following the approval by BPMigas of the plan of development for gas reserves, a
heads of agreement has been signed with PLN, the electricity generating company,
for the sale of up to 80 BBtu per day over a 13 year period (total contract
sales 379 TBtu) starting in 2005. Negotiation of the fully termed gas sales and
purchase agreement is well underway.

Offshore North West Java (Paladin 2.45%)

Gross production from the PSC averaged 38,201 bpd of oil and 279 MMscfd of gas
during the year (Paladin net entitlement 1,288 boepd).

The gas sales contract with PLN was renegotiated with effect from 1 January 2004
to extend the contract period through to 2017 on a depletion basis. This has now
enabled the development of the APN gas fields to proceed.


Paladin withdrew from the Blora PSC in 2003, as the remaining prospectivity was
not sufficiently attractive to meet the Company's investment criteria.


Adam Concession Area (Paladin 7%)

Following approval of the field development plan and ETAP's confirmation of
backing-in to a 30 per cent working interest, the Adam Field was hooked-up to
the Eni production facilities at Oued Zar and brought on to production through
the Adam-1 well at 3,700 bopd in late May. The Adam-2 appraisal well was drilled
during the year and was successfully completed in the Acacus sands and brought
on to production in September. Gross production from the Adam Concession
averaged 2,423 bopd over the year (170 bopd net to Paladin).

The exploration well Hawa-1 was drilled during the autumn on a separate prospect
in the Adam Concession Area. It was successful in proving a productive
oil-bearing Acacus reservoir and was tested at encouraging rates. As recently
announced, the well has already been hooked-up to the production facilities at
Oued Zar and has been brought on-stream, increasing the total production from
the Concession Area to some 9,000 bopd (approximately 630 bopd net to Paladin).

Further drilling is anticipated later in the year and any additional successful
wells will be able to take advantage of the existing infrastructure and be
fast-tracked to production. Discussions are also underway with STEG, the state
electricity and gas company, regarding gas sales from the Concession Area.


Midia and Pelican (Paladin 80%)

These licences were put into suspension with the agreement of the Romanian
authorities in December 2003, as part of the acreage covered by the licences
fell within an area subject to a maritime border dispute between Romania and
Ukraine. The licences will be reactivated once the dispute has been formally

Roy A. Franklin
Chief Executive
24 March 2004

Financial Review

Production and profits

Group production rose by 44% to 42,006 boepd (2002: 29,117 boepd). The average
realised price for the year (excluding the effect of hedging) increased to
$28.30 per boe (2002: $23.85 per boe), although the impact of this increase was
partly offset by the weaker average US dollar/sterling exchange rate of $1.63/£
(2002: $1.50/£). Tariff income was up sharply to £12.4 million (2002: £2.6
million), contributing to an increase in turnover for the year of 58% to £268.2
million (2002:  £170.2 million).

Average production costs, excluding the benefit of tariff income, increased to
$11.84 per boe (2002: $9.18 per boe). If the benefit of tariff income were
included, average production costs would be reduced to $10.52 per boe (2002:
$8.81 per boe).

The depletion and depreciation charge increased to $6.31 per boe (2002: $4.53
per boe) as a result of (i) changes in the tax legislation in Norway in relation
to the treatment of decommissioning costs, (ii) the additional charge on
tariffed production in the UK and Denmark, (iii) the increased weighting of
higher cost UK production and (iv) increases in estimated future capital costs
in Scandinavia and Indonesia. In addition, a write-off of exploration and
appraisal costs of £2.0 million was made in respect of Romania.

Administrative costs were £4.1 million (2002: £2.4 million). The increase was
due primarily to the significant expansion in activities, particularly where
Paladin is operator. Net interest expense increased to £7.1 million (2002: £3.7
million). This item includes £3.9 million (2002: £0.7 million) in respect of the
unwinding of the discount rate on the decommissioning provision, which itself
was increased to reflect the acquisition of the Montrose, Arbroath and Arkwright
interests and the change in Norwegian tax legislation relating to
decommissioning expenditure.

Profit before tax was 28% higher at £84.8 million (2002: £66.0 million).


The Group's overall effective tax rate was 66.4% (2002: 69.5%). The rate
reduction was primarily attributable to the changes in mix of profits and in
Norwegian legislation relating to decommissioning costs.

Profit after taxation and earnings per share

Profit for the year was £30.4 million, before a £2.0 million write-off in
respect of unsuccessful exploration costs relating to the Group's Romanian
interests, giving net profit after tax of £28.4 million (2002: £20.1 million), a
41% increase. This reflects healthy production growth and strong commodity
prices throughout the year, complemented by a lower tax rate.

Earnings per share increased to 8.92 pence (2002: 7.76 pence).


At the time your Board decided to recommend the commencement of payment of a
dividend in 2002, it stated that it intended the future level of dividend
payments to be progressive in real terms and sustainable in a lower oil price
environment. In line with this policy, the Company paid an interim dividend of
0.525 pence per share in October 2003 (1H 2002: 0.5 pence per share). The Board
will recommend payment of a final dividend of 1.05 pence per share (2002: final
dividend of 1.0 pence per share) to shareholders for approval at the Annual
General Meeting, which would bring the total dividend for 2003 to 1.575 pence
per share (2002: 1.5 pence per share).

Cash flow and net debt

Cash flow from operating activities before working capital movements was 49%
higher at £153.5 million (2002: £103.1 million). After working capital, cash
flow from operating activities amounted to £143.1 million (2002: £96.3 million).
Net interest paid was lower, at £3.6 million (2002: £4.1 million), while cash
taxes rose to £52.9 million (2002: £27.5 million) as a consequence of increased
profitability. Cash flow after tax and interest increased to £86.6 million
(2002: £64.7 million).

Total capital investment for the year was £69.8 million, including £58.8 million
incurred on development expenditure and £9.8 million on exploration and

During the year, total payments of £113.1 million were made (after adjustments)
to acquire interests in the Montrose, Arbroath and Arkwright Fields, to complete
the acquisition of a further interest in the Ross Field in the UKCS, and to
complete the purchases of an additional interest in the Veslefrikk Field and
various Norwegian licences. Disposal proceeds of £3.2 million were received for
the Group's last remaining asset in the USA.

The dividend payment of £4.8 million comprises the final dividend in respect of
2002 and the interim dividend for the first half of 2003.

As a result of the significant capital investment programme and the completion
of a number of material acquisitions, offset by net proceeds of £40.5 million
from the placing and open offer which closed in January 2003, year-end net debt
increased to £110.0 million (2002: £61.6 million), including finance lease
liabilities of £6.0 million. Given the strength of the Group's projected cash
flow generation, the Board is comfortable with this level of net debt. All debts
and other liabilities arising from the Group's activities are included in the
Group Balance Sheet.

The increase in working capital of £10.4 million mainly reflects the increase in
oil sales debtors following the acquisition of interests in the Montrose,
Arbroath and Arkwright Fields.

Risk management

The two principal external factors affecting the Group's results, which are
reported in sterling, are the price of oil, which is denominated in US dollars,
and the sterling/US dollar exchange rate.

The Group's policy is to hedge up to 50% of forecast oil production (excluding
that from Norway and Indonesia, where price risk is mitigated by relatively high
government taxes). Over the period 2002-2003, the Group entered into oil price
swaps for 2003 (based on dated Brent) covering 3.75 MMbbl at an average fixed
price of $24.07 per bbl. Overall, the oil price swaps included in profits for
2003 reduced turnover by £9.5 million and reduced year average realisations by
$1.01 per boe.

Further swaps have been entered into for the period 1 January 2004 to 31
December 2006 as detailed below, representing approximately 34% of the Group's
forecast lower taxed production over this period:

                  Entered into in 2002/3                             Entered into in 2004
                                          Average price                              Average price
                                  bbl             $/bbl                    bbl               $/bbl
2004                        3,900,000             23.21                      -                   -
2005                        2,100,000             24.03                600,000               27.18
2006                          150,000             25.00                600,000               26.33

To manage currency risk, borrowings are generally matched with the currency in
which income is generated. As at year-end, 75% of bank debt was denominated in
US dollars and 25% in sterling, the latter associated principally 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 payment of taxes in those currencies.

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

International Financial Reporting Standards

Reporting under IFRS will be mandatory for the Group for periods ending after 31
December 2004 and comparative figures for 2004 will be required on the
implementation of IFRS in 2005. A project team will be set up early in 2004 to
manage the Group's transition from UK accounting standards to IFRS and to ensure
successful implementation within the required timetable.

Cuth McDowell
Finance Director
24 March 2004

Production and Reserves

Production                                                 2003                            2002

Oil                                               Mbbl            bopd            Mbbl            bopd

UK                                               4,062          11,128             928           2,543
Scandinavia                                      8,838          24,213           7,012          19,210
Indonesia                                        1,563           4,282           1,889           5,175
Tunisia                                             62             170               -               -
USA                                                  -               -              32              87
Total                                           14,525          39,793           9,861          27,015

Gas                                                Bscf           MMscfd             Bscf           MMscfd

UK                                                  1.3              3.5              0.7              1.8
Scandinavia                                         1.7              4.5              1.6              4.4
Indonesia                                           1.9              5.3              1.8              5.0
Tunisia                                               -                -                -                -
USA                                                   -                -              0.5              1.4
Total                                               4.9             13.3              4.6             12.6

                                                   Mboe            boepd             Mboe            boepd

Total Oil Equivalent Production                  15,332           42,006           10,628           29,117

Proven and Probable Reserves

at 31 December                                                     2003                2002
Oil                                                               MMbbl                Mbbl

UK                                                                 44.6                10.5
Scandinavia                                                        45.7                52.2
Indonesia                                                          24.8                26.7
Tunisia                                                             0.9                   -
USA                                                                   -                 0.5
Total Oil Reserves                                                116.0                89.9

Gas                                                               Bscf                Bscf

UK                                                                53.2                51.9
Scandinavia                                                       11.8                10.8
Indonesia                                                         35.6                43.3
Tunisia                                                              -                   -
USA                                                                  -                 3.9
Total Gas Reserves                                               100.6               109.9
Total Reserves Oil Equivalent                                    132.7               108.2

Notes to Production and Reserves:

1.    Oil includes NGL.

2.    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 report 
      completed in March 2004 showed no material inconsistencies between the
      Company's quantification of its reserves and that of the independent 
      engineers.  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 2003 would increase by 18.2 MMboe to 48.9 MMboe and total 
      Group reserves would increase to 150.9 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.

3.    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.

4.    The following movements in proven and probable reserves occurred in 2003, 
      with comparative figures provided for 2002:

                                                                  2003                2002
                                                                 MMboe               MMboe

Reserves at 1 January                                           108.2                63.1
Produced during the year                                        (15.3)              (10.6)
Acquisitions                                                     37.5                43.7
Disposals                                                        (1.2)                  -
Revisions to estimates                                            3.5                12.0
Reserves at 31 December                                         132.7               108.2

Group Profit and Loss Account
for the year ended 31 December                                                             2003          2002
                                                                            notes          £000          £000
Turnover                                                                                268,173       170,247

Cost of sales
Production costs                                                                       (111,049)      (65,054)
Depletion and depreciation                                                              (59,222)      (32,068)
Exploration expenditure written off                                                      (1,958)         (982)
                                                                                       (172,229)      (98,104)
Gross profit                                                                             95,944        72,143
Administrative expenses                                                                  (4,100)       (2,431)
Operating profit                                                               4         91,844        69,712
Net interest expense                                                                     (7,092)       (3,738)
Profit on ordinary activities before taxation                                            84,752        65,974
Taxation                                                                                (56,306)      (45,825)
Profit on ordinary activities after taxation                                             28,446        20,149

Dividend                                                                       3         (5,033)       (4,449)
Retained profit for the year                                                             23,413        15,700
Earnings per share                                                             2
Basic                                                                                      8.92p         7.76p
Diluted                                                                                    8.82p         7.65p
Dividend per ordinary share                                                    3          1.575p         1.50p

Group Statement of Total Recognised Gains and Losses
for the year ended 31 December                                                             2003          2002
                                                                                           £000          £000
Profit for the year                                                                      28,446        20,149
Foreign exchange differences                                                            (23,498)      (11,022)
Total recognised gains for the year                                                       4,948         9,127

Group Balance Sheet
at 31 December                                                                             2003            2002
                                                                                           £000            £000
Fixed assets
Tangible fixed assets                                                                   290,962         192,936
Intangible fixed assets                                                                  50,603          40,334
Investments                                                                                   -             117
                                                                                        341,565         233,387
Current assets
Stock                                                                                     6,564           7,543
Debtors                                                                                  41,641          30,251
Cash at bank and in hand                                                                  1,270           1,164
                                                                                         49,475          38,958
Creditors: amounts falling due within one year                                          (64,101)        (73,176)
Net current liabilities                                                                 (14,626)        (34,218)
Total assets less current liabilities                                                   326,939         199,169
Creditors: amounts falling due after one year                                          (110,556)        (61,731)
Provisions for liabilities and charges                                                  (68,735)        (31,447)
Net assets                                                                              147,648         105,991
Capital and reserves
Called up share capital                                                                  32,196          25,426
Share premium account                                                                    79,328          44,356
Profit and loss account                                                                  36,124          36,209
Equity shareholders' funds                                                              147,648         105,991

The financial statements were approved by the Board of Directors on 23 March
2004 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          2003        2002
                                                                                                  £000        £000
Cash flow from operating activities                                                    4       143,092      96,275

Returns on investments and servicing of finance

Interest received                                                                                   23         437
Interest paid                                                                                   (3,599)     (4,489)

Net cash outflow from returns on investment and servicing of finance                            (3,576)     (4,052)

Taxation                                                                                       (52,896)    (27,481)

Capital expenditure and financial investments
Ongoing capital expenditure (excludes capitalised interest)                                    (69,776)    (30,179)
Acquisition of oil and gas fixed assets                                                       (113,121)    (62,189)
Amount received in settlement of legal proceedings relating to oil and gas
interests                                                                                            -       6,000

Proceeds from sale of oil and gas interests and rights                                           3,168           -
Investment in own shares                                                                        (1,164)       (486)
Net cash outflow from capital expenditure                                                     (180,893)    (86,854)

Equity dividend paid                                                                            (4,823)     (1,264)

Net cash outflow before financing                                                              (99,096)    (23,376)


Issue of shares                                                                                 41,742         344
Increase in borrowings                                                                         163,506     133,458
Proceeds from lease financing                                                                        -       9,052
Decrease in borrowings                                                                        (104,645)   (117,830)
Finance lease payments                                                                          (1,301)       (420)

Net cash inflow from financing                                                                  99,302      24,604

Increase in cash in the year                                                                       206       1,228

Reconciliation of net cash flow to movement in net debt

Increase in cash in the year                                                                       206       1,228

Increase in borrowings                                                                        (163,506)   (133,458)
Proceeds from lease financing                                                                        -      (9,052)
Decrease in borrowings                                                                         104,645     117,830
Payment of lease financing                                                                       1,301         420

Change in net debt resulting from cash flows                                                   (57,354)    (23,032)
Exchange differences                                                                             8,932       5,821

Movement in net debt in the year                                                               (48,422)    (17,211)

Net debt at the start of the year                                                              (61,619)    (44,408)

Net debt at the end of the year                                                               (110,041)    (61,619)


(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 2003 or 2002 but is
     derived from those accounts. Statutory accounts for 2002 have been 
     delivered to the Registrar of Companies, and those for 2003 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    Earnings per share

     The basic and diluted earnings per share are calculated on a profit after 
     tax of £28,446,000 (2002: profit of £20,149,000) and, for the basic 
     earnings per share, the weighted average number of 318,773,203 ordinary 
     shares (2002: 259,631,356 shares).

The weighted average number of shares for the purpose of the calculation of the
diluted earnings per share is calculated as follows:
                                                                       2003 thousands            2002

Basic weighted average number of shares                                      318,773         259,631
Dilutive potential ordinary shares:
Employee share options                                                         3,897           3,665
                                                                             322,670         263,296

3   Dividend

    An interim dividend of 0.525 pence per share was paid in October 2003 and 
    the Board recommend the payment of a final dividend of 1.05 pence per share. 
    If approved by shareholders, the final dividend will be paid on 21 May 2004 
    to those shareholders on the register on 23 April 2004. The interim dividend 
    paid was £1,672,000 (2002: £1,264,000) and the proposed final dividend is 
    £3,361,000 (2002: £3,185,000).

4   Reconciliation of operating profit to operating cash flows
                                                                                   2003             2002
                                                                                   £000             £000
Operating profit                                                                 91,844           69,712
Depreciation and depletion charge                                                59,222           32,068
Exploration expenditure written off                                               1,958              982
Increase in provisions                                                              457              376
Operating cash flow before movement in working capital                          153,481          103,138
Decrease/(increase) in stocks                                                       804           (3,827)
Increase in debtors                                                             (14,564)         (16,940)
Increase in creditors                                                             3,371           13,904
Net cash inflow from operating activities                                       143,092           96,275

5   Post balance sheet event

    In January 2004, Paladin announced that it had entered into a sale and 
    purchase agreement with companies in the Royal Dutch/Shell Group to acquire 
    their operated interests in the Blane, Enoch and J1 discoveries in the UK 
    Central North Sea for a base consideration of $10 million. The transaction 
    was completed in March 2004.

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