Half Yearly Results for the Six Months Ended 30...
Immediate Release 22 September 2009
Gulfsands Petroleum PLC
Half-Yearly Results for the Six Months Ended 30 June 2009
Highlights
Operational
* Average working interest production 6,165 boepd vs. 1,699 boepd
in H1 08
* US production still not fully restored following 2008 hurricanes
* 850 km² of 3D seismic data acquired on Block 26, Syria
* Average sales price for Syrian production in H1 09 : $44.0/bbl, a
discount to average Brent of $7.9/bbl
Financial
* Revenues up 47% to $29.0 million (H1 08: $19.7 million)
* Net profit $3.7 million (H1 08: loss of $10.3 million (restated))
* Net cash from operations, before working capital movements, $12.4
million (H1 08: $5.4 million)
* Capital expenditure $14.7 million (H1 08: $11.3 million)
* Cash balance at period end of $31.9 million (31.12.08: $36.8
million).
Post Period Events
* Capacity of Early Production Facility increased to 18,000 bopd
gross
* Year-end target of 16,000 bopd from Khurbet East Field reached
mid-September
* Average discount to Brent of Syrian oil sales in July and August
fell to below $3/bbl
Gulfsands' Chairman, Andrew West, said:
"The first half of 2009 has demonstrated the tangible financial
benefits of Gulfsands' Middle Eastern strategy. Despite a relatively
weak oil price during the period, we have not only increased revenue
and operating cash flow substantially as compared to the first half
of 2008 but have delivered the first profit for shareholders for five
years. We are also delighted to welcome Sinochem as our provisional
new partner in Block 26 and look forward to working closely with them
to exploit aggressively the significant development and exploration
opportunities remaining within the Block."
For further information please contact:
Gulfsands Petroleum (London) +44 (0)20 7434 6060
Richard Malcolm, Chief Executive Officer
Andrew Rose, Chief Financial Officer
Kenneth Judge, Director of Corporate +44 (0)7733 001 002
Development
Buchanan Communications Limited (London) +44 (0)20 7466 5000
Bobby Morse
Ben Romney
RBC Capital Markets (London) +44 (0)20 7653 4667
Sarah Wharry
These half-yearly results, together with a copy of the presentation
to be given analysts at 9.30am today and a webcast thereof, can be
viewed on
http://mediaserve.buchanan.uk.com/2009/gulfsands220909/registration.asp
and a recording will be available on the Gulfsands' website:
www.gulfsands.com thereafter.
CHAIRMAN'S STATEMENT
At the time of writing, Gulfsands' working interest production from
Block 26 Syria has just reached 8,000 barrels of oil per day, the
target we set ourselves for the end of 2009. This represents a
crucial milestone in the Company's evolution and underlines
definitively the shift in our geographical and strategic focus.
The cash flow from this production means that the full field
development of our two discoveries at Khurbet East and Yousefieh,
together with much of our planned exploration activity elsewhere in
Block 26, will be self-funding. Ensuring that this development and
exploration activity is put on the fastest possible track is and will
remain our foremost priority.
We are delighted to welcome Sinochem as our provisional new partner
in Block 26. Sinochem is a world-class oil and gas company strongly
endowed with both financial resources and the determination to build
the long term value of its strategic assets. We look forward to an
active collaboration aimed in the first instance at the aggressive
exploitation of the opportunities presented by Block 26 and, we hope,
in due course beyond.
We are also exploring actively a number of other opportunities to
partner with major oil companies in Syria, Iraq and possibly, in due
course, elsewhere in the Middle East. Our success to date in
operating Block 26, together with our established presence and
credentials in the region, position us ideally to add significant
value to such collaborations.
The Gulf of Mexico is clearly now of lesser strategic importance to
the Company. In part due to continuing weak gas prices and in part
as a result of the legacy of the 2008 hurricane damage, these assets
made a negative financial contribution for the half year. Our
intention remains to seek to dispose of these assets as and when
circumstances become more favourable to such a disposal. In the
interim, we will continue to invest the minimum amounts necessary to
maintain the value of our holdings.
We look forward to continuing this positive trajectory in the second
half of the year.
Andrew West
Chairman
22 September 2009
CHIEF EXECUTIVE'S STATEMENT
The year to date has seen a significant step forward in the
exploitation of our core Syrian assets, with daily gross production
from the Khurbet East field currently running over 60% higher than at
the start of the year and already exceeding our original target of
16,000 bopd for the end of 2009. We have laid the ground for future
growth, having launched the tender process for a permanent central
production facility and acquired additional 3D seismic data over an
850 km² area around the Khurbet East field. We have also reinforced
our local staff, including hiring an experienced operations manager,
Khalid Mogharbel, who was previously general manager in charge of all
of Schlumberger's oilfield services in the Middle East.
In April independent estimates of reserves on the Khurbet East and
Yousefieh fields as at 31 December were published which showed
combined 2P gross reserves, attributable to our 50% working interest,
of 35 million barrels, an increase in 20% on the previous year-end
figure, updating the figures contained in our 2008 Annual Report. The
performance of the Khurbet East field since then indicates that there
is significant scope for future reserves increases.
The loss recorded by our US operations in the first half was
disappointing. Performance has been severely impacted by the
continued absence of production from certain properties affected by
last year's hurricanes, by the substantial fall in US gas prices, and
by impairment charges. We will work towards restoring the
profitability of this business as soon as possible. In Iraq progress
on the Maysan gas capture project has proved to be very slow. We
prepared, with the assistance of external consultants, a very
detailed proposal covering all aspects of the project which has been
submitted to the Iraqi authorities and a response is still awaited.
With the current focus in the Oil Ministry being on the license
rounds to take over operation of the supergiant oil fields, and the
political focus increasingly being on the upcoming parliamentary
elections next January, we do not expect to see much progress on our
proposals until 2010.
Operations Review
Syria
The performance of the Khurbet East field has continued to exceed
expectations: cumulative gross oil production passed the 4.5 million
barrels mark in mid-September, with negligible associated water
production and little reservoir depletion being observed. The current
gross oil production from the field is 16,400 barrels of oil per day
("bopd"), having increased from an average of 10,730 bopd during the
month of June with the tie-in in July of wells KHE-9 and 10 and the
successful cementing operation conducted on the KHE-2 well to isolate
small amounts of water production that had been experienced from the
well.
During the first half four wells were completed on Khurbet East and
one on the neighbouring Yousefieh discovery.
The first two wells on Khurbet East, KHE-7 and 8, were delineation
wells drilled to the north and south of the field respectively with
the aim of providing structural and stratigraphic information on the
northern and southern limits of the field as well as identifying the
field-wide oil-water contact. The KHE-7 well encountered good oil
shows while drilling through the Cretaceous Massive interval but
overall reservoir quality was found to be substantially lower than in
the central portion of the field, and no flow test was undertaken at
that time. The KHE-8 well encountered a 15 metre net oil column
within the Massive reservoir interval with average porosity of 23%,
and flowed oil to surface on a drill-stem test at an average rate of
617 bopd using nitrogen artificial lift and after acid stimulation.
Neither KHE-7 nor KHE-8 encountered a definitive oil water contact
for the Field. Wells KHE-9 and 10 were development wells in the
central portion of the field and are currently contributing over
4,400 bopd between them. Since 30 June two further wells, KHE-11 and
12, have been completed. KHE-11 produced oil under test at a
stabilised rate of 1,660 bopd, with an associated water cut of
approximately 30%. Whilst the oil flow rate from this well is
commercially attractive, further analysis of well data will be
undertaken to determine the source of the water and identify possible
remedial operations prior to bringing the well online as an oil
producer.
The results of the KHE-8 well indicated that the Khurbet East Field
extends further south than had been previously interpreted, and
KHE-12 was therefore drilled 3.2 km to the south of KHE-8 in order to
try once again to determine the southern limits of the Field. This
well encountered a 10 metre reservoir section with oil shows in
cuttings and core. As in other wells at Khurbet East, a definitive
oil-water contact could not be identified, however it is believed the
reservoir section lies within an oil-water transition zone.
Production testing will be undertaken within the next few weeks in
order to determine the nature of the fluids that will be produced.
At Yousefieh the Yousefieh-2 appraisal well, completed in February,
encountered a 16 metre net oil column with average porosity of 16%,
but continuous flow to surface was not established under an initial
drill-stem test. This well has subsequently been re-entered using a
work-over rig, and, following acid treatment and with nitrogen lift,
flowed 17°API oil to surface at a rate of 139 bopd with an associated
water cut of 49%. A similar re-entry operation was also performed in
August on the Yousefieh-1 discovery well, which flowed under test at
823 bopd with negligible water under similar stimulation to
Yousefieh-2. A second appraisal well, Yousefieh-3, has just been
spudded which, if successful, will enable Gulfsands to apply for
commercial development of the Yousefieh field.
In July the expansion of the Khurbet East early production facility
was completed, raising the nameplate production capacity of the field
from 10,000 bopd to 18,000 bopd. We plan to drill two further
development wells before the end of the year in order to
substantially fill this additional capacity going into 2010. Formal
invitations to tender will be issued shortly for the design,
construction and installation of a central processing facility to
serve the combined Khurbet East and Yousefieh fields, which is
expected to be commissioned in mid-2011. Its design capacity will be
50,000 barrels of fluid per day ("bfpd").
In the rest of Block 26, the final processed data from the 3D seismic
survey over an 850 km² area adjacent to the Khurbet East field is due
to be received in early October, when interpretation will commence
with a view to identifying prospects for exploration drilling in
early 2010.
United States
Production from our non-operated Gulf of Mexico assets is currently
at around 1,300 boepd and has not yet been fully restored following
the damage caused by the 2008 hurricanes to certain properties and to
third party infrastructure. Working interest production during the
first half averaged 501 bopd of oil and NGLs plus 3,193 mcfd of gas,
equating on a conventional oil equivalent basis to 1,033 boepd, or
810 boepd on a net revenue interest basis after royalty. This
compared with working interest production in H1 08 of 558 bopd and
6,845 mcfd, equivalent to 1,699 boepd (or 1,333 boepd on a net
revenue interest basis).
Production is likely to increase in coming weeks with the re-entry
into service of a gas pipeline from one of our larger Eugene Island
properties, which prior to the hurricanes had been producing gas at
around 2,000 mcfd (333 boepd) on a net revenue interest basis, as
well as resumption of production from a gas field at West Cameron
following installation of a compressor.
Activity in the first half has been dominated by expenditure relating
to hurricane repairs and decommissioning operations. The low gas
prices currently prevailing in the US mean that the emphasis in the
near term must be on reducing operating costs associated with our gas
producing properties, and we are in dialogue with certain operators
on this subject. Going forward we intend to look at selective
reinvestment opportunities, particularly on our oil producing
properties where there is a clear potential to add value, but will
otherwise endeavour to keep expenditure to a minimum.
Outlook
In Syria we are aiming to substantially complete the interpretation
of our 3D seismic dataset by the year-end and have identified
prospects for exploration drilling on Block 26 next year. After
completing the drilling of the Yousefieh-3 appraisal well which is
currently under way we intend to drill two further development wells
on Khurbet East and then spud an exploration well before the end of
the year.
We are also intending to build a 30km 8" pipeline from our early
production facility to the processing facilities at Soudieh operated
by Syrian Petroleum Company ("SPC"), to replace the current trucking
operation which is seen as a potential bottleneck as production
increases. This pipeline is anticipated to be completed in April
2010.
We envisage 2010 being another active year of drilling, with a
combination of exploration and development wells the precise balance
of which will depend on the outcome of the seismic interpretation.
Ric Malcolm
Chief Executive Officer
22 September 2009
Financial Review
Selected Financial Data
H1 2009 H1 2008
(restated) Change
US$ US$
million million %
Revenue 29.0 19.7 47%
Gross Profit 13.4 6.5 107%
Operating Profit (Loss) 3.9 (9.9) n/a
Profit (Loss) after tax 6.7 (11.2) n/a
Net cash from Operations before working
capital
movements 12.4 5.4 131%
Net cash provided by Operating Activities 8.0 5.4 48%
Capital expenditure (14.7) (11.3) 30%
Decommissioning costs net of escrow cash
released 0.4 1.9 -79%
Production
and Sales
Prices
Working Discount
Interest Entitlement Average Sales to
Production Production Price Brent Revenue
Oil Gas Oil Gas Oil Gas Oil
bopd mcf/d bopd mcf/d US$/bbl US$/mcf US$/bbl US$ MM
H1 2009
Syria 5,087 - 2,998 - 44.0 n.a. (7.9) 23.9
USA 501 3,193 393 2,504 46.4 4.0 n.a. 5.1
Total 5,588 3,193 3,391 2,504 29.0
Total
(boepd) 6,120 3,808 41.8
H1 2008
Syria - - - - - n.a. -
USA 558 6,845 438 5,370 113.9 10.1 19.7
Total 558 6,845 438 5,370 19.7
Total
(boepd) 1,699 1,333 81.2
The H1 2008 results have been restated to reflect prior year
adjustments made in the financial statements for the year end 31
December 2008. Adjustments were made to include future forecast
capital expenditure within the depletion calculation and also to
adjust the decommissioning provision to reflect information contained
in a report from a third party specialist surveyor. These
adjustments are more fully described in note 12 to the Half-Yearly
Financial Report.
Revenue and Profit
Revenues grew by 47% to $29.0 million (H1 08: $19.7 million), as the
growth in production outweighed the fall in oil and gas prices.
Average working interest production in H1 09 was 6,120 boepd (5,087
bopd from Syria, 1,033 boepd from the US) compared with 1,699 boepd
in H1 08, all of which derived from the US as production from Syria
did not commence until July that year. Group entitlement production
was 3,808 boepd, nearly three times that in H1 2008 (1,333 boepd):
all production was sold.
The average realised price during the period was $44.1/bbl for oil
sales and $4.0/mcf for gas. Syrian oil production realised an average
price of $44.0/bbl, representing a $7.9/bbl discount to average
Brent. In the last few months the discount to Brent has narrowed
significantly and August 2009 production from Syria has been sold at
a price of $69.9/bbl, a $2.6/bbl discount to Brent.
Excluding depletion and impairment charges, cost of sales fell by 16%
to $8.2 million (H1 08: $9.8 million). Depletion charges increased by
38% to $5.6 million (H1 08: $4.0 million as restated): Syrian unit
depletion charges are lower than those for the US so the increase in
the depletion charge was less than the increase in Group entitlement
production. An impairment charge of $1.8 million was made against the
US assets following a revision to the discount rate used for future
abandonment liabilities. The resultant gross profit of $13.4 million
was approximately double that of H1 08 ($6.5 million as restated).
Administrative expenses were $7.6 million, a significant reduction on
the $16.7 million in H1 08 owing to much lower charges for
share-based payments. In H1 08 a number of options awards were made,
the bulk of which vested immediately and so the value of those awards
had to be expensed in that period. Comparatively few awards have been
made since then.
A further $1.9 million was expensed for repairs to equipment
following the 2008 hurricanes in the US Gulf of Mexico. Total
estimated repair costs have increased to $5.5 million, of which it is
estimated that $0.9 million is recoverable from insurance. Of the
residual net cost to the Group of $4.6 million, $2.8 million was
charged to the Income Statement in 2008.
The operating profit for the period was $3.9 million compared with an
operating loss of $9.9 million (as restated) in H1 08. Syria made an
operating profit of $15.5 million, the US made a loss of $8.2
million, and general Group expenses were $3.3 million.
After adjusting for the accrual of the decommissioning provision and
a small amount of interest income, the resultant net profit for the
period was $3.7 million, compared with a loss for H1 2008 of $11.2
million (as restated). No tax charge was made in the period compared
with a $0.9 million charge in H1 08.
Cash Flow
Net cash from operations was $7.7 million compared with $5.3 million
in H1 08. However this is after an increase in working capital of
$4.7 million: before working capital movements the cash from
operations was $12.4 million vs. an equivalent figure of $5.4 million
in H1 08. The large increase in working capital arose primarily from
the deferral of $4.8 million of sales proceeds, representing 20% of
sales during the period, in accordance with the terms of the oil
sales agreement in Syria (see below). After interest and tax, the net
cash from operating activities amounted to $8.0 million (H1 08: $5.4
million)
Capital expenditure was $14.7 million (H1 08: $11.3 million) of which
$11.2 million was in Syria and $3.0 million was in the US.
Decommissioning payments of $0.6 million (H1 08: $0.4 million) were
made in the US but this was more than funded by the release of $1.0
million from escrow accounts held against future decommissioning
liabilities.
The exercise of options during the period yielded proceeds of $1.5
million. The resultant net decrease in cash over the period was $4.9
million, leaving cash balances at 30 June 2009 of $31.9 million
(excluding cash held in escrow to meet decommissioning liabilities in
the US). The Group has no outstanding debt.
The terms of the current oil sales arrangements in Syria provide that
20% of invoiced sales be withheld until September 2009 pending the
completion of certain assay tests to determine the quality of the
crude oil delivered from the Khurbet East field. As at 30 June 2009
the cumulative amount of such withheld sales proceeds attributable to
the Group amounted to $9.9 million. It is expected that this amount
will be paid in full before the end of September. If this withheld
amount were to have been received on or before 30 June the pro-forma
cash balance at that date would have been $41.8 million.
Going Concern
The group had cash and bank balances available for immediate use of
over $31 million at 30 June 2009 and no debt. Having reviewed the
Group's forecasts for the period to 31 December 2010 and after making
enquiries, the Directors expect the Group to remain cash positive
throughout the period and have a reasonable expectation that the
Group has adequate resources to continue in operational existence for
the foreseeable future. Consequently the Directors believe that the
Group is able to manage its financial and operational risks and,
accordingly, they continue to adopt the going concern basis in
preparing the Half-Yearly Financial Report.
Andrew Rose
Chief Financial Officer
22 September 2009
INDEPENDENT REVIEW REPORT TO GULFSANDS PETROLEUM PLC
We have been engaged by the Company to review the condensed set of
financial statements in the half year financial report for the six
months ended 30 June 2009 which comprises the condensed consolidated
income statement, the condensed consolidated balance sheet, the
condensed consolidated statement of changes in equity, the condensed
consolidated cash flow statement and related notes 1 to 12. We have
read the other information contained in the half year financial
report and considered whether it contains any apparent misstatements
or material inconsistencies with the information in the condensed set
of financial statements.
This report is made solely to the Company in accordance with
International Standard on Review Engagements (UK and Ireland) 2410
"Review of Interim Financial Information Performed by the Independent
Auditor of the Entity" issued by the Auditing Practices Board. Our
work has been undertaken so that we might state to the Company those
matters we are required to state to them in an independent review
report and for no other purpose. To the fullest extent permitted by
law, we do not accept or assume responsibility to anyone other than
the Company, for our review work, for this report, or for the
conclusions we have formed.
Directors' responsibilities
The half year financial report is the responsibility of, and approved
by, the directors. The directors are responsible for preparing the
half year financial report in accordance with the AIM rules of the
London Stock Exchange.
As disclosed in note 1, the annual financial statements of the Group
are prepared in accordance with IFRSs as adopted by the European
Union. The condensed set of financial statements included in this
half year financial report has been prepared in accordance with
International Accounting Standard 34, "Interim Financial Reporting"
as adopted by the European Union.
Our responsibility
Our responsibility is to express to the Company a conclusion on the
condensed set of financial statements in the half year financial
report based on our review.
Scope of Review
We conducted our review in accordance with International Standard on
Review Engagements (UK and Ireland) 2410 "Review of Interim Financial
Information Performed by the Independent Auditor of the Entity"
issued by the Auditing Practices Board for use in the United Kingdom.
A review of interim financial information consists of making
inquiries, primarily of persons responsible for financial and
accounting matters, and applying analytical and other review
procedures. A review is substantially less in scope than an audit
conducted in accordance with International Standards on Auditing (UK
and Ireland) and consequently does not enable us to obtain assurance
that we would become aware of all significant matters that might be
identified in an audit. Accordingly, we do not express an audit
opinion.
Conclusion
Based on our review, nothing has come to our attention that causes us
to believe that the condensed set of financial statements in the half
year financial report for the six months ended 30 June 2009 is not
prepared, in all material respects, in accordance with International
Accounting Standard 34 as adopted by the European Union and the AIM
rules of the London Stock Exchange.
Deloitte LLP
Chartered Accountants
London, United Kingdom
21 September 2009
CONDENSED CONSOLIDATED INCOME STATEMENT FOR THE SIX MONTHS ENDED 30
JUNE 2009
6 months ended Year ended
31
December
30 June 2009 30 June 2008 2008
(Unaudited
and
(Unaudited) restated*) (Audited)
Notes $' 000 $' 000 $' 000
Revenue 2 28,981 19,699 53,600
Cost of sales
Depletion (5,552) (4,034) (8,767)
Impairment (1,783) 653 (6,327)
Other cost of
sales (8,242) (9,838) (16,588)
Total cost of sales (15,577) (13,219) (31,682)
Gross profit 13,404 6,480 21,918
Administrative
expenses before
exceptional
items (7,534) (5,233) (13,033)
Foreign exchange
gains / (losses) 720 414 (4,729)
Share based payments (743) (11,878) (12,572)
Total administrative
expenses (7,557) (16,697) (30,334)
Hurricane repairs (1,934) 335 (2,750)
Operating profit /
(loss) 3,913 (9,882) (11,166)
Discount expense on
decommissioning
provision 9 (525) (821) (1,667)
Net interest income 341 403 1,229
Profit / (loss)
before taxation 3,729 (10,300) (11,604)
Taxation - (870) 1,932
PROFIT / (LOSS) FOR THE
PERIOD - attributable to
equity holders
of the Company 2 3,729 (11,170) (9,672)
Profit / (loss) per
share (cents):
Basic 3 3.14 (9.89) (8.37)
Diluted 3 3.12 (9.89) (8.37)
* See note 12.
The results shown above relate entirely to continuing operations.
Comprehensive income for all periods shown relates solely to the
profit or loss shown above.
CONDENSED CONSOLIDATED BALANCE SHEET
AS AT 30 JUNE 2009
30 June 31 December
2009 2008
(Unaudited) (Audited)
Notes $' 000 $' 000
ASSETS
Non-current assets
Property, plant and equipment 4 86,207 79,661
Intangible assets 5 5,421 343
Long term financial assets 7 12,120 13,167
103,748 93,171
Current assets
Inventory 4,227 2,401
Trade and other receivables 6 21,781 15,536
Cash and cash equivalents 7 31,892 36,812
57,900 54,749
Total Assets 161,648 147,920
LIABILITIES
Current liabilities
Trade and other payables 8 14,514 11,245
Provision for decommissioning 9 7,428 5,877
21,942 17,122
Non-current liabilities
Provision for decommissioning 9 23,399 20,430
23,399 20,430
Total Liabilities 45,341 37,552
NET ASSETS 116,307 110,368
EQUITY
Capital and reserves attributable to equity
holders
Share capital 10 12,877 12,814
Share premium 99,934 98,530
Share-based payments reserve 15,048 14,305
Merger reserve 11,709 11,709
Retained losses (23,261) (26,990)
TOTAL EQUITY 116,307 110,368
CONDENSED CONSOLIDATED CASH FLOW STATEMENT FOR THE SIX MONTHS ENDED
30 JUNE 2009
Year
6 months ended ended
30 June 30 June 31 December
2009 2008 2008
(Unaudited
and
(Unaudited) restated) (Audited)
Notes $' 000 $' 000 $' 000
Cash flows from
operating activities
Operating profit /
(loss) 3,913 (9,882) (11,166)
Depreciation,
depletion and
amortisation 4&5 5,779 4,034 8,953
Impairment charge /
(credit) 1,783 (653) 6,327
Decommissioning costs
paid in excess of
provision 200 - 2,987
Share-based payment
charge 743 11,878 12,572
Loss on disposal of
assets - 5 9
Increase in
receivables (6,153) (2,342) (4,066)
Increase in payables 3,269 2,226 4,781
Increase in inventory (1,826) - (2,401)
Net cash provided by
operations 7,708 5,266 17,996
Interest received 341 403 1,229
Taxation paid (92) (284) (524)
Net cash provided by
operating activities 7,957 5,385 18,701
Investing activities
Exploration and
evaluation expenditure 5 (4,923) (7,605) (645)
Oil and gas properties
expenditure 4 (9,196) (3,444) (16,157)
Other capital
expenditures (624) (295) (923)
Change in long term
financial assets 1,047 2,257 2,911
Decommissioning costs
paid 9 (648) (398) (5,566)
Net cash used in
investing activities (14,344) (9,485) (20,380)
Financing activities
Cash proceeds from
issue of shares 1,467 19,359 19,958
Net cash provided by
financing activities 1,467 19,359 19,958
(Decrease) / Increase
in cash and cash
equivalents (4,920) 15,259 18,279
Cash and cash
equivalents at
beginning of period 36,812 18,533 18,533
Cash and cash
equivalents at end of
period 31,892 33,792 36,812
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE SIX
MONTHS ENDED 30 JUNE 2009
Share
based
Share Share payments Merger Retained Total
capital premium reserve reserve losses equity
$'000 $'000 $'000 $'000 $'000 $'000
Six months ended
30 June 2009
At 1 January 2009 12,814 98,530 14,305 11,709 (26,990) 110,368
Options exercised 63 1,404 - - - 1,467
Share -based
payment charge - - 743 - - 743
Profit for the
period - - - - 3,729 3,729
At 30 June 2009 12,877 99,934 15,048 11,709 (23,261) 116,307
Six months ended
30 June 2008
At 1 January 2008
(restated) 11,997 79,389 1,733 11,709 (17,318) 87,510
Options exercised 89 730 - - - 819
Shares issued 623 17,917 - - - 18,540
Share -based
payment charge - - 11,878 - - 11,878
Loss for the
period (restated) - - - - (11,170) (11,170)
At 30 June 2008
(restated) 12,709 98,036 13,611 11,709 (28,488) 107,577
NOTES TO THE HALF-YEARLY FINANCIAL REPORT FOR THE SIX MONTHS ENDED 30
JUNE 2009
1. Basis of preparation
This half-yearly financial report, which includes a condensed set of
financial statements of the Company and its subsidiary undertakings
("the Group") has been prepared using the historical cost convention
and in accordance with the recognition and measurement criteria of
International Financial Reporting Standards ("IFRS") including IAS 34
'Interim Financial Reporting' and IFRS 6 'Exploration for and
Evaluation of Mineral Reserves', as adopted by the European Union
("EU").
This condensed set of financial statements for the six months ended
30 June 2009 is unaudited and does not constitute statutory accounts
as defined by the Companies Act. They have been prepared using
accounting bases and policies consistent with those used in the
preparation of the audited financial statements of the Company and
the Group for the year ended 31 December 2008 and those to be used in
the year ending 31 December 2009. The information for the year ended
31 December 2008 does not constitute statutory accounts as defined in
Section 240 of the Companies Act 1985.
The financial statements for the year ended 31 December 2008 have
been delivered to the Registrar of Companies and the auditors' report
on those financial statements was unqualified, did not draw attention
by way of emphasis of matter and did not contain a statement made
under Section 237(2) or Section 237(3) of the Companies Act 1985.
During the period ended 30 June 2009 the Group adopted IFRS 8
Operating Segments and International Accounting Standard 1 (revised
2007) Presentation of Financial Statements. The adoption of IFRS 8
did result in any changes to the segments required to be disclosed.
The adoption of IAS 1 (revised) did not have any impact. The
condensed set of financial statements included in this half-yearly
financial report has been prepared on a going concern basis of
accounting for the reasons set out in the Financial Review section of
this report.
This half-yearly financial report was approved by the Board of
Directors on 21 September 2009.
NOTES TO THE HALF-YEARLY FINANCIAL REPORT FOR THE SIX MONTHS ENDED 30
JUNE 2009
2. Segmental information
The Group operates a single class of business being oil and gas
exploration and production.
The Group's operations are located in the Middle East, primarily
Syria, and offshore USA and form the basis on which the Group reports
its segment information. There are no inter-segmental revenues.
Segmental results analysed by geographical area are presented below:
Six months ended 30 June 2009
USA Syria Other Total
$' 000 $' 000 $' 000 $' 000
Revenues 5,134 23,847 - 28,981
Depreciation, depletion
and amortisation (1,923) (3,807) (48) (5,778)
Impairment (1,783) - - (1,783)
Hurricane repairs (1,934) - - (1,934)
Other cost of sales (6,362) (1,880) - (8,242)
Administrative expenses
before exceptional items
and
depreciation (1,343) (2,689) (3,276) (7,308)
Foreign exchange gains /
(losses) - - 720 720
Share based payments - - (743) (743)
(Loss) / profit before
interest and taxation (8,209) 15,471 (3,349) 3,913
Net interest and
unwinding of discount (467) 169 114 (184)
Inter-segment interest (1,844) - 1,844 -
Profit / (loss) for the
period (10,520) 15,640 (1,391) 3,729
Six months ended 30 June 2008 (Restated)
USA Syria Other Total
$' 000 $' 000 $' 000 $' 000
Revenues 19,699 - - 19,699
Depreciation, depletion
and amortisation (3,983) (50) (1) (4,034)
Impairment 653 - - 653
Hurricane repairs 335 - - 335
Other cost of sales (9,838) - - (9,838)
Administrative expenses
before exceptional items
and
depreciation (2,346) (438) (2,449) (5,233)
Foreign exchange gains /
(losses) - - 414 414
Share based payments - - (11,878) (11,878)
(Loss) / profit before
interest and taxation 4,520 (488) (13,914) (9,882)
Net interest and
unwinding of discount (924) - 506 (418)
Inter-segment interest (1,818) - 1,818 -
Taxation (829) - (41) (870)
Loss / (profit) for the
period 949 (488) (11,631) (11,170)
NOTES TO THE HALF-YEARLY FINANCIAL REPORT FOR THE SIX MONTHS ENDED 30
JUNE 2009
2. Segmental information (continued)
Year ended 31 December 2008
USA Syria Other Total
$' 000 $' 000 $' 000 $' 000
Revenues 28,121 25,479 - 53,600
Depreciation, depletion
and amortisation (6,010) (2,930) (23) (8,963)
Impairment (6,327) - - (6,327)
Hurricane repairs (2,750) - - (2,750)
Other cost of sales (15,270) (1,318) - (16,588)
Administrative expenses
before exceptional items
and
depreciation (3,208) (3,026) (6,603) (12,837)
Foreign exchange gains /
(losses) - 74 (4,803) (4,729)
Share based payments - - (12,572) (12,572)
Profit / (loss) before
interest and taxation (5,444) 18,279 (24,001) (11,166)
Net interest and
unwinding of discount (1,204) 133 633 (438)
Inter-segment interest (3,618) - 3,618 -
Taxation 1,932 - - 1,932
(Loss) / profit for the
year (8,334) 18,412 (19,750) (9,672)
Segmental assets and liabilities analysed by geographical area are
presented below:
At 30 June 2009 (Unaudited)
USA Syria Other Total
$' 000 $' 000 $' 000 $' 000
Assets 66,462 70,701 24,485 161,648
Liabilities (37,240) (7,423) (678) (45,341)
Inter-segment balances (44,740) (31,675) 76,415 -
Capital expenditure 7,424 11,233 529 19,186
At 31 December 2008
USA Syria Other Total
$' 000 $' 000 $' 000 $' 000
Assets 68,866 52,475 26,579 147,920
Liabilities (33,397) (3,757) (398) (37,552)
Inter-segment balances (40,466) (32,466) 72,932 -
Capital expenditure 5,887 11,125 156 17,168
NOTES TO THE HALF-YEARLY FINANCIAL REPORT FOR THE SIX MONTHS ENDED 30
JUNE 2009
3. Earnings / (Loss) per share
The calculation of the basic and diluted earnings / (loss) per share
is based on the following shares in issue:
6 months ended (Unaudited) Year ended
30 June 2008 31 December
30 June 2009 (restated) 2008
Weighted average number
of ordinary shares 118,762,500 112,976,368 115,520,651
Options 730,579 3,118,533 1,976,391
Weighted average number
of diluted shares 119,493,079 116,094,901 117,497,042
The calculation of basic earnings / (loss) per share is based on the
profit / (loss) attributable to equity shareholders and the weighted
average number of ordinary shares in issue during the period. The
diluted earnings / (loss) per share is calculated using the weighted
average number of ordinary shares in issue on the assumption of
conversion of all dilutive potential ordinary shares.
4. Property, plant and equipment
Oil and gas
properties
Other
fixed
USA Syria assets Total
$' 000 $' 000 $' 000 $' 000
Cost:
At 1 January 2009 87,591 39,221 873 127,685
Additions 7,639 6,000 390 14,029
At 30 June 2009 95,230 45,221 1,263 141,714
Accumulated depreciation and
depletion:
At 1 January 2009 (31,869) (2,806) (327) (35,002)
Charge for the period (1,905) (3,648) (147) (5,700)
At 30 June 2009 (33,774) (6,454) (474) (40,702)
Accumulated impairment:
At 1 January 2009 (13,022) - - (13,022)
Charge for the period (1,783) - - (1,783)
At 30 June 2009 (14,805) - - (14,805)
Net book value at 30 June
2009 46,651 38,767 789 86,207
Net book value at 31
December 2008 42,700 36,415 546 79,661
Included in additions to oil and gas properties in the USA is an
amount of $4,443,000 relating to a change in estimated
decommissioning costs (see note 9).
NOTES TO THE HALF-YEARLY FINANCIAL REPORT FOR THE SIX MONTHS ENDED 30
JUNE 2009
5. Intangible assets
Exploration and
evaluation assets Computer
Syria software Total
$' 000 $' 000 $' 000
Cost:
At 1 January 2009 - 377 377
Additions 4,923 234 5,157
At 30 June 2009 4,923 611 5,534
Accumulated amortisation:
At 1 January 2009 - (34) (34)
Charge for 2009 - (79) (79)
At 30 June 2009 - (113) (113)
Net book value at 30 June
2009 4,923 498 5,421
Net book value at 31 December
2008 - 343 343
6. Trade and other receivables
30 June 31 December
2009 2008
$' 000 $' 000
Trade receivables 16,531 8,266
Other receivables 344 28
Underlift 919 919
Corporation tax recoverable 408 316
Prepayments and accrued income 1,934 1,378
Amounts due from oil and gas partnerships 1,645 4,629
21,781 15,536
Included in trade receivables is an amount of $9.9 million (2008 -
$5.1 million) representing a 20% retention on the Group's oil sales
in Syria. This retention is due for collection in full during
September 2009.
Underlift represents a cumulative net gas underlift position on
certain of the Group's properties. An amount of $ 0.3 million is
expected to be received during September 2009 upon the disposal of
one of the Group's properties. The remaining amount is due after more
than one year.
NOTES TO THE HALF-YEARLY FINANCIAL REPORT FOR THE SIX MONTHS ENDED 30
JUNE 2009
7. Cash and cash equivalents
30 June 31 December
2009 2008
$' 000 $' 000
Short term cash deposits 16,642 -
Cash at bank and in hand 15,250 36,812
Restricted cash balances 12,120 13,167
44,012 49,979
Included in long term financial assets 12,120 13,167
Total cash and cash equivalents 31,892 36,812
The restricted cash balances include (i) amounts held in escrow to
cover decommissioning expenditures under the requirements of the
regulatory authorities that manage the oil and gas and other mineral
resources in the Gulf of Mexico and (ii) a bank guarantee that is
required under the terms of the Production Sharing Contract with the
Syrian Petroleum Company and which is reduced quarterly as the
obligations under the required work programmes are completed.
8. Trade and other payables
30 June 2009 31 December 2008
$' 000 $' 000
Trade payables 12,780 9,266
Other payables 1,734 1,979
14,514 11,245
NOTES TO THE HALF-YEARLY FINANCIAL REPORT FOR THE SIX MONTHS ENDED 30
JUNE 2009
9. Provision for decommissioning
The provision for decommissioning relates to the expected future
costs of plugging and abandoning the oil and gas properties held by
Gulfsands Petroleum USA, Inc and Darcy Energy LLC. At 30 June 2009
the oil and gas properties have estimated plugging and abandonment
dates between 2009 and 2036. The Group has no material
decommissioning obligations relating to its operations in Syria. The
portion of the provision for decommissioning expected to be settled
within a year totalling approximately $7.4 million is included in
current liabilities and the remainder totalling approximately $23.4
million is included in non-current liabilities in the consolidated
balance sheet at 30 June 2009.
The provision for decommissioning was as follows:
$' 000
At 1 January 2009 26,307
Changes in estimates 4,443
Costs in excess of provision 200
Decommissioning costs paid (648)
Discount expense 525
At 30 June 2009 30,827
Less: current portion 7,428
Non-current portion 23,399
NOTES TO THE HALF-YEARLY FINANCIAL REPORT FOR THE SIX MONTHS ENDED 30
JUNE 2009
10. Share capital
30 June 31 December
2009 2008
Number Number
Authorised:
Ordinary shares of 5.714 pence
each 175,000,000 175,000,000
30 June 31 December
2009 2008
$' 000 $' 000
Allotted, called up and fully
paid:
119,272,500 (2008 - 118,522,500) ordinary
shares of 5.714 pence each 12,877 12,814
The movements in share capital and share
options were:
Weighted
average
exercise Number of Number of
price of share ordinary
options options shares
At 1 January 2009 £1.64 10,165,000 118,522,500
Share options exercised for cash £1.32 (750,000) 750,000
Share options lapsed £1.86 (20,000) -
Share options issued £1.87 385,000 -
At 30 June 2009 £1.67 9,780,000 119,272,500
NOTES TO THE HALF-YEARLY FINANCIAL REPORT FOR THE SIX MONTHS ENDED 30
JUNE 2009
11. Post balance sheet events
During September 2009 the Group negotiated the sale of a property in
the Gulf of Mexico for a net selling price of $660,000. This
represents a premium of approximately $342,000 to the net book value
of the asset as shown in the financial statements at 30 June 2009. It
is anticipated that this agreement will be completed on 28 September
2009.
12. Restatement of Half-Yearly Financial Report for the six
months ended 30 June 2008
During the process of preparing the Annual Report and Accounts for
the year ended 31 December 2008 the Group identified corrections
required to certain balances and also in the classification of
certain other balances in the financial statements of prior periods.
The 2008 Annual Report included corresponding restatements of the
Balance Sheets, Income Statements and Statements of Cash Flows as at,
and for the periods ended 31 December 2007 and 31 December 2006 and
the Half-Yearly Financial Report incorporates equivalent restatements
for the six months ended 30 June 2008. A summary of the restatements
is provided below, with full details in the 2008 Annual Report:
(i) In prior years the Group had calculated depletion charges on its
oil and gas assets over the estimated proved and probable reserves.
No allowance had been made for forecast future capital expenditure
associated with producing those reserves.
(ii) In prior years the Group had provided for decommissioning
liabilities using an outdated estimate of the cost of decommissioning
work required. Prior to the completion of the financial statements
for those years the Group had received a report from third party
specialist surveyors in connection with insurance related matters
which also included an update of the estimated cost of
decommissioning and which, if adopted for use in the preparation of
the financial statements, would more accurately reflect the current
cost of decommissioning work. The decommissioning liabilities for
prior periods have been restated to reflect the higher figure in this
report.
(iii) In prior years bank balances held in escrow accounts were
treated as cash and cash equivalents. These balances were, however,
not available to the Group to fund short term requirements and the
Group now considers that these should more accurately be classified
as other financial assets. Retrospective adjustments have been made
to the Balance Sheets and Statement of Cash Flows for the Group to
reclassify such balances.
NOTES TO THE HALF-YEARLY FINANCIAL REPORT FOR THE SIX MONTHS ENDED 30
JUNE 2009
12. Restatement of Half-Yearly Financial Report for the six
months ended 30 June 2008 (continued)
The effect of these restatements to the income statement, balance
sheet and statement of cash flows for the six months ended 30 June
2008 is set out below:
Impact of prior period restatements on Condensed
Consolidated Income Statement
for the six months
ended 30 June 2008
6 months ended 30 June 2008 (Unaudited)
As Effect Effect
originally of (i) of As
stated and (ii) (iii) restated
$' 000 $' 000 $' 000 $' 000
Depletion (2,098) (1,936) - (4,034)
Impairment - 653 - 653
Discount expense on
decommissioning
provision (1,128) 307 - (821)
Loss for the
period (10,194) (976) - (11,170)
Impact of prior period restatements on
Loss per Share (cents)
for the six months
ended 30 June 2008
6 months ended 30 June 2008 (Unaudited)
Effect Effect
As originally of (i) of As
stated and (ii) (iii) restated
Loss per share
(basic and
diluted) (9.02) (0.87) - (9.89)
NOTES TO THE HALF-YEARLY FINANCIAL REPORT FOR THE SIX MONTHS ENDED 30
JUNE 2009
12. Restatement of Half-Yearly Financial Report for the six
months ended 30 June 2008 (continued)
Impact of prior period restatements on
Condensed Consolidated Balance sheet
for the six months
ended 30 June 2008
6 months ended 30 June 2008 (Unaudited)
As Effect of
originally (i) Effect of As
stated and (ii) (iii) restated
$' 000 $' 000 $' 000 $' 000
Property, plant
and equipment 48,492 3,454 - 51,946
Long term
financial assets - - 13,821 13,821
Cash and cash
equivalents 47,613 - (13,821) 33,792
All other assets 49,758 - - 49,758
Total Assets 145,863 3,454 - 149,317
Provision for
decommissioning -
short term 2,520 9,006 - 11,526
Provision for
decommissioning -
long term 10,197 8,606 - 18,803
All other
liabilities 11,411 - - 11,411
Total Liabilities 24,128 17,612 - 41,740
Net Assets 121,735 (14,158) - 107,577
Retained losses (14,330) (14,158) - (28,488)
All other capital
and reserves 136,065 - - 136,065
Total Equity 121,735 (14,158) - 107,577
Impact of prior period restatements on
Condensed Consolidated Cash Flow Statement
for the six months
ended 30 June 2008
6 months ended 30 June 2008 (Unaudited)
As Effect
originally of (i) Effect of As
stated and (ii) (iii) restated
$' 000 $' 000 $' 000 $' 000
Cash flows from
operating activities
Operating loss (8,599) (1,283) - (9,882)
Depreciation,
depletion and
amortisation 2,098 1,936 - 4,034
Impairment charge
reversed - (653) - (653)
Net cash provided by
operations 5,266 - - 5,266
Investing activities
Change in long
term financial
assets - - 2,257 2,257
Net cash provided by
operations (11,742) - 2,257 (9,485)
Increase in cash and
cash equivalents 13,002 - 2,257 15,259
Cash and cash
equivalents at
beginning of
period 34,611 (16,078) 18,533
Cash and cash
equivalents at end
of period 47,613 - (13,821) 33,792
Note that the adjustments required to restate the depletion,
impairment charges and decommissioning liabilities in (i) and (ii)
above are not practicable to separate and are aggregated in the
presentation above.
---END OF MESSAGE---
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