Final Results

22nd Oct 2007 07:01

Xtract Energy plc22 October 2007 22 October 2007 AIM: XTR XTRACT ENERGY PLC ("Xtract" or the "Company") Preliminary Audited Results for the 18 month period ended 30th June 2007 Financial Highlights •Net profit after tax of £7.5 million (2005: £0.2 million loss for 12 months) •Market value of listed portfolio at 30 June 2007 of £48.6 million (2005:nil) •Earnings per share of 1.49p (2005: Loss per share (0.21)p) •Net assets up £30.6 million to £32.4 million (2005: £1.8m) Corporate Highlights •Successful placing in November 2006 raised approximately £5.5 million cash. •Completion of acquisition of 100 per cent. of Cambrian Oil & Gas plc. •At 30 June 2007, the share price of key investment, MEO Australia Ltd, had increased by 532 per cent. since initial group investment. •Increased holding in Wasabi Energy Ltd to approximately 34.5 per cent.. •Strengthened Board including appointment of new CEO. Andy Morrison, CEO of Xtract, commented, "I am delighted to have joined Xtractat such a key and exciting stage in its development. An enormous amount has been achieved to reach our current healthy position; aposition from which we look to the future with real confidence and optimism." Enquiries please contact: Xtract Energy plc Andy Morrison, CEO +44 (0) 20 7079 1798 Smith & Williamson David Jones +44 (0) 20 7131 4000Corporate Finance Limited Azhic Basirov Scott Harris Stephen Scott +44 (0) 20 7653 0030 Annabel Michie Xtract identifies and invests in a diversified portfolio of early stage energysector technologies and businesses with very significant growth potential. Xtract is supported by its cornerstone investor, Cambrian Mining Plc (AIM:CBM) adiversified resource investment house which holds 51.6% of Xtract's issued sharecapital. For further Information on Xtract please visit www.xtractenergy.co.uk CHAIRMAN'S STATEMENT The past eighteen months have proven both exciting and challenging for Xtractand the results achieved during this period now place the Company in a sound andpromising position to create wealth for its shareholders. We now hold a diversified and strong portfolio of energy assets and technologieswhich, with the addition of significant holdings in MEO Australia Ltd and ElkoEnergy Inc, now includes five key areas of interest. We achieved very positive results from the initial validation tests of Xtract'soil shale extraction technology. These results indicated the potential ofdoubling crude oil recovery from our shale oil deposits in Australia. We have also announced several new additions to the Board, strengthened withindividuals who have both mining and business development experience. The Company finalised two major acquisitions during the period, including theacquisition of Cambrian Oil & Gas Plc by way of scheme of arrangement in mid2007 and the purchase of the remaining 78.3 per cent. of Xtract Oil Ltd inFebruary 2006. A placing of close to 110 million ordinary shares raisingapproximately £5.5 million cash was finalised in November 2006 and at this timeXtract acquired significant holdings in Wasabi Energy Ltd (Wasabi) and AvivaCorporation Ltd (Aviva). Both of these companies are listed on the AustralianStock Exchange (ASX). In order to simplify our corporate structure, it was proposed during thefinancial period to exchange Xtract's Aviva shareholding together with aninterest in a steel making technology, to Wasabi for 175 million new shares and25 million options in Wasabi. This transaction was approved by Wasabishareholders on 2 August 2007. As a result of this transaction, Xtract now holds34.5 per cent. of Wasabi, which in turn holds approximately 18 per cent. ofAviva. MEO Australia Ltd (MEO) MEO is an Australian listed company that is focused on off-shore gas explorationand developing gas-to-liquids (GTL) projects in the Australian waters of theTimor Sea, in an area of shallow water known as Tassie Shoal. It has securedCommonwealth Government environmental approvals for two large scale (1.8 milliontonnes per annum (mtpa)) methanol plants (50 per cent. interest) and a 3 mtpaLiquefied Natural Gas plant (100 per cent. interest). Tassie Shoal is adjacentto the Evans Shoal gas field. MEO has successfully farmed out some of itsinterest in NT/P68, a nearby exploration permit, in order to help fund acritical drilling campaign which has commenced on schedule in the fourth quarterof 2007. From a timing perspective, we view this as the most advanced project inthe Xtract portfolio. As in any drilling activity there is a range of possibleoutcomes, but the existence of 3D seismic and the interest of farm-in partnersis promising. As at 19 October 2007, Xtract holds an interest in approximately71.4 million shares in MEO, representing approximately 21.3 per cent. of theissued capital. Elko Energy Inc. Elko Energy Inc. (Elko) is a privately held oil and gas exploration companywhich has an interest in a 5,370 km2 exploration and production licence in theDanish North Sea, an interest in a gas-bearing block in the Dutch North Sea anda majority holding in Dragon Energy Inc, a private Canadian company, with a 30per cent. share in a producing field in Canada and a development project inGansu Province, China. Subsequent to the end of the reporting period, Xtractincreased its interest in Elko to 21.8 million shares, representingapproximately 36.5 per cent. of the issued capital. Wasabi Energy Ltd Wasabi is an Australian listed company that has a portfolio of early-stageenergy assets and technologies where the upside potential is significant.Wasabi's portfolio includes both traditional and clean energy investments withinterests covering coal, uranium, biodiesel, geothermal power and industrialwaste heat recovery. Its interests in geothermal and waste heat recovery arefounded on its position as the major shareholder of Exergy Inc., the developerand owner of patents for the Kalina Cycle technology. We see our interest inWasabi as both valuable in its own right and as an additional source ofopportunities for Xtract. Central Asia Xtract's Central Asian interests include a production sharing agreement withKyrgyzneftegaz to instigate a water injection project on the Beshkent - Togapoil field. Xtract also holds interests in several exploration licences in theTash Kumyr area and in the Toktogul exploration licence. Oil Shale Xtract has oil shale and related petroleum product exploration rights overmining tenements in the Julia Creek area of Queensland and has recently beengranted an exploration permit which gives the right to explore for oil shale inan area in South Island, New Zealand. In conjunction with Australian researchgroup Commonwealth Scientific and Industrial Research Organisation ('CSIRO'),the Company's wholly owned subsidiary Xtract Oil Ltd has continued to developthe Xtract technology, being a method of processing oil shale in the presence ofhydrogen and solvents, known as supercritical solvent extraction. The initialvalidation tests, comprising small scale batch extractions of oil from theshale, have demonstrated that recovery from Xtract's Julia Creek deposits may bemuch higher than could be achieved using conventional retort recoverytechniques. This has resulted in a doubling of the oil potential and anestimated in situ oil resource of over 1.6 billion barrels of oil. Board and management Xtract continued to strengthen the Board with individuals who possesssignificant experience in the energy sector. I became Executive Chairman in Julyof this year following the appointment of Andy Morrison as our new ChiefExecutive Officer. Andy has over 25 years experience in the energy and relatedservices sectors, most recently with The BOC Group as a Group Director for NewBusiness Development. He has an excellent track record in the energy sector andwe believe he can help the company develop and implement its future strategy.Additionally John Conlon joined as a non-executive director in January 2007.John has a depth of mining experience in various locations throughout the world,where he has taken projects through from feasibility to construction andproduction. Financial Results The Group reported a net profit after tax of £7.5 million (2005: loss of £0.2million) and basic earnings per share of 1.49p (2005: loss of 0.21p) for theeighteen month period. Other gains totalling £6.0 million resulted from the fair value assessment ofoptions held in MEO and realised gains from MEO option sales during the period.The value of these options is now reflected in the carrying value of the MEOassociate investment following their conversion into ordinary shares in April2007 at A$0.25. Negative goodwill of £5.7 million arose on the acquisition ofCambrian Oil & Gas plc ("COIL") during the period as detailed in note 16 to thepreliminary financial statements. The negative goodwill is primarilyattributable to the increase in the fair value of COIL's MEO shares between thedate of initial investment in MEO, and the effective dates of Xtract's businesscombination with COIL (November 2006 and April 2007). The Group's net asset position increased significantly during the period to£32.4 million as a result of acquisition activity during the period. This strongbalance sheet position is further supported by cash of £1.6 million and an MEOAustralia investment market value of £45.3 million at 30 June 2007. Outlook During the forthcoming year the Board will continue to identify and invest inearly stage energy sector technologies and businesses with significant growthpotential. We aim to work closely with the associated management teams toachieve critical project milestones, to finance later development stages and tobuild and crystallise value for all shareholders and partners. We believe that the company has now invested in a strong and promising portfoliowith the necessary balance between short and longer-term growth positions. Withthis platform in place we are looking forward to a rewarding and successfulfuture. John NewtonChairman CEO's REVIEW I am delighted to have joined Xtract at such an exciting stage in itsdevelopment. I very much look forward to getting to know our shareholders, the variousmanagement teams around the world, our partners and our people, and mostimportantly I look forward to delivering our shared aspirations. Key developments MEO Australia Limited (MEO) Xtract's investment story in MEO is an example of successfully implementing theCompany's strategy of identifying and supporting early stage energy sectorprojects with significant growth potential. With the benefit of Xtract'sfinancial and strategic support, MEO has been able to further develop andprogress its business plan over the last eighteen months. During the September quarter 2006, Xtract's wholly owned subsidiary Cambrian Oil& Gas plc (COIL) acquired a substantial shareholding in MEO through on markettrades and a share placement at A$0.225 (Australian dollars) per share.Subsequent to this placement, and the exercise of approximately 28.6 millionoptions at A$0.250 per share in April 2007, COIL increased its shareholding inMEO and currently holds approximately 21.3 per cent. The MEO business plan is centred on the development of gas-to-liquids (GTL)projects in the Australian waters of the Timor Sea, approximately 275 kmnorthwest of Darwin, in an area known as Tassie Shoal. The company has securedAustralian Commonwealth Government environmental approvals for two large-scalemethanol plants (1.8 mtpa) and an LNG plant (3 mtpa) that are valid until 2052. Tassie Shoal is an area of shallow water adjacent to the Evans Shoal gas fieldand is located around 25km east of MEO's exploration permit, NT/P68. MEO hasidentified five large structures in NT/P68 and has estimated that the totalpotential gas in place of the permit's prospects and leads could exceed 14 tcf.Two of these structures were intersected by the Heron-1 well drilled in 1972,confirming gas columns. The resources potentially contained in NT/P68 providesignificant valuation upside by potentially providing a feedstock for the GTLprojects as an alternative to existing third party gas supply from nearbyresources. Tassie Shoal GTL Projects MEO's Tassie Shoal GTL projects which have been designed to shareinfrastructure, logistic support systems, provide significant process synergiesand many operational advantages. Tassie Shoal provides an enviable offshorelocation, not only in terms of development economics, but also proximity torapidly expanding markets and strong demand for GTL products such as methanoland LNG in North East Asia. The Tassie Shoal Methanol Project (TSMP) proposes the phased construction of two1.8 mtpa methanol plants, and includes: • Natural gas supply pipelines from the sub sea gas production well heads to Tassie Shoal; • Methanol production plant and utilities mounted on a concrete gravity base structure (GBS), which also contains methanol storage tanks; • Accommodation and control platform adjacent to the production facilities connected by bridge-link; and • A single point mooring (SPM) system for loading methanol into export tankers. MEO and Air Products and Chemicals, Inc. continue to develop the TSMP under theterms of the joint development agreement executed in 2004. MEO's proposed Tassie Shoal LNG Project is designed to have the capacity toproduce 3 mtpa of LNG and includes: • Natural gas pipelines from the supply gasfield and the associated gas production facilities; • Conventional nickel steel LNG tank constructed on a gravity base structure (GBS), sited in an approximate seawater depth of 14 metres; • LNG process module constructed on a self installing platform; • Open sea jetty or Calm Buoy system for loading LNG into export tankers; and • Seawater cooling system for LNG production process. Appraisal of gas resources in NT/P68 Heron-1 (drilled in 1972) encountered a 52 metre gas-bearing zone within theDarwin Formation on the Epenarra structure, which is a broad, flat anticlinewith a mapped closure exceeding 1,200 km2. MEO has estimated a potentialgas-in-place Contingent Resource of 5.6 tcf (P50) for Epenarra. MEO hassuccessfully completed the acquisition of new 3D seismic data over Epenarra. MEOestimates a further 5.5 tcf (P50) gas in place Contingent Resource in theunderlying Heron North and Heron South Elang/Plover Formation structures. The 3Dseismic data displays a flat event in the Elang/Plover Formation that MEObelieves may be indicative of the gas-water contact. The maximum gas columnheight within these structures is estimated at over 300 metres. Heron-1intersected a gas charged sand towards the base of the well in the deeperstructures. MEO intends drilling up to three wells (Heron-2, Heron-3 andpotentially Blackwood-1) in the permit area. A new jack-up rig (the West Atlas)has been contracted to undertake the appraisal drilling which commenced asexpected in October 2007. Note: MEO defines "P50" as a probabilistic indicator used to quantify contingentand prospective resources where the low risk estimate is assessed as P90, themean estimate is assessed as P50 and the high risk estimate is assessed as P10in the relevant category. MEO defines "Contingent Resource" as those resourceswhich relate to quantities of petroleum (oil or gas) which are estimated, on agiven date, to be potentially recoverable from a known accumulation but whichare not currently considered to be proven or commercially recoverable. As an ASXlisted company, MEO is not subject to the AIM Rules and the references toContingent Resources and resources are not reported against a "Standard" norreviewed by a "qualified person" as defined and required by the AIM GuidanceNote for Mining Oil & Gas companies. New farm-in partner In addition to its equity raising activities during the year, MEO was able tosecure a farm- in partner to provide additional funding and technical expertisefor the current drilling programme. Petrofac Resources Limited (Petrofac) farmedinto NT/P68 by agreeing to meet 25 per cent. of the well programme appraisaldrilling costs to earn a 10 per cent. interest, with an option to increase theinterest to 15 per cent. by funding 37.5 per cent. of the well costs. Petrofac has also been granted an option to participate in the proposed TassieShoal GTL projects at the same equity participation level as the NT/P68 farm-in.Petrofac's participating interest in the methanol project would reduce AirProduct's 50 per cent. interest (MEO will retain its current 50 per cent.interest). Petrofac's participating interest in the LNG project would reduceMEO's current 100 per cent. interest. Petrofac would earn its interests in theGTL projects by contributing to the initial front-end engineering and design(FEED) costs and paying a net profit interest royalty to MEO from the Petrofacshare of the project's eventual operating profits. Petrofac brings strong engineering, procurement, construction and operationalexpertise to the NT/P68 joint venture ahead of the drilling programme. Followingthe completion of the 2007 drilling campaign and approval of the 2008 workprogram, Petrofac will assume the role of permit operator to manage thesubsequent full appraisal of any resources confirmed in the permit and wouldoperate the eventual upstream hydrocarbon production facilities. MEO has been a very successful investment to date for shareholders in Xtract.Clearly, the drilling programme currently underway will be critical to thefuture value of the MEO business and we will be watching developments eagerly. Elko Energy Inc. (Elko) As at the end of the reporting period, Xtract had an interest in approximately32 per cent. of the issued capital of Elko (which is held through wholly ownedsubsidiary COIL), a Canadian oil and gas exploration company formed in 2005.Elko's exploration and appraisal activities are guided by a management team withmany years of technical and commercial experience in the oil and gas industry.Elko's area of focus covers North West Europe, North Africa and the Middle East. In October 2005, Elko acquired an 80 per cent. interest in a 5,370 km2exploration and production license in close proximity to the prolific CentralGraben in the Danish North Sea. The licence covers 26 Danish licence blocks witha 6 year exploration term and 30 years for exploitation. Elko is an approvedoffshore operator in Denmark and has set up a Danish subsidiary to hold thelicence. The current partnership is Elko (80 per cent.) and Nordsoen - a Danishgovernment entity (20 per cent.). Elko has undertaken a programme of technicalwork that has confirmed the presence of eight structures with substantialpotential reserves. Drilling is expected to be carried out in 2008. In early 2007, Elko applied for two off-shore blocks in the Dutch sector of theNorth Sea, both of which contain a number of drilled and tested gas bearingstructures. Block P1 has now been awarded to a consortium in which Elko will bethe operator and will retain 33 per cent. interest. Award of adjacent Block P2is pending and discussions continue to secure additional acreage. The known gasdiscoveries were not developed by the original licencees for reasons likely toinclude low gas prices, low per well productivity, the carbon dioxide content ofgas and better projects available to license holders at the time. Gas prices arenow significantly higher, per well productivity has been resolved in adjacentblock K17 through the use of modern horizontal drilling techniques and carbondioxide removal has become proven offshore technology. Elko's Dutch licensepartner Horizon Energy Partners BV was involved in the K17 development project. The development of both the Danish and Netherlands interests will requiresignificant funding over the coming years. We believe that Elko's technicalexpertise and Xtract's experience in fund-raising will be a powerful combinationthat will help deliver the projects and secure superior returns to shareholders. In addition to its exploration assets, Elko owns 51 per cent. of Dragon EnergyInc. (Dragon), a private Canadian company. Dragon's principal assets are a 30per cent. share of the producing Kotaneelee gas field in Canada and a jointventure agreement in respect of the Ma-Ling oilfield in Gansu province, China.Most of the effort to date has been spent in obtaining the necessary permits atregional and national level to commence with operations. This process has takenmuch longer than expected, but efforts are underway to move the permit processforward during next year. Subsequent to the period end, Xtract (through COIL) participated in a privateequity placement in Elko following which COIL increased its total holding to21.8 million shares, representing approximately 36.5 per cent. of the issuedcapital of Elko. Wasabi Energy Limited (Wasabi) Xtract currently holds approximately 34.5 per cent. of Wasabi, an Australianlisted company with interests in both traditional and clean energy technologiesand businesses. In many ways Wasabi can be seen as a microcosm of Xtract, andhas been going through a similar period of restructuring. There are a number ofdevelopments that we consider to be particularly promising. Global Geothermal Ltd (GGL) In August 2007, Wasabi completed a number of agreements leading to the formationof GGL, a joint venture with AMP Capital Partners LLC (AMP), a U.S. basedprivate equity fund. Under the terms of the agreements, GGL acquired from AMP aDelaware corporation, Recurrent Engineering LLC, that is focused on the deliveryof highly efficient geothermal and waste heat power stations and technology andwhich was granted an option over Wasabi's shareholding in Exergy Inc, owner ofrights over the patented Kalina Cycle technology for which Recurrent Engineeringis world wide licensee. Kalina Cycle technology has been developed since the 1980's with numerouspatents now in force worldwide. The Kalina Cycle is a process for convertingheat to electrical power more efficiently and effectively than previousprocesses, using an ammonia/water mixture instead of water (Rankine Cycle) ororganic fluids (Organic Rankine Cycle). It can be implemented using standardelectrical power generation and refrigeration equipment components as evidencedby the various Kalina power plants that have had operating experience to date. These transactions bring together the necessary component parts to create aworld-scale business and we look forward to its development during the nextyear. Wasabi's current interest in GGL is 70 per cent.. Rum Jungle Uranium Ltd (Rum Jungle) Wasabi's subsidiary Rum Jungle is focused on exploration for economic uraniumdeposits in a variety of geological settings in the Northern Territory ofAustralia. Rum Jungle's approach to exploration is based on the known geologicaland geophysical characteristics of major uranium deposits like Ranger, Jabilukaand Rum Jungle and sedimentary style deposits, such as Angela. Potential alsoexists for the presence of economic precious and base metal deposits associatedwith uranium mineralisation or, indeed, separate from uranium, providing furtherupside potential. Rum Jungle's exploration rights include Exploration Licenses 24917 (AliceSprings) and 24939 (Woolner Dome), acquired during the period. Due diligence wasconducted on the Woolner Dome tenement, including reprocessing geophysicalimages obtained from data acquired after the most recent uranium explorationcarried out in a joint venture between E.Z./Peko and CRA in the late 1970's. RumJungle completed a detailed airborne magnetic and radiometric survey around theWoolner Dome in early 2007 and plans to expand the survey area. Consultantgeophysicists have identified several prospective structural targets anddrilling is expected to commence in December 2007. Wasabi Energy announced the intention to list Rum Jungle on the Australian StockExchange, ASX, on 1 June 2007 and a prospectus has recently been issued to raiseup to A$12 million (of which A$8 million is underwritten). Rum Jungle intends touse the funds raised from the offer to fund exploration projects and as workingcapital. The Northern Territory provides the dual opportunity of exploring in anarea containing large uranium deposits as well as providing a stable environmentoffering secure development opportunity. Aviva Corporation Ltd (Aviva) Wasabi currently owns approximately 18 per cent. of Aviva, a company listed onthe Australian Stock Exchange. Following the deregulation of the Western Australian power industry in March2006, prospects for Aviva have improved considerably. Aviva has positioneditself as an integrated energy company providing long-term certainty for thecoal producers and power generators. In February 2007 Aviva made its first international move, signing an agreementto enter into a joint venture over the Mmamantswe coal deposit in Botswana. Adrilling programme targeting 600 metres began in June 2007. Aviva is confidentthat its integrated energy strategy can be translated successfully to SouthernAfrica. In addition to these three interests, Wasabi has an active pipeline of promisingbusinesses in areas such as biodiesel and clean coal technologies. Whilstrecognising that not all early stage businesses will ultimately succeed, webelieve that Wasabi will continue to develop strongly, to the benefit of Xtractshareholders. Central Asian Interests Xtract's Central Asian interests are held through its wholly owned subsidiaryCOIL. COIL is managed from Australia with offices in Bishkek, the capital of theKyrgyz Republic, and in the regional Kyrgyz city of Kochkor Ata, which is alsothe operational base for the company's partner, Kyrgyzneftegaz, the nationalKyrgyz oil company. COIL's interests in the Kyrgyz Republic are held by afurther wholly owned subsidiary Zhibek Resources Plc (Zhibek) and include: 1. a 72 per cent. interest in JSC KNG Hydrocarbons (KNG-HC), which holds a number of exploration licences in the Kyrgyz Republic; 2. a 100 per cent. direct interest in the Toktogul exploration licence in the Kyrgyz Republic; and 3. a production sharing agreement, between Zhibek and Kyrgyzneftegaz, to develop a water injection project for increasing oil recovery at the Beshkent-Togap Field. In 2005, KNG-HC acquired approximately 100km of 2D seismic data over previouslyidentified prospects and leads in the Task Kumyr exploration concession. Afurther 55km of 2D seismic data was acquired in late 2006. A revised structuralinterpretation of the 2D seismic data has been completed for both the shallowand deeper layers. The structural depth map for the deeper underthrust Paleogene layer showsimproved definition of the KNG-HC's primary South Karagundai prospect in thesouth west region of the map. The crest of this prospect is shown as occurringat about 3200 metres and will require a well to be drilled to approximately4,000 metres to test this prospect. This is considerably deeper than previouslyanticipated. The greater depth will mean higher drilling costs than originallyanticipated. A revised structural interpretation of the South Karagundai prospect and otherexploration prospects and leads was completed after 55 km of 2D seismic data andadditional Gore Surveys were acquired in late 2006. Improved definition of theSouth Karagundai prospect has been achieved. This prospect remains the primefocus for COIL's forward exploration programme and future drilling. Several lines of 2D seismic were also run over the Pishkaran prospect to testthe quality of seismic data that might be possible over the older rock sequencein this area and over a large positive Gore Survey anomaly over major parts ofthis prospect. In late 2006, a Gore Survey was completed over the Toktogul structure. A numberof areas show positive indications of hydrocarbon presence at depth within thebounds of the large surface mapped Toktogul anticline. A pilot water injection project commenced operations in May 2006. Water isinjected into selected wells to displace oil in the reservoir towards adjoiningoil production wells. Two oil wells have been converted to water injection wellsand other facilities installed to source water for injection. Gold Exploration, Mexico Xtract also holds a 100 per cent. interest in Sermines de Mexico S.A. de C.V.which owns mineral exploration and development rights in three concessions inthe California-Sonora Gold Belt in Sonoro Province, Mexico. The concessionsinclude gold mineralisation located in the historic Esperanza goldfield whichhas not been the subject of modern exploration but is the location of untestedanomalous gold geochemistry as determined by regional exploration surveysconducted during the mid-1990's. Xtract has commenced sampling and surveyingprogrammes which may lead to drill testing of prospective targets. Oil Shale Xtract's wholly owned subsidiary, Xtract Oil Limited has acquired oilshale and related petroleum product exploration rights over twelve miningtenements in the Toolebuc-Julia Creek area of Queensland. The Julia Creek oil shale deposits are known to contain substantial quantitiesof kerogen which can be converted to oil. The oil shale deposits located withinEPM's 14803 and 14806, at the location known as 'The Pit', were subject todetailed evaluation by CSR Limited (1968-1988) and more recently, in the early1990's, by CRA Exploration Limited. The investigations provided geological andanalytical data to support in-situ resource calculations in an independentreport by Nolan (Geology and Resources of Oil Shale within Intermin Farm-inArea, Julia Creek, North-western Queensland, Oct 2005) indicating up to 410million barrels of oil in situ extractable by conventional retorting methods andhaving an average Fischer Assay analysis of 74 litres /tonne. GHD Pty Ltd in their report titled 'Julia Creek Independent GeologicalAssessment' dated 9 January 2006, evaluated EPM 14806 beyond 'The Pit' area andidentified a substantial area where the oil shale is close to the surface butbelow the oxidation zone and which is sufficiently well drilled to determine anadditional inferred resource estimated as 415 million barrels of shale oil insitu. Wide spaced drilling demonstrates that further extensive deposits of oilshale are present in the project area with Fischer Assay testing indicatingin-situ oil levels ranging from 30 to 110 litres per tonne as determined on dryoil shales. The combined shale oil inferred resource in these two contiguous areas isestimated as 825 million barrels in situ. The oil shale at Julia Creek is a 40-50 million year old sedimentary rock thatcontains kerogen, a solid hydrocarbon precursor. The hydrocarbon component canbe extracted through a heating process (known as retorting), which results inthe release of hydrocarbons as vapour. When the vapour cools, it becomes liquidoil and gas. Xtract Oil Ltd together with Monash University and the Commonwealth Scientificand Industrial Research Organisation of Australia (CSIRO) has designed and isoperating an experimental programme to carry out extractions usingrepresentative oil shale samples and assess the key risks inherent in theprocess. Both Monash and CSIRO have the demonstrated capability to work on aproject of this type and have an extensive track record of industryparticipation and in oil shale related research. Initial validation tests have shown that the recovery of light crude oilproducts from the Julia Creek deposits may be much higher than could be achievedusing conventional retort recovery techniques. The initial solvent extractiontests have demonstrated that recovery from Julia Creek shales could beapproximately twice that as indicated by Fischer Assays. This results in a doubling of the oil potential and an estimated in situ oilresource of over 1.6 billion barrels of oil.+--------------------------------------------------------------+---------------+|Estimated combined indicated and inferred shale oil resource | 825 million ||based on Fischer Assays |barrels of oil |+--------------------------------------------------------------+---------------+|Estimated combined indicated and inferred shale oil resource | 1.6 billion ||based on increased oil extraction as indicated by Xtract's |barrels of oil ||supercritical solvent extraction test work | |+--------------------------------------------------------------+---------------+ Xtract has also been granted an exploration permit encompassing the Nevis Valleyoil shale deposits located in South Island, New Zealand. The permit, EP 40-805(10,450 ha), includes locations of known oil shale occurrences. The area will beinvestigated to determine the economic significance of the deposits. The in-situ resources are the tonnage of oil shale, with a 40 l/t. cut-off andthe theoretical quantity of shale oil which is within that tonnage of oil shale.The resources are categorised into: • Indicated Resources - comprise most of The Pit area because drill-hole spacingis usually one kilometre or between one and about 1.5 kilometres. Correlation ofthe oil shales and main stratigraphic units is possible down-dip, from east towest across the area but trends are not uniform along a cross-section. Thevariation between bores is such that further information is required to increasethe confidence of estimation of the quantity of oil shale present. The sub-cropof the oil shale units beneath the weathered zone require further delineationfor accurate determination of oil shale resources. Additional points ofobservation and/or more detailed assessment of variation of the oil shale unitswould be expected to raise the resources to Measured Resources category. • Inferred Resources - marginal to and down-dip from the Indicated Resources.The present borehole spacing of two kilometres or more is sufficient only toprove the existence of oil shale at the localities and to infer the thicknessand yield. The continuation of those properties between the points ofobservation can only be inferred. Additional observation may be expected toincrease the confidence level of the estimation of the in-situ resources and toraise at least portion of these resources to Indicated status. Within those areas of oil shale resources, the density of oil shale is assumedto be 1.85 tonnes per cubic metre (t/m3) when dry; the same basis used forreporting oil yield. The thicknesses and oil yields have been weighted overthose areas to provide the averages quoted. The assessment conducted by Nolan & Associates Pty Ltd has verified thethickness and degree of continuity of the oil-bearing strata and has allowed forcategorization of Oil Shale and Shale Oil Resources according to theAustralasian Code for Reporting of Exploration Results, Mineral Resources andOre Reserves - The JORC Code - 2004 Edition. Note: the information relating to Julia Creek and oil shale has been reviewed and approved by Dr. John E Shirley, (Managing Director of Xtract Oil Limited) who has a BSc and PhD in Geophysics from the University of Tasmania, over 40 years experience in the resources and energy sector and is a member of the Society of Petroleum Engineers. Looking forward The Company has assembled a very promising portfolio of interests. Not only dothese assets have quantifiable current value, but in MEO, Elko Energy and OilShale, there are realistic scenarios that offer investors considerable upsidepotential over the short, medium and longer-term. We continue to benefit from astrong flow of potential deals arising from our links to our major shareholderCambrian Mining Plc and from our own independent prospecting. As existinginvestments mature, and subject to our screening criteria, we will be in aposition to reinvest in new and exciting assets and technologies. Andy MorrisonChief Executive Officer Consolidated income statement18 months ended 30 June 2007 Note Period Year ended ended 30 June 31 December 2007 2005 £'000 £'000 Administrative and operating expenses (2,124) (221)Share of results of associates 11 (362) (24)Other revenue 4 66 -Gain on disposal of fixed assets 4 10 - ------ ------Operating loss (2,410) (245) Investment revenue 4 99 25Finance costs (128) -Other gains and losses 4 5,968 -Negative goodwill on acquisition of subsidiary 16 5,730 - ------ -------Profit / (loss) before tax 9,259 (220) Tax expense 6 (1,787) - ------ -------Profit / (loss) for the period / year 7,472 (220) Attributable to:Equity holders of the parent 6,284 (220)Minority interest 1,188 - ------ ------- 7,472 (220) ====== =======Net gain / (loss) per shareBasic (pence) 7 1.49 (0.21) ====== =======Diluted (pence) 7 1.29 (0.21) ====== ======= The Group's profit/(loss) relates entirely to continuing operations in bothperiods. Consolidated statement of recognised income and expenditure18 months ended 30 June 2007 Period Year ended ended 30 June 31 December 2007 2005 £'000 £'000 Gains on revaluation of available-for-sale 15 782 -investments taken to equity Revaluation of intangible assets - acquisition of 15 962 -subsidiaries Exchange differences on translation of foreign operations 15 (18) - Tax on items taken directly to equity 15 (235) - ----- -----Net income recognised directly in equity 1,491 - Profit / (loss) for the period / year 15 7,472 (220) ----- ------Total recognised income and expense for the period / year 8,963 (220) ===== ======Attributable to:Equity holders of the parent 7,775 (220)Minority interests 1,188 - ----- ------ 8,963 (220) ===== ====== Consolidated balance sheetAs at 30 June 2007 Note As at As at 30 June 31 December 2007 2005 £'000 £'000Non-current assetsIntangible assets 8 11,601 81Property, plant and equipment 9 231 -Investments in associates 11 23,818 412Investments in subsidiaries 10 - -Financial assets 12 3,206 -Deferred tax asset 13 312 - ------ ------ 39,168 493 ------ ------Current assetsInventories 16 -Financial assets 12 9 -Trade and other receivables 293 13Cash and cash equivalents 1,582 1,321 ------ ------ 1,900 1,334 ------ ------Total assets 41,068 1,827 ====== ======Current liabilitiesTrade and other payables 375 59Current tax liabilities 698 - ------ ------ 1,073 59 ------ ------Net current assets 827 1,275 ------ ------Non-current liabilitiesDeferred tax liabilities 13 7,616 - ------ ------Total liabilities 8,689 1,334 ====== ======Net assets 32,379 1,768 ====== ====== Note As at As at June 30 31 December 2007 2005 £'000 £'000EquityShare capital 14, 15 704 199Share premium account 15 23,800 1,756Share based payments reserve 15 411 33Available for sale reserve 15 547 -Revaluation reserve 15 962 -Exchange translation reserve 15 (18) -Retained earnings 15 6,064 (220) ------ -------Equity attributable to equity holders of the parent 32,470 1,768 Minority interest 15 (91) - ------ -------Total equity 32,379 1,768 ====== ======= Consolidated cash flow statementPeriod ended 30 June 2007 Note Period Year ended ended 30 June 31 December 2007 2005 £'000 £'000 Net cash used in operating activities 17 (1,634) (74) Investing activities Interest received 4 99 25Government grants 4 66 -Purchase of property plant and equipment 9 (65) -Disposal of property plant and equipment 11 -Acquisition of intangible assets (282) (21)Disposal of trading investments 2,326 -Purchase of trading investments 12 (406) -Acquisition of associates 11 (2,973) (436)Acquisition of subsidiaries, net of cash acquired 16 (149) (82) ------- -------Net cash used in investing activities (1,373) (514) ------- -------Financing activities Interest paid (80) -Proceeds on issue of shares - placing 14 5,500 2,010Proceeds on issue of shares - warrants 14 1,004 -Proceeds received on exercise of options in subsidiary 16 639 -Short term loan repayments (3,436) -Share issue expenses (354) (101) ------ ------Net cash from financing activities 3,273 1,909 ------ ------Net increase in cash and cash equivalents 266 1,321 Cash and cash equivalents at beginning of period/year 1,321 - Effect of foreign exchange rate changes (5) - ------- ------Cash and cash equivalents at end of period / year 1,582 1,321 ======= ====== Notes to the preliminary announcementat 30 June 2007 1. General information Xtract Energy plc is a company incorporated in the United Kingdom under theCompanies Act 1985. The address of the registered office is 27 AlbemarleStreet, London W1S 4DW. The nature of the Group's operations and its principalactivities are set out in the CEO's review. The Company has changed its accounting reference date to 30 June in order toalign with its ultimate parent company, Cambrian Mining plc. This preliminary announcement is presented in pounds sterling. Foreignoperations are included in accordance with the policies set out in note 2. The financial statements for the period ended 30 June 2007 were approved by thedirectors on 19 October 2007. This preliminary announcement of the results forthe period ended 30 June 2007 contains information derived from the forthcoming2007 Annual Report & Accounts and does not constitute the statutory accounts foreither the period ended 30 June 2007 or the year ended 31 December 2005 for thepurposes of section 240(3) of the Companies Act 1985. The results for the periodended 30 June 2007 are extracted from the audited accounts for that year whichhave not yet been filed with Companies House. The comparative figures for theyear ended 31 December have been extracted from the accounts for that year whichhave been delivered to Companies House. The auditors' reports in respect of bothyears were unqualified and do not contain a statement under section 237(2) or(3) of the Companies Act 1985. The results for the period ended 30 June 2007have been prepared in accordance with relevant IFRS. The accounting policies applied in the preparation of the financial statements which this announcement is based on have been replicated in Note 2 below. 2. Significant accounting policies Basis of accounting The financial statements have been prepared in accordance with InternationalFinancial Reporting Standards ("IFRS") and IFRIC interpretations and with thoseparts of the Companies Act 1985 applicable to companies reporting under IFRS.Accordingly, the Group complies with all IFRS, including those adopted for usein the European Union. The financial statements have been prepared under thehistorical cost convention modified for certain items carried at fair valued, asstated in the accounting policies. A summary of the more important accountingpolicies is set out below. Basis of consolidation The consolidated financial statements incorporate the financial statements ofthe Company and entities controlled by the Company (its subsidiaries) made up to30 June each year. Control is achieved where the Company has the power to governthe financial and operating policies of an investee entity so as to obtainbenefits from its activities. Minority interests in the net assets of consolidated subsidiaries are identifiedseparately from the Group's equity therein. Minority interests consist of theamount of those interests at the date of the original business combination andthe minority's share of changes in equity since the date of the combination.Losses applicable to the minority in excess of the minority's interest in thesubsidiary's equity are allocated against the interests of the Group only to theextent that the minority has a binding obligation and is able to make anadditional investment to cover the losses. The results of subsidiaries acquired or disposed of during the year are includedin the consolidated income statement from the effective date of acquisition orup to the effective date of disposal, as appropriate. Where necessary, adjustments are made to the financial statements ofsubsidiaries to bring the accounting policies used into line with those used bythe Group. All intra-group transactions, balances, income and expenses are eliminated onconsolidation. Business combinations The acquisition of subsidiaries is accounted for using the purchase method. Thecost of the acquisition is measured at the aggregate of the fair values, at thedate of exchange, of assets given, liabilities incurred or assumed, and equityinstruments issued by the Group in exchange for control of the acquiree, plusany costs directly attributable to the business combination. The acquiree'sidentifiable assets, liabilities and contingent liabilities that meet theconditions for recognition under IFRS 3 are recognised at their fair value atthe acquisition date. Goodwill arising on acquisition is recognised as an asset and initially measuredat cost, being the excess of the cost of the business combination over theGroup's interest in the net fair value of the identifiable assets, liabilitiesand contingent liabilities recognised. If, after reassessment, the Group'sinterest in the net fair value of the acquiree's identifiable assets,liabilities and contingent liabilities exceeds the cost of the businesscombination, the excess is recognised immediately in income statement as"negative goodwill on acquisition". The interest of minority shareholders in the acquiree is initially measured atthe minority's proportion of the net fair value of the assets, liabilities andcontingent liabilities recognised. Investments in associates An associate is an entity over which the Group is in a position to exercisesignificant influence, but not control or joint control, through participationin the financial and operating policy decisions of the investee. Significantinfluence is the power to participate in the financial and operating policydecisions of the investee but is not control or joint control over thosepolicies. The results and assets and liabilities of associates are incorporated in thesefinancial statements using the equity method of accounting except whenclassified as held for sale. Investments in associates are carried in thebalance sheet at cost as adjusted by post-acquisition changes in the Group'sshare of the net assets of the associate, less any impairment in the value ofindividual investments. Losses of the associates in excess of the Group'sinterest in those associates are not recognised. Any excess of the cost of acquisition over the Group's share of the fair valuesof the identifiable net assets of the associate at the date of acquisition isrecognised as goodwill. Any deficiency of the cost of acquisition below theGroup's share of the fair values of the identifiable net assets of the associateat the date of acquisition (i.e. discount on acquisition) is credited in profitor loss in the period of acquisition. Where a Group company transacts with an associate of the Group, profits andlosses are eliminated to the extent of the Group's interest in the relevantassociate. Losses may provide evidence of an impairment of the asset transferredin which case appropriate provision is made for impairment. Revenue recognition Revenue is measured at the fair value of the consideration received orreceivable and represents amounts receivable for goods and services provided inthe normal course of business, net of discounts, VAT and other sales-relatedtaxes. Interest income is accrued on a time basis, by reference to the principaloutstanding and at the effective interest rate applicable, which is the ratethat exactly discounts estimated future cash receipts through the expected lifeof the financial asset to that asset's net carrying amount. Foreign currencies The individual financial statements of each Group company are presented in thecurrency of the primary economic environment in which it operates (itsfunctional currency). For the purpose of the consolidated financial statements,the results and financial position of each Group company are expressed in poundsterling, which is the functional currency of the company, and the presentationcurrency for the consolidated financial statements. In preparing the financial statements of the individual companies, transactionsin currencies other than the entity's functional currency (foreign currencies)are recorded at the rates of exchange prevailing on the dates of thetransactions. At each balance sheet date, monetary assets and liabilities thatare denominated in foreign currencies are retranslated at the rates prevailingon the balance sheet date. Non-monetary items carried at fair value that aredenominated in foreign currencies are translated at the rates prevailing at thedate when the fair value was determined. Non-monetary items that are measured interms of historical cost in a foreign currency are not retranslated. Exchange differences arising on the settlement of monetary items, and on theretranslation of monetary items, are included in profit or loss for the period.Exchange differences arising on the retranslation of non-monetary items carriedat fair value are included in profit or loss for the period except fordifferences arising on the retranslation of non-monetary items in respect ofwhich gains and losses are recognised directly in equity. For such non-monetaryitems, any exchange component of that gain or loss is also recognised directlyin equity. For the purpose of presenting consolidated financial statements, the assets andliabilities of the Group's foreign operations are translated at exchange ratesprevailing on the balance sheet date. Income and expense items are translated atthe average exchange rates for the period, unless exchange rates fluctuatesignificantly during that period, in which case the exchange rates at the dateof transactions are used. Exchange differences arising, if any, are classifiedas equity and transferred to the Group's translation reserve. Such translationdifferences are recognised as income or as expenses in the period in which theoperation is disposed of. Goodwill and fair value adjustments arising on the acquisition of a foreignentity are treated as assets and liabilities of the foreign entity andtranslated at the closing rate. Where a monetary item forms part of a net investment in a foreign operation,exchange differences are recognised in equity. Purchase of shares in controlled entity The cost of the incremental acquisition is measured at the aggregate of the fairvalue of assets given at the date of exchange, liabilities incurred or assumed,and equity instruments issued by the Group in exchange for shares purchased in acontrolled entity plus any costs directly attributable to the transaction. Theidentifiable assets, liabilities and contingent liabilities of a controlledentity are recognised at fair value at the date of the acquisition, but only tothe extent of the incremental proportion of equity acquired. Any goodwill arising on the purchase of shares in a controlled entity isrecognised as an asset and initially measured at cost, being the excess of theadditional cost of shares over the increase of the Group's interest in the netfair value of the identifiable assets, liabilities and contingent liabilitiesrecognised. If the increase in the Group's interest in the net fair value of the acquiree'sidentifiable assets, liabilities and contingent liabilities exceeds the cost ofthe shares purchased, the excess is recognised immediately in the incomestatement as negative goodwill. Taxation The tax expense represents the sum of the tax currently payable and deferredtax. Current tax is based on taxable profit for the year. Taxable profit differs fromnet profit as reported in the income statement because it excludes items ofincome or expense that are taxable or deductible in other years and it furtherexcludes items that are never taxable or deductible. The Group's liability forcurrent tax is calculated using tax rates that have been enacted orsubstantively enacted by the balance sheet date. Deferred tax is the tax expected to be payable or recoverable on differencesbetween the carrying amounts of assets and liabilities in the financialstatements and the corresponding tax bases used in the computation of taxableprofit, and is accounted for using the balance sheet liability method. Deferredtax liabilities are generally recognised for all taxable temporary differencesand deferred tax assets are recognised to the extent that it is probable thattaxable profits will be available against which deductible temporary differencescan be utilised. Such assets and liabilities are not recognised if the temporarydifference arises from the initial recognition of goodwill or from the initialrecognition (other than in a business combination) of other assets andliabilities in a transaction that affects neither the tax profit nor theaccounting profit. Deferred tax is calculated at the tax rates that are expected to apply in theperiod when the liability is settled or the asset is realised. Deferred tax ischarged or credited in the income statement, except when it relates to itemscharged or credited directly to equity, in which case the deferred tax is alsodealt with in equity. Deferred tax assets and liabilities are offset when there is a legallyenforceable right to set off current tax assets against current tax liabilitiesand when they relate to income taxes levied by the same taxation authority andthe Group intends to settle its current tax assets and liabilities on a netbasis. Property, plant and equipment and intangible assets Oil and gas properties and leases The costs of oil and gas properties and leases include the cost of acquiring anddeveloping oil and gas properties and leases, together with any costsreclassified from intangible exploration and evaluation. Oil and gas propertiesand leases are amortised from the commencement of production in proportion tothe ratio of production in the period to remaining reserves as at the start ofthe period. Intangible exploration and evaluation expenditure assets The costs of exploration properties and leases, which include the cost ofacquiring prospective properties and exploration rights, are capitalised asintangible assets. Exploration and evaluation expenditure is capitalised withinexploration and evaluation properties until such time that the activities havereached a stage which permits a reasonable assessment of the existence ofcommercially exploitable reserves when they are transferred to oil and gasproperties and leases. Capitalised exploration and evaluation expenditure isassessed for impairment in accordance with the indicators of impairment as setout in IFRS 6 Exploration for and Evaluation of Mineral Reserves. Incircumstances where a property is abandoned, the cumulative capitalised costsrelating to the property are written off in the period. Other Property, Plant and Equipment Other tangible fixed assets are recorded at cost, net of accumulateddepreciation. Depreciation is provided on all such tangible fixed assets atrates calculated to write off the cost or valuation of each asset on astraight-line basis over its expected useful life or the life of the relevantlicence, whichever is less, as follows: Average life in years Office and computer equipment 3-5Plant and machinery 7-20 Until they are brought into use, fixed assets and equipment to be installed areincluded within assets under construction. The cost of maintenance, repairs and replacement of minor items of tangiblefixed assets are charged to the income statement as incurred. Renewals and assetimprovements are capitalised. Upon sale or retirement of tangible fixed assets,the cost and related accumulated depreciation are eliminated from the financialstatements. Any resulting gains or losses are included in the income statement. Other intangible assets Intangible assets acquired separately from a business are carried initially atcost. An intangible asset acquired as part of a business combination isrecognised outside goodwill if the asset is separable or arises from contractualor other legal rights and its fair value can be measured reliably. Expenditureon internally developed intangible assets, excluding development costs, is takento the income statement in the year in which it is incurred. Expenditurerelating to clearly defined and identifiable development projects is recognisedas an intangible asset only after all the following criteria are met: • the project's technical feasibility and commercial viability can be demonstrated • the availability of adequate technical and financial resources and an intention to complete the project have been confirmed; and • the correlation between development costs and future revenues has been established. Following initial recognition, the historic cost model is applied, with intangible assets being carried at cost less accumulated amortisation and accumulated impairment losses. The carrying value of intangible assets is reviewed for impairment whenever events or changes in circumstances indicate the carrying value may not be recoverable. Impairment of tangible and intangible assets excluding goodwillAt each balance sheet date, the Group reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where the asset does not generate cash flows that are independent from other assets, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs. An intangible asset with an indefinite useful life is tested for impairment annually and whenever there is an indication that the asset may be impaired. Recoverable amount is the higher of fair value less costs to sell and value inuse. In assessing value in use, the estimated future cash flows are discountedto their present value using a pre-tax discount rate that reflects currentmarket assessments of the time value of money and the risks specific to theasset for which the estimates of future cash flows have not been adjusted. If the recoverable amount of an asset (or cash-generating unit) is estimated tobe less than its carrying amount, the carrying amount of the asset(cash-generating unit) is reduced to its recoverable amount. An impairment lossis recognised as an expense immediately, unless the relevant asset is carried ata revalued amount, in which case the impairment loss is treated as a revaluationdecrease. Where an impairment loss subsequently reverses, the carrying amount of the asset(cash-generating unit) is increased to the revised estimate of its recoverableamount, but so that the increased carrying amount does not exceed the carryingamount that would have been determined had no impairment loss been recognisedfor the asset (cash-generating unit) in prior years. A reversal of an impairmentloss is recognised as income immediately, unless the relevant asset is carriedat a revalued amount, in which case the reversal of the impairment loss istreated as a revaluation increase. Research and development expenditure Expenditure on research activities is recognised as an expense in the period inwhich it is incurred. Inventories Inventories are stated at the lower of cost and net realisable value. Costcomprises direct materials, and where applicable, direct labour costs and thoseoverheads that have been incurred in bringing the inventories to their presentlocation and condition. Cost is calculated using the weighted average method.Net realisable value represents the estimated selling price less all estimatedcosts of completion and costs to be incurred in marketing, selling anddistribution. Financial instruments Financial assets and financial liabilities are recognised in the Group's balancesheet when the Group becomes a party to the contractual provisions of theinstrument. Trade receivables Trade receivables are measured at initial recognition at fair value, and aresubsequently measured at amortised cost using the effective interest ratemethod. Appropriate allowances for estimated irrecoverable amounts arerecognised in the income statement when there is objective evidence that theasset is impaired. The allowance recognised is measured as the differencebetween the asset's carrying amount and the present value of estimated futurecash flows discounted at the effective interest rate computed at initialrecognition. Investments Investments are recognised and derecognised on a trade date where a purchase orsale of an investment is under a contract whose terms require delivery of theinvestment within the timeframe established by the market concerned, and areinitially measured at cost, including transaction costs. Investments are classified as either held-for-trading or available-for-sale, andare measured at subsequent reporting dates at fair value. Where securities areheld for trading purposes, gains and losses arising from changes in fair valueare included in net profit or loss for the period. For available-for-saleinvestments, gains and losses arising from changes in fair value are recogniseddirectly in equity, until the security is disposed of or is determined to beimpaired, at which time the cumulative gain or loss previously recognised inequity is included in the profit or loss for the period. Impairment lossesrecognised in profit or loss for equity investments classified asavailable-for-sale are not subsequently reversed through profit or loss.Impairment losses recognised in profit or loss for debt instruments classifiedas available-for-sale are subsequently reversed if an increase in the fair valueof the instrument can be objectively related to an event occurring after therecognition of the impairment loss. Cash and cash equivalents Cash and cash equivalents comprise cash on hand and demand deposits, and othershort-term highly liquid investments that are readily convertible to a known amount of cash and are subject to an insignificant risk of changes in value. Financial liabilities and equity Financial liabilities and equity instruments are classified according to thesubstance of the contractual arrangements entered into. An equity instrument isany contract that evidences a residual interest in the assets of the Group afterdeducting all of its liabilities. Trade payables Trade payables are initially measured at fair value, and are subsequentlymeasured at amortised cost, using the effective interest rate method. Equity instruments Equity instruments issued by the Company are recorded at the proceeds received,net of direct issue costs. Derivative financial instruments The Group's activities expose it primarily to the financial risks of changes inforeign currency exchange rates. The Group continues to assess the use offoreign exchange forward contracts to hedge these exposures. The Group does notuse derivative financial instruments for speculative purposes. The use of financial derivatives is governed by the Group's policies approved bythe board of directors, which provide written principles on the use of financialderivatives. Derivatives embedded in other financial instruments or other host contracts aretreated as separate derivatives when their risks and characteristics are notclosely related to those of host contracts and the host contracts are notcarried at fair value, with gains or losses reported in the income statement. Share-based payments The Group issues equity-settled share-based payments to certain directors andofficers and service providers. Equity-settled share-based payments are measuredat fair value (excluding the effect of non market-based vesting conditions) atthe date of grant. The fair value determined at the grant date of theequity-settled share-based payments is expensed on a straight-line basis overthe vesting period, based on the Group's estimate of shares that will eventuallyvest and adjusted for the effect of non market-based vesting conditions. Where the value of the goods or services received in exchange for theshare-based payment cannot be reliably estimated the fair value is measured byuse of the Black-Scholes model. The expected life used in the model has beenadjusted, based on management's best estimate, for the effects ofnon-transferability, exercise restrictions, and behavioural considerations. Operating leases Leases where the lessor retains a significant portion of the risks and benefitsof ownership of the asset are classified as operating leases and rentals payableunder operating leases are charged in the income statement on a straight linebasis over the lease term. Borrowing costs Borrowing costs are recognised in the income statement in the period in whichthey are incurred. Government grants Government grants towards research and development costs are recognised asincome over the periods necessary to match them with the related costs and arededucted in reporting the related expense. Loans and borrowings Loans are initially measured at fair value less directly attributabletransaction costs. After initial recognition, interest bearing loans aresubsequently measured at amortised cost using the effective interest method.Interest payable is accrued in the income statement using the effective interestrate method. 3. Critical accounting judgements and key sources of estimation uncertainty Critical judgments in applying the Group's accounting policies In the process of applying the Group's accounting policies, which are describedin note 2, management has made the following judgements that have the mostsignificant effect on the amounts recognised in the financial statements (apartfrom those involving estimations, which are dealt with below). Impairment of intangible assets The assessment of intangible assets for any indications of impairment involvesjudgement. If an indication of impairment exists, a formal estimate ofrecoverable amount is performed and an impairment loss recognised to the extentthat carrying amount exceeds recoverable amount. Recoverable amount isdetermined as the higher of fair value less costs to sell and value in use. Thecalculation of recoverable amount requires an estimation of the value in use ofthe cash-generating units to which the intangible assets are allocated. Inassessing value in use, the estimated future cash flows are discounted to theirpresent value using a pre-tax discount rate that reflects current marketassessments of the time value of money and the risks specific to the asset forwhich the estimates of future cash flows have not been adjusted. Key sources of estimation uncertainty The preparation of financial statements requires management to make estimatesand assumptions that affect the amounts reported for assets and liabilities asat the balance sheet date and the amounts reported for revenues and expensesduring the year. The nature of estimation means that actual outcomes coulddiffer from those estimates. The key sources of estimation uncertainty that havea significant risk of causing material adjustment to the carrying amounts ofassets and liabilities within the next financial year are discussed below. Share-based payments The estimation of share-based payment costs requires the selection of anappropriate valuation model and consideration as to the inputs necessary for thevaluation model chosen. The Group has made estimates as to the volatility of itsown shares, the probable life of options granted and the time of exercise ofthose options. The model used by the Group is the Black-Scholes model. Measurement of fair value for held for trading and available for sale assets. The estimation of fair value for held for trading assets and available for saleassets is determined based on quoted market prices for assets where quotedmarket prices exist. For share options held that are not traded on an openmarket and therefore have no quoted market price, an appropriate valuation modelis required to be selected and consideration given to the inputs required forthat model. In calculating the fair value of share options held by the Group,the Black-Scholes model has been adopted. Fair values recognised in business combinations The estimation of fair values of oil and gas exploration rights and productionlicences rights and any associated property, plant and equipment acquired inbusiness combinations involves estimates over the quantities of minerals thatmay be recovered and the technical and commercial feasibility of extraction,which may be highly uncertain. Generally, fair values assigned to explorationand evaluation assets are limited so as not to generate negative goodwill wherethere is significant uncertainty over the estimates of fair value. 4. Revenue and other gains and losses An analysis of the Group's revenue and other gains and losses is as follows: Period Year ended ended 30 June 31 December 2007 2005 £'000 £'000 Other operating revenue:- Research and development grants i) 66 - Investment revenue:- Interest on bank deposits 99 25 --- ---Total revenue 165 25 === ===Other gains and losses - Trading investments:- Realised gains on sale of held for trading 1,233 - investments- Unrealised gains on held for trading investments 5,091 -- Loss on dilution from subsidiary share issue (see (356) - note 16) ----- --- 5,968 -Gains on disposal of fixed assets 10 - ----- ---Total other gains and losses 5,978 - ===== === i) Government grants received in relation to research and developmentexpenditure on oil shale extraction technologies in Australia. 5. Profit/(Loss) for the period / year Profit/(Loss) for the period / year has been arrived at after charging/(crediting): Period Year ended ended 30 June 31 December 2007 2005 £'000 £'000 Net foreign exchange losses/(gains) 39 (1)Research and development costs 269 -Depreciation of property, plant and equipment 11 -Share based payments expense 152 79Staff costs 230 12Research and development grants (see note 4) (66) -Gain on disposal of property, plant, and equipment (10) - ==== ===6. Tax Period Year ended ended 30 June 31 December 2007 2005 £'000 £'000 Current tax 698 -Deferred tax (note 13) 1,089 - ----- --- 1,787 - ===== ===Corporation tax is calculated at 30 % (2005: 30 %) of the estimated assessableprofit for the year. Taxation for other jurisdictions is calculated at the rates prevailing in therespective jurisdictions. The Group tax charge for the period/year can be reconciled to the profit/(loss)per the income statement as follows: Period Year ended ended 30 June 31 December 2007 2005 £'000 £'000 Profit / (loss) before tax: 9,259 (220) ----- ----Tax at the UK corporation tax rate of 30% (2005: 30%) 2,778 (66)Tax effect of expenses not deductible in determining 45 31taxable profit / (loss)Tax effect of utilisation of tax losses not previously 682 35recognisedTax effect of non-taxable negative goodwill (1,718) - ------- -----Tax expense for the period / year 1,787 - ======= ===== 7. Earnings per share Period Year ended ended 30 June 31 December 2007 2005 £'000 £'000 Earnings/(loss) for the purposes of basic and diluted 6,284 (220)earnings per share ("EPS") being net profit/(loss) for ----- ------the period attributable to equity holders of the parent Number Number Weighted average number of ordinary shares for purposes 420,569,934 102,744,761of basic EPSEffect of dilutive potential ordinary shares - options 67,143,088 -and warrantsWeighted average number of ordinary shares for purposes 487,713,022 102,744,761of diluted EPS =========== =========== Where a loss has occurred, basic and diluted earnings per share are the samebecause the outstanding share options and warrants are anti-dilutive. 8. Intangible assets Total £'000 At 1 January 2005 -Additions 81 ------At 1 January 2006 81Additions 602Acquired on acquisition of subsidiaries 10,918 ------At 30 June 2007 11,601 ====== Costs of exploration and evaluation are capitalised and carried forward duringthe exploration and evaluation stage. No amortisation is charged prior to thecommencement of production. 9. Property, plant and equipment Plant and Office and computer machinery equipment Total £'000 £'000 £'000CostAt 1 January 2005 and 31 December - - -2005 ------ ------ ----- At 1 January 2006 - - -Additions 48 17 65Acquisition of subsidiary 178 - 178Disposals - (1) (1) ------ ------ ------At 30 June 2007 226 16 242 ------- ------ ------Accumulated depreciation and impairmentAt 1 January 2005 and 31 December - - -2005 ------- ------ ------ At 1 January 2006 - - -Charge for the year 6 5 11 ------- ------ ------At 30 June 2007 6 5 11 ------- ------ ------Carrying amountAt 30 June 2007 220 11 231 ======= ======= ======At 31 December 2005 - - - ======= ======= ====== 10. Subsidiaries Details of the Company's subsidiaries consolidated at 30 June 2007 are asfollows:Name Place of Date Proportion of Principal Incorporation controlling ownership & Activities and Operation interest voting power acquired held %Sermines de Mexico S.A. Mexico 08/08/05 100 Miningde C.V. explorationXtract Oil Limited Australia 17/02/06 100 Mining exploration and technology developmentCambrian Oil & Gas plc UK 15/11/06 100 Holding CompanyZhibek Resources plc i) UK 15/11/06 100 Oil & gas exploration, development and productionCSJC KNG Hydrocarbons ii) Kyrgyz 15/11/06 72 Oil & gas Republic explorationCSJC Zhibek Hydrocarbons Kyrgyz 15/11/06 85 Oil & gasii) Republic exploration i) Interest held through wholly owned subsidiary Cambrian Oil & Gas plc, acquired on 15 November 2006. ii) Interest held through wholly owned Group on acquisition of Cambrian Oil plc on 15 November 2006. Information relating to acquisition of subsidiaries during the period isincluded in note 16. All of these subsidiaries have been consolidated for the period of ownership. 11. Interests in associates Details of the Group's associates at 30 June 2007 are as follows: As at 30 As at 31 June 2007 December 2005 £'000 £'000 Opening balance 412 -Acquired on acquisition of subsidiary (a) 10,093 -Revaluation on acquisition of minority interest 3,481 -Investment in associate - 436Exercise of options in associate (b) 2,973 -Transferred from trading investments (c) 7,628 -Transferred to investment in subsidiary (d) (407) -Share of associates losses for the period (362) (24) ------- ----- 23,818 412 ======= =====(a) Fair value of shares in associates acquired during the period on acquisition of subsidiary (see note 16). (b) Cost of exercising options in associate. (c) Fair value of options transferred from held for trading assets on exercise of options at (b). (d) During the period to 30 June 2007 Xtract Oil Limited (an associate in 2005) became a 100% owned subsidiary of Xtract and the investment in associates cost was transferred to be included in the acquisition cost of the subsidiary. See note 16 for further details. Name Place of Date Proportion of Principal Incorporation and associate ownership & Activities Operation interest voting power acquired held % MEO Australia Limited Australia 15/11/06 24 Oil & gasi) exploration Elko Energy Limited Canada 15/11/06 32 Oil & gasi) exploration i) Interest held through wholly owned subsidiary Cambrian Oil & Gas plc, acquired on 15 November 2006. Aggregated amounts relating to associates As at As at 31 30 June December 2007 2005 £'000 £'000 Total assets 39,175 156Total liabilities 773 - ====== ======Revenues 378 -Loss (1,707) (111) ======= ====== The fair value of the Company's associate investment in MEO Australia Limited at30 June 2007 is £45.3 million. This fair value is based on the closing ASXmarket price of MEO Australia Limited shares (ASX:MEO) at balance date. 12. Financial assets Available-for-sale investments As at 30 As at 31 June 2007 December 2005 £'000 £'000 Opening balance - -Acquired during the period 2,424 -Movement in fair value (a) 782 - ----- ----- 3,206 - ===== ===== (a) Fair value of available for sale investments is based on the listed market share price at 30 June 2007. Trading investments As at 30 As at 31 June 2007 December 2005 £'000 £'000 Opening balance - -Other 9 -Purchased during the period 406 -Acquired on acquisition (a) 3,639 -Disposals (b) (1,093) -Fair value increase (c) 5,082 -Transferred to investments in associates (d) (7,628) -Transferred to investment in subsidiary on acquisition of (406) -subsidiary (e) ------- ------ 9 - ------- ------(a) Fair value of share options acquired during the period on acquisition of subsidiary. See note 16 for further details. (b) Fair value of share options transferred to the income statement upon disposal during the period. (c) Fair value increase in trading investments during the period. Fair value has been calculated using the Black-Scholes model. (d) Fair value of share options transferred to investments in associates upon exercise of options. (e) As part of the acquisition of the minority interest of COIL, warrants held by Xtract in COIL were cancelled and the value of the warrants was included as part of the costs of acquisition. Refer to note 16 for further detail. 13. Deferred tax As at As at 30 June 31 December 2007 2005 £'000 £'000 Deferred tax assets 312 -Deferred tax liabilities (7,616) - ------- ----- (7,304) - ======= ===== The following are the major deferred tax liabilities and assets recognised bythe Group and movements thereon during the current and prior reporting period. Group Available for Investment Intangible Investments Total sale in assets held for investments associates trading £'000 £'000 £'000 £'000 £'000 Charge to income - (110) - 1,199 1,089Charge to equity 235 - - - 235Acquisition of subsidiary - 3,334 2,646 - 5,980 ----- ----- ----- ----- -----As 30 June 2007 235 3,224 2,646 1,199 7,304 ===== ===== ===== ===== ===== At the balance sheet date, the Group has available unused tax losses of£3.2 million (2005: £0.1million) available for offset against future profits. Norelated deferred tax asset has been recognised due to the unpredictability offuture profit streams. Losses may be carried forward indefinitely and will berecoverable if suitable taxable profits arise in future periods 14. Share capital Company Authorised: As at As at 31 30 June December 2007 2005 £'000 £'000 1,000,000,000 (2005:1,000,000,000) ordinary shares 1,000 1,000of £0.1p each ===== ===== Issued and fully paid: Number of £'000 sharesThis comprises issued and fully paid ordinary sharesof £0.1p each At 1 January 2006 199,088,550 199Issued for access to mining tenement rights (a) 32,000,000 32Share consideration for Xtract Oil Limited at 7p per 57,471,250 57share (b)Shares issued as payment for services (c) 250,000 2Share consideration for Cambrian Oil and Gas plc at 29,090,909 296.375p per share (d)Share consideration for Cambrian Oil and Gas plc at 115,016,676 1155.675p per share (e)Conversion of loan note at 5.5p per share (f) 61,113,291 61Placing at 5.5p per share (g) 109,795,800 109Issue for warrants exercised at 1p per share (h) 100,400,000 100 ----------- ---At 30 June 2007 704,226,476 704 =========== === (a) Consideration for the assignment of mining tenements in Australia from Intermin Resources Limited. (b) On 17 February 2006, the Company issued 57,471,250 shares of 0.1p each valued at £4,022,988 based on the market value of 7p per share, as part consideration for acquiring 78.3% of the issued share capital in Xtract Oil Limited (note 16). (c) 250,000 shares of 0.1p each issued as consideration to brokers for services in relation to acquisition of Xtract Oil Limited. (d) On 15 November 2006, the Company issued 29,090,909 shares of 0.1p each valued at £1,854,545 based on the market value of 6.375p per share, as consideration for the purchase of 53.3 million shares in Cambrian Oil and Gas plc ("COIL") from Cambrian Mining Plc. Refer to note 16 for the detailed disclosures relating to this business combination. (e) On 23 April 2007 the company issued 115,016,676 shares of 0.1p each valued at £6,527,196 based on the market value of 5.675p, as consideration to COIL shareholders (other than Xtract) for the acquisition of all minority interest owned COIL shares by way of scheme of arrangement under section 425 of the Companies Act 1985 (the "Scheme"). Under the terms of the Scheme, COIL shareholders received 9 new Xtract shares for every 10 COIL shares. The consideration forms the cost of the acquired shares in COIL (note 16). (f) On 21 September 2006 the Company entered into a convertible loan arrangement in settlement of the purchase of shareholdings from the Company's ultimate parent company Cambrian Mining Plc and its subsidiaries. The value of the loan of £3.4 million, including interest payable of £48,498, was converted into 61,113,291 new ordinary shares of 0.1p each at the placing price of 5.5p a share on 17 November 2006. There were no additional costs associated with the convertible loan issue or subsequent conversion. (g) On 22 November 2006 the Company completed a placing and open offer of 109,795,800 new ordinary shares of 0.1p each at 5.5p per share generating proceeds of £6,038,769, before expenses. These comprised £5,500,000 cash plus £538,769 in relation to 9,785,800 shares placed with Cambrian Mining Plc settled by way of offset against short-term loan amounts due to Cambrian Mining Plc. (h) During the period 100,400,000 new ordinary shares of 0.1p each were issued and allotted following the exercise of warrants in the Company. The exercise price was 1p per share issued. The company has one class of ordinary shares which carry no right to fixedincome. Unlisted warrants Shares issued as a result of warrants exercised generated cash proceeds of£1,004,000 during the period. After exercises and further grants during theperiod, the following warrants remain outstanding at 30 June 2007: Issued 29 March 2005 - 33,688,550 exercisable at 1p per shareIssued 29 March 2005 - 50,000,000 exercisable at 2p per shareIssued 29 March 2005 - 3,000,000 exercisable at 1.5p per shareIssued 24 April 2006 - 5,000,000 exercisable at 5.5p per shareIssued 22 November 2006 - 7,213,475 exercisable at 5.5p per shareIssued 1 January 2007 to 30 June 2007 - 600,000 exercisable at 6p per share Each one of the above warrants vested immediately and expires within three yearsof issue, entitling the holder to one fully paid share in the Company uponpayment of the warrant exercise price per share. In addition to the above, in April 2007 Xtract issued shares in exchange for all minority owned shares in COIL. As part of this transaction 231,150 COIL options exercisable at 5p, 6,150,000 COIL options exercisable at 7p and 1,500,000 COIL warrants exercisable at 3p continue in accordance with their terms except that COIL option and warrant holders are entitled to receive Xtract shares upon exercise of such options and warrants on the basis of 9 new Xtract ordinary shares for every 10 COIL shares which the option or warrant holder is entitled to under the terms of the option or warrant. 15. Reconciliation of Changes in Equity Share Share Share Available Revaluation Foreign Retained Minority Total capital premium based for sale reserve currency earnings Interest Equity account payments reserve translation reserve reserve £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 At 1 January - - - - - - - - -2005Balance on - - - - - - - - -incorporationIssue of 199 1,857 - - - - - - 2,056sharesShare based - - 33 - - - - - 33paymentsexpense Share issue - (101) - - - - - - (101)expensesLoss for the - - - - - - (220) - (220)period ---- ----- ---- ----- ---- ---- ----- ----- ------At 31 199 1,756 33 - - - (220) - 1,768December 2005Issue of 505 22,641 - - - - - - 23,146sharesShare based - - 378 - - - - - 378paymentsexpenseShare issue - (597) - - - - - - (597)expensesGain on - - - 782 - - - - 782revaluationof availablefor saleinvestmentsDeferred tax - - - (235) - - - - (235)onrevaluationof availablefor saleinvestmentsRevaluation - - - - 962 - - - 962onacquisitionofsubsidiariesExchange - - - - - (18) - - (18)differencesontranslationMinority - - - - - - - 5,007 5,007interestarising onacquisitionof subsidiaryIssue of - - - - - - - 995 995shares bysubsidiaryAcquisition - - - - - - - (7,281) (7,281)of minorityinterestProfit for - - - - - - 6,284 1,188 7,472the period ---- ------ ---- ---- ---- ---- ----- ----- ------At 30 June 704 23,800 411 547 962 (18) 6,064 (91) 32,3792007 ==== ====== ==== ==== ==== ===== ===== ===== ====== Available for sale reserve The available for sale reserve is used to recognise fair value changes onavailable-for-sale investments Foreign Currency Translation reserve The foreign currency translation reserve is used to record exchange differencesarising from translation of the financial statements of foreign subsidiaries. Share based payments reserve The share based payments reserve is used to recognise the equity component ofshare base payments. 16. Acquisition of subsidiaries Xtract Oil Limited On 17 February 2006 the Company acquired 78.3% of the issued share capital ofXtract Oil Limited ("Xtract Oil") increasing its holding to 100% forconsideration of £4.9 million including expenses. Xtract Oil has interests inoil shale mining tenements in Australia and is researching technologies tocommercially extract oil from shale through a liquid solvent process. The consideration and net assets acquired were as follows: Book Fair value value adjustments Fair value £000 £000 £000 Net assets acquired:Trade receivables 69 - 69Bank and cash balances 65 - 65Mining rights - 8,820 8,820Deferred tax liability - (2,646) (2,646) ---- ------ ------- 134 6,174 6,308 Less revaluation reserve - 962 962 ---- ------ ------- 134 5,212 5,346 ==== ======= =======Satisfied by:Cash 817Directly attributable costs 99 ------ 916Fair value of shares issued (refer to note 14) 4,023 ------Total consideration 4,939 Carrying value of associate brought forward 407 ------ 5,346 ======Net cash outflow arising on acquisition: Cash and cash equivalents acquired 65Cash paid for shares (817)Directly attributable costs (99) ------ (851) ====== The fair value of mining rights held by Xtract Oil at the date of acquisitionwere determined based on the purchase consideration (£4.9 million) paid on 17February 2006. The purchase consideration represents 78.3% of the fair value ofthe mining rights prior to deferred tax of 30%. Xtract Oil contributed to the Group's 12 month consolidated results, anoperating loss of £0.4 million and a loss before tax of £0.3 million for theperiod between the date of acquisition and the balance sheet date. If the acquisition of Xtract Oil had been completed on the first day of thefinancial period, Group revenues for the period would have been £0.2 million andGroup profit attributable to equity holders of the parent would have been £7.2million. Cambrian Oil and Gas Plc During the eighteen month period, the Company acquired 100% of the issued sharecapital of Cambrian Oil & Gas PLC ("COIL") for total consideration of£13,641,000 including expenses. The acquisition occurred in two stages, beingthe purchase of a controlling interest of 65.5% on 15 November 2006 and purchaseof the remaining minority interest 23 April 2007. The book values of other assets held by Xtract Oil at the date of acquisitionare assumed to equate their fair value. COIL is a PLC that with its subsidiary and associate undertakings ("COIL group")is involved in investment in and financing of oil and gas exploration anddevelopment assets. COIL group includes a subsidiary with interests inKyrgyzstan and two associates: 24% in MEO Australia Ltd ("MEO"), listed on theAustralian Stock Exchange, and 32% of Elko Energy Inc, based in Canada. Purchase of controlling interest (65.5% of issued share capital) As at 15 November 2006, Xtract acquired a controlling interest of 65.5% in COILare as follows: Effective date Number of Percent Consideration shares acquired £'000 15 November 2006 202,964,102 65.5% 6,544 Expenses 35 -----Total Investment 6,579 ===== The net assets of the COIL Group acquired in the first step of the acquisitionare as follows: Book value Fair value Fair value adjustments £'000 £'000 £'000Mining rights and 2,098 - 2,098exploration costsInvestment in associates 6,100 3,993 10,093Property, plant and 178 - 178equipmentDeferred tax asset - 268 268Investments - held for 3,639 - 3,639tradingInventories 14 - 14Trade and other receivables 385 - 385Cash and cash equivalents 2,716 - 2,716Trade and other payables (2,169) - (2,169)Deferred tax liability (1,092) (1,467) (2,559) ------- ------- ------- 11,869 2,794 14,663 ------- ------- --------Excess of acquirer's (3,077)interest in net assets ofacquiree over costMinority interest (5,093)Minority interest in 86subsidiary acquired ------ 6,579 ====== Satisfied by:Cash 1,850Directly attributable costs 35Convertible loan 889Short-term loan 1,950Fair value of shares issued 1,855 -----Total consideration 6,579 =====Net cash outflow arising onacquisitionCash paid (1,885)Cash and cash equivalents 2,716acquired ------ 831 ====== The fair value of COIL's associate investment in MEO has been based on themarket value of MEO shares (ASX:MEO) at the date of acquisition. The fair valueof COIL's other assets and liabilities is assumed to approximate their carryingvalues at the date of acquisition. As the fair value of the Company's share in net assets at the date ofacquisition exceeds the total consideration paid for the 65.5% interestacquired, negative goodwill of £3.1 million arises on acquisition. The COIL Group contributed to the Group's results for the period an operatingprofit of £1.2 million and a profit before tax of £0.9 million for the periodbetween the date of acquisition and the balance sheet date. If the acquisition of COIL had been completed on the first day of the financialperiod, Group revenues (excluding other gains and losses) for the period wouldhave been £0.2 million and Group profit attributable to equity holders of theparent would have been £9.8 million. Dilution of interest in COIL between 15 November 2006 and 23 April 2007 During the period between 15 November 2006 and 23 April 2007, 16,499,993warrants and 4,266,670 options in COIL were exercised by parties other thanXtract, resulting in a dilution of Xtract's interest in COIL from 65.5% to61.4%. Proceeds to COIL from the exercise of warrants and options totalled £0.6million and a loss on dilution of £0.4 million has been recognised in the incomestatement for the period. Purchase of minority interest (38.6% of issued share capital) On 23 April 2007 the company acquired the remaining 38.6% minority interest ofCOIL by way of a scheme of arrangement through the issue of shares to the valueof £6.5 million - see note 14(e). The total cost of acquisition including thevalue of COIL share warrants held by Xtract that were cancelled as part of thetransaction was as flows: Effective date Number of Percent Consideration shares acquired £'000April 2007 127,796,382 38.6% 6,527COIL share warrants held by Xtract 406cancelled Expenses 129 -----Total investment 7,062 ===== Acquiring shares in a controlled entity does not meet the definition of abusiness combination and therefore does not fall within the scope of IFRS 3Business Combinations. Accordingly a policy has been developed in accordancewith IAS 8 Accounting Policies Changes in Accounting Estimates and Errors, whichis also consistent with generally accepted accounting practice. This policyrecognises an increase in the fair value of the entity to the extent of thefurther ownership interest acquired. As a result, shares in the associate MEOhave been further revalued upwards by £3.5 million and deferred tax liabilitiesincreased by £1.0 million a net revaluation of £2.5 million. The negative goodwill arising on the purchase of the revalued minority interestsis £2.6 million and the transaction gave rise to cash outflow of £129,000. 17. Notes to the cash flow statement Period ended Year ended 30 June 31 December 2007 2005 £'000 £'000 Profit/(loss) for the period/year 7,472 (220) Adjustments for:Share of results of associates 362 24Investment revenue (99) (25)Other gains and losses (5,968) -Income tax expense 1,787 -Government grants (66)Depreciation of property, plant and equipment 11 -Amortisation of intangible assets - 21Negative goodwill released to income (5,730) -Share-based payments expense 152 79Gain on disposal of property, plant and equipment (10) - ------ ---- Operating cash flows before movements in working capital (2,089) (121)Increase in inventories (2) -Increase in receivables 175 (12)Increase in payables 172 59 ------- -----Cash used in operations (1,744) (74)Income taxes paid - -Interest paid 128 -Foreign exchange differences (18) - ------- -------Net cash used in operating activities (1,634) (74) ======== ======== 18. Events after the balance sheet date Authorised share capital of the Company On 31 July 2007, shareholder approval was obtained for the authorised sharecapital of the Company to be increased from £1,000,000 divided into1,000,000,000ordinary shares of 0.1p each to £2,000,000 divided into 2,000,000,000 ordinaryshares of 0.1p each by the creation of 1,000,000,000 new ordinary shares of 0.1peach such shares to rank pari passu in all respects with the existing ordinary0.1p shares in the capital of the Company Issue of share options On 9 July 2007 5,500,000 options were granted to directors. 3,500,000 options have an exercise price of £0.08 per share and are exercisable for a three year term and expire on 8 July 2010. 1,000,000 options have an exercise price of £0.10 per share and are exercisable for a three year term from 9 July 2008 and expire on 8 July 2011. 1,000,000 options have an exercise price of £0.12 per share and are exercisable for a three year term from 9 July 2009 and expire on 8 July 2012. Investment activity On 2 August 2007, the Company was issued with 175 million new ordinary shares in Wasabi Energy Ltd ('Wasabi') together with 25 million options exercisable onor before 30 June 2008 at a price of A$0.03 per Wasabi share (ASX:WAS) in exchange for 12.3 million ordinary shares in Aviva Corporation, together with an interest in a steel making technology. Following this transaction the Company holds 256,511,422 Wasabi ordinary shares (representing approximately 34.5% of Wasabi's issued share capital). As a result, Wasabi will become an associate of the Group, previously recorded as an available for sale investment. On 24 September, the Company announced a further investment of US$2.0 million inElko Energy Inc (Elko) through a private placement. Pursuant to the privateplacement, the Company's wholly owned subsidiary Cambrian Oil and Gas Plc (COIL)received 4 million new common shares in Elko at a cost of US$0.50 each in cash.Following the placement and the issue of an additional 300,000 common shares toCOIL in consideration for a due diligence fee payable by Elko to COIL, COIL'stotal holding represents approximately 36.5% of the issued capital of Elko,previously 32%. On 28 September 2007, the Company announced that it reduced its interest in MEOAustralia Ltd ("MEO"). COIL sold 5 million shares in MEO at A$1.10 per share forcash. Following this disposal COIL retains 71,366,814 shares in MEO representing21.3% of the issued capital of MEO. This information is provided by RNS The company news service from the London Stock Exchange

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Related Shares:

Xtract