Annual Results

RNS Number : 6972I

Matra Petroleum PLC

17 March 2010

 

17 March 2010

 

Matra Petroleum PLC

("Matra" or the "Company")

 Annual Results

Matra Petroleum PLC, an independent oil and gas exploration and production Company with operations in Russia, today announces its annual results for the period ended 31 December 2009.

Highlights

Operational

 ·; Significant extension of Arkhangelovskoe terms and licence encompassing entire Sokolovskoe

discovery

 ·; Commencement of appraisal drilling on Arkhangelovskoe licence targeting 65 million bbls of Recoverable Contingent Resources

Financial

·; Fully funded following successful placings of £5.35 million and £2 million

·; Year-end cash of £6 million

·; Zero debt

Outlook

·; Arkhangelovskoe drilling on track for completion in Q2 2010.

·; Assessing nearby new venture opportunities

Peter Hind, Managing Director commented:

"2009 was a year of transformation for Matra. We ended the year having extended our Licence in Orenburg, relaxed our work obligations on the licence, and having raised a total of £7.35 million. We are now in a position to deliver a significant step change in the Company's profile, targeting reserves uplift, start up of production and further new ventures in the area we know well. We are well funded with no debt and have a lucrative field development ahead of us."

Enquiries:

Matra Petroleum plc	www.matrapetroleum.com
Peter Hind, Managing Director	+44 (0) 7990 807855
Pelham Bell Pottinger
Evgeniy Chuikov	+44 20 7337 1513
Nick Lambert	+44 20 7337 1529
Matrix Corporate Capital LLP
Louis Castro/Anu Tayal	+44 20 3206 7000

 

 

 

Chairman's Statement

I am pleased to report that your Company has made significant progress during 2009. At the end of 2008 I reported that due to the unprecedented situation of global markets the Company was taking steps to secure its future via three specific activities namely; reducing overheads and delaying significant investments, whilst the Company was exploring new sources of funds for future operations.

The Company's management succeeded on all counts and our accounts demonstrate the cost savings achieved. Additionally, the Company was granted an extension to the duration of the Arkhangelovskoe Licence period, until the end of 2010, which resulted in the Company being able to delay its work programme commitments on the licence. An area extension to the Arkhangelovskoe Licence was also granted providing Matra with access to the full extent of the Sokolovskoe discovery. Finally, sufficient funds were raised in 2009 in order to drill the Sokolovskoe appraisal well A-13.

It is a testament to the technical strength of the Sokolovskoe Field, that not only Delek, our largest shareholder, but also Macquarie Bank were able to commit substantial funds to Matra at a time of such financial uncertainties.

Successful implementation of this clear plan of action means that 2010 will be an exciting year for Matra.

The Company is once again well funded and after initial operational difficulties the drilling of A-13 is progressing well. We look forward to reporting the results of this well in due course and to embarking upon our plans for full development of the Sokolovskoe Field.

Peter Gunzburg is based in Perth, Australia and has a number of other business interests and decided to step down from the Board in 2009. Peter was a founding Director of Matra. We greatly appreciate his contribution during Matra's early years.

The management of Matra in both London and Orenburg have worked hard during difficult times to secure our shareholders' interests and have steered the Company through difficult times. I am grateful for their efforts and the Board is confident of their ability to deliver value to shareholders.

Sir Michael Jenkins

Chairman

Managing Director's Report

Overview

2009 was a year of transformation for Matra. We ended the year having extended our licence in Orenburg, relaxed our work obligations on the licence, and having raised a total of £7.35 million. Despite some operational delays drilling of the A-13 well is currently well underway and progressing towards our target. The technical work completed supports a recoverable resource best estimate of 65 million barrels. World markets have also made a good recovery and the oil price has risen. The potential value of the Sokolovskoe is therefore substantial and will form the cornerstone of the Company's future.

Results of the A-13 well are expected in May and these will help us define the extent of the Sokolovskoe development. We expect to embark upon the field development during the second half of 2010.

Our new ventures efforts have been stepped-up recently and we see that an increasing part of the Company's future growth will come from such opportunities, once the A-13 well is complete. The global financial crisis has inevitably thrown up some interesting opportunities.

Despite testing conditions in 2009, the Company has begun 2010 in a very strong position and with a very bright future ahead of us. We are well funded with no debt and a lucrative field development ahead of us.

 

Funding

In July we succeeded in raising £5.35 million to cover the expense of drilling the crestal appraisal well-13. Our largest shareholder, Delek, and Macquarie Bank were the largest participants in this placement which was comfortably oversubscribed by a mixture of new and existing investors.

In November 2009, we raised a further £2 million and again the issue was supported by Delek and was heavily oversubscribed. This issue was made in order to cover the payment which will be required to be made to the Russian authorities once the Production Licence ("PL") is issued. A revision to the law regarding such payments was made in early 2009 which resulted in a predicted payment of approximately £850,000. The remaining funds are being used to support the increased new ventures effort.

Whilst operational difficulties have caused minor increases in the expected well costs from $4.5 million to $4.85 million the Company remains well funded to complete the well for its operational commitments for 2010.

Later this year we expect to establish production from the A-13 well and will have attempted to restore production from well A-12. Establishing cash flow from production is, of course, key in the consideration of funding for the full development of the Sokolovskoe Field. Our discussions over the past two years have indicated that development funding is likely to be available from a wider range of sources once A-13 is completed and production established.

Licences

In mid-2009 we were granted a term extension, to the Arkhangelovskoe Licence, until the end of December 2010. At the same time our work programme commitments were rescheduled such that the remaining two well work programme could also be delayed. These changes were critical for the Company in managing its funding requirements.

Simultaneously, the northern boundary of the Licence was extended in order to incorporate the full extent of the Sokolovskoe Field as it had been remapped. The remapping had shown approximately 50% of the structure to be in open acreage outside of the Arkhangelovskoe Licence boundary.

We are grateful for the cooperation of the Russian authorities in granting these changes to the Licence without further work commitments.

Following these changes, and during the second half of 2009, we submitted an amended application for a PL over the northern portion of the Arkhangelovskoe Licence and containing the full extent of the Sokolovskoe Field. Once granted the PL will provide title for a period of 25 years. At this time the PL is yet to be issued formally but of course we remain in frequent contact with the authorities and remain confident that the PL will be issued shortly.

The relevant context to the issuing of a PL is that an exploration well is automatically entitled to be produced for a period of 12 months after its formal discovery date. Once a PL is issued the wells within that PL are entitled to be produced continuously. In the case of well-12, once the workover is completed to restore production it may be produced only in the event that the PL has been granted or if a further "testing" period is approved on the basis of gathering further technical data.

The southern portion of the Arkhangelovskoe Licence will remain as an Exploration Licence ("EL"). In order to extend this portion of the Licence beyond the end of 2010 and in accordance with the current Licence terms, drilling of a fourth exploration well should commence before the end of 2010. Such Licence extensions and work programmes are at the discretion of the local authority Orenburgnedra and we will discuss the options with them over the coming months.

 

Drilling in Russia

Historically, drilling in Russia has been achieved with Russian/Soviet built rigs. During recent years a number of foreign designed and built rigs have entered the Russian market. The most significant difference between these two main types of rig is in their methods of transport and reassembly. Russian rigs are of a derrick or tower type of construction compared to a mast construction. This requires the rig to be more or less fully dismantled and transported in a large number of loads before being reassembled at the new wellsite. A mast, by comparison, can be lowered and transported in large modules and therefore can be moved and reassembled in a much shorter time. Dismantling, transport and reassembly of a derrick type rig typically takes more than two months.

Typically in the Volga/Urals area (including Orenburg) Russian built rigs are used on a cost comparison basis and although a mast type rig may move more quickly and drill the well faster the overall cost of the well would be substantially higher.

Generally, these rigs have been used very successfully in drilling wells to depths of more than 4000m in the Orenburg region. For Matra's wells we have chosen to use local rigs on a "turnkey" contract basis. This means that the greater part of the well cost is fixed and is at the drilling contractor's risk. Items not included in the turnkey contract are typically the cost of logging, testing supervision and monitoring. In Matra's case we have also elected to keep a more direct control over specific additional areas such as mud systems and cementation.

More significantly, costs incurred outside the responsibility of the drilling contractor under the turnkey contract typically include "unpredicted or unforeseen geological events".

Russian rigs are generally well equipped for drilling in harsh weather conditions and are able to continue normal drilling in temperatures below -30 degrees Celsius. Unusual operations, especially those such as mixing large volumes of new water-based mud, are much more difficult under such circumstances.

Russian rigs may be moved over relatively short distances, over reasonably even terrain, without being dismantled and therefore substantial costs and time saving can be achieved when drilling multiple wells within the same field. Longer term contracts for development drilling also facilitate significant upgrades in rig equipment in order to improve performance.

 

Current Operations

Well-13

Well A-13 was spudded in October 2009 after some delays in the rig and other equipment being released from the previous client. In early December the well encountered a "nitrogen kick" which blew the drilling mud out of the hole. This was entirely unexpected and had not been encountered in other nearby wells. Attempts to control the well fully were hampered as large volumes of mud were lost into the formation. Operations were further hampered by ambient temperatures below -30 degrees Celsius.

Our experiences over this early part of the well, and discussions with the drilling contractor, lead us to the conclusion that our objectives would be best served by introducing a new drilling contractor. In mid February Siberian Service Kompany ("SSK") took over control of the rig and operations at the wellsite. This change facilitated the control of the nitrogen kick and mud losses and enabled normal drilling operations to be resumed.

The well is now expected to be completed in early May.

 

Well-12

Once the PL is granted, well-12 will be re-entered using a smaller workover rig in order to establish the source of water production in the well. Once identified, an attempt to isolate this water will be made and, if successful, oil production will be restored.

Issue of the PL will allow production to be resumed from this well without applying for a special extension to the 12 month "testing" period applicable under the existing EL.

 

Peter Hind

Managing Director

CONSOLIDATED INCOME STATEMENT

FOR THE YEAR ENDED 31 DECEMBER 2009

 

 

		2009	2008
	Notes	€	€
Revenue		-	1,077,388
Cost of sales		-	(883,990)
Gross profit		-	193,398
Other administration expenditure		(2,315,702)	(2,625,726)
Impairment of exploration expenditure		-	(2,672,555)
Loss on disposal of associate		-	(1,316,533)
Total administration expenditure		(2,315,702)	(6,614,814)
Loss from operations	4	(2,315,702)	(6,421,416)
Finance income		17,956	107,074
Finance costs	8	(27,307)	(21,537)
Share of loss of associate		-	(2,353,526)
Loss before taxation		(2,325,053)	(8,689,405)
Taxation	6	-	(101,300)
Loss after taxation attributable to equity holders of parent company		(2,325,053)	(8,790,705)
Loss per share
Basic and diluted	2	(0.00328)	(0.01919)

 

The notes on pages 19 to 38 form part of the financial statements.

 

 

STATEMENT OF COMPREHENSIVE INCOME

FOR THE YEAR ENDED 31 DECEMBER 2009

 

 

		2009	2008
Consolidated		€	€
Loss after taxation		(2,325,053)	(8,790,705)
	Other comprehensive income:
	Exchange differences on translating foreign operations	(456,840)	(3,251,661)
Other comprehensive income for the period		(456,840)	(3,251,661)
Total comprehensive income for the period		(2,781,893)	(12,042,366)
		2009	2008
Company		€	€
Loss after taxation		(3,504,300)	(8,876,959)
	Other comprehensive income:
	Exchange differences on translating foreign operations	768,348	(3,165,924)
Other comprehensive income for the period		768,348	(3,165,924)
Total comprehensive income for the period		(2,735,952)	(12,042,883)

 

The notes on pages 19 to 38 form part of the financial statements.

 

 

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

FOR THE YEAR ENDED 31 DECEMBER 2009

 

 

	Share	Share	Foreign	Other	Retained	Total
	capital	premium	currency	Reserves	earnings
			translation
			reserve
Consolidated	€	€	€	€	€	€
Total equity as at 1 January 2008	646,971	28,524,333	(1,074,112)	1,390,142	(8,268,598)	21,218,736
Total comprehensive income for the year	-	-	(3,251,661)	-	(8,790,705)	(12,042,366)
Shares issued	14,156	289,483	-	-	-	303,639
Recognition of share based payment	-	-	-	(1,390,142)	1,513,423	123,281
Total equity as at 31 December 2008	661,127	28,813,816	(4,325,773)	-	(15,545,880)	9,603,290
	Share	Share	Foreign	Other	Retained	Total
	capital	premium	currency	Reserves	earnings
			translation
			reserve
Consolidated	€	€	€	€	€	€
Total equity as at 1 January 2009	661,127	28,813,816	(4,325,773)	-	(15,545,880)	9,603,290
Total comprehensive income for the period	-	-	(456,840)	-	(2,325,053)	(2,781,893)
Shares issued	694,095	7,715,123	-	-	-	8,409,218
Share issue costs	-	(244,904)	-	-	-	(244,904)
Recognition of share based payment	-	-	-	-	377,517	377,517
Total equity as at 31 December 2009	1,355,222	36,284,035	(4,782,613)	-	(17,493,416)	15,363,228

 

The notes on pages 19 to 38 form part of the financial statements.

 

 

COMPANY STATEMENT OF CHANGES IN EQUITY

FOR THE YEAR ENDED 31 DECEMBER 2009

 

 

	Share	Share	Foreign	Other	Retained	Total
	capital	premium	currency	Reserves	earnings
			translation
			reserve
Company	€	€	€	€	€	€
Total equity as at 1 January 2008	646,971	28,524,333	(1,434,162)	1,390,142	(7,908,031)	21,219,253
Total comprehensive income for the year	-	-	(3,165,924)	-	(8,876,959)	(12,042,883)
Shares issued	14,156	289,483	-	-	-	303,639
Recognition of share based payment	-	-	-	(1,390,142)	1,513,423	123,281
Total equity as at 31 December 2008	661,127	28,813,816	(4,600,086)	-	(15,271,567)	9,603,290
	Share	Share	Foreign	Other	Retained	Total
	capital	premium	currency	Reserves	earnings
			translation
			reserve
Company	€	€	€	€	€	€
Total equity as at 1 January 2009	661,127	28,813,816	(4,600,086)	-	(15,271,567)	9,603,290
Total comprehensive income for the year	-	-	768,348	-	(3,504,300)	(2,735,952)
Shares issued	694,095	7,715,123	-	-	-	8,409,218
Share issue costs	-	(244,904)	-	-	-	(244,904)
Recognition of share based payment	-	-	-	-	377,517	377,517
Total equity as at 31 December 2009	1,355,222	36,284,035	(3,831,738)	-	(18,398,350)	15,409,169

 

The notes on pages 19 to 38 form part of the financial statements.

 

 

BALANCE SHEET

AS AT 31 DECEMBER 2009

 

 

			Group		Company
			2009	2008	2009	2008
		Notes	€	€	€	€
	Non-current assets
	Property, plant & equipment	9	37,290	60,502	7,377	13,886
	Intangible assets	10	8,365,849	7,757,249	-	-
	Investment in subsidiary	11	-	-	1,549	1,431
			8,403,139	7,817,751	8,926	15,317
	Current assets
	Inventories	13	163,745	167,040	-	-
	Trade and other receivables	14	224,646	1,265,701	11,670,873	9,221,310
	Cash and cash equivalents		6,727,308	530,265	3,839,039	509,914
			7,115,699	1,963,006	15,509,912	9,731,224
Total assets			15,518,838	9,780,757	15,518,838	9,746,541
	Capital and reserves attributable to equity holders of the Company
	Ordinary shares	17	1,355,222	661,127	1,355,222	661,127
	Share premium		36,284,035	28,813,816	36,284,035	28,813,816
	Foreign currency translation reserve		(4,782,613)	(4,325,773)	(3,831,738)	(4,600,086)
	Retained earnings		(17,493,416)	(15,545,880)	(18,398,350)	(15,271,567)
	Total equity		15,363,228	9,603,290	15,409,169	9,603,290
	Current liabilities
	Trade and other payables	15	155,610	177,467	109,669	143,251
	Total liabilities		155,610	177,467	109,669	143,251
Total equity and liabilities			15,518,838	9,780,757	15,518,838	9,746,541

 

The notes on pages 19 to 38 form part of the financial statements.

 

The financial statements were authorised and approved by the Board on 16 March 2010 and signed on their behalf by

 

 

 

Peter Hind

Managing Director

 

 

CONSOLIDATED CASH FLOW STATEMENT

FOR THE YEAR ENDED 31 DECEMBER 2009

 

 

		Group		Company
		2009	2008	2009	2008
		€	€	€	€
Loss before taxation		(2,325,053)	(8,689,405)	(3,504,300)	(8,876,959)
	Adjustments for:
	Depreciation	25,220	24,804	9,174	7,365
	Share of loss of associates	-	2,353,526	-	-
	Impairment of exploration expenditure	-	2,672,555	-	-
	Loss on disposal of associate	-	1,316,533	-	4,782,754
	Share based payments	377,517	123,281	377,517	123,281
	Foreign currency differences	29,610	(185,743)	725,346	(1,296,873)
Cash used in operating activities before changes in working capital and provisions		(1,892,706)	(2,384,449)	(2,392,263)	(5,260,432)
	(Increase) / decrease in inventories	3,295	(165,846)	-	-
	(Increase) / decrease in receivables	1,041,055	(875,388)	(2,449,563)	(431,292)
	Increase / (decrease) in payables	(21,857)	(930,749)	(33,582)	(90,478)
Cash used in operations		(870,213)	(4,356,432)	(4,875,408)	(5,782,202)
	Income taxes (paid) / credited	-	(101,300)	-	-
Cash used in operating activities		(870,213)	(4,457,732)	(4,875,408)	(5,782,202)
	Disposal of associate interest of Gemstone Properties Limited	-	633,204	-	633,204
	Purchase of property, plant and equipment	(2,842)	(13,297)	(1,529)	12
	Expenditure on oil and gas assets	(1,135,293)	(1,700,684)	-	-
Cash used in investing activities		(1,138,135)	(1,080,777)	(1,529)	633,216
	Proceeds from issue of shares	8,409,218	303,639	8,409,218	303,639
	Share issue expenses paid	(244,904)	-	(244,904)	-
Cash used in financing activities		8,164,314	303,639	8,164,314	303,639
Net (decrease) / increase in cash and cash equivalents		6,155,966	(5,234,870)	3,287,377	(4,845,347)
Cash and cash equivalents at beginning of period		530,265	7,546,636	509,914	7,075,180
Effect of foreign exchange rate differences		41,077	(1,781,501)	41,748	(1,719,919)
Cash and cash equivalents at end of period		6,727,308	530,265	3,839,039	509,914

 

The notes on pages 19 to 38 form part of the financial statements.

 

 

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2009

 

 

1. Accounting policies

Basis of preparation

The financial statements have been prepared on the going concern basis in accordance with International Financial Reporting Standards ("IFRS") as adopted by the European Union and the provisions of the SORP "Accounting for Oil and Gas Exploration, Development, Production and Decommissioning Activities in so much as it complies with IFRS.

 

These financial statements are presented in Euro, and the Company's functional currency is Sterling.

 

 

International Accounting Standards (IAS/IFRS)				Effective date
·;	IFRS 7	- Amendment -	improving disclosures about financial instruments	1 January 2009
·;	IAS 1 (revised)	- Amendment -	Presentation of financial statements: a revised presentation	1 January 2009
·;	IFRS 8	- Operating segments		1 January 2009
·;	IAS 23	- Amendment -	Borrowing costs	1 January 2009
·;	IFRS 2	- Amendment -	Share based payment: vesting conditions and Cancellations	1 January 2009
·;	IAS32 & IAS1	- Amendment -	Puttable financial instrument and obligations arising on liquidation	1 January 2009
·;	Improvements to IFRSs (2009)	- Amendments to various standards Issued 22 May 2008		1 January 2009
International Financial Reporting Interpretations (IFRIC)				Effective date
·;	IFRIC 15	- Agreements for the Construction of Real Estate		1 January 2009

 

 

 

 

International Accounting Standards (IAS/IFRS)					Effective date
·;	IAS 27		- Amendment -	Consolidated and separate financial statements	1 July 2009
·;	IFRS 3		- Revised - Business combinations		1 July 2009
·;	IAS 39		- Amendment -	Financial Instruments: recognition and measurement: eligible hedged Items	1 July 2009
·;	IAS 39 and IFRIC 9		- Amendment -	Embedded derivatives	30 June 2009
·;	Improvements to IFRSs (2010)*		- Amendments to various standards Issued 16 April 2009		1 January 2010
·;	IFRS 2*		- Amendment -	Group cash-settled share-based payment transactions	1 January 2010
·;	IFRS 1*		- Amendment -	Additional exemptions for first-time adopters	1 January 2010
·;	IAS 32*		- Amendment-	Classification of Rights Issues	1 February 2010
·;	IAS 24 (revised)*		- Revised definition of related party		1 January 2011
·;	IAS 19 and IFRIC 14*		- Amendments-	Limit of a defined benefit asset, minimum funding requirements and their interaction	1 January 2011
·;	IFRS 9*		- New standard replacing IAS 39		1 January 2013
International Financial Reporting Interpretations (IFRIC)					Effective date
·;	IFRIC 17	- Distributions of non-cash assets to owners			1 July 2009
·;	IFRIC 18	- Transfers of assets from customers			1 July 2009
·;	IFRIC 19*	- Extinguishing Financial Liabilities with Equity Instruments			1 July 2010

 

 

* These have not been endorsed by the EU. The group is evaluating the impact of the above pronouncements but they are not expected to be material to the Group's earnings or to shareholders' funds.

 

 

Basis of consolidation

Where the company has the power, either directly or indirectly, to govern the financial and operating policies of another entity or business so as to obtain benefits from its activities, it is classified as a subsidiary. The consolidated financial statements present the results of the company and its subsidiaries ("the Group") as if they formed a single entity. Intercompany transactions and balances between Group companies are therefore eliminated in full.

 

Associates are accounted for using the equity accounting method. If the Group has significant influence but not control over another entity then it is initially accounted for at cost. The Group's share of the post acquisition results of the associate is recognised in the income statement. The Group's investment in the associate is recognised at cost plus the Group's share of the post acquisition profits or losses. Where the Group's share of cumulative losses exceeds the cost of the original investment the excess reduces any other amounts owing to the Group from the associate. However, any cumulative losses in excess of the original cost and other balances combined is not recognised unless the Group has a legal obligation to make good those losses.

 

Segmental reporting

Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker. The chief operating decision maker has been identified as the Managing Director, Finance Manager and the other executive and non-executive Board Members.

 

Business combinations

The consolidated financial statements incorporate the results of business combinations using the purchase method. In the consolidated balance sheet, the acquiree's identifiable assets, liabilities and contingent liabilities are initially recognised at their fair values at the acquisition date. The results of acquired operations are included in the consolidated income statement from the date on which control is obtained.

 

Foreign currency translation

Transactions entered into by group entities in a currency other than the currency of the primary economic environment in which they operate (their "functional currency") are recorded at the rates ruling when the transactions occur. Foreign currency monetary assets and liabilities are translated at the rates ruling at the balance sheet date. Exchange differences arising on the retranslation of unsettled monetary assets and liabilities are recognised immediately in the consolidated income statement.

 

On consolidation, the results of overseas operations are translated into Euro at rates approximating to those ruling when the transactions took place. All assets and liabilities of overseas operations, including goodwill arising on the acquisition of those operations, are translated at the rate ruling at the balance sheet date. Differences arising on retranslating the opening net assets and the results of operations are recognised directly in equity (the "foreign currency translation reserve").

 

The income statement of individual Group companies with functional currencies other than Euro are translated into Euro at the rate ruling at the date of the transaction and the balance sheet translated at the rate of exchange ruling on the balance sheet date. Exchange differences which arise from translation of the opening net assets and results of such subsidiary operations are taken to reserves.

 

Exchange differences recognised in the income statement of Group entities' separate financial statements on the translation of long-term monetary items forming part of the Group's net investment in the overseas operation concerned are reclassified to the foreign currency translation reserve on consolidation.

 

On disposal of a foreign operation, the cumulative exchange differences recognised in the foreign currency translation reserve relating to that operation up to the date of disposal are transferred to the consolidated income statement as part of the profit or loss on disposal.

 

Profit from operations

Profit from operations is defined as the profit on all continuing activities before Finance income, Finance costs, Share of profit / (loss) of Associates and Taxation.

  

Tangible non-current assets

Tangible non-current assets are stated at cost less depreciation. Depreciation is provided at rates calculated to write off the cost of assets, less their estimated residual value, over their expected useful economic lives on the following basis:

 

Property, plant and equipment 25% per annum straight line.

 

The useful lives and residual values of tangible non-current assets are re-assessed annually and any revisions taken to the income statement in the current period.

 

Intangible non-current exploration assets

The Group applies the successful efforts method of accounting for exploration and appraisal costs. Under the successful efforts method of accounting, all licence acquisition, exploration and appraisal costs are initially capitalised in well, field or specific exploration well cost centres as appropriate, pending determination. Costs are capitalised until commercial reserves are established or the exploration site is deemed to have no commercial value. Costs are then amortised over the production life of the well or written-off immediately.

 

Pre-licence costs: costs incurred prior to having obtained the legal rights to explore an area are expensed directly to the income statement as they are incurred.

 

Exploration and appraisal costs are initially capitalised as an intangible asset. Intangible assets are not amortised prior to the conclusion of appraisal activities and determination of commercial reserves.

 

All intangible assets are reviewed for impairment on an annual basis. Any impairment is immediately written off to the Income Statement.

 

Investments

In its separate financial statements the Company recognises its investments in subsidiaries and associates at cost less allowances for impairments in value.

 

Inventories

Inventories are stated at the lower of cost and net realisable value.

 

Trade and other receivables

Trade and other receivables are stated at amortised cost less allowance for impairment in value.

 

Cash and cash equivalents

The Company considers all highly liquid investments, with an original maturity of 90 days or less, to be cash or cash equivalents.

 

Trade and other payables

Trade and other payables are stated initially at fair value and subsequently at amortised cost.

 

Tax

Income tax on the profit or loss from ordinary activities includes current and deferred tax.

 

Current tax is based on the profit or loss from ordinary activities adjusted for items that are non-assessable or disallowed and is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date.

 

Income tax is charged or credited to the income statement, except when the tax relates to items credited or charged directly to equity, in which case the tax is also dealt with in equity.

  

Deferred taxation

Deferred tax is provided on temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The following temporary differences are not provided for: the initial recognition of assets or liabilities that affect neither accounting nor taxable profit other than in a business combination, and differences relating to investments in subsidiaries to the extent that they will probably not reverse in the foreseeable future. The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantively enacted at the balance sheet date.

 

Deferred tax liabilities are generally recognised for all taxable temporary differences. Deferred tax assets and current tax losses have not been recognised since it is uncertain that taxable profits will be available against which deductible temporary differences can be utilised.

 

Deferred tax assets and liabilities are offset when the Group has a legally enforceable right to offset current tax assets and liabilities and the deferred tax assets and liabilities relate to taxes levied by the same tax authority on either the same taxable Group company or different Group Entities which intend either to settle current tax assets and liabilities on a net basis or to realise the assets and settle the liabilities simultaneously, in each future period in which significant amounts of deferred tax assets or liabilities are expected to be settled or recovered.

 

Contributed equity

Issued and paid up share capital is recognised at the fair value of the consideration received by the Company. Any transaction costs arising on the issue of ordinary shares are recognised directly in equity as a reduction of the share proceeds received.

 

Share Based Payments

Where equity settled share options are awarded to employees, the fair value of the options at the date of grant is charged to the consolidated income statement over the vesting period. Non-market vesting conditions are taken into account by adjusting the number of equity instruments expected to vest at each balance sheet date so that, ultimately, the cumulative amount recognised over the vesting period is based on the number of options that eventually vest. Market vesting conditions are factored into the fair value of the options granted. As long as all other vesting conditions are satisfied, a charge is made irrespective of whether the market vesting conditions are satisfied. The cumulative expense is not adjusted for failure to achieve a market vesting condition.

 

Where the terms and conditions of options are modified before they vest, the increase in the fair value of the options, measured immediately before and after the modification, is also charged to the consolidated income statement over the remaining vesting period.

 

Where equity instruments are granted to persons other than employees, the consolidated income statement is charged with the fair value of goods and services received.

 

Revenue

Revenue is measured at the fair value of the consideration received or receivable and represents amounts receivable for oil & gas products provided in the normal course of business, net of discounts, VAT and other sales related taxes to third party customers.

 

Interest income is accrued on a time basis, by reference to the principal outstanding at the effective interest rate applicable, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to that asset's net carrying amount

 

Significant accounting judgements and key sources of estimation uncertainty

The Group makes estimates and assumptions regarding the future. Estimates and judgements are continually evaluated based on historical experiences and other factors, including expectations of future events that are believed to be reasonable under the circumstances. In the future, actual experience may deviate from these estimates and assumptions. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are as follows:

 

Exploration and evaluation costs: are capitalised as intangible assets (note 10) and are assessed for impairment when circumstances suggest that the carrying amount may exceed the recoverable value thereof. This assessment involves judgement as to the likely future commerciality of the asset and when such commerciality should be determined as well as future revenues and costs pertaining to the utilisation of the exploration and production rights to which such capitalised costs relate and the discount rate to be applied to such future revenues and costs in order to determine a recoverable value.

 

 

Carrying value of assets: while conducting an impairment review of its assets, the Group exercises judgement in making assumptions about future oil & gas prices and future development and production costs. Changes in the estimates used can result in significant charges to the income statement.

 

Share based payments: employee services received, and the corresponding increase in equity, are measured by reference to the fair value of the equity instruments at the date of grant, excluding the impact of any non-market vesting conditions. The fair value of share options is estimated by using the Black Scholes valuation model, on the date of grant based on certain assumptions. Those assumptions are described in note 16 and include, among others, the dividend growth rate, expected volatility, expected life of the options and number of options expected to vest. More details including carrying values are disclosed in note 16.

 

 

2. Loss per share

 

Loss per share of €0.00328 (2008: €0.01919) is calculated by dividing the loss attributable to equity shareholders for the year by the weighted average number of ordinary shares outstanding during the year of 708,399,007 (2008: 458,162,810). The loss per share is €0.00328 (2008: €0.01919).

 

The effect of all potential ordinary shares arising from the exercise of options going forward is considered to be anti-dilutive and therefore diluted earnings per share has not been calculated. At the balance sheet date there were 52,000,000 (2008: 57,570,000) potentially dilutive ordinary shares.

 

 

3. Parent company's income statement

 

The company has taken advantage of section 408 of the Companies Act 2006 and has not included its own income statement account in these financial statements. The company loss for the year after taxation was €3,504,300 (2008: €8,876,959).

 

 

4. Expenses by nature

 

Loss from operations is stated after charging:
	2009	2008
	€	€
Auditors remuneration
- Audit: fees payable to the Company's auditor for the audit of the parent company and consolidated financial statements	34,083	30,227
- Audit: fees payable for the audit of subsidiaries pursuant to legislation	14,695	19,531
- Fees payable to the company's auditor:
- Tax services	11,903	7,558
- Other services	38,225	14,469
Impairment of exploration expenditure	-	2,672,555
Depreciation	25,220	24,804
Foreign exchange costs	105,061	(185,743)
Share based payment expense (all equity settled)	377,517	123,281

 

 

 

5. Salaries

 

Total staff costs (including Directors and key management personnel) comprise:
	Group		Company
	2009	2008	2009	2008
	€	€	€	€
Employee salaries and benefits	825,745	1,322,210	597,049	1,017,059
Share based payment expense	377,517	123,281	377,517	123,281
	1,203,262	1,445,491	974,566	1,140,340
Directors emoluments comprise:
	Group		Company
	2009	2008	2009	2008
	€	€	€	€
Employee salaries and benefits	519,324	779,554	519,324	779,554
Gains on exercising options	-	156,000	-	156,000
	519,324	935,554	519,324	935,554
Key management personnel:
	Group		Company
	2009	2008	2009	2008
	€	€	€	€
Employee salaries and benefits	675,007	1,108,536	597,049	994,355
Share based payment expense	377,517	123,281	377,517	123,281
	1,052,524	1,231,817	974,566	1,117,636
Key management personnel include all parent company directors and senior management in the UK, Russia and Cyprus.
Average number of employees (including directors):
	Group		Company
	2009	2008	2009	2008
	€	€	€	€
Technical	6	5	1	2
Corporate & administrative	13	15	2	3
	19	20	3	5

 

The highest paid director was paid €202,135 (2008: €352,710).

 

Included in the above were pension contributions totalling €nil (2008: €125,968).

 

 

6. Taxation

 

Below is a reconciliation of the theoretical income tax rate to the actual effective tax rate in the Group's income statement:

 

	Group
	2009	2008
	€	€
Loss before taxation	(2,325,053)	(8,689,405)
Taxation at the UK corporation tax rate of 28.5% (2008: 28.5%)	(662,640)	(2,476,480)
Effect of lower tax rate in Russia 20% (2008: 24%)	56,518	131,712
Expenses disallowed for tax	279,709	1,474,893
Temporary differences on non-current assets not recognised	(528,460)	641,413
Utilisation of previously unrecognised tax losses	-	-
Tax losses not recognised carried forward	854,872	329,763
Tax charge for the year	-	101,300

 

The tax charge for the year ended 31 December 2008 relates solely to current tax on the results of the Russian Subsidiary.

 

Factors that may affect future tax charges

No deferred tax asset has been recognised on accumulated tax losses as the recoverability of any such assets is not probable in the foreseeable future (see note 19).

 

 

 

7. Segmental reporting

 

The Group has two reportable segments:

 

·; Arkhangelovskoe: this segment is involved in the exploration of oil within the Arkhangelovskoe licence area in Russia; and

·; Head Office Operations: this segment is the head office of the Group.

 

The operating results of each of these segments are regularly reviewed by the Group's chief operating decision makers in order to make decisions about the allocation of resources and assess their performance.

 

The accounting policies of these segments are in line with those described in note 1.

 

Reportable segments as at 31 December 2009
	Head	Arkhangelovskoe	Total
	Office
	€	€	€
Revenue	-	-	-
Cost of sales	-	-	-
Other income	-	-	-
Administration expenses	(1,673,631)	(642,071)	(2,315,702)
Impairment of exploration expenditure	-	-	-
Loss on disposal of associate	-	-	-
Finance income	16,785	1,171	17,956
Financing costs	(3,285)	(24,022)	(27,307)
Share of profit / loss of associates	-	-	-
Taxation	-	-	-
Loss for the year after taxation	(1,660,131)	(664,922)	(2,325,053)
Non current assets	7,377	8,395,762	8,403,139
Inventories	-	163,745	163,745
Trade and other receivables	14,342	210,304	224,646
Cash and cash equivalents	3,839,039	2,888,269	6,727,308
Segment assets	3,860,758	11,658,080	15,518,838
Trade and other payables	(115,653)	(39,957)	(155,610)
Segment liabilities	(115,653)	(39,957)	(155,610)
Segment net assets	3,745,105	11,618,123	15,363,228

 

 

Reportable segments as at 31 December 2008
	Head	Arkhangelovskoe	Total
	Office
	€	€	€
Revenue	-	1,077,388	1,077,388
Cost of sales	-	(883,990)	(883,990)
Other income	-	-	-
Administration expenses	(2,195,533)	(430,193)	(2,625,726)
Impairment of exploration expenditure	-	(2,672,555)	(2,672,555)
Loss on disposal of associate	(1,316,533)	-	(1,316,533)
Finance income	105,631	1,443	107,074
Financing costs	(2,513)	(19,024)	(21,537)
Share of profit / loss of associates	(2,353,526)	-	(2,353,526)
Taxation	-	(101,300)	(101,300)
Loss for the year after taxation	(5,762,474)	(3,028,231)	(8,790,705)
Non current assets	13,886	7,803,865	7,817,751
Inventories	-	167,040	167,040
Trade and other receivables	17,589	1,248,112	1,265,701
Cash and cash equivalents	509,914	20,351	530,265
Segment assets	541,389	9,239,368	9,780,757
Trade and other payables	(143,251)	(34,216)	(177,467)
Segment liabilities	(143,251)	(34,216)	(177,467)
Segment net assets	398,138	9,205,152	9,603,290

 

During the year revenue of €nil (2008: €937,236) was received from oil sales to customers representing 10% or more of the Group's total revenue for the year.

 

The finance income, finance costs and taxation have been analysed above in line with the way the Group's business is structured.

 

All material non-current assets other than financial instruments are owned by the Russian subsidiary and are located in Russia.

 

Share based payments of €377,517 (2008: €123,281) relate solely to Head Office.

 

All material capital expenditure in the current and previous year relate to the Arkhangelovskoe segment.

 

8. Finance costs

 

	Group
	2009	2008
	€	€
Bank interest	-	802
Bank charges	27,307	20,735
	27,307	21,537

 

 

9. Property, plant and equipment

 

	Group		Company
	2009	2008	2009	2008
	€	€	€	€
Cost
At 1st January	99,645	104,478	29,888	39,503
Additions	2,842	13,964	1,529	655
Disposals	-	(667)	-	(667)
Currency translation adjustments	(503)	(18,130)	2,447	(9,603)
At 31st December	101,984	99,645	33,864	29,888
Depreciation
At 1st January	(39,143)	(17,974)	(16,002)	(11,411)
Charge for year	(25,220)	(24,804)	(9,174)	(7,365)
Currency translation adjustments	(331)	3,635	(1,311)	2,774
At 31st December	(64,694)	(39,143)	(26,487)	(16,002)
Carrying value as at 31st December	37,290	60,502	7,377	13,886

 

Property, plant and equipment is comprised of office and computer equipment.

 

10. Intangible assets

 

Intangible assets as at 31 December 2009 were:

 

	License acquisition costs	Exploration and appraisal costs	Total
	€	€	€
Cost
At 1 January	3,322,575	4,434,674	7,757,249
Additions	-	1,135,293	1,135,293
Currency translation adjustments	(146,714)	(379,979)	(526,693)
Carrying value at 31 December	3,175,861	5,189,988	8,365,849

 

Intangible assets as at 31 December 2008 were:

 

	License acquisition costs	Exploration and appraisal costs	Total
	€	€	€
Cost
At 1 January	3,913,376	6,085,666	9,999,042
Additions	-	1,700,684	1,700,684
Impairment	-	(2,672,555)	(2,672,555)
Currency translation adjustments	(590,801)	(679,121)	(1,269,922)
Carrying value at 31 December	3,322,575	4,434,674	7,757,249

 

 

 

11. Investment in subsidiaries

 

The principal subsidiaries of Matra Petroleum plc, all of which have been included in these consolidated financial statements, are as follows:
Name	Country of incorporation	Proportion of ownership	Nature of business
Matra Cyprus Petroleum Limited	Cyprus	100%	Holding company
Matra Cyprus Petroleum (Alpha) Limited	Cyprus	100%	Holding company
OOO Arkhangelovskoe	Russian Federation	100%	Oil & gas exploration and production company
Matra Cyprus Petroleum Limited owns 100% of the shares in OOO Arkhangelovskoe.

 

 

12. Disposal of associate

 

On 19 December 2008 the Company disposed of it's 40% holding in Gemstone Properties Limited. Details of the disposal are as follows:
		2008
		€
Total assets		-
Total liabilities		-
Revenues		-
Profit / (loss)		(2,353,526)
		€
Proceeds:		633,204
Less: share of net assets / liabilities in associate		-
Less: write-off of loan to associate		(1,949,737)
Loss on disposal of associate		(1,316,533)

 

 

13. Inventories

 

	Group		Company
	2009	2008	2009	2008
	€	€	€	€
Drilling and other supplies	163,745	167,040	-	-

 

 

14. Receivables

 

	Group		Company
	2009	2008	2009	2008
	€	€	€	€
Trade receivables	-	164,009	-	-
Prepayments and other receivables	224,646	1,101,692	14,342	17,589
Intercompany loans	-	-	11,656,531	9,203,721
	224,646	1,265,701	11,670,873	9,221,310

The fair value of receivables is not significantly different from the carrying value.

 

The Intercompany loans are shown net of a provision of €5,157,533 (2008: €2,584,156).

 

The Intercompany loans are repayable on demand and bear interest at the rate of 2% above the Russian Base Rate (2008: 2% above the Russian Base Rate).

 

 

15. Payables

 

	Group		Company
	2009	2008	2009	2008
	€	€	€	€
Trade payables	63,258	82,216	43,211	67,923
Accruals and other payables	92,352	95,251	66,458	75,328
	155,610	177,467	109,669	143,251

 

16. Share based payments

 

Exercise price (p)	Grant date	Outstanding at start of year	Granted during the year	Exercised during the year	Lapsed during the year	Outstanding at end of year	Final exercise date
2008
2	17/03/2005	10,000,000	-	(10,000,000)	-	-	30/06/2008
2.5	17/05/2005	1,000,000	-	(1,000,000)	-	-	30/06/2008
0.1	11/04/2006	5,000,000	-	-	-	5,000,000	11/04/2011
5	11/04/2006	10,000,000	-	-	-	10,000,000	11/04/2011
6.3	11/04/2006	2,620,000	-	-	-	2,620,000	11/03/2009
0.1	23/05/2006	1,200,000	-	-	-	1,200,000	23/05/2011
5	23/05/2006	6,000,000	-	-	-	6,000,000	23/05/2011
8	20/04/2007	24,000,000	-	-	-	24,000,000	15/02/2009
4.5	23/04/2007	8,000,000	-	-	-	8,000,000	22/04/2012
4.5	31/03/2007	500,000	-	-	-	500,000	31/03/2012
7.5	25/09/2007	250,000	-	-	-	250,000	25/09/2012
Total		68,570,000	-	(11,000,000)	-	57,570,000
2009
0.1	11/04/2006	5,000,000	-	-	-	5,000,000	11/04/2011
5	11/04/2006	10,000,000	-	-	-	10,000,000	11/04/2011
6.3	11/04/2006	2,620,000	-	-	(2,620,000)	-	11/03/2009
0.1	23/05/2006	1,200,000	-	-	-	1,200,000	23/05/2011
5	23/05/2006	6,000,000	-	-	-	6,000,000	23/05/2011
8	20/04/2007	24,000,000	-	-	(24,000,000)	-	15/02/2009
4.5	23/04/2007	8,000,000	-	-	-	8,000,000	22/04/2012
4.5	31/03/2007	500,000	-	-	-	500,000	31/03/2012
7.5	25/09/2007	250,000	-	-	-	250,000	25/09/2012
3.65	20/10/2009	-	21,250,000	-	-	21,250,000	19/10/2014
Total		57,570,000	21,250,000	-	(26,620,000)	52,200,000

 

The fair value of equity-settled share options granted is estimated as at the date of grant using the Black Scholes model, taking into account the terms and conditions upon which the options were granted. The table below lists the inputs to the model used for options granted during the year ended 31 December 2009:

 

	2009	2008
Share price at the date of grant (pence)	3.65	-
Dividend yield (%)	-	-
Volatility (%)	55	-
Expected life (years)	5	-
Risk free interest rate (%)	0.5	-
Weighted average option price (pence)	1.58	-

 

The total fair value of the options issued is spread over the vesting period of the options. The share-based payment charge for the year was €377,517 (2008: €123,281).

 

The expected life of the options is based on academic research and is not necessarily indicative of exercise patterns that may occur. Volatility is calculated with reference to comparative entities share price volatility and reflects the assumption that the comparator's volatility is indicative of future trends, which may also not necessarily be the actual outcome. No other features of options granted were incorporated into the measurement of fair value.

 

 

17. Share capital

 

	2009	2008
	€	€
Authorised:
10,000,000,000 ordinary shares of 0.1p each	13,571,000	13,571,000
Allotted, called-up and fully paid:
1,064,917,872 (December 2008: 463,251,205) ordinary shares of 0.1p each	1,355,222	661,127

 

Reserve Description and purpose The following describes the nature and purpose of each reserve within owners' equity:

 

·; Share capital: Amount subscribed for share capital at nominal value.

·; Share premium: Amount subscribed for share capital in excess of nominal value.

·; Foreign currency translation reserve: Exchange gains/losses arising on retranslating the net assets of operations into the presentation currency.

·; Retained earnings: Cumulative net gains and losses recognised in the consolidated income statement.

 

The following issues of new shares in the Company took place in the period:

 

·; On 8 July 2009 the Company issued 123,050,000 shares in a private placement for cash at a share price of 1 penny per share.

·; On 24 July 2009 the Company issued 411,950,000 shares in a private placement for cash at a share price of 1 penny per share.

·; On 27 November 2009 the Company issued 66,666,667 shares in a private placement for cash at a share price of 3 pence per share.

 

The Group considers its capital to comprise entirely of equity. The Group's primary objective is to ensure its continued ability to provide a consistent return for its equity shareholders through capital growth.

 

In order to achieve this objective, the Group seeks to maintain a gearing ratio that balances risks and returns at an acceptable level wherever such a choice between the raising of debt, equity or a combination of the two exists.

 

Overriding the above is the need for the Group to maintain a sufficient funding base to enable it to meet its working capital and strategic investment needs.

 

In making decisions to adjust its capital structure to achieve these aims the Group considers not only its short-term position but also its long-term operational and strategic objectives.

 

18. Financial instrument risk exposure and management

 

In common with all other businesses, the Group and Company are exposed to risks that arise from its use of financial instruments. This note describes the Group and Company's objectives, policies and processes for managing those risks and the methods used to measure them. Further quantitative information in respect of these risks is presented throughout these financial statements.

 

There have been no substantive changes in the Group or Company's exposure to financial instrument risks, its objectives, policies and processes for managing those risks or the methods used to measure them from previous periods unless otherwise stated in this note.

 

Principle financial instruments

 

The principle financial instruments used by the Group, from which financial instrument risk arises, are as follows:

 

Financial assets	Group		Company
	2009	2008	2009	2008
	Loans and receivables		Loans and receivables
	€	€	€	€
Trade receivables	-	164,009	-	-
Cash and cash equivalents	6,727,308	530,265	3,839,039	509,914
Inter-company loans	-	-	11,656,531	9,203,721
	6,727,308	694,274	15,495,570	9,713,635
Financial liabilities	Group		Company
	2009	2008	2009	2008
	Financial liabilities at amortised cost		Financial liabilities at amortised cost
	€	€	€	€
Trade and other payables	155,610	177,467	109,669	143,251
	155,610	177,467	109,669	143,251

 

Fair value of financial assets and liabilities

 

At 31 December 2009 and 2008, the fair value and the book value of the Group and Company's financial assets and liabilities were materially the same.

 

Principal financial instruments

The principal financial instruments used by the Group and Company, from which financial instrument risk arises, are as follows:

 

Ÿ cash at bank

Ÿ trade and other payables

General objectives, policies and processes

The Board has overall responsibility for the determination of the Group and Company's risk management objectives and polices and, whilst retaining ultimate responsibility for them, it has delegated the authority for designing and operating processes that ensure the effective implementation of the objectives and policies to the Group and Company's finance function. The overall objective of the Board is to set polices that seek to reduce risk as far as possible without unduly affecting the Group and Company's competitiveness and flexibility. Further details regarding these policies are set out below:

 

Credit risk

Credit risk arises principally from the Group's other receivables. It is the risk that the counterparty fails to discharge its obligation in respect of the instrument. The maximum exposure to credit risk equals the carrying value of these items in the financial statements.

 

When commercial exploitation commences sales will only be made to customers with appropriate credit rating.

 

Existing trade receivables relate to sales of oil from test drilling, and these are not considered to be material.

 

Credit risk with cash and cash equivalents is reduced by placing funds with banks with high credit ratings.

 

Hedging policy

It is the Company and Group policy not to actively hedge against foreign currency transactions and balances. However, this policy is kept under constant review.

 

Capital

The Company and Group define capital as ordinary shares, share premium and retained earnings.

 

To date the company has not included long-term borrowings in its definition of capital, because it does not have any.

 

Liquidity risk

Liquidity risk arises from the Group and Company's management of working capital. It is the risk that the Group or Company will encounter difficulty in meeting its financial obligations as they fall due.

 

The Group and Company's policy is to ensure that it will always have sufficient cash to allow it to meet its liabilities when they become due. To achieve this aim, it seeks to maintain cash balances (or agreed facilities) to meet expected requirements for a period of at least 30 days. The Group and Company also seeks to reduce liquidity risk by maximising interest rates (and hence cash flows) on its cash deposits, this is further discussed in the 'interest rate risk' section below.

 

The Board receives rolling 12 month cash flow projections on a periodic basis as well as information regarding cash balances and (as noted above).

 

Trade and other payables are due on demand.

 

Interest rate risk

The Group has no interest bearing borrowings and so there is no interest rate risk.

 

There is no significant interest rate risk in respect of temporary surplus funds invested in deposits and other interest bearing accounts with financial institutions as the operations of the Group are not dependent on the finance received. However, it is the Group's policy to manage the interest rate risk over the cash flows on its invested surplus funds by using only substantial financial institutions when such funds are invested.

 

A 1% change in interest rates would have increased or decreased profit after tax by approximately €36,287 (2008: €40,385).

 

At the year end, the Group had a cash balance of €6,727,308 (2008: €530,265) and the Company had a cash balance of €3,839,039 (2008: €509,914) which was made up as follows:

 

	Group		Company
	2009	2008	2009	2008
	€	€	€	€
Great British pound	3,845,715	514,392	3,839,039	509,914
Euro	-	-	-	-
Russian rouble	2,881,593	15,873	-	-
	6,727,308	530,265	3,839,039	509,914

 

Included in the Group and Company totals above are amounts of €5,451,694 (2008: €nil) held within deposit accounts.

 

Currency risk

The Group and Company's policy is, where possible, to allow group entities to settle liabilities denominated in their functional currency (primarily Euro, Russian Roubles or Great British Pounds) in that currency. Where Group or Company entities have liabilities denominated in a currency other than their functional currency (and have insufficient reserves of that currency to settle them) cash already denominated in that currency will, where possible, be transferred from elsewhere within the Group.

 

In order to monitor the continuing effectiveness of this policy, the Board receives a periodic forecast, analysed by the major currencies held by the Group and Company.

 

The Group and Company is primarily exposed to currency risk on purchases made from suppliers in Orenburg, Southern Russia in Russian Roubles. As it is not possible for the Group or Company to transact in Russian Roubles outside of Russia, a Sterling account is maintained in Orenburg and all funding is transferred to its Russian subsidiary in this currency. Once the funding has been received, the local finance team negotiates a favourable spot rate with its Russian bank for transferring Sterling to Russian Roubles. The UK finance team, along with its advisors, carefully monitors movements in the Sterling / Russian Rouble rate and chooses the most beneficial times for transferring monies to its subsidiary, whilst ensuring that it has sufficient funds to continue its operations.

 

A movement in the Russian Rouble of 15% would result in the expenditure in the year increasing or decreasing by €96,311 (2008: €534,909).

 

A movement in the Great British pound of 25% would result in the expenditure in the year increasing or decreasing by €418,408 (2008: €1,114,677).

 

A movement in the Great British pound of 25% would result in the average cash and cash equivalents increasing or decreasing by €961,429 (2008: €813,240).

 

 

19. Deferred tax

 

	Group		Company
	2009	2008	2009	2008
	€	€	€	€
A deferred tax assets has not been recognised on the following:
- Temporary differences in share based payments	463,841	401,736	463,841	401,736
- Unused tax losses	1,760,348	2,791,195	975,840	2,721,233
	2,224,189	3,192,931	1,439,681	3,122,969

 

No deferred tax asset has been recognised as the recovery of such assets is not probable in the foreseeable future.

 

 

 

20. Commitments

 

The Company has no operating or finance lease commitments.

 

In order to maintain the current rights of tenure to licenses, the group has the following exploration expenditure commitments. These obligations are not provided for in the financial statements and are:

 

	Group		Company
	2009	2008	2009	2008
	€	€	€	€
Within one year	5,722,573	7,210,265	-	-
	5,722,573	7,210,265	-	-

 

The commitments for 2009 exclude VAT further to the recovery of all historic VAT during the year ended 31 December 2009. The commitments for 2008 included VAT at the rate ruling in the Russian Federation for the year ended 31 December 2008 of 18%.

 

 

21. Related party transactions

 

The Group had the following transactions with related parties during the year ended 31 December 2009:

 

	Group		Company
	2009	2008	2009	2008
	€	€	€	€
During the year the parent entity provided the following management and consulting fees to its associate:
- Blue Star 95 KFT	-	295,763	-	295,763
During the year the parent entity provided the following loan funding to its associate:
- Blue Star 95 KFT	-	753,751	-	753,751
	-	1,049,514	-	1,049,514

 

Key management remuneration is disclosed in note 5.

 

 

22. Post balance sheet events

 

There were no significant post balance sheet events.

 

 

 

23. Going concern

 

The Group currently has sufficient cash resources to fund the committed work programme and overheads for the next twelve months. Upon completion of the A-13 well the Group will seek to raise funds to finance the full development of the Sokolovskoe field. The Directors are confident, based upon preliminary discussions with potential investors and lenders that sufficient funds either in equity or debt could be raised when required.

 

 

This information is provided by RNS

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