RNS Number:6793X
Sound Oil PLC
04 June 2007
Sound Oil Plc ("the Company")
Preliminary results for the period ended 31 December 2006
The Board of Sound Oil Plc announces its preliminary results for the year ended
31 December 2006.
Highlights
Successful acquisition of first business:
- Gasfield onshore Indonesia
- 83.5 bcfg of gas resources
- Two exploration licences
Exploration well spudded May 2007
Three exploration wells planned for 2007
Plan of development approved for gasfield
Raised 11 million working capital from institutional investors
Significant talent joins Board and senior management
New offices in UK and Indonesia
Gerry Orbell, Chairman of the Company, commented: I am delighted with our
progress. During the coming year we expect to consolidate our position in
Indonesia and focus on adding value to our portfolio, both through starting
development at Kerendan and by acquisitions.
We are also looking forward to exploration success at our current operation at
Pasundan-1 and subsequently Kujang-1"
Contacts
Gerry Orbell, Sound Oil Plc
Tel 44 (0) 7903 861145
Azhic Basirov/David Jones - Smith & Williamson Corporate Finance Limited
Tel: 44 (0) 207 131 4000
Tim Thompson/Nick Melson - Buchanan Communications
Tel 44 (0) 207 466 5000
Chairman's Statement
Sound Oil plc has made solid progress in the last year. In mid 2006 we acquired
Mitra Energia of Indonesia in an all-share deal and raised funds of 10.7
million net of costs. We returned to the market in mid July following the
suspension brought about by this acquisition, with total cash reserves of 21
million.
The Company now has two large and prospective assets in Indonesia - the Citarum
Contract area in Java where we hold a 20% position and the Bangkanai Contract in
Central Kalimantan with equity of 34.99%. We anticipated that these licenses
would fit with our strategy of adding significant value in the event of an early
discovery or an early revenue return, and preferably both.
In Citarum, the Great Wall drilling rig has now commenced drilling the Pasundan
No 1 well. There had been a delay in drilling of several months brought about by
unusually severe flooding and consequent damage to the wellsite; and a more
extensive refit of the rig than had been expected. The Kujang well nearby is
expected to follow Pasundan directly. Further detailed geophysical work has
confirmed that these two prospects are at least as big as we first thought -
this is not always the case! We shall also be acquiring a series of 2D seismic
programs across the more prospective parts of the Citarum license during the
course of 2007 to firm up more drilling opportunities.
At Bangkanai, we are progressing with exploration drilling and the development
of the proven Kerendan gas field in the centre of this large license. We are
currently concentrating our exploration efforts in and around the Kerendan gas
field which is an area of lower exploration risk. Here we have identified a
significant new exploration target below the existing gas reservoir. We will be
drilling the Sungei Lahei No 1 well towards the end of the year, through both
the proven Kerendan gas level and the new exploration horizon below. Whatever
the exploration outcome at the deep level, we expect to complete this well as a
gas producer in the shallow reservoir, thus saving the cost of one development
well. Should the deep level prove the volumes of gas that we anticipate, this
will have a significant impact on our reserves.
We have experienced significant escalation in drilling costs during the year. We
are confident, however, in fulfilling the programme we set out at re-admission
time by financial prudence and adopting cost saving strategies as at Sungei
Lahei. Sound finished the year as we started - with cash reserves which we
believe to be sufficient for our commitments. We had 17.4 million in the bank.
Our major expenditures in 2006 were related to long lead items for the wells in
the Citarum Contract area.
We have increased the technical capability of the Company over the year by the
addition of expert staff and we are now making a significant contribution to the
technical understanding of the Contracts. I would like to thank all the staff
for their hard work during the year.
During the coming year we shall consolidate our position in Indonesia and
complete the integration of the UK and Indonesia offices. We expect to focus on
adding production to our portfolio, both through development of Kerendan but
also through acquisition.
This is the first opportunity I have had to welcome to the Board our new
colleagues, Jossy Rachmantio, Ilham Habibie and Patrick Alexander. I would like
to thank them and the original Sound Directors, Simon Davies, Michael Nobbs and
Tony Heath, for their contribution and support during the year.
Gerry Orbell
Chairman
Financial Review
Economic environment
The high oil prices seen in 2005 and 2006 have encouraged a major expansion in
oil and gas exploration and development activity and this has led to a severe
shortage of drilling equipment and a considerable increase in the cost of these
facilities. On the other hand, the high oil price has also brought an increase
in the number of opportunities becoming economic to explore and develop,
although this in turn has caused a rise in the price being sought for such
opportunities.
Income statement
Loss after tax for 2006 was 2,170,000 compared with 193,000 in 2005. Pre
licence exploration expenditure was 653,000 (2005 151,000). Administration
costs rose from 210,000 to 999,000 due to higher staff levels and office costs
following the acquisition of the Mitra group in mid 2006. Operating loss was
1,735,000 compared with 361,000. Net interest received was 641,000 (2005
234,000), due to an increase in cash balances following from a share issue at
mid year. There was an unrealised foreign exchange loss of 1,142,000 on the
group's holdings of US$ following the weakness of that currency. The US$ were
bought after the Mitra acquisition in order to protect the purchasing power of
the group's funds since most of the group's expenditure is now in US$. Although
accounting requirements are for this to be shown as a loss, albeit unrealised,
the sterling cost of the Indonesian assets being acquired with the US dollars
has fallen pro rata, so the purchasing power remains the same. Basic loss per
share was 0.45 pence compared with 0.12 pence in 2005.
Cash flow/balance sheet
Net cash outflow before movements relating to financing was 5,004,000 (2005
102,000). Following the 11,554,000 raised from share issues, the group's cash
balance at year end was 17,389,000 (2005 10,839,000). Cash balances were
invested in short term deposits.
Technical Review
Licence interests
The group participates in two Production Sharing Contract (PSC) areas in Java
and Kalimantan, Indonesia through its subsidiary company Mitra Energia Limited.
Our working interests and partners are:
- Citarum PSC (participation through shareholding Bangkanai PSC in BPREC
operating company)
- Bangkanai PSC
Citarum PSC
Activity during the last year has been focused on the preparations for drilling
the first two exploration wells on the Pasundan and Kujang prospects in the
northern part of the licence close to the Jatirarangon gas field and the JGN-1
oil discovery. Both wells will be drilled to test multiple reservoir levels in
Miocene (carbonates; Baturaja Fm) and Oligocene (clastics; Talang Akar and
Jatibarang Fms); the Jatibarang Fm is the producing formation in nearby
Jatirarangon field. The wells will target separate wrench-controlled fault
compartments along a NW-SE trend. The compartments are probably sealed from one
another, but could be part of a connected megastructure at certain levels.
Estimated P50 prospective resources4 for both structures combined are 570 bcfg
(gas case P10, 910 bcfg).
These two wells will form part of the work commitment on the licence. The
remaining obligations of 750 km of new 2D seismic data and two further
exploration wells will be undertaken in 2007-2008. The Pasundan-1 well was
spudded with the Great Wall rig 93 on 9 May 2007 and the Kujang-1 wellsite is
currently being prepared.
Bangkanai PSC
Independent assessment of Kerendan Field contingent recoverable resources by
RML-Senergy3 are:
Gross Net to Sound
(34.99%)
Proved (P1, bcfg) 187.0 65.4
Proved Probable (P1 P2, bcfg) 238.5 83.5
A Plan of Development (POD) for the Kerendan gas field was granted in August
2006 by BPMigas (the Indonesian government agency responsible for the
supervision and control of upstream oil and natural gas business activities).
The field, first discovered in the 1980s, will be developed to supply gas to a
local, new-build integrated power plant operated by Medco Power. The POD calls
for the supply of 134 bcfg1 over 20 years at a maximum rate of 20 mmcfg/day2.
The development plan will include re-entry of existing wells and up to five new
development wells. Initial field development activities are anticipated to
commence in 2007.
Exploration activity on the licence included the acquisition of a 205 km 2D
seismic survey as part of the PSC work commitment. Study of the new seismic data
identified new prospect areas and deeper prospective horizons below the existing
Kerendan field Berai Fm reservoir. A location has been identified (Sungai
Lahei-1) to test this deeper play at several levels in the clastic Tanjung
Formation. The well will target estimated P50 prospective resources4 of more
than 400 bcfg. Planning for the well is currently being undertaken for drilling
in 2007. This well is one of two obligation exploration wells on the licence,
for which BPMigas has granted an extension of the first exploration period to 31
December 2007.
1 bcfg = billion cubic feet of gas
2 mmcfg/day = million cubic feet of gas per day
3 RML-Senergy compiled the Competent Person's Report included in the Admission
Document of July 2006, from which these figures are taken.
4 Prospective resources, consistent with SPE (the Society of Petroleum
Engineers) guidelines, are quantified in terms of the statistical probability to
find a given recoverable hydrocarbon (oil or gas) volume in a prospective
structure considering all the geological variables involved. The P50 figure
indicates a 50% chance of finding a given volume and is generally considered the
best or most-likely estimate. The P10 figure indicates a 10% chance of finding a
given volume and is generally used to express the high estimate. The figures
quoted in this report have been verified by Sound Oil's Head of Exploration Dr.
M. J. Cope BSc PhD FGS, a qualified petroleum geologist.
Consolidated Profit and Loss Account for the year ended 31 December 2006
Note 2005 2006
'000's '000's
------------------------------------------------------------------------------
Exploration costs (151) (653)
Share of loss of associate - (14)
-------------------------------------------------------------------------------
Gross loss (151) (667)
Administrative costs (210) (999)
Share-based payments 16 - (69)
-------------------------------------------------------------------------------
Operating loss 2 (361) (1,735)
Interest receivable 5 234 641
Foreign exchange gains/(losses) - (1,142)
-------------------------------------------------------------------------------
Loss on ordinary activities before tax (127) (2,236)
Tax 6 (66) 66
-------------------------------------------------------------------------------
Loss after tax from continuing operations (193) (2,170)
-------------------------------------------------------------------------------
Loss per share (pence): basic 7 (0.12) (0.45)
-------------------------------------------------------------------------------
Consolidated Statement of Group Total Recognised Gains and Losses for the year
ended 31 December 2006
2005 2006
'000's '000's
-------------------------------------------------------------------------------
Net loss for the year attributable to members of the (193) (2,170)
Company
Foreign currency loss - (157)
-------------------------------------------------------------------------------
Total recognised losses (193) (2,327)
-------------------------------------------------------------------------------
Group Reconciliation of Movements in Shareholders' Funds for the year ended 31
December 2006
2005 2006
'000's '000's
-------------------------------------------------------------------------------
Total recognised losses relating to the year (193) (2,327)
New shares issued 11,115 26,123
Costs associated with raising capital (174) (608)
Provisions for share-based payments - 69
-------------------------------------------------------------------------------
Total movements during the year 10,748 23,257
Shareholders' funds at 1 January - 10,748
-------------------------------------------------------------------------------
Shareholders' funds at 31 December 10,748 34,005
-------------------------------------------------------------------------------
Balance Sheets as at 31 December 2006
Note Group 2005 Group 2006 Company 2005 Company 2006
'000's '000's '000's '000's
--------------------------------------------------------------------------------
Fixed assets
Intangible
assets 8 - 16,105 - -
Tangible assets 10 - 54 - 8
Investments in
subsidiaries
and associated
undertakings 11 - 13 - -
-------------------------------------------------------------------------------
Total fixed assets - 16,172 - 8
-------------------------------------------------------------------------------
Current assets
Debtors falling due
after one year 12 - 583 - 17,885
Debtors due
within one year 13 24 601 24 47
Cash and short-term
deposits 10,839 17,389 10,839 16,762
-------------------------------------------------------------------------------
Total current assets 10,863 18,573 10,863 34,694
Creditors: amounts
falling due within one
year 14 (115) (684) (115) (153)
-------------------------------------------------------------------------------
Net current assets 10,748 17,889 10,748 34,541
-------------------------------------------------------------------------------
Total assets less current
liabilities 10,748 34,061 10,748 34,549
Creditors: amounts - - - -
falling due after one
year
Provisions for
liabilitiesand charges - (56) - -
-------------------------------------------------------------------------------
Net assets 10,748 34,005 10,748 34,549
-------------------------------------------------------------------------------
Capital and reserves
Share capital 16 300 692 300 692
Share premium account 16 10,641 35,764 10,641 35,764
Profit and loss account 16 (193) (2,363) (193) (1,976)
Foreign currency
translation 16 - (157) - -
Share-based payments 16 - 69 - 69
-------------------------------------------------------------------------------
Total equity
shareholders'funds 10,748 34,005 10,748 34,549
------------------------------------------------------------------------------
Consolidated Cash Flow Statement for the year ended 31 December 2006
Note 2005 2006
'000's '000's
-----------------------------------------------------------------------------
Net cash outflow from operating activities 17 (336) (3,063)
------------------------------------------------------------------------------
Returns on investment and servicing of finance
Interest received 234 641
------------------------------------------------------------------------------
234 641
------------------------------------------------------------------------------
Capital expenditure and financial investment
Capital expenditure - (1,483)
Cash acquired through acquisition - 27
Acquisition costs - (692)
Loan to associate - (434)
-------------------------------------------------------------------------------
- (2,582)
-------------------------------------------------------------------------------
Cash outflow before management of liquid resources and
financing (102) (5,004)
-------------------------------------------------------------------------------
Financing
Issue of Ordinary Shares 11,115 12,162
Costs associated with raising capital (174) (608)
-------------------------------------------------------------------------------
Net cash from financing 10,941 11,554
-------------------------------------------------------------------------------
Increase in cash 10,839 6,550
-------------------------------------------------------------------------------
Notes to the Accounts
1 Accounting policies
These financial statements are presented in UK.
Accounting convention
The accounts are prepared under the historical cost convention and UK GAAP and
in accordance with the Oil Industry Accounting Committee Statement of
Recommended Practice - 'Accounting for Oil and Gas Exploration, Development,
Production and Decommissioning Activities' and applicable accounting standards.
Consolidation
The group accounts consolidate the accounts of Sound Oil plc (the Company) and
all its subsidiary undertakings drawn up to 31 December. No profit and loss
account is presented for the Company as provided by Section 230 of the Companies
Act 1985. Mitra Energia Limited has been included in the group financial
statements using the acquisition method of accounting. Accordingly, the group
profit and loss account and statement of cash flows include the results and cash
flows of Mitra Energia Limited for the five and a half month period from its
acquisition on 12 July 2006. The purchase consideration has been allocated to
the assets and liabilities on the basis of fair value at the date of
acquisition.
Entities in which the group holds an interest on a long-term basis and are
jointly controlled by the group and one or more other ventures under a
contractual arrangement are treated as joint arrangements. In the group accounts
Sound Oil's proportion of operating profit or loss, exceptional items, interest,
taxation, gross assets and gross liabilities of the joint arrangements are
included.
Entities, other than subsidiary undertakings or joint arrangements, in which the
group has a participating interest and over whose operating and financial
policies the group exercises a significant influence are treated as associates.
In the group financial statements, associates are accounted for using the equity
method.
Adoption of new accounting standard FRS20, share-based payments
With effect from 1 January 2006, the group has adopted FRS20 share-based
payments. The adoption of this standard has not resulted in the re-statement of
retained earnings and has had immaterial impact on the results or net assets for
the prior year.
Fixed assets
Oil and Gas assets
The group applies the successful efforts method of accounting for exploration
and evaluation (E&E) costs.
(a) Intangible assets
Under the successful efforts method of accounting, all licence acquisition,
exploration and appraisal costs are initially capitalised in well, field or
specific exploration cost centres as appropriate, pending determination.
Expenditure incurred during the various exploration and appraisal phases is then
written off unless commercial reserves have been established or the
determination process has not been completed.
Exploration and evaluation costs: Costs are initially capitalised as intangible
assets. Payments to acquire the legal right to explore, costs of technical
services and studies, seismic acquisition, exploratory drilling and testing are
capitalised as intangible assets.
Treatment of E&E assets at conclusion of appraisal activities: Intangible E&E
assets relating to each exploration licence/prospect are carried forward, until
the existence (or otherwise) of commercial reserves has been determined subject
to certain limitations including review for indications of impairment. If
commercial reserves have been discovered, and development has been approved, the
carrying value, after any impairment loss, of the relevant E&E assets is then
reclassified as development and production assets. If, however, commercial
reserves have not been found, the capitalised costs are charged to expense after
conclusion of appraisal activities.
Development and production assets
Development and production assets are accumulated generally on a field-by-field
basis and represent the cost of developing the commercial reserves discovered
and bringing them into production, together with the E&E expenditures incurred
in finding commercial reserves transferred from intangible E&E assets as
outlined in accounting policy (a) above.
The cost of development and production assets also includes the cost of
acquisitions and purchases of such assets, directly attributable overheads,
finance costs capitalised, and the cost of recognising provisions for future
restoration and decommissioning.
(b) Impairment of development and production assets
An impairment test is performed whenever events and circumstances arising during
the development or production phase indicate that the carrying value of a
development or production asset may exceed its recoverable amount.
The carrying value is compared against the expected recoverable amount of the
asset, generally by reference to the present value of the future net cash flows
expected to be derived from production of commercial reserves. The cash
generating unit applied for impairment test purposes is generally the field,
except that a number of field interests may be grouped as a single income
generating unit where the cash flows of each field are inter-dependent.
Acquisitions, asset purchases and disposals
Acquisitions of oil and gas properties are accounted for under the purchase
method where the transaction meets the definition of a business combination.
Transactions involving the purchases of an individual field interest, or a group
of field interests, that do not qualify as a business combination are treated as
asset purchases, irrespective of whether the specific transactions involve the
transfer of the field interests directly, or the transfer of an incorporated
entity. Accordingly, no goodwill arises, and the consideration is allocated to
the assets and liabilities purchased on an appropriate basis.
Tangible fixed assets and depreciation
Tangible fixed assets are stated at cost or valuation less depreciation.
Depreciation is provided at rates calculated to write off the cost or valuation,
less the estimated residual value of each asset, over its expected useful life,
as follows:
Equipment and fixtures 25% straight line basis
Translation of foreign currencies
In the accounts of individual companies, transactions denominated in foreign
currencies are recorded in the local currency at actual exchange rates as of the
date of the transaction. Monetary assets and liabilities denominated in foreign
currencies at the period end are reported at the rates of exchange prevailing at
the period end. Any gain or loss arising from a change in exchange rate
subsequent to the date of the transaction is included as an exchange gain or
loss in the profit and loss account.
For the purposes of consolidation, the closing rate method is used under which
translation gains and losses on the opening net assets of overseas undertakings
are shown as a movement in reserves. All other translation differences are taken
to the profit and loss account. Profit and loss accounts of overseas
undertakings are translated at the average exchange rate for the period.
Cash and liquid resources
Cash, for the purposes of the cash flow statement, comprises cash in hand and
deposits repayable on demand, less overdrafts payable on demand.
Liquid resources comprise funds held in term deposit accounts.
Share-based payments
The grup issues equity-settled share-based payments to certain employees.
Equity-settled share-based payments are measured at fair value at the date of
grant. The fair value determined at the grant date of the equity-settled
share-based payments is expensed on a straight-line basis over the vesting
period, based on the group's estimate of shares that will eventually vest.
Fair value is measured by use of a binomial model. The expected life used in the
model has been adjusted, based on management's best estimate, for the effects of
non-transferability, exercise restrictions, and behavioural considerations.
Provisions
Provisions are recognised when the group has a present obligation as a result of
a past event and it is probable that the group would be required to settle that
obligation. Provisions are measured at the management's best estimate of the
expenditure required to settle the obligation at the balance sheet date, and are
discounted to present value where the effect is material.
Interest income
Interest income is accrued on a time basis, by reference to the principal
outstanding and at the effective interest rate applicable.
Post-Retirement Benefits
Provision is made for post-retirement benefits under Indonesian law.
Production Sharing Contracts
The group has interests in various Production Sharing Contracts (PSC) the terms
of which provide for the Company and its joint-venture participants to recover
all costs out of the proceeds of production. Where these are insufficient in any
one year to recover costs fully, they are carried forward. Production remaining
after cost recovery is divided between joint-venture participants and the
Indonesian governing authority according to pre-agreed formulae. Whilst under
the form of a PSC, the title of all property, equipment and inventories passes
to the Indonesian governing authority, so the substance of each contract is that
the participants have use of all assets and market all oil produced.
2 Operating loss and segmental analysis
The loss is stated after charging:
Note 2005 2006
'000's '000's
-------------------------------------------------------------------------------
Depreciation - 3
Auditors remuneration 3 29 100
Staff costs 4 142 931
-------------------------------------------------------------------------------
The loss comprises:
2005 2006
'000 '000
-------------------------------------------------------------------------------
Operations (UK) 361 1,277
Acquisition (South Asia) - 444
Investment in associate (South Asia) - 14
-------------------------------------------------------------------------------
Total - continued operations 361 1,735
-------------------------------------------------------------------------------
Net assets comprise:
2005 2006
'000 '000
-------------------------------------------------------------------------------
UK 10,748 16,664
South Asia - 17,341
-------------------------------------------------------------------------------
Total 10,748 34,005
-------------------------------------------------------------------------------
3 Auditors' remuneration
2005 2006
'000's '000's
------------------------------------------------------------------------------
Audit of the financial statements 11 90
Other fees to auditors - 10
Fees in relation to corporate finance services 18 -
-------------------------------------------------------------------------------
Charged to profit and loss 29 100
Non-audit services - taken to equity - 174
-------------------------------------------------------------------------------
Total 29 274
-------------------------------------------------------------------------------
The non-audit services in 2005 were for reporting on the Admission Document on
29 June 2005 and in 2006 for reporting on the Admission Document on 24 June
2006.
Audit services relate entirely to the current auditors, Ernst & Young LLP. Non
audit services relate to the Company's previous auditors Chapman Davis LLP in
2005 and to the Company's current auditors Ernst &Young LLP in 2006.
4 Employee costs
2005 2006
'000's '000's
-------------------------------------------------------------------------------
Staff costs, including executive directors
-------------------------------------------------------------------------------
Share-based payments - 69
Wages and salaries 126 786
Social security costs 16 76
-------------------------------------------------------------------------------
Total 142 931
-------------------------------------------------------------------------------
The expense of share-based payments all arose from transactions accounted for as
equity-settled share-based payment transactions.
Average number of employees (including executive
directors) during the year
Technical and operations 1 9
Management and administration 1 8
-------------------------------------------------------------------------------
Total 2 17
-------------------------------------------------------------------------------
5 Interest Receivable
2005 2006
'000's '000's
-------------------------------------------------------------------------------
Short-term deposits 234 641
-------------------------------------------------------------------------------
Total 234 641
-------------------------------------------------------------------------------
6 Tax on profit on ordinary activities
Analysis of tax charge 2005 2006
'000's '000's
-------------------------------------------------------------------------------
Loss on ordinary activities before tax (127) (2,236)
-------------------------------------------------------------------------------
Loss on ordinary activities at Standard Rate of UK
corporation Tax (30%) 38 671
Non-deductible expenditure at Standard Rate (108) (7)
Small companies relief 4 -
-------------------------------------------------------------------------------
Tax loss not recognised for deferred tax purposes - 664
Adjustment for prior year - 66
-------------------------------------------------------------------------------
Total tax - Current (66) -
-------------------------------------------------------------------------------
Total tax (66) 66
-------------------------------------------------------------------------------
Tax on management expenses carried forward of 700,000 (2006: 664,000, 2005:
36,000) may be available for offset against tax on future taxable income in the
UK.
The most significant event to affect the tax charge in the future will be the
commencement of production activity.
7 Loss per share
The calculation of basic loss per Ordinary Share is based on the loss after tax
and on the weighted average number of Ordinary Shares in issue during the
period. Basic loss per share is calculated as follows:
Weighted average Earnings
Loss after tax number of shares per share
-------------------------------------------------------------------------------
2005 2006 2005 2006 2005 2006
'000's '000's million million pence pence
-------------------------------------------------------------------------------
Basic (193) (2,170) 165 486 (0.12) (0.45)
-------------------------------------------------------------------------------
Diluted loss per share has not been disclosed as inclusion of unexercised
options would be anti-dilutive in 2006.
8 Intangible fixed assets
Oil and gas properties
-------------------------------------------------------------------------------
South Asia Total
'000 '000
2006 2006
-------------------------------------------------------------------------------
Group
Cost
At 1 January 2006 - -
Acquisition of subsidiary undertaking, Mitra
Energia Limited 14,791 14,791
Additions during the year 1,314 1,314
-------------------------------------------------------------------------------
At 31 December 2006 16,105 16,105
-------------------------------------------------------------------------------
The Company has no intangible fixed assets.
9 Acquisition
On 12 July 2006, the group acquired the enitre issued share capital of Mitra
Energia Limited, an unquoted gas exploration and development company with
interests in Indonesia for a consideration of 13,961,039 satisfied by the issue
of 223,376,633 ordinary shares of 0.1p at 6.25p each. The investment in Mitra
Energia Limited has been included in the group's balance sheet at its fair value
at the date of acquisition at the market price of the shares at the date of the
transaction.
Analysis of the acquisition of Mitra Energia Limited:
Net assets at date of Book value Book Value Adjustments Fair Value
acquisition: Indonesian GAAP UK GAAP Revaluation to company
000 000 000 000
-------------------------------------------------------------------------------
Intangible Assets - 957 13,834 14,791
Tangible fixed assets 11 43 43
Investments 1,167 - -
Investment in associate undertaking - 27 27
Debtors due within one year 176 194 194
Debtors due after more
than one year 1 33 33
Loan to employee 66 66 66
Cash 22 27 27
Creditors due within one year (305) (447) (447)
Provision for
liabilities and charges (39) (81) (81)
-------------------------------------------------------------------------------
Net Assets 1,099 819 13,834 14,653
-------------------------------------------------------------------------------
Discharged by:
Fair value of shares issued 13,961
Costs associated with the acquisition 692
-------------------------------------------------------------------------------
14,653
-------------------------------------------------------------------------------
Adjustments
*increase in value since expenditure was incurred
Prior to acquisition, the loss after tax of Mitra Energia Limited for 2005 was
US$785,000. For 2006 until date of acquisition there was a profit of US$492,000.
10 Tangible fixed assets
Furniture, fittings and office equipment
-------------------------------------------------------------------------------
Company Group
-------------------------------------------------------------------------------
'000 '000
-------------------------------------------------------------------------------
Group
Cost
At 1 January 2006 - -
Additions during the year 9 14
Acquisition of subsidiary
undertaking - 43
-------------------------------------------------------------------------------
At 31 December 2006 9 57
-------------------------------------------------------------------------------
Amortisation and depreciation
At 1 January 2006 - -
Charge for the year (1) (3)
-------------------------------------------------------------------------------
At 31 December 2006 (1) (3)
-------------------------------------------------------------------------------
Net book value at 31 December 2006 8 54
-------------------------------------------------------------------------------
Net book value at 31 December 2005 - -
-------------------------------------------------------------------------------
11 Investments
Associated Subsidiary
undertakings undertakings Total
million million million
-------------------------------------------------------------------------------
Group
Cost and net book value
At 1 January 2006 - - -
Acquisitions 27 - 27
Share of loss (14) - (14)
-------------------------------------------------------------------------------
At 31 December 2006 13 - 13
-------------------------------------------------------------------------------
The Company had no investments in 2005 or 2006 other than in Sound Oil
International Limited, an intermediate holding company.
The subsidiary undertakings of the Company, all of which are 100 per cent owned,
are as follows:
Country of
Business and incorporation
Name of Company area of operation or registration
-------------------------------------------------------------------------------
Sound Oil International Intermediate holding company, UK British Virgin
Limited Islands
-------------------------------------------------------------------------------
Mitra Energia Limited Intermediate holding company, Mauritius
Indonesia
-------------------------------------------------------------------------------
Mitra Energia Bangkanai Exploration and development, Mauritius
Limited Indonesia
-------------------------------------------------------------------------------
Mitra Energia Citarum Exploration, Indonesia Mauritius
Limited
-------------------------------------------------------------------------------
Investment in associated company comprises:
Business and Country of
area of Shares incorporation
Name of Company operation Classification held % or registration
------------------------------------------------------------------------------
PT. Bumi Parahyangan Exploration,
Ranhill Energia Citarum Indonesia Associate 20 Indonesia
------------------------------------------------------------------------------
The group accounts for its 20 per cent share in PT. Bumi Parahyangan Ranhill
Energia Citarum (BPREC) as interest in associate under FRS 9 - 'Associates and
Joint Ventures'. The remaining interest in BPREC is owned by Ranhill Energy SDN
BHD (60 per cent) and Bumi Parahyangan Energi (20 percent).
12 Debtors: amounts due in more than one year
Group Group Company Company
2005 2006 2005 2006
'000's '000's '000's '000's
-------------------------------------------------------------------------------
Amounts owed by subsidiary
undertakings - - - 17,885
Loan due from BPREC* - 515 - -
Other debtors - 68 - -
-------------------------------------------------------------------------------
Total - 583 - 17,885
-------------------------------------------------------------------------------
*For advances made to associated undertaking
13 Debtors: amounts due within one year
Group Group Company Company
2005 2006 2005 2006
'000's '000's '000's '000's
-------------------------------------------------------------------------------
Amounts owned by fellow licence
participants - 344 - -
Prepayments 24 55 24 43
VAT receivables - 151 - 4
Sundry debtors - 51 - -
-------------------------------------------------------------------------------
Total 24 601 24 47
-------------------------------------------------------------------------------
14 Creditors: amounts falling due within one year
Group Group Company Company
2005 2006 2005 2006
'000's '000's '000's '000's
-------------------------------------------------------------------------------
Trade Creditors 11 8 11 8
Taxes payable 66 35 66 -
Employee benefits* - 104 - -
Accruals 38 270 38 124
Other Creditors - 267 - 21
-------------------------------------------------------------------------------
Total 115 684 115 153
-------------------------------------------------------------------------------
* Based on internal estimates to cover the requirements of Indonesian Labour Law
13, 2003
15 Share capital
Ordinary shares 0.1p shares 2005 0.1p shares 2006
-------------------------------------------------------------------------------
Authorised 3,000,000,000 3,000,000 3,000,000,000 3,000,000
-------------------------------------------------------------------------------
Called up, issued and
fully paid 300,272,309 300,272 692,427,348 692,427
-------------------------------------------------------------------------------
On 12 July 2006, following approval at an Extraordinary General Meeting of
shareholders on that date, the Company acquired the entire issued share capital
of Mitra Energia Limited, an unquoted gas exploration and development company
with interests in Indonesia comprising a 34% interest in the Bangkanai Block
onshore central Kalimantan and a 20% interest in the Citarum Block onshore
central Java.
On the same date the Company raised approximately 10.7 million net of expenses
through the placing of 161,500,000 new ordinary shares at 7.25p per share.
The consideration for the acquisition of Mitra was the issue of 223,376,623
ordinary shares credited as fully paid.
In connection with the acquisition and share placing, the executive directors of
the Company were awarded bonuses of 1,635,172 ordinary shares to Gerry Orbell
and 827,586 ordinary shares to Tony Heath. Furthermore certain advisers to the
Company were issued a total of 4,795,658 ordinary shares as part of their fees.
As a result of these transactions, the issued share capital of the Company was
increased to 692,427,348 ordinary shares. The former shareholders of Mitra hold
approximately 32% of the enlarged share capital of the Company.
In connection with the acquisition and share placing, Gerry Orbell and Tony
Heath were awarded options on 13 July 2006 over 1,400,000 and 700,000 ordinary
shares respectively at an exercise price of 7.25p exercisable from six months
after award until six years after award.
16 Share capital and reserves
Share
Foreign Share Premium Profit and Share-based
currency Capital Account Loss account Payments Total
'000's '000's '000's '000's '000's '000's
------------------------------------------------------------------------------
Group
At 1 January 2006 - 300 10,641 (193) - 10,748
Shares issued - 392 25,123 - - 25,515
Share-based payments - - - - 69 69
Loss for the year (157) - - (2,170) - (2,327)
-------------------------------------------------------------------------------
At 31 December 2006 (157) 692 35,764 (2,363) 69 34,005
-------------------------------------------------------------------------------
Company
At 1 January 2006 - 300 10,641 (193) - 10,748
Shares issued - 392 25,123 - - 25,515
Share-based payments - - - - 69 69
Loss for the year - - - (1,783) - (1,783)
-------------------------------------------------------------------------------
At 31 December 2006 - 692 35,764 (1,976) 69 34,549
-------------------------------------------------------------------------------
17 Cash flow reconciliations
a) Reconciliation of operating loss to net cash flow from operating activities
2005 2006
'000's '000's
-------------------------------------------------------------------------------
Operating loss (361) (1,735)
(Increase)/decrease in ST debtors (24) (400)
(Increase)/decrease in LT debtors - (35)
(Increase)/decrease in ST creditors 49 188
(Increase)/decrease in LT creditors - (25)
(Increase)/decrease in LT provisions - 69
Depreciation - 3
Foreign exchange gains/(losses) - (1,142)
Share of loss of associate - 14
-------------------------------------------------------------------------------
Net cash outflow from operating activities (336) (3,063)
-------------------------------------------------------------------------------
b) Reconciliation of net cash flow to movement in net debt
2005 2006
'000's '000's
-------------------------------------------------------------------------------
Increase in cash in the period 10,839 6,523
Cash acquired - 27
Cash flow from movement in liquid resources - -
Change in net cash resulting from cash flows - -
Opening net cash - 10,839
-------------------------------------------------------------------------------
Net cash at 31 December 10,839 17,389
-------------------------------------------------------------------------------
c) Analysis of Net Cash
At At
1 January 2006 Cash Flow 31 December
2006
'000's '000's '000's
-------------------------------------------------------------------------------
Cash in hand and at bank 144 611 755
Short term deposits 10,695 5,939 16,634
-------------------------------------------------------------------------------
Total net cash 10,839 6,550 17,389
-------------------------------------------------------------------------------
18 Financial Instruments
The Company has taken advantage of the exemption in FRS13 "Derivatives and Other
Financial Instruments" in respect of short-term debtors and creditors and
consequently those items are not included in the relevant analysis within the
following note.
Interest rate and currency risk profiles of financial assets
The interest rate risk profile and the currency risk profile of the financial
assets of the group as at 31 December was:
Weighted
Floating rate Interest-free Total average
Currency million million million interest rate
--------------------------------------------------------------------------------
2006
Cash and short-term deposits
Sterling 1,562 - 1,562 4.47%
US$ 15,200 627 15,827 5.09%
-------------------------------------------------------------------------------
Total 16,762 627 17,389
-------------------------------------------------------------------------------
2005
Cash and short-term deposits
Sterling 10,839 - 10,839 4.47%
US$ - - - -
-------------------------------------------------------------------------------
Total 10,839 - 10,839
-------------------------------------------------------------------------------
US$ cash balances have been converted at the exchange rate on 31 December 2006
of US$1.9591/1.
The floating rate cash and short-term deposits comprise of cash held in interest
bearing current accounts and deposits placed on the money markets for periods
ranging from overnight to three months.
Financial instruments exposed to interest rate risk (eg US Federal Funds Rate
and UK Base Rate) were floating rate cash assets maturing within one year:
16,762,000 (2005: 10,839,000).
Cash on which no interest is received relates to balances available to meet
immediate operating payments and are therefore only held for short periods
interest-free.
Fair Values 2005 2006
-------------------------------------------------------------------------------
Carrying Fair Carrying Fair
amount value amount value
'000's '000's '000's '000's
-------------------------------------------------------------------------------
Financial assets
-------------------------------------------------------------------------------
Cash - Sterling 10,839 10,839 1,562 1,562
-------------------------------------------------------------------------------
- US$ - - 15,832 15,832
-------------------------------------------------------------------------------
The fair values are based on market values at the end of the year.
19 Share-based payments
Share options have been granted to senior executives and the Company's
stockbrokers.
An option to acquire 500,000 ordinary shares at 7.5p each was awarded to Hichens
Harrison on 22 June 2005, exercisable on any date up to 29 June 2010. Options to
acquire 1,400,000 and 700,000 ordinary shares at 7.25p each were awarded to
Gerry Orbell and Tony Heath respectively on 13 July 2006 exercisable from six
months after award until six years after award.
The exercise price of the options is equal to the estimated market price of the
shares on the date of grant. The contractual life of each option granted is six
years. There are no cash settlement alternatives.
The expense recognised for share-based payments in respect of employee services
received during the year to 31 December 2006 is 69,353. No part of that expense
arose from cash-settled share-based payment transactions.
The following table illustrates the number and weighted average exercise prices
(WAEP) of, and movements in, share options during the year.
2006 2006
No WAEP
-------------------------------------------------------------------------------
Outstanding as at 1 January 500,000 7.50p
Granted during the year 2,600,000 6.77p
-------------------------------------------------------------------------------
Outstanding at 31 December 3,100.000 6.87p
-------------------------------------------------------------------------------
Exercisable at 31 December 2,600,000 6.77p
-------------------------------------------------------------------------------
For share options outstanding as at 31 December 2006, the weighted average
remaining contractual life is 4.78 years (2005 5.49 years).
The weighted average fair value of options granted during the year was 2.12p
(2005 1.86p). The range of exercise prices for options outstanding at the end of
the year was 4.75p - 7.25p (2005 7.5p).
The fair value of equity-settled share options granted is estimated as at the
date of grant using a binomial model, taking into account the terms and
conditions upon which the options were granted. The following table lists the
inputs to the model used for the years ended 31 December 2006 and 31 December
2005.
2006
-------------------------------------------------------------------------------
Dividend yield (%) 0
Expected share price volatility (%) 58
Historical volatility (%) 58
Risk-free interest rate (%) 4.78
Expected life of options (years) 6
-------------------------------------------------------------------------------
The expected life of the options is based on the maximum option period and is
not necessarily indicative of exercise patterns that may occur. The expected
volatility reflects the assumption that the historical volatility is indicative
of future trends, which may also not necessarily be the actual outcome.
No other features of options grant were incorporated into the measurement of
fair value. Fair value of goods or services received during the period.
2005 - On 29 June 2005 454,545 new ordinary shares of 0.1p per share with a
fair value of 25,000 were issued to the Company's stockbrokers Hichens
Harrison & Co plc in settlement of their placing fee.
2006 - No shares were issued in settlement for goods or services provided.
20 Capital Commitments and Guarantees
At 31 December 2006 the Group had capital commitments of 12,000,000 (2005:Nil)
on exploration and development licences. The Company had no capital commitments
in 2006 (2005: Nil).
Under the terms of a farm-out agreement dated 1 October 2004 with Elnusa
Bangkanai Energy Limited (Elnusa), the Company has agreed to carry Elnusa's
share of the initial three year minimum work obligation costs. Under the terms
of the Bangkanai PSC the Company is required to spend US$15,100,000 to fulfil
its initial three year minimum work obligations. Under the terms of the Citarum
PSC the Company is required to spend US$5,650,000 to fulfil its three year
minimum work obligations.
21 Contingent liabilities
The Company has granted RAB Octane (Master) Fund Limited ("RAB") the option to
put to the Company the entire issued and allotted share capital, namely two
ordinary shares, of Sound Oil Bangladesh Limited at any time up to 17 May 2086.
If the put option is exercised, the maximum price payable by the Company will be
2,195,222 Ordinary Shares of the Company or, with the consent of both the
Company and RAB, US$300,000 in cash.
22 Other matters
The financial information for the year ended 31 December 2006 does not
constitute statutory accounts, as defined in Section 240 of the Companies Act
1985, but is based on the statutory accounts for the year then ended. Those
accounts, upon which the auditors have issued an unqualified opinion, will be
delivered to the Registrar of Companies.
Copies of the annual accounts will be sent to shareholders in due course and
will be available from the Company's website www.soundoil.co.uk.
This information is provided by RNS
The company news service from the London Stock Exchange
END
