RNS Number:6656E
Sound Oil PLC
28 September 2007
Sound Oil plc
("Sound Oil" or the "Company")
Unaudited interim results for the six months ended 30 June 2007
Sound Oil, the upstream oil and gas company with assets in Indonesia, announces
its unaudited interim results for the six month period ended 30 June 2007.
Key features
?Pasundan well reached total depth on Citarum PSC
?Testing programme underway at Pasundan
?Cash balances of over ?15 million
?Loss of ?885,000 for the period to 30 June 2007
Sound Oil's portfolio consists of 34.99% working interest in the Bangkanai PSC
which includes the Kerendan gas field in Kalimantan, Indonesia, and a 20%
working interest in the Citarurm PSC in Java, Indonesia.
Commenting on the results, Gerry Orbell Chairman of Sound Oil said:
"We have made good progress over the last few months including drilling the
Pasundan well. Owing to mechanical difficulties this well took longer to drill
than scheduled but is now being suspended pending testing a cavernous zone
between 6770 ft and 6900 ft, where we recovered some hydrocarbons from a testing
tool. We shall continue to look for new licence interests in Indonesia to add to
our current exploration and development opportunities."
Further information on the Company can be found at www.soundoil.co.uk
For further information please contact:
Sound Oil
Gerry Orbell, Chairman 07903 861 145
Smith & Williamson Corporate Finance Limited 020 7131 4000
Azhic Basirov
David Jones
Buchanan Communications 020 7466 5000
Tim Thompson
Nick Melson
Chairman's Statement
During the course of 2007, Sound Oil continued to move forward with work on the
two Indonesian Production Sharing Contracts where the Company has an interest.
At Citarum where we have 20% equity, we commenced drilling the Pasundan well in
early May with the Great Wall rig GW93. The well has taken 113 days to reach its
total depth of 10,412 feet rather than the planned 50 days. Delays were caused
by the inefficiencies of the rig and by the time spent trying to cure the lost
circulation encountered in the Baturaja Limestones at around 6,700 to 7,000
feet. Minor amounts of hydrocarbons have been sampled at a number of horizons in
the well and the partners are currently discussing a testing programme. A
contractor has been selected to undertake the 750km of seismic acquisition
across the Citarum area and this will commence shortly. The preparation of the
Kujang wellsite has been delayed because of slow local planning permissions.
Therefore the GW93 rig will be released shortly at the suspension of drilling of
the Pasundan well. A decision on the location of the next well will be taken
after the seismic has been acquired.
The activity at the Bangkanai PSC (Sound 34.99%) has also been slower than
expected due to several personnel changes within the Operating Company.
Preparation of the Sungei Lahei wellsite in central Kalimantan will be underway
within the next few weeks when river access becomes possible. I anticipate that
the well will be drilled in the first half of 2008. This will be our first
exploration well on the PSC. It will also be our first production well at the
Kerendan Gas field, since we intend to drill through the proven gas accumulation
on the way down to our exploration target. The well will be completed as a gas
producer in this upper section.
In the first six months of 2007 the group incurred a net loss of ?885,000. This
compares with ?441,000 in the same period last year which was before the
acquisition of Mitra. Exploration expenditure in the profit and loss account was
?307,000 (2006 ?305,000). Administration costs of ?628,000 increased from
?302,000 in 2006 due to the addition of our Indonesian office. Following the
fund raising in mid 2006, bank deposit interest received increased from ?222,000
to ?386,000 and there was an unrealised currency loss of ?329,000 (2006
?122,000) on our US$ holdings due to the continued weakness of that currency.
Capital investment on our Indonesian licences, mainly on the Pasundan
exploration well, was ?1.3 million. Cash balances were ?15.2 million at end June
and shareholders funds ?32 million.
As required by the AIM Rules, we have prepared these half year accounts for the
first time in accordance with International Financial Reporting Standards (IFRS)
as adopted by the European Union. This has involved converting the accounts for
2006 from UK Generally Accepted Accounting Principles to IFRS. In doing so an
anomaly has arisen. Our auditors advise that technical accounting interpretation
of the relevant Standards is that we should recognise a substantial provision of
?3.9 million in the Balance Sheet for hypothetical deferred tax on the
acquisition of Mitra and show a hypothetical "goodwill" asset of ?3.9 million
shown as Intangible Asset. In view of the size of these accounting entries, we
wish to emphasise that they (a) have no effect on profit and loss, (b) have no
effect on our cash position, (c) do not imply that we have a tax liability
relating to oil or gas production and (d) do not imply any increase in the value
of Mitra over the price paid by Sound.
Gerry Orbell
Chairman
27 September 2007
Interim Consolidated Income Statement
For the six months ended 30 June 2007
Year
Six months Six months ended
ended 30 June ended 30 June 31 December
2007 2006 2006
Unaudited Unaudited Unaudited
Restated Restated
Notes ?'000 ?'000 ?'000
Exploration costs 307 305 653
--------- --------- ---------
Gross loss (307) (305) (653)
--------- --------- ---------
Administrative expenses 628 302 1,068
--------- --------- ---------
Group trading loss (935) (607) (1,721)
Share of post tax loss of
associates accounted for
using the equity method 7 - 14
--------- --------- ---------
Group operating loss from
continuing operations (942) (607) (1,735)
Finance revenue 386 222 641
Other finance expense
(foreign exchange loss) (329) (122) (1,142)
--------- --------- ---------
Loss from continuing
operations before tax (885) (507) (2,236)
Tax credit - 66 66
--------- --------- ---------
Loss for the period
attributable to the equity
holders of the parent (885) (441) (2,170)
--------- --------- ---------
Loss per share basic and
diluted for the period
attributable to ordinary
equity holders of the parent
(pence) 6 (0.18) (0.27) (0.45)
--------- --------- ---------
Interim Consolidated Balance Sheet
At 30 June 2007
30 June 30 June 31 December
2007 2006 2006
Unaudited Unaudited Unaudited
Restated Restated
Notes ?'000 ?'000 ?'000
Non-current assets
Property, plant and equipment 3 81 - 54
Intangible assets 3,813 - 3,905
Exploration and evaluation assets 15,327 - 15,288
Investments in associates 5 1,431 - 528
Other debtors - - 68
---------- ---------- -----------
20,652 - 19,843
---------- ---------- -----------
Current assets
Trade and other receivables 66 - 552
Prepayments 52 10 49
Other debtors 304 - -
Cash and short term deposits 15,244 10,304 17,389
---------- ---------- -----------
15,666 10,314 17,990
---------- ---------- -----------
Total assets 36,318 10,314 37,833
---------- ---------- -----------
Current liabilities
Trade and other payables 225 205 684
Accruals and other creditors 156 - -
---------- ---------- -----------
381 205 684
---------- ---------- -----------
Non-current liabilities
Deferred tax liabilities 3,813 - 3,905
Provisions 59 - 56
---------- ---------- -----------
3,872 - 3,961
---------- ---------- -----------
Total liabilities 4,253 205 4,645
---------- ---------- -----------
Net assets 32,065 10,109 33,188
---------- ---------- -----------
Capital and reserves
Equity share capital 36,456 10,941 36,456
Foreign currency reserve (1,254) - (974)
Retained earnings (3,137) (832) (2,294)
---------- ---------- -----------
Total equity 32,065 10,109 33,188
---------- ---------- -----------
Interim Consolidated Statement of Changes in Equity
For the six months ended 30 June 2007
Issued Share Retained Other Total
capital premium earnings reserves equity
Notes ?'000 ?'000 ?'000 ?'000 ?'000
At 1 January 2007
(unaudited) 692 35,764 (2,294) (974) 33,188
Foreign currency
translation - - - (280) (280)
------- --------- -------- -------- --------
Total income and
expense for the - - - (280) (280)
period recognised in
equity
Total loss for the
period - - (885) - (885)
------- --------- -------- -------- --------
Total income and
expense for the - - (885) (280) (1,165)
for the period ------- --------- -------- -------- --------
Share based 4 - - 42 - 42
payments ------- --------- -------- -------- --------
At 30 June 2007
(unaudited) 692 35,764 (3,137) (1,254) 32,065
------- --------- -------- -------- --------
Issued Share Retained Other Total
capital premium earnings reserves equity
?'000 ?'000 ?'000 ?'000 ?'000
At 1 January 2006
(unaudited) 300 10,641 (193) - 10,748
Total loss for the
period - - (441) - (441)
------- --------- -------- -------- -------
Total income and expense
for the period - - (441) - (441)
Write down of deferred
expenditure - - (198) - (198)
------- --------- -------- -------- -------
At 30 June 2006
(unaudited, restated) 300 10,641 (832) - 10,109
------- --------- -------- -------- -------
Interim Consolidated Cash Flow Statement
For the six months ended 30 June 2007
Six months Six months Year ended
ended 30 June ended 30 June 31 December
2007 2006 2006
Unaudited Unaudited
Unaudited Restated Restated
Notes ?'000 ?'000 ?'000
Cash flow from operating activities
Cash flow from operations (947) (635) (1,613)
Interest received 386 222 641
---------- --------- -----------
Net cash flow from operating
activities (561) (413) (972)
Cash flow from investing activities
Capital expenditure and
disposals (34) - (60)
Exploration expenditure (323) - (1,327)
Investment in associate (910) - (528)
---------- --------- -----------
Net cash flow from investing
activities (1,267) - (1,915)
Cash flow from financing activities
Proceeds from equity issue - - 11,555
---------- --------- -----------
Net cash flow used in financing
activities - - 11,555
Net increase/(decrease) in cash
and cash equivalents (1,828) (413) 8,668
Net foreign exchange difference (317) (122) (2,118)
Cash and cash equivalents at the
beginning of the period 17,389 10,839 10,839
---------- --------- -----------
Cash and cash equivalents at the
end of the period 15,244 10,304 17,389
---------- --------- -----------
Notes to cash flow
June June December
2007 2006 2006
?'000 ?'000 ?'000
Cash flow from operations reconciliation
Loss before tax (885) (507) (2,236)
Finance revenue (386) (222) (641)
Foreign exchange loss 329 122 1,142
Increase/(decrease) in short term creditors (459) 158 101
Increase/(decrease) in accruals
and other short term creditors 156 - 534
Net movement in depreciation 6 - 6
Write down of deferred expenditure - (198) -
Increase in share based payments 42 - 69
Increase in long term provisions 3 - 56
Decrease/(increase) in long term debtors - 12 (68)
Decrease/(increase) in short term debtors 247 - (576)
---------- --------- -----------
Cash flow from operations (947) (635) (1,613)
---------- --------- -----------
Notes to the financial information
1. Accounting policies
These financial statements are presented in UK?.
Basis of preparation and accounting policies.
The group's financial statements have been prepared in accordance with
International Financial Reporting Standards (IFRS) as adopted by the European
Union as they are expected to apply to the financial statements of the group for
the year ended 31 December 2007 and applied in accordance with the Companies Act
1985.
The interim consolidated financial statements are unaudited and do not represent
statutory accounts within the meaning of section 240 of the Companies Act 1985.
The comparative financial information is based upon the statutory accounts for
the year ended 31 December 2006. Those accounts, upon which the auditors issued
an unqualified opinion, have been delivered to the Registrar of Companies.
This is the first year in which the group will prepare its financial statements
under IFRS and the comparatives have been restated from UK GAAP to comply with
IFRS. The reconciliations to IFRS from the previously published UK GAAP
financial statements are summarised in note 7.
The interim consolidated financial statements for the six months ended 30 June
2007 have been prepared in accordance with IAS 34 Interim Financial Reporting.
The interim consolidated financial statements do not include all of the
information and disclosures required in the annual financial statements and have
been prepared on a historical cost basis except for where separately identified.
The financial statements are presented in pounds sterling and all values are
rounded to the nearest thousand pounds except when otherwise indicated.
Basis of consolidation
The interim consolidated financial statements consolidate the financial
statements of Sound Oil plc and the entities it controls (its subsidiaries)
which are drawn up to 31 December each year.
Subsidiaries are consolidated from the date of their acquisition, being the date
on which the group obtains control, and continue to be consolidated until the
date that such control ceases. Control comprises the power to govern the
financial and operating policies of the investee so as to obtain benefit from
its activities and is achieved through direct or indirect ownership of voting
rights; currently exercisable or convertible potential voting rights; or by way
of contractual agreement. The financial statements of subsidiaries are prepared
for the same reporting year as the parent company, using consistent accounting
policies. All inter-company balances and transactions, including unrealised
profits arising from them, are eliminated.
The impact of seasonality or cyclicity of operations does not impact on the
interim financial statements of the company.
Foreign currency translation
The functional and presentational currency of Sound Oil plc is pounds sterling.
Transactions in foreign currencies are initially recorded in the functional
currency by applying the spot exchange rate ruling at the date of the
transaction. Monetary assets and liabilities denominated in foreign currencies
are retranslated at the functional currency rate of exchange ruling at the
balance sheet date. All differences are taken to the income statement.
The assets and liabilities of foreign operations are translated into sterling at
the rate of exchange ruling at the balance sheet date. Income and expenses are
translated at weighted average exchange rates for the year. The resulting
exchange differences are taken directly to a separate component of equity. On
disposal of a foreign entity, the deferred cumulative amount recognised in
equity relating to that particular foreign operation is recognised in the income
statement.
Non-monetary items that are measured in terms of historical cost in a foreign
currency are translated using the exchange rates as at the dates of the initial
transactions.
Business combinations and goodwill
Business combinations are accounted for using the purchase method of accounting.
The purchase price of an acquisition is measured as the cash paid plus the fair
value of other assets given, equity instruments issued and liabilities incurred
or assumed at the date of exchange, plus costs directly attributable to the
acquisition.
Goodwill on acquisition is initially measured at cost being the excess of
purchase price over the fair market value of identifiable assets, liabilities
and contingent liabilities acquired. Following initial acquisition it is
measured at cost less any accumulated impairment losses. Goodwill is not
amortised but is subject to an impairment test at least annually and more
frequently if events or changes in circumstances indicate that the carrying
value may be impaired.
At the acquisition date, any goodwill acquired is allocated to each of the
cash-generating units expected to benefit from the combination's synergies.
Impairment is determined by assessing the recoverable amount of the
cash-generating unit, to which the goodwill relates.
Where the recoverable amount of the cash-generating unit is less than the
carrying amount, including goodwill, an impairment loss is recognised.
Joint venture activities
The group conducts oil and gas exploration and production activities jointly
with other venturers who each have direct ownership in and jointly control the
assets of the ventures. These are classified as jointly controlled assets and
consequently, these financial statements reflect only the group's proportionate
interest in such activities.
Associates
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's financial statements associates are accounted for using the
equity method.
Financial statements of associates are prepared for the same reporting period as
the group. Where necessary, adjustments are made to bring the accounting
policies used into line with those of the group; to take into account fair
values assigned at the date of acquisition and to reflect impairment losses
where appropriate.
Oil and gas assets
The group's entire capitalised oil and gas costs relate to properties that are
in the exploration and evaluation stage.
As allowed under IFRS 6 the group has continued to apply its existing accounting
policy to exploration and evaluation activity, subject to the specific
requirements of the standard.
The group will continue to monitor the application of these policies in the
light of expected future guidance on accounting for oil and gas activities.
The group applies the successful efforts method of accounting for exploration
and evaluation (E&E) costs.
(a) Exploration and evaluation 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.
(b) Exploration and evaluation cost
Costs are initially capitalised as exploration and evaluation assets. Payments
to acquire the legal right to explore, costs of technical services and studies,
seismic acquisition, exploratory drilling and testing are capitalised as
exploration and evaluation assets.
(c) 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 have 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.
(d) 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 the accounting policy 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.
(e) 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.
Property, plant and equipment
Fixtures, fittings and equipment are recorded at cost as tangible assets.
The straight-line method of depreciation is used to depreciate the cost of these
assets over their estimated useful lives, which is estimated to be four years.
Investments
In its separate financial statements the company recognises its investments in
subsidiaries at cost.
Financial Instruments
Financial instruments comprise financial assets, financial liabilities and
equity instruments.
(a) Fair values
The fair value of quoted investments is determined by reference to bid prices at
the close of business on the balance sheet date. Where there is no active
market, fair value is determined using valuation techniques. These include using
recent arm's length market transactions; reference to the current market value
of another instrument which is substantially the same; discounted cash flow
analysis and pricing models. Otherwise assets will be carried at cost.
(b) Trade and other receivables
Trade receivables, which generally have 30-90 day terms, are recognised and
carried at the lower of their original invoiced value and recoverable amount.
Where the time value of money is material, receivables are carried at amortised
cost. Provision is made when there is objective evidence that the group will not
be able to recover balances in full. Balances are written off when the
probability of recovery is assessed as being remote.
(c) Cash and cash equivalents
Cash and short-term deposits in the balance sheet comprise cash at banks and in
hand and short-term deposits with an original maturity of three months or less.
For the purpose of consolidated cash flow statements, cash and cash equivalents
consist of cash and cash equivalents as defined above, net of outstanding bank
overdrafts.
Provisions
A provision is recognised when the group has a legal or constructive obligation
as a result of a past event and it is probable that an outflow of economic
benefits will be required to settle the obligation. If the effect is material,
expected future cash flows are discounted using a current pre-tax rate that
reflects, where appropriate, the risks specific to the liability.
Where the group expects some or all of a provision to be reimbursed, for example
under an insurance policy, the reimbursement is recognised as a separate asset
but only when recovery is virtually certain.
The expense relating to any provision is presented in the income statement net
of any reimbursement.
Where discounting is used, the increase in the provision due to unwinding the
discount is recognised as a finance cost.
Share-based payment transactions
The group issues equity-settled share-based payments to certain employees. The
fair value of each option at the date of the grant is estimated using the
binomial option-pricing model based upon the option price, the share price at
the date of issue, volatility and the life of the option. The estimated fair
value of the option is amortised to expense over the options' vesting period on
a straight-line basis with a corresponding increase to equity. It is assumed
that all performance criteria are met. Estimated associated national insurance
charges are expensed in the income statement and accrued as per the provisions
of UK law and IAS 37.
No expense is recognised for awards that do not ultimately vest except for
awards when vesting is conditional on a market condition, in which case such
awards are treated as vesting provided that all other performance conditions are
satisfied.
Where an option is forfeited without meeting the vesting conditions, the
associated prior charges are credited to the profit and loss account with an
equivalent reduction to equity.
Equity
Equity instruments issued by the company are recorded at the proceeds received,
net of direct issue costs.
Employee benefits
The group's principal subsidiary provides long term employee benefits in
accordance with Indonesian law. This is considered a defined contribution scheme
under IAS 19. A provision is calculated using a projected unit credit method,
taking into account actuarial assumptions such as mortality rate and disability
rate.
Related party transactions
IFRS requires all entities to disclose related party transactions. The company's
policy is to have regard to materiality from the shareholder's perspective.
Income taxes
Current tax assets and liabilities are measured at the amount expected to be
recovered from or paid to the taxation authorities, based on tax rates and laws
that are enacted or substantively enacted by the balance sheet date.
Deferred tax is recognised on all temporary differences arising between the tax
bases of assets and liabilities and their carrying amounts in the financial
statements, with the following exceptions:
? where the temporary difference arises from the initial recognition of goodwill
or of an asset or liability in a transaction that is not a business combination
that at the time of the transaction affects neither accounting nor taxable
profit or loss;
? in respect of taxable temporary differences associated with investments in
subsidiaries, associates and joint ventures, where the timing of the reversal of
the temporary differences can be controlled and it is probable that the
temporary differences will not reverse in the foreseeable future; and
? deferred tax assets are recognised only to the extent that it is probable that
taxable profit will be available against which the deductible temporary
differences, carried forward tax credits or tax losses can be utilised.
Deferred tax assets and liabilities are measured on an undiscounted basis at the
tax rates that are expected to apply when the related asset is realised or
liability is settled, based on tax rates and laws enacted or substantively
enacted at the balance sheet date.
Income tax is charged or credited directly to equity if it relates to items that
are credited or charged to equity. Otherwise income tax is recognised in the
income statement.
Deferred tax assets are recognised for all deductible temporary differences, to
the extent that it is probable that taxable profits will be available against
which the deductible temporary differences can be utilised. Deferred tax assets
and liabilities are presented net only if there is a legally enforceable right
to set off current tax assets against current tax liabilities and if the
deferred tax assets and liabilities relate to income taxes levied by the same
taxation authority.
Earnings per share
Earnings per share are calculated using the weighted average number of ordinary
shares outstanding during the period per IAS 33. Diluted earnings per share are
calculated based on the weighted average number of ordinary shares outstanding
during the period plus the weighted average number of shares that would be
issued on the conversion of all potentially dilutive shares to ordinary shares.
It is assumed that any proceeds obtained on the exercise of any options and
warrants would be used to purchase ordinary shares at the average price during
the period. Where the impact of converted shares would be anti-dilutive, these
are excluded from the calculation of diluted earnings.
Use of estimates
The preparation of financial statements in conformity with generally accepted
accounting practice requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities as well as the disclosure
of contingent assets and liabilities at the balance sheet date and the reported
amounts of revenues and expenses during the reporting period. Actual outcomes
could differ from those estimates.
New standards and interpretations not applied
The following standards and interpretations have an effective date after the
beginning of the accounting period:
? IFRIC Interpretation 11 - IFRS 2 'Group and Treasury Share Transactions'
(effective date 1 March 2007)
? IFRIC Interpretation 12 'Service Concession Arrangements' (effective date 1
January 2008)
? IFRS 8 'Operating Segments' (effective date 1 January 2009)
The directors do no anticipate that the adoption of these standards and
interpretations will have a material impact on the group's financial statements
in the period of initial application.
Upon adoption of IFRS 7, the group will have to disclose additional information
about its financial instruments, their significance and the nature and extent of
risks to which they give rise.
2. Segment information
IAS 34 requires the disclosure of segment results for each business segment. For
the group there is no material difference between the consolidated results and
the group's operating and business segments. The group's principal area of
operation and business is Indonesia. Therefore additional disclosure is not
required.
3. Property, plant and equipment
Acquisitions and disposals
During the six months ended 30 June 2007 the group acquired assets with a cost
of ?34,000.
4. Share-based payments
In February 2007, 4,250,000 share options were granted to senior executives. The
fair value of equity-settled share options granted is estimated 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 options granted on 28 February 2007:
Dividend yield (%) 0
Expected volatility (%) 91.91
Risk free interest rates (%):
Tranche 1 4.38
Tranche 2 4.56
Tranche 3 4.75
Expected life (years) 10
Weighted average share price (pence) 4.40
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 historical volatility is indicative of
future trends, which may not necessarily be the actual outcome. No other
features of the options grant were incorporated into the measurement of fair
value.
5. Related party transactions
The following table provides the total amount of significant transactions, which
have been entered into with related parties during the six months ended 30 June
2007 and 2006.
Purchases Amounts Amounts
Sales to from owed by owed to
related related related related
parties parties parties parties
?'000 ?'000 ?'000 ?'000
Associate:
BPREC 2007 - - 1,431 -
2006 - - - -
6. Loss per share
The calculation of basic and diluted 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 and diluted loss per share is calculated as follows:
Loss after tax Weighted average number of Loss per share
shares
June June December June June December June June December
2007 2006 2006 2007 2006 2006 2007 2006 2006
?'000 ?'000 ?'000 million million million pence pence pence
Basic
and
diluted (885) (441) (2,170) 486 165 486 (0.18) (0.27) (0.45)
7. Reconciliation of Balance Sheet and Income Statement reported under UK GAAP
and IFRS
An explanation of the reconciling items between UK GAAP and IFRS is provided as
follows:
7.1 Transition balance sheet
The date of transition to IFRS for the group is the 1 January 2006. There were
no material re-statements or re-classifications from UK GAAP to IFRS at this
date.
7.2 Deferred expenditure
The UK GAAP balance sheet at 30 June 2006 contained a deferred expenditure sum
of ?198,000 relating to an expected acquisition, which is not allowable under
IFRS 6 'Exploration for and Evaluation of Mineral Resources'. This is because
IFRS 6 does not apply to expenditures incurred before the entity has obtained
the legal rights to explore a specific area. As no such legal rights were
acquired before the 30 June 2006 this amount has been written off to reserves.
7.3 Excess of fair value of cost on acquisition
The acquisition of Mitra Energy on the 12 July 2006 gave rise to an excess of
fair value to book value of ?13,834,000. Under IAS 21 'The Effects of Foreign
Exchange Rates' the closing balance has been retranslated at the dollar spot
rate at 31 December 2006 giving rise to an unrealised foreign currency charge to
reserves of ?817,000.
7.4 Non-current assets and liabilities
7.4.1 Intangible and exploration assets
Under IFRS 6 the intangible assets under UK GAAP of ?16,105,000 have been
re-classified into exploration evaluation and assets.
Under IFRS 3 'Business Combinations' and IAS 12 'Income Taxes' the fair value
adjustment on the acquisition of Mitra Energia on 12 July 2006 has been
restated. This has required the recognition of a goodwill asset of ?3,905,000
shown as Intangible Assets and a deferred tax provision of ?3,905,000.
This deferred tax provision will be written down to profit or loss when the
exploration project moves to the development phase. The goodwill will be subject
to impairment testing on an annual basis.
7.4.2 Net investment in associate
Under UK GAAP a long term loan to the BPREC associate was included as a current
asset. The loan has now been re-classified under IAS 28 'Investments in
Associates' as part of the net investment in the associate and has been
disclosed at the year end in accordance with IAS 24 'Related Party Disclosures'
(see note 5).
7.5 Long term debtor
A long term debtor of ?68,000 has been re-classified from current debtors under
UK GAAP.
7.6 Current assets
Under IFRS prepayments must be disclosed on the face of the balance sheet and
have been presented accordingly.
7.7 Other amendments
Share based payments under UK GAAP were shown as part of shareholders equity and
have been re-classified as part of retained earnings under IFRS.
Share-based payments were also disclosed as a line item in the income statement
for the period ended 31 December 2006 under the UK GAAP. These items have been
included as part of administration expense under IAS 1.
The net loss from the associate has been moved from cost of sales under UK GAAP
in the income statement to below trading profit in accordance with IFRS
presentation.
7.8 Explanation of material adjustments to cash flow
Material adjustments to cashflow concern the removal of foreign currency
translation effects as per IAS 7 'Cash Flow Statements', which requires such
items to be shown as a reconciling adjustment. Under UK GAAP these items were
shown as part of the operating cash flow.
The principal presentational differences between cashflow statements presented
in accordance with UK GAAP and cashflow statements presented in accordance with
IFRS are as follows:
? Under UK GAAP, net cash flow from operating activities was determined before
considering cashflows from:
- returns on investment and servicing of finance
- dividends received from associates
- taxes paid
Under IFRS, net cashflow from operating activities is determined after these
items.
? Under UK GAAP exchange gains/(losses) on cash and cash equivalents were
included in the 'Reconciliation of Net Cash Flow to Movement in Net Funds/
(Debt)' while under IFRS they are included on the face of the cashflow statement
as a reconciling item.
? Under UK GAAP, capital expenditure, financial investments and acquisitions
were classified as capital expenditure and financial investment, while under
IFRS they are classified as investing activities.
? Under UK GAAP short-term investments were not included in the reconciliation
of net cash but were classified as the management of liquid resources. Under
IFRS short-term investments with maturity of less than three months at the date
of acquisition are included in cash and cash equivalents.
7.9 UK GAAP to IFRS reconciliation of shareholders funds/total equity
1 January 30 June 31 December
2006 2006 2006
?'000 ?'000 ?'000
UK GAAP shareholders funds 10,748 10,307 34,005
-------- -------- ----------
IFRS adjustments:
IAS 21 'Foreign Currencies' - - (817)
IFRS 6 'Exploration for and Evaluation of
Mineral Resources' - (198) -
-------- -------- ----------
IFRS total equity 10,748 10,109 33,188
------- -------- ----------
UK GAAP to IFRS reconciliation of the income statements for the year ended 31
December 2006 and the six months ended 30 June 2006
30 June 31 December
2006 2006
?'000 ?'000
UK GAAP loss for the financial period (441) (2,170)
--------- ---------
IFRS adjustments:
IAS 21 'Foreign Currencies' - -
IFRS 6 'Exploration for and Evaluation of Mineral - -
Resources' --------- ---------
IFRS loss for the financial period (441) (2,170)
--------- ---------
7.10 Transition to IFRS
Group reconciliation of equity as at 30 June 2006
Notes UK GAAP Reclassi- Restatements IFRS
fications
?'000 ?'000 ?'000 ?'000
Current assets
Trade and other
receivables 7.2 208 (10) (198) -
Prepayments 7.6 - 10 - 10
Cash and short term
deposits 10,304 - - 10,304
------ ------ --------- -------
10,512 - (198) 10,314
------ ------ --------- -------
Total assets 10,512 - (198) 10,314
------ ------ --------- -------
Current liabilities
Trade and other payables 205 - - 205
------ ------ --------- -------
205 - - 205
------ ------ --------- -------
Total liabilities 205 - - 205
------ ------ --------- -------
Net assets 10,307 - (198) 10,109
------ ------ --------- -------
Capital and reserves
Equity share capital 10,941 - - 10,941
Retained earnings (634) - (198) (832)
------ ------ --------- -------
Total equity 10,307 - (198) 10,109
------ ------ --------- -------
7.11 Transition to IFRS
Group reconciliation of profit and loss for the period ended 30 June 2006
Reclassi-
UK GAAP fications Restatements IFRS
?'000 ?'000 ?'000 ?'000
Exploration costs 305 - - 305
--------- ------- -------- -------
Gross loss (305) - - (305)
--------- ------- -------- -------
Administrative expenses 302 - - 302
--------- ------- -------- -------
Group trading loss (607) - - (607)
--------- ------- -------- -------
Group operating loss from
continuing operations (607) - - (607)
Finance revenue 222 - - 222
Other finance expense (foreign
exchange loss) (122) - - (122)
--------- ------- -------- -------
Loss from continuing operations
before tax (507) - - (507)
Tax credit 66 - - 66
--------- ------- -------- -------
Loss for the period (441) - - (441)
--------- ------- -------- -------
7.12 Transition to IFRS
Group reconciliation of equity as at 31 December 2006
Notes UK GAAP Reclassi- Restatements IFRS
fications
?'000 ?'000 ?'000 ?'000
Non-current assets
Property, plant
and equipment 54 - - 54
Intangible assets 7.3, 7.4.1 16,105 (16,105) 3,905 3,905
Exploration and
evaluation assets 7.3, 7.4.1 - 16,105 (817) 15,288
Investments in
associates* 7.4.2 13 515 - 528
Other debtors 7.5 - 68 - 68
-------- --------- ---------- ---------
16,172 583 3,088 19,843
-------- --------- ---------- ---------
Current assets
Other debtors
falling due after 7.4.2 583 (583) - -
more than one year*
Trade and other
receivables 601 (49) - 552
Prepayments 7.6 - 49 - 49
Cash and short term 17,389 - - 17,389
deposits -------- --------- ---------- ---------
18,573 (583) - 17,990
-------- --------- ---------- ---------
Total assets 34,745 - 3,088 37,833
-------- --------- ---------- ---------
Current liabilities
Trade and other payables 112 - - 112
Income tax payable 35 - - 35
Accruals and other creditors 537 - - 537
-------- --------- ---------- ---------
684 - - 684
-------- --------- ---------- ---------
Non-current liabilities
Deferred tax
liabilities 7.4.1 - - 3,905 3,905
Provisions 56 - - 56
-------- --------- ---------- ---------
56 - 3,905 3,961
-------- --------- ---------- ---------
Total liabilities 740 - 3,905 4,645
-------- --------- ---------- ---------
Net assets 34,005 - (817) 33,188
-------- --------- ---------- ---------
Capital and reserves
Equity share 7.7 36,525 (69) - 36,456
capital
Currency 7.3 (157) - (817) (974)
translation
Retained earnings 7.7 (2,363) 69 - (2,294)
-------- --------- ---------- ---------
Total equity 34,005 - (817) 33,188
-------- --------- ---------- ---------
*Following an analysis of the loans to associates under IFRS, which is more
prescriptive than UK GAAP, it was discovered that the loan to BPREC associate
that was classified as such at 31 December 2006 should have been reported as
part of the net investment in associates. This classification treatment has now
been corrected as part of the IFRS conversion process.
7.13 Transition to IFRS
Group reconciliation of profit and loss for the year ended 31 December 2006
Notes UK GAAP Reclassi- Restatements IFRS
fications
?'000 ?'000 ?'000 ?'000
Exploration costs 7.7 667 (14) - 653
-------- ------- -------- --------
Gross profit/(loss) (667) 14 - (653)
-------- ------- -------- --------
Administrative expenses 999 69 - 1,068
Share-based payments 7.7 69 (69) - -
-------- ------- -------- --------
1,068 - - 1,068
-------- ------- -------- --------
Group trading (loss)/profit (1,735) 14 - (1,721)
Share of post tax profits of
associates accounted
for using the equity method - 14 - 14
-------- ------- -------- --------
Group operating loss
from continuing operations (1,735) - - (1,735)
Finance revenue 641 - - 641
Other finance expense
(foreign exchange loss) (1,142) - - (1,142)
-------- ------- -------- --------
Loss from continuing
operations before tax (2,236) - - (2,236)
Tax expenses 66 - - 66
-------- ------- -------- --------
Loss for the year (2,170) - - (2,170)
-------- ------- -------- --------
7.14 Transition to IFRS
Group reconciliation of equity as at 1 January 2006
Reclassi-
UK GAAP fications Restatements IFRS
Notes ?'000 ?'000 ?'000 ?'000
Current assets
Prepayments 7.6 24 - - 24
Cash and short term deposits 10,839 - - 10,839
-------- -------- --------- --------
10,863 - - 10,863
-------- -------- --------- --------
Total assets 10,863 - - 10,863
-------- -------- --------- --------
Current liabilities
Trade and other payables 11 - - 11
Other liabilities and 38 - - 38
accruals
Income taxes 66 - - 66
-------- -------- --------- --------
115 - - 115
-------- -------- --------- --------
Non-current liabilities
Total liabilities 115 - - 115
-------- -------- --------- --------
Net assets 10,748 - - 10,748
-------- -------- --------- --------
Capital and reserves
Equity share capital 10,941 - - 10,941
Retained earnings 7.7 (193) - - (193)
-------- -------- --------- --------
Total equity 10,748 - - 10,748
-------- -------- --------- --------
8. Interim report
Copies of the interim report will be sent to shareholders in due course. Further
copies will be available from the Company's nominated adviser, Smith &
Williamson Corporate Finance Limited, 25 Moorgate, London EC2R 6AY, free of
charge and on the Company's website www.soundoil.co.uk.
This information is provided by RNS
The company news service from the London Stock Exchange
END
