SOUND OIL PLC

("Sound Oil" or "the Company")

 

FINAL RESULTS FOR THE YEAR ENDED 31 DECEMBER 2011

 

Sound Oil, the upstream oil and gas company with assets in Indonesia and Italy, is pleased to announce its audited final results for the year ended 31 December 2011.

 

Highlights

 

·           Independently assessed portfolio of discoveries: 17.5 MMboe (P50) and US$300m NPV10

 

·           Two successful Italian acquisitions

o 8 Key Development Projects

o 4 Key Exploration Projects

o Mainly 100% owned and operated

 

·           Active drilling programme in Italy and Indonesia, including the Nervesa appraisal well which is fully funded

 

Italy

o 2 Material appraisal wells (Nervesa, Strombone)

o 1 Discovery for commercial development (Casa Tiberi)

o 1 Field recommissioning (Rapagnano)

 

Indonesia

o 2 Exploration wells

 

·           Strong and focused Executive Team, including a newly appointed Chief Financial Officer and Italy Managing Director

 

For further information please contact:

Sound Oil Gerry Orbell, Chairman and Chief Executive James Parsons, Chief Financial Officer	Tel: 44 (0)1372 365745
Smith & Williamson - Nominated Adviser Azhic Basirov David Jones	Tel: 44 (0)20 7131 4000
Investec - Broker David Flin	Tel: 44 (0)20 7597 4000
Buchanan - Financial PR Tim Thompson Ben Romney	Tel: 44 (0)20 7466 5000

 

The information contained in this announcement has been reviewed by Sound Oil's Chief Operating Officer, Dr M. J. Cope BSc PhD CGeol FGS, a qualified petroleum geologist. "MMboe" means million barrels of oil equivalent; "P50" refers to a 50% chance of finding a given volume and is consistent with SPE (The Society of Petroleum Engineers) guidelines; "NPV10" means estimated net present value using a discount rate of 10%.

 

 

 

Chairman's Statement

 

Once again the year has been very active for the Company and we expect to maintain this momentum during the next twelve months.

 

In Italy we have consolidated our Consul Oil & Gas Limited ("Consul") acquisition by the purchase of Celtique Energie SpA which had been our joint partner in three permits. The consideration of $9 million comprised $4.4 million cash, $0.8 million settlement of an inter-company loan (net of $0.2 million cash held by Celtique) and 91,998,582 Sound Oil plc shares. As a result of this deal Sound Oil plc owns 100% of the permits containing the Nervesa and Strombone discoveries, our core assets. We are now able to move forward at our own pace and will be drilling the key well at Nervesa in mid year and intend to be drilling Strombone by year end.

 

The Company has acquired 3D seismic data over the Badile prospect and an independent expert has confirmed that it has P50 prospective resources of 185 Bscf, making it one of the largest onshore exploration opportunities in Western Europe. Sound Oil plc has begun to offer this ready-to-drill prospect for farmout and already has had an encouraging amount of interest.

 

During the year the Company undertook operations at Marciano (Sound Oil plc 100%) and drilled a farm-in well at Casa Tiberi, both of which encountered gas. The Marciano well was disappointing and the reserves too small for commercialisation. By mid year, the surface facilities will be relocated from Marciano for use at Casa Tiberi and our other permits, and the Marciano site will then be restored. At Casa Tiberi (Sound Oil plc 100%) two separate phases of testing in the early part of 2012 indicated that the reserves are small but commercial and the Company expects to submit a production application in May 2012.

 

In the Citarum PSC Indonesia, where we have a 20% interest, we have identified several drilling opportunities based on the extensive seismic programme shot earlier. We commenced drilling on the attractive prospect at Cataka but unfortunately the operator ran into mechanical problems in the upper part of the hole and the well was abandoned. We expect to return to drill at this location later in 2012. Meanwhile, the rig was moved to Jatayu, another substantial exploration prospect which is now being drilled. The final well in the current drilling schedule is Geulis and this third well will complete the Company's outstanding obligations at Citarum.

 

In the Bangkanai PSC Kalimantan (Sound Oil plc 5%, carried), a gas sales agreement was signed to supply up to 20 BBtud at a price of $4.79/MMBtu from the Kerendan Field with first production anticipated in 2013. This final agreement now allows Sound Oil plc to book reserves for the first time. In addition there are further contingent gas resources in the field which could be commercialised through the local power plant to be built by PLN, the Indonesian electricity utility. Following an extensive refit, a rig is now expected to be ready in June to drill the four development wells at Kerendan. These will be followed by two exploration obligation wells nearby.

 

In December 2011 Sound Oil plc issued 100 million shares at 2p to raise £2 million together with 60 million warrants exercisable at 2p. In the second part of the placement in February 2012, the Company issued 262,587,803 shares at 1.523p to raise £4 million together with 157,552,682 warrants exercisable at 1.86p. Sound Oil plc currently has cash reserves of £7 million and no debt. The increase in assets and activity of the Group following the Consul and Celtique acquisitions led to higher expenditure in the Income Statement and the loss after tax was £6,264,000.

 

The year saw some significant changes in personnel within Sound Oil plc. Tony Heath retired as Chief Financial Officer and joined the Board as a non executive Director. I would like to thank him for his considerable support over many years and for his wise advice. The Board was further strengthened by Andrew Hockey who joined as a non executive director. Andrew has 30 years of experience in the oil industry most recently with Fairfield Energy. James Parsons joined the Company as Chief Financial Officer in September having 17 years experience in the oil industry principally with Shell. Luca Maddedu was appointed Managing Director of the Company's Italian subsidiary in Rome following a international career with ENI spanning 22 years and Godwin Debono, a founder director of Consul, retired from the Company at the end of March this year. I would like to thank him in particular for his dedication and commitment in building the Italian portfolio.

 

I wish to thank all of the Company staff and also my Board colleagues for their enthusiasm and their continuous efforts on behalf of the Company. Finally I also wish to thank our shareholders for their support.

 

The Company can look forward to a continuous drilling program for the next 18 months on very exciting prospects, on important discoveries and on our hydrocarbon developments which will bring revenue in 2013.

 

Gerry Orbell

Chairman and Chief Executive

30 April 2012

 

 

 

Financial Review

 

Accounting standards

 

The Group has prepared its 2011 full year accounts under International Financial Reporting Standards (IFRS), as adopted by the European Union.

 

Income statement

 

Following the acquisitions of Consul Oil & Gas Limited and Celtique Energie Spa in Italy during 2011, increased exploration and administration costs before impairment of the Marciano well resulted in a trading loss of £5,353,000 compared with £1,932,000 for 2010.

 

Loss before/after tax was £6,264,000 compared with £15,968,000 in 2010 which had included a loss on sale of part of the Bangkanai licence of £14,210,000.

 

The 2011 trading loss of £5,353,000 is £3,421,000 higher than in 2010 principally due to £1,446,000 higher administration costs following the Italian acquisitions (which introduced a Rome office at a total cost of £839,000 in 2011 and £100,000 of transaction related bonus payments in the first quarter). Total exploration costs for the year were £1,975,000 higher which included £1,100,000 impairment costs.

 

Acquisition expenses of £516,000 were incurred in relation to the Italian acquisitions.

 

Due to the strength of sterling there was a foreign exchange loss of £439,000 compared with a gain of £211,000 in 2010.

 

Cash flow/financing

 

During 2011 £12,108,000 was raised from new equity issue whilst some £5,078,000 was spent on the acquisitions of new companies and £3,890,000 was spent on exploration and appraisal. This resulted in a net cash inflow before foreign exchange movements of £2,638,000 (2010: outflow £6,242,000).

 

The Group's cash balance was £6,286,000 (2010: £4,484,000).

 

The Group continues to have no borrowings.

 

Going concern - Forward cash flow calculations show that the Group has sufficient financial resources for the foreseeable future. The Group's financial statements have been prepared on the assumption that the Group will be able to realise its assets and discharge its liabilities in the normal course of business. The Group currently has no operating revenues and during the year ended 31 December 2011 recorded a trading loss of £5,353,000 from continuing operations. At 31 December 2011 the Group held cash and cash equivalents of £6,286,000. The directors have considered the Group's cash flow forecasts for the period to the end of April 2013. Forward cash flow projections show that forecast expenditure (12 months through 30 April 2013) will be less than the funds available as at 31 December 2011 when combined with the new equity raised in early 2012; together with the £5,900,000 undrawn element of the Yorkville facility. As a result, the Group has sufficient cash resources to undertake its work program in the next 12 months.

 

Balance sheet

 

Exploration and evaluation expenditure in 2011 was £3,809,000 (2010: £1,165,000) and principally reflects the cost of drilling in Citarum (Indonesia) and the Montemarciano and Fonte San Damiano licences in Italy. Currency movement increased the balance in sterling terms by £690,000. However the impairment of the Marciano asset by £1,076,000 left the year end balance at £22,725,000 (2010: £9,954,000).

 

The deferred tax liability and the matching goodwill balance arising from the tax provision were both increased by £2,051,000 due to the two Italian acquisitions.

 

Impairment - Under IFRS 6, the cost carried in the balance sheet may be carried forward if exploration activities have not reached a stage to allow reasonable assessment of economically recoverable reserves. With the exception of Marciano, which has been written off, no impairment charge has been recorded and accordingly an update of the estimated monetary value shows that the value exceeds the carrying value of our intangible evaluation and exploration assets and goodwill. There are extensive prospective areas remaining to be explored in both Italy and Indonesia.

 

Post balance sheet event

 

The Company issued a further 262,587,803 shares to raise an additional £4,000,000 in cash on 6 February 2012. 157.6 million warrants were also issued, exercisable at 1.86p.

 

 

Technical Review

 

Italian Assets

 

Sound Oil plc currently has interests in 17 licences in Italy (2 production concessions, 9 permits and 6 exclusive permit applications) through its wholly-owned Italian subsidiary company Apennine Energy Srl. The Apennine portfolio offers multiple opportunities for production, appraisal and development of existing oil and gas discoveries and exploration drilling. It is Sound Oil plc's intention over the coming 12 months to re-establish production on one concession, drill two new appraisal wells targeting existing discoveries and complete testing of a newly drilled gas discovery to demonstrate its commerciality. In addition several other appraisal and exploration opportunities will be considered for selective farm-out of high equity positions.

 

Production

 

Rapagnano Concession (Apennine 100%)

The concession, located in Marche, central Italy, was awarded to Apennine in July 2011 as part of a marginal fields development programme. It contains the Rapagnano-1 gas discovery made by ENI in 1952 and its associated production facilities. This had produced 116 MMscm (~4.1 Bscf) of gas prior to shutin in 2001 with a rate of 140,000 scfd, but with significant water-cut. Apennine has submitted a plan to re-establish production from the field using on-site electricity generators to export power to the local grid. An Environmental Impact Assessment (EIA) for the proposed re-development has been submitted to the Marche regional authorities and its approval is expected in May 2012. Apennine plans to exploit the previously abandoned Sabbie reservoir which has been estimated by Fugro Robertson¹ to contain 1.1-1.5 Bscf of contingent resources. Operations are expected to start soon after approval of the EIA.

 

Fonte San Damiano Concession (Apennine 100%)

The concession is located in Basilicata, southern Italy. In June 2011 the Marciano-1 well was reentered to test two gas-bearing zones identified at 1283-1288 mMD and 1326-1231 mMD. The lower zone flowed a maximum of 2,180 scmd (77,000 scfd) and the upper zone a maximum of 99,800 scmd (3.5 MMscfd). The upper zone was choked back to a flowing rate of 36,000 scmd (1.3 MMscfd). Subsequent well test analysis established that only a minimal connected volume of gas was seen by the well which could not maintain a commercial level of production.  The well is currently suspended prior to abandonment and removal of the surface production facilities and electricity generators.

 

Appraisal and Development

 

Carita Permit (Apennine 100%, Operator)

The permit is located in Veneto Province, northeast Italy. The permit contains the Nervesa structure that was drilled by ENI in 1985 with two wells (Nervesa-1 and Nervesa-1dir A) and proved gas-bearing in at least 13 sand intervals. The remaining P50 contingent resources have been estimated by Fugro Robertson to be 20.7 Bscf. Apennine's strategy is to drill an appraisal well on the structure to validate the resource estimate and establish commercial flow rates. An application to drill the well was submitted in November 2011 and approval is expected to be able to spud the well in mid 2012. Long lead items have been ordered to meet this schedule.

 

Torrente Alvo Permit (Apennine 100% interest)

The permit is located in Potenza in southern Italy. The permit area was initially explored by Italmineraria (now ENI) and a number of wells were drilled between 1965 and 1998. The well Strombone- 2dir found oil in Miocene carbonates at 1508-1562m and tested 750 bopd with variable water-cut. The oil accumulation is also partially overlain by a non-commercial gas pool, located in Pliocene sands; neither of these two discoveries was developed. Fugro Robertson has estimated the P50 contingent resources of the Strombone discovery to be 6.4 MMbo. It is Apennine's intention to develop the Strombone oil discovery and to this end an application to drill an appraisal well is in preparation. The target to drill the well is late 2012-early 2013.

 

Exploration

 

Montemarciano Permit (Apennine 75%, Operator)

The permit is located in Marche, Ancona in central Italy. Apennine Energy farmed-in to the permit in June 2011 by committing to drill the Casa Tiberi-1 exploration well to earn a 75% working interest in the licence. The well was drilled in November 2011 to a TD of 715m in the Lower Pliocene Cellino sand objective. It encountered 14.9 m gross (3.9 m net) hydrocarbon pay. Partner SARP withdrew from the operation after logging and opted not to participate in its completion, and so going forward Apennine holds a 100% interest in the discovery. The well was completed with perforation of a single zone 571-581mMD. During cleanup flow the well tested dry gas at rates of ~26,000 scmd (~0.92 MMscfd). The well was subsequently re-entered in January 2012 and a flow test delivered a final rate of 37,850 scmd (~1.3 MMscfd) on 5/16" choke. The well was again temporarily suspended pending application for a pending concession in May 2012.

 

Badile Permit (Apennine 100%)

The Badile permit is situated in the Piedmont Lombard Basin in northern Italy, where the principal play is oil, gas and condensate in deep Triassic dolomites and limestones. The permit is adjacent to ENI's Gaggiano oil field and a short distance from the Villafortuna-Trecate and Malossa oil fields with total proven recoverable reserves over 400 MMboe. Two large ready-to-drill prospects have been mapped in the permit area, Badile and Zibido, with gross P50 prospective resources² estimated by Fugro-Robertson to be 185 Bscf and 130 Bscf respectively. In 2011 Apennine purchased and interpreted legacy 3D seismic data over the Badile prospect to define an optimum drilling location. It is the Company's intention to submit an application to drill a first well on the prospect. It is expected that when approved the drilling of the well will be offered for farm-out.

 

Badile Permit (Apennine 100%)

The Badile permit is situated in the Piedmont Lombard Basin in northern Italy, where the principal play is oil, gas and condensate in deep Triassic dolomites and limestones. The permit is adjacent to ENI's Gaggiano oil field and a short distance from the Villafortuna-Trecate and Malossa oil fields with total proven recoverable reserves over 400 MMboe. Two large ready-to-drill prospects have been mapped in the permit area, Badile and Zibido, with gross P50 prospective resources2 estimated by Fugro-Robertson to be 185 Bscf and 130 Bscf respectively. In 2011 Apennine purchased and interpreted legacy 3D seismic data over the Badile prospect to define an optimum drilling location. It is the Company's intention to submit an application to drill a first well on the prospect. It is expected that when approved the drilling of the well will be offered for farm-out.

 

Other Opportunities

 

The Apennine portfolio offers several other appraisal and development opportunities for which geological studies and seismic interpretation will be undertaken to mature the projects for future drilling. The immediate focus will be on the following:

 

Sambucheto Permit (Apennine 95% interest, Operator)

The permit is located in Ancona and Macerata in central Italy. Six wells were drilled in the permit area between 1971 and 1994, two of which were gas discoveries (Saletta-1 and Montefano-1dir) that were never developed. Montefano-1dir encountered 5m gas pay at 1190m and Saletta-1 found two 2m gas zones at 1321m and 1368m in the same formation. Gross P50 contingent resources for Montefano have been estimated by Fugro Robertson to be 4.0 Bscf.

 

 

Villa Gigli Permit (Apennine 50% interest, Operator)

The permit is located in Ancona and Macerata on the Adriatic coast in central Italy. Six wells have been drilled on the permit between 1933 and 1993. Two discoveries were made by Agip (Musone-1dir, oil and Moretti-1, gas), but neither was developed. Musone-1dir tested 15°API oil from the interval 1259- 1295m in the Miocene Scaglia limestone at up to 1170 bpd with variable water content. Moretti-1 encountered 11m gas pay at 358-369m in the Pliocene sands; the zone flowed at 0.7 MMscfd. Gross P50 contingent resources of the Musone discovery have been estimated by Fugro Robertson to be 1.7 MMbo.

 

Costa del Sole Permit (Apennine 100%)

The permit, located in southern onshore Sicily, was provisionally awarded to Apennine in September 2011 and full award is subject to approval of an EIA by the Sicily regional authorities. The permit contains the Manfria-1bis heavy oil (12.26°API) discovery. The well flowed at a rate of 150 bopd with an average watercut of 20% and produced a total of 6,000 barrels of oil during testing. P50 contingent resources have been estimated by Fugro Robertson to be 2.4 MMbo. On final award, Apennine's strategy will be to evaluate the resource potential of the Manfria discovery for development and other prospects for drilling. A major refinery of heavy oil is located at Gela some 10 km from the discovery.

 

D503 BR-CS (Apennine 100%)

The permit, located in Zone B of the central Adriatic Sea, is outside the current drilling exclusion zone. The well Dora-1 was drilled in 1972 as a gascondensate discovery in the Miocene Scaglia limestones, testing 20.2 MMscfd from the interval 1361-1393m. The Dora-2 appraisal well was drilled in 1996 as a gas discovery but the reservoir quality was inferior to that of Dora-1, testing only 0.6 MMscfd from the interval 1397-1410m. Gross P50 contingent resources for the Dora discovery have been estimated by Fugro Robertson to be 17.6 Bscf.

 

Licences Subject to Appeal

 

The Ministry of Economic Development in Italy has withdrawn Apennine's assigned permits D148 DR-CS and D150 DR-CS (both offshore Calabria) from the application process to full permit status. This is in compliance with the environmental decree 128/1210 enacted in June 2010 which prevents oil and gas activity within 5 nautical miles of the Italian coast. Apennine has appealed against the decisions.

 

Indonesian Assets

 

Sound Oil plc has non-operated interests in two licences in Indonesia through its wholly-owned subsidiary Mitra Energia Ltd. Operators' plans for the remainder of 2012 include drilling of four exploration commitment wells, two in Java and two in Kalimantan. In addition work will start on the development of the Kerendan gas field in Kalimantan.

 

Citarum PSC (Sound Oil plc 20% interest)

At the beginning of the year drilling commenced on the first of 3 exploration commitment wells on the block. The first well, Cataka-1, experienced difficulties in drilling the upper section and was abandoned following two side-track attempts The Operator intends to undertake a detailed post-drilling evaluation of the operation with a view of returning to the prospect within or at the end of the current drilling campaign.

 

The rig has moved to the second location, Jatayu-1, and will then move to the third well Geulis-1. The Jatayu and Geulis prospects have been estimated by Fugro Robertson to contain gross P50 prospective resources of 288 and 26 Bscf respectively.

 

Bangkanai PSC (Sound Oil plc 5% carried interest)

The Bangkanai Operator has made considerable progress throughout the last year to put the exploration and development programme onto a firm basis and secure the PSC in force. The Operator plans now to commence development drilling for the Kerendan gas field in Q2 2012 with a view to establishing first gas by end of 2013. The four well development programme will be followed by the two exploration commitment wells. Sound Oil plc is carried for all exploration and development costs until first gas.

 

The Kerendan field, first discovered in the 1980s, will be developed to supply gas to a local, new-build integrated power plant. The Plan of Development (POD) calls for the supply of 130 TBtu (133.7 Bscf) over 20 years at a maximum rate of 20.3 BBtud (~20 MMscfd). A Gas Sales Agreement was concluded in June 2011 with PLN³ for an initial price of $4.79/MMBtu. PLN will also build the power plant for the project.

 

In addition to the proved undeveloped gas reserves of 133.7 Bscf, the Kerendan field contains un-drilled contingent resources estimated by the block Operator to be up to 160 Bscf. BPMigas⁴ have agreed with the Operator that the two outstanding exploration commitment wells should now commence with drilling the West Kerendan-1 well in Q4 2012. This well will target additional potential in the Oligocene limestone reservoir (the producing formation in the Kerendan field) and the deeper Eocene Tanjung sandstones. Fugro Robertson (CPR, October 2011) have estimated the gross P50 prospective resources in all levels of the prospect to be >1900 Bscf.  The second exploration commitment well will be drilled in the light of West Kerendan-1 drilling results and the interpretation of a new 2D seismic survey over other prospective areas to be acquired in early 2013.

 

Notes:

 

1          Fugro Robertson Limited is an independent petroleum consultancy company providing resource and reserve assessments. The figures quoted here are taken from their Competent Person's Report, October 2011.

 

2          Contingent and prospective resources, consistent with SPE (The Society of Petroleum Engineers) guidelines, are quantified in terms of the statistical probability to describe a given recoverable hydrocarbon (oil or gas) volume in a subsurface structure considering all the geological variables involved. The P50 figure indicates a 50% chance of finding a given volume and is generally considered as the best or most-likely estimate. Contingent resources refer to already discovered, but not produced, hydrocarbons and prospective resources refer to hydrocarbons yet to be discovered.

 

3          PLN (PT Perusahaan Listrik Negara) is the Indonesian State electricity company.

 

4          BPMigas (Badan Pelaksana Kegitan Hulu Minyak Dan Gas Bumi) is the Indonesian Government regulatory authority for petroleum exploration and production activities.

 

Abbreviations:

 

API:	American Petroleum Institute (crude oil gravity is expressed in ºAPI).
BBtud:	Billion British Thermal Units per day.
Bopd:	Barrels of oil per day.
Bscf:	Billion standard cubic feet of gas.
Btu:	British Thermal Unit (~ 1,000 Btu = 1 standard cubic ft of gas, dependent on composition).
MD:	Measured depth.
MMbo:	Million barrels of oil.
MMboe:	Million barrels of oil equivalent (6,000 standard cubic feet of gas = 1 barrel of oil).
MMBtu:	Million British Thermal Units.
MMscfd:	Million standard cubic feet of gas per day.
MMscm:	Million standard cubic meters of gas.
Mscf:	Thousand standard cubic feet.
Scfd:	Standard cubic feet per day.
Scmd:	standard cubic meters of gas per day.
TBtu:	Trillion British Thermal Units.

 

 

 

Consolidated Income Statement

for the year ended 31 December 2011

 

	2011 £'000's	2010 £'000's
Exploration costs	(2,405)	(430)
Gross loss	(2,405)	(430)
Administrative expenses	(2,948)	(1,502)
Group trading loss	(5,353)	(1,932)
Other income/(loss)	-	(58)
Group operating loss from continuing operations	(5,353)	(1,990)
Finance revenue	44	21
Foreign exchange (loss)/gain	(439)	211
Expense incurred in acquiring subsidiaries	(516)	-
Loss on disposal of farmout interest	-	(14,210)
Loss before income tax	(6,264)	(15,968)
Income tax	-	-
Loss for the period attributable to the equity holders	(6,264)	(15,968)
Other comprehensive loss:
Foreign currency translation gain	27	711
Total comprehensive loss for the period	(6,237)	(15,257)
Loss for the period attributable to:
Owners of the Company	(6,259)	(15,968)
Non-controlling interest	(5)	-
	(6,264)	(15,968)
Total comprehensive loss attributable to:
Owners of the Company	(6,232)	(15,257)
Non-controlling interest	(5)	-
	(6,237)	(15,257)
Loss per share basic and diluted for the period attributable to the equity holders of the parent (pence)	(0.39)	(2.31)

 

 

 

Consolidated Balance Sheet

as at 31 December 2011

 

Group	2011 £'000's	2010 £'000's
Non-current assets
Property, plant and equipment	1,278	12
Intangible assets	26,302	11,479
Other debtors	668	621
	28,248	12,112
Current assets
Other debtors	1,388	2,940
Prepayments	119	65
Current tax receivable	-	26
Cash and short term deposits	6,286	4,484
	7,793	7,515
Total assets	36,041	19,627
Current liabilities
Trade and other payables	2,233	284
Current tax payable	-	-
	2,233	284
Non-current liabilities
Deferred tax liabilities	3,576	1,525
Provisions	366	103
	3,942	1,628
Total liabilities	6,175	1,912
Net assets	29,866	17,715
Capital and reserves attributable to equity holders of the Company
Issued equity share capital and share premium	54,704	36,456
Foreign currency reserve	3,768	3,741
Accumulated deficit	(28,606)	(22,482)
Total equity	29,866	17,715

 

 

 

Consolidated Statement of Changes in Equity

for the year ended 31 December 2011

 

Group		Share Accumulated
	Share capital	premium	deficit	Foreign currency reserve	Non controlling interest	Total equity
	£'000's	£'000's	£'000's	£'000's	£'000's	£'000's
At 1 January 2011	692	35,764	(22,482)	3,741	-	17,715
Total loss for the year	-	-	(6,259)	-	(5)	(6,264)
Total comprehensive gain/(loss)	-	-	-	27	-	27
Total comprehensive income/(loss)	-	-	(6,259)	27	(5)	(6,237)
Issue of share capital	1,141	18,104	-	-	-	19,245
Share issue costs	-	(997)	-	-	-	(997)
Share based payments	-	-	260	-	-	260
Acquisition of non-controlling interests with a change in control	-	-	-	-	94	94
Acquisitions of non-controlling interests without a change in control	-	-	(125)	-	(89)	(214)
At 31 December 2011	1,833	52,871	(28,606)	3,768	-	29,866

 

		Share Accumulated
	Share capital	premium	deficit	Foreign currency reserve	Non controlling interest	Total equity
	£'000's	£'000's	£'000's	£'000's	£'000's	£'000's
At 1 January 2010	692	35,764	(6,530)	3,030	-	32,956
Total loss for the year	-	-	(15,968)	-	-	(15,968)
Total comprehensive gain	-	-	-	711	-	711
Total comprehensive income/(loss)	-	-	(15,968)	711	-	(15,257)
Share based payments	-	-	16	-	-	16
At 31 December 20101	692	35,764	(22,482)	3,741	-	17,715

 

 

 

Consolidated Cash Flow Statement

for the year ended 31 December 2011

 

	2011 £'000's	2010 £'000's
Cash flow from operating activities
Cash flow from operations	(3,009)	(2,683)
Interest received	44	21
Net cash flow used in operating activities	(2,965)	(2,662)
Cash flow from investing activities
Capital expenditure and disposals	(31)	(2)
Exploration expenditure	(3,809)	(1,165)
Payment in escrow - acquisition of subsidiaries	2,413	(2,413)
Expense in acquiring subsidiaries	(366)	-
Acquisition of subsidiaries	(4,712)	-
Net cash flow used in investing activities	(6,505)	(3,580)
Proceeds from equity issue	12,108	-
Net cash flow from financing activities	12,108	-
Net increase/(decrease) in cash and cash equivalents	2,638	(6,242)
Net foreign exchange difference	(836)	104
Cash and cash equivalents at 1 January	4,484	10,622
Cash and cash equivalents at 31 December	6,286	4,484

 

 

 

Notes to the financial information

 

1          Accounting policies

 

Sound Oil plc is a public limited company registered and domiciled in England and Wales under the Companies Act 2006.

 

The principal accounting policies adopted in the preparation of the financial information in this announcement are set out in the Company's full financial statements for the year ended 31 December 2011 and are consistent with those adopted in the financial statements for the year ended 31 December 2010.

 

The financial statements of the Group and its parent have been prepared in accordance with:

·              International Financial Reporting Standards (IFRS) as adopted by the European Union (IFRSs, as adopted by the European Union), IFRIC Interpretations and:

·              those parts of the Companies Act 2006 applicable to companies reporting under IFRS.

 

The consolidated financial statements have been prepared under the historical cost convention, except to the extent that the following policies require fair value adjustments.

 

The financial position of the Group, its cash flows and available debt facilities are described in the Financial Review above. As at 31 December 2011 the Group had £6.3 million of available cash. After the balance sheet date but before the date of approval of these financial statements, the Group raised a further £4.0 million from equity fundraisings. The Directors are required to consider the availability of resources to meet the Group and Company's liabilities for the foreseeable future. As described above, the current business environment is challenging and access to new equity and debt remains challenging. Based on the current management plan, management believe that the Group will remain a going concern for the next 12 months from the date of the authorisation of the financial statements on the basis of forecast expenditure (12 months through 30 April 2013) will be less than the funds available as at 31 December 2011 together with the £4.0 million raised in February 2012 from share placings and the £5.8 million undrawn element of the Yorkville facility. Management will also continue to pursue farm-out and financing strategies to reduce/fund Sound's future obligations.

 

2          Operating loss

 

Operating loss is stated after charging:

 

	2011	2010
	£'000's	£'000's
Auditor's remuneration	95	89
Depreciation	15	15
Employee costs	2,137	1,009
Impairment charge	1,101	3

 

3          Auditors' remuneration

 

	2011	2010
	£'000's	£'000's
Fees payable to the company's auditor for the audit of the company's annual accounts	74	66
Fees payable to the company's auditor and its associates for other services:
-    The audit of the company's subsidiaries pursuant to legislation	8	18
-    Other services pursuant to legislation	-	-
-    Tax services	13	5

 

 

4          Employee costs

 

	2011	2010
	£'000's	£'000's
Staff costs, including executive directors
Share based payments	260	16
Wages and salaries	1,696	883
Social security costs	181	110
Total	2,137	1,009
Number of employees (including executive directors) at the end of the year
Technical and operations	6	4
Management and administration	10	10
Total	16	14

 

5          Finance revenue

 

	2011	2010
	£'000's	£'000's
Interest on cash at bank and short-term deposits	44	21
Total	44	21

 

6          Profit/(loss) per share

 

The calculation of basic profit/(loss) per Ordinary Share is based on the profit/(loss) after tax and on the weighted average number of Ordinary Share in issue during the period.  Basic profit/(loss) per share is calculated as follows:

 

	2011	2010
	£'000's	£'000's
Loss after tax	(6,264)	(15,968)
	2011	2010
	million	million
Weighted average shares in issue	1,600	692
	2011	2010
	Pence	Pence
Loss per share (basic)	(0.39)	(2.31)

 

Diluted loss per share has not been disclosed as inclusion of unexercised options would be anti-dilutive.

 

After the balance sheet date, the Company has issued additional shares, details of which are included in note 10, which will not significantly impact on the weighted average number of shares in issue in future periods.

 

 

7          Property, Plant and Equipment

 

Group	Development and production assets	Fixtures fittings and office equipment	Total
	£'000's	£'000's	£'000's
Cost
At 1 January 2011	-	139	139
Exchange adjustments	-	(1)	(1)
Acquisitions	-	35	35
Additions	-	31	31
Transfers (1)	1,246	-	1,246
Disposals	-	-	-
At 31 December 2011	1,246	204	1,450
Depreciation
At 1 January 2011	-	127	127
Exchange adjustments	-	(1)	(1)
Acquisitions	-	31	31
Charge for the year	-	15	15
Disposals	-	-	-
At 31 December 2011	-	172	172
Net book amount at 31 December 2011	1,246	32	1,278

(1)     Transfers represent the reclass of assets from intangible assets (note 8).

 

	Development and production assets	Fixtures fittings and office equipment	Total
	£'000's	£'000's	£'000's
Cost
At 1 January 2010	-	204	204
Exchange adjustments	-	5	5
Additions	-	2	2
Disposals	-	(72)	(72)
At 31 December 2010	-	139	139
Depreciation
At 1 January 2010	-	172	172
Exchange adjustments	-	12	12
Charge for the year	-	15	15
Disposals	-	(72)	(72)
At 31 December 2010	-	127	127
Net book amount at 31 December 2010	-	12	12

 

During the 2011 period the accumulated cost of the Group's investment in the Kerenden field of £1,246,000 was reclassified from exploration and evaluation assets to development and production assets following the signature of a gas sales agreement for the field.

 

The Company has no development and production assets.

 

8          Intangible Assets

 

	Goodwill	Exploration and evaluation assets	Total
	£'000's	£'000's	£'000's
Cost
At 1 January 2011	1,525	12,982	14,507
Exchange adjustments	1	(50)	(49)
Acquisitions	2,051	11,361	13,412
Additions	-	3,809	3,809
Transfers (1)	-	(1,246)	(1,246)
Disposals	-	-	-
At 31 December 2011	3,577	26,856	30,433
Impairment
At 1 January 2011	-	3,028	3,028
Exchange adjustments	-	3	3
Additions	-	1,100	1,100
At 31 December 2011	-	4,131	4,131
Net book amount at 31 December 2011	3,577	22,725	26,302

 

	Goodwill	Exploration and evaluation assets	Total
	£'000's	£'000's	£'000's
Cost
At 1 January 2010	4,797	25,123	29,920
Exchange adjustments	390	745	1,135
Acquisitions	-	-	-
Additions	-	1,165	1,165
Transfers	-	-	-
Disposals	(3,662)	(14,051)	(17,713)
At 31 December 2010	1,525	12,982	14,507
Impairment
At 1 January 2010	-	2,938	2,938
Exchange adjustments	-	87	87
Additions	-	3	3
At 31 December 2010	-	3,028	3,028
Net book amount at 31 December 2010	1,525	9,954	11,479

(1)     Transfers represent the reclass of assets to PP&E (note 7).

 

 

Goodwill

Goodwill arises on acquisitions accounted for at fair value and consists largely of the synergies expected from combining acquired operations with those of the Group.

 

Exploration and evaluation assets

Exploration and evaluation assets represent the capitalised cost of payments to acquire the legal right to explore, costs of technical services and studies, seismic acquisition, exploratory drilling and testing.

 

During the period the accumulated carrying amount of the Group's investment in the Kerenden field of £1,246,000 was reclassified from exploration and evaluation assets to tangible fixed assets following the signature of a gas sales agreement for the field.

 

Impairment

Intangible assets are allocated to the cash generating unit ('CGU') identified according to business segment. In assessing whether impairment indications exist in relation to intangible assets the directors have regard to the results of the Group's exploration and evaluation programme and to the most recent review and valuation of the Group's assets prepared independently by its geoscience advisers in competent persons' reports ('CPRs').

 

CPRs were last prepared for Italy in October 2011 and for Indonesia in September 2011. The values attributed to the Group's assets in the most recent CPRs are very significantly in excess of the carrying amounts of the CGUs, including goodwill. The directors do not therefore consider that any impairment indications exist in relation to the CGUs. However, during the year impairment losses of £1.1 million (2010: £3,000) were recognised in relation to exploration and evaluation assets specifically in relation to the Marciano well. Impairment losses are included under "Exploration Costs" in the Consolidated Income Statement.

 

The valuation calculations included in the CPRs are entirely dependent on the availability of finance to fund capital expenditure on the development of exploration and evaluation assets. Should such finance not be available the carrying amounts of the Group's exploration and evaluation assets are likely to be impaired to their market value in a distressed sale.

 

The methodology to arrive at the values attributed to the Group's assets in the CPRs was as follows:

 

·           Net Present Value ('NPV') calculations were prepared for proven contingent resources, including all the Italian licences and the Kerenden Field

 

·           Estimated Monetary Value ('EMV') calculations were prepared for prospective resources, including the Bangkanai and Citarum PSCs. EMV includes an assessment of risk for the geological uncertainties of undrilled prospects as indicated in the CPRs on the Group's assets.

 

Estimates of the NPV of any project are always subject to many factors and wide margins of error. NPV calculations have been prepared over the period of the PSC/expected production profile and duration of the sales contract. The principal assumptions on which the NPV calculations are based are as follows:

 

·           The Indonesian CPR is based on the assumptions as defined in the plan of development for the Kerenden gas field and a gas price of $4.79/MMBtu, derived from the gas sales agreement for the Kerenden field

 

·           The Italian CPR is based on an oil price of $109/bbl in 2012 with the Brent future curve for 5 years then $80/bbl real, whilst the gas price forecast assumes 80% of the Brent price on an energy equivalent basis

 

·           A discount rate of 10% has been used (2010:10%) which the directors believe to be standard industry practice and approximate to the Group's weighted average cost of capital

 

·           The NPV calculations are most sensitive to the assumptions for production and operating expenditure.

 

9          Acquisitions

 

Acquisition of Consul Oil and Gas Ltd ("Consul")

On 4 January 2011, the Group completed the acquisition of 96% of the issued share capital of Consul, an unquoted company with interests in Italy, for a total consideration of £4.64 million and made an offer to acquire the remaining 4%. The consideration was satisfied by the payment in cash of approximately US$2.19 million (£1.41 million) and the issue of 269,127,983 ordinary shares to the vendors at 1.2p each. In addition the Company purchased an existing loan from RAB to Consul of €1.15 million.

 

On 29 March 2011 the Company acquired a further 2% of the issued share capital of Consul, satisfied by the payment in cash of US$46,667 and the issue of 5,555,555 ordinary shares at 1.2p each.

On 22 August 2011, the remaining 2% of shares in Consul were acquired under compulsory purchase powers, satisfied by the payment in cash of US$46,667 and the issue of 5,555,555 ordinary shares at 1.2p each.

 

The fair value of the ordinary shares issued as part of the consideration paid was measured using the closing market price of the Company's ordinary shares on the acquisition date.

 

Acquisition of Celtique Energie SpA ("Celtique")

In 18 November 2011, the Group completed the acquisition of the issued share capital and voting rights of Celtique, an unquoted company with interests in Italy, for a total consideration of £5,669 million. The consideration was satisfied by the payment in cash of approximately £3,236 million and the issue of 91,998,582 ordinary shares to the vendors at an average price of 2.71p each.

 

10         Post balance sheet events

 

On 6 February 2012, the Company placed 262,587,803 new ordinary shares at 1.5233p per share, raising approximately £4 million, and issued 157,552,682 three year warrants.

 

The proceeds of the above share issues will be used to fund the enlarged group's combined work programme and ongoing costs.

 

11         Other matters

 

The financial information for the year ended 31 December 2011 set out in this announcement does not constitute statutory financial statements, as defined in Section 434 of the Companies Act 2006, but is based on the statutory financial statements for the year then ended.

 

Those financial statements, upon which the auditors have issued an unqualified opinion, will be delivered to the Registrar of Companies.

 

The directors do not propose a dividend in respect of the year ended 31 December 2011 (2010: nil).

 

Copies of the annual report will be sent to shareholders in due course and will be available on the Company's website www.soundoil.co.uk

 

This announcement was approved by the Board on 30 April 2012.