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Final Results

18th Mar 2008 07:02

Matra Petroleum PLC18 March 2008 PRESS RELEASE For immediate release: 18 March 2008 Matra Petroleum plc ("Matra" or the "Company") Final results for period ended 31 December 2007 Matra Petroleum plc (AIM:MTA), the oil and gas E&P company focused on CentralEurope and Russia announces its final results for the period ended 31 December2007. 2007 Highlights• Acquired 'OOO' Arkhangelovskoe for 55 million shares.• Strategic investor Delek-International Energy Ltd introduced.• Raised £6 (€8) million in new share placement.• Farmed-out Inke block to cover costs of 2007 two-well programme.• Sokolovskoe oil discovery with first Russian well.• Completed further 3D seismic acquisition on Hungary.• Demonstrated Direct Hydrocarbon Indicator (DHI) technology applicable in Hungary.• Spudded second Russian exploration well.• First oil production. 2008 Programme• Second Russian well in progress.• Additional seismic acquired on Sokolovskoe and southern structure.• Sokolovskoe discovery to be appraised by second well.• Further exploration well in Russia planned for southern structure.• Sokolovskoe Production Licence application in progress.• Two-well drilling programme planned in Hungary. Commenting on the year, Matra's Managing Director, Peter Hind said:"2007 proved to be a busy and successful year for Matra. We have now establishedoperational offices in Budapest and in Orenburg with a small staff in each. Our established positions in Hungary and Russia provide for significant upsidepotential. Both areas contain multiple prospects with wells to be drilled in2008. We are evaluating new opportunities on a continuous basis and I amconfident we will add to the portfolio in such a way as to retain shareholderleverage to exploration success". For further information, please contact: Matra Petroleum www.matrapetroleum.comPeter Hind, Managing Director +44 (0) 7990 807 855 Aquila Financial Limited www.aquila-financial.comPeter Reilly +44 (0)118 979 4100Yvonne Fraser Matra's nominated Advisor is RFC Corporate Finance Ltd -Contact: Steve Allen +61894802500 CHAIRMAN'S STATEMENT Dear Shareholder, I was delighted to accept the offer to become Chairman of Matra in October lastyear. Matra has clearly stated its objective of building a successful upstreamoil and gas business in Central and Eastern Europe and, in its short history,demonstrated its ability to access attractive opportunities and, moreimportantly, delivered success. A potentially significant oil discovery in Russia has laid the foundation forfuture growth in the company and puts us in a good position to expand ourportfolio there. In Hungary, initial gas discoveries have not so far proved to be commercial but,the information obtained in both drilling and seismic acquisition in 2007 hasboth confirmed the potential for this large concession and helped to reduce therisk of future drilling programmes. Financial risk in Hungary was mitigated by introducing a partner, therebyeffectively funding the majority of the 2007 work programme whilst retaining asignificant 40% interest. Gideon Tadmor joined the board in May 2007 following Delek International EnergyLimited's subscription for 135 million new shares in Matra. Gideon's experienceand enthusiasm are proving to be invaluable. Craig Burton stepped down as Chairman at the time of my appointment but remainsas a non-executive director. Craig was the founding Chairman of Matra and Iwould like to thank him for his contribution to the company over the past twoyears. Craig's experience in the start-up and running of public companies in theresource sector continues to be a considerable asset to the company. I would like to thank both my fellow directors, the management and staff of thecompany for all their hard work in 2007 and continued efforts in 2008. 2008 will be another important and exciting year for Matra, with more drillingin both Russia and Hungary, progress towards a development of the Sokolovskoediscovery and the continued evaluation of new opportunities. Sir Michael JenkinsChairman17th March 2008 MANAGING DIRECTOR'S REVIEW 2007 proved to be a busy and successful year for Matra. The screening of manynew venture opportunities in late 2006 and early 2007 led to Matra's acquisitionof 100% of 'OOO' Arkhangelovskoe, a Russian registered company holding a 100%interest in the Arkhangelovskoe Exploration License, located in Orenburg, Russia.The acquisition was made in return for the issue of 55 million new shares inMatra to the previous owners. Our 2006 review of the Inke Concession gave us a much better understanding ofits potential, both within the limited area of existing 3D seismic and beyond inthe full extent of the block's 2,297 sq km. In order to balance portfolio risk and provide appropriate funding we took twosteps: Firstly, we raised £6.075 (€8.063) million by issuing 135 million newshares to a subsidiary of Delek Group at a substantial premium to market price.Delek are a large Israeli conglomerate seeking to establish an upstreamportfolio in Central and Eastern Europe. Their standing as a significant andsubstantial shareholder lends considerable credibility to Matra in its newventures efforts. Secondly, we effectively farmed-out 60% of our interest in theInke Concession in Hungary to Aspect International LLC (subsequently transferredto Horizon Hungarian Energy (HHE) an Aspect Holdings subsidiary) in return forthem fully funding the next $5.5 million of expenditures. This meant that Matradid not contribute to the cost of the two exploration wells in 2007 and paid areduced contribution to the 2007 seismic acquisition programme but retained asignificant 40% interest. HHE are a leading explorer in Hungary and have successfully used similarpredictive seismic techniques elsewhere in the country. Their technical andoperational experience in Hungary has proved most valuable, and they remainenthusiastic about the concession's potential. These two transactions allowed us to fund the exploration activity in Russia andto retain a 100% interest there whilst continuing to explore in Hungary. We have now established operational offices in Budapest and in Orenburg with asmall staff in each. Our established positions in Hungary and Russia provide for significant upsidepotential. Both areas contain multiple prospects with wells to be drilled in2008. We are evaluating new opportunities on a continuous basis and I amconfident we will add to the portfolio in such a way as to retain shareholderleverage to exploration success. A full financial review of activities during the year can be found in the Reviewof Finance section incorporated into this report Peter HindManaging Director17th March 2008 REVIEW OF OPERATIONS AND FINANCE Review of financial performance and position for the year During the year Matra acquired a 100% interest in the Russian company "OOO"Arkhangelovskoe (Arkhangel) in exchange for 55 million shares in the Company.The fair value of this transaction was €3,913,376. Subsequent to the acquisitionof Arkhangel the Company completed it's first successful exploration well(Arkhangelovskoe-12) which, in aggregation with other capitalized expenditurestook the total investment in oil and gas assets to €9,999,042 including the fairvalue of the license acquisition cost of €3,913,376. On 12th June, Matra disposed of a 60% equity stake in Gemstone PropertiesLimited (Gemstone), the 100% parent of Blue Star 95 KFT which operates theHungarian Inke Concession. The fair value of the exploration assets disposed ofrepresented €6,051,028 and the total loss on disposal was €1,508,051. During the 6 months to 31st December 2007, Gemstone made further losses of€1,292,078, which included the write-off of the Marcali-1 and Horvatkut-1 wellswhich were deemed not to be economically viable on final testing. This reducedthe total share of the net assets in Gemstone to €721,399. Administrative expenses fell from €1,520,341 in 2006 to €1,232,375 in 2007. Thisreduction is principally due to the disposal of 60% of Gemstone and the gradualestablishment of Russian operations during the year. The total loss for the yearof €4,170,740 included the loss on disposal of Gemstone Properties Limited of€1,508,051. The structuring of the 60% disposal of equity in Gemstone was such that thatMatra's share of the 2007 work programme in Hungary, which comprised twoexploration wells and 124 km2 of 3D seismic, was only €1,027,589 includingoverheads. This allowed the company to exploit substantially more explorationopportunities than would ordinarily have been available elsewhere. Cash and cash equivalents stand at €7,546,636, a reduction of €704,250 from 2006which includes €8,063,032 raised by the issue of 135 million shares during theyear to Delek-International Energy Limited. Of the total cash outflow of€8,767,282, over 78% of cash expenditure was directly attributable to theacquisition of oil & gas assets reflecting Matra's determination to maximizeshareholder returns through actively continuing exploration activities. Risks to the Group The Group's Oil and Gas activities are subject to a range of fundamentalfinancial and operational risks, as described below, which can significantlyimpact its performance: • Liquidity risk and interest rates - The Group has a significant capital programme to develop its assets. As a result management carefully monitor the liquidity position. Cash forecasts are produced regularly and are reviewed by management. Management continue to review whether a potential increase in interest income could be derived from a more aggressive treasury policy with regards to surplus funds but weigh this against the loss of operational flexibility. • Currency risk - The Group has a presentational currency of the Euro but a significant proportion of capital expenditure is denominated in Roubles and US dollars. At present the Group has no formal currency hedging policy but management will continue to monitor the situation and adopt an appropriate hedging policy if necessary. • Commodity risk - The economic viability of the Group's Oil and Gas assets is dependent on the underlying oil price. Management produce financial models of the assets based upon conservative long term oil prices and regularly revise these estimates. • Operational risk - Operational risks include equipment failure, well blow outs, pollution, fire and the consequences of bad weather. The group takes responsibility to ensure all relevant legislation is met and that all partners have the relevant insurance in place. Key sources of estimation uncertainty Estimates and judgments are continually evaluated based on historicalexperiences and other factors, including expectations of future events that arebelieved to be reasonable under the circumstances. The estimates and assumptionsthat have a significant risk of causing a material adjustment to the carryingamounts of assets and liabilities within the next financial year are as follows: • Exploration and evaluation costs are capitalised as intangible assets and are assessed for impairment when circumstances suggest that the carrying amount may exceed the recoverable value thereof. This assessment involves judgment as to the likely future commerciality of the asset in order to determine a recoverable value. • While conducting an impairment review of its assets, the Group exercises judgment in making assumptions about future oil & gas prices and future development and production costs. Changes in the estimates used can result in significant charges to the income statement. • Employee services received, and the corresponding increase in equity, are measured by reference to the fair value of the equity instruments at the date of grant using the Black Scholes valuation model which incorporates assumptions such as among others, the dividend growth rate, expected volatility, expected life of the options and number of options expected to vest. INDEPENDENT AUDITORS' REPORTFOR THE PERIOD ENDED 31st DECEMBER 2007 Independent auditor's report to the shareholders of Matra Petroleum plc We have audited the group and parent company financial statements (the''financial statements'') of Matra Petroleum plc for the year ended 31stDecember 2007 which comprise the consolidated income statement, the consolidatedand company balance sheets, the consolidated and company cash flow statement,the consolidated and company statements of changes in equity and the relatednotes. These financial statements have been prepared under the accountingpolicies set out therein. Respective responsibilities of directors and auditorsThe directors' responsibilities for preparing the annual report and financialstatements in accordance with applicable law and International FinancialReporting Standards (IFRSs) as adopted by the European Union are set out in thestatement of directors' responsibilities. Our responsibility is to audit thefinancial statements in accordance with relevant legal and regulatoryrequirements and International Standards on Auditing (UK and Ireland). We reportto you our opinion as to whether the financial statements give a true and fairview and have been properly prepared in accordance with the Companies Act 1985and whether the information given in the directors' report is consistent withthose financial statements. We also report to you if, in our opinion, thecompany has not kept proper accounting records, if we have not received all theinformation and explanations we require for our audit, or if informationspecified by law regarding directors' remuneration and other transactions is notdisclosed. We read other information contained in the annual report, and consider whetherit is consistent with the audited financial statements. This other informationcomprises only the director's report, the chairman's statement, the managingdirector's review and the operating and financial review. We consider theimplications for our report if we become aware of any apparent misstatements ormaterial inconsistencies with the financial statements. Our responsibilities donot extend to any other information. Our report has been prepared pursuant tothe requirements of the Companies Act 1985 and for no other purpose. No personis entitled to rely on this report unless such a person is a person entitled torely upon this report by virtue of and for the purpose of the Companies Act 1985or has been expressly authorised to do so by our prior written consent. Save asabove, we do not accept responsibility for this report to any other person orfor any other purpose and we hereby expressly disclaim any and all suchliability. Basis of audit opinionWe conducted our audit in accordance with International Standards on Auditing(UK and Ireland) issued by the Auditing Practices Board. An audit includesexamination, on a test basis, of evidence relevant to the amounts anddisclosures in the financial statements. It also includes an assessment of thesignificant estimates and judgments made by the directors in the preparation ofthe financial statements, and of whether the accounting policies are appropriateto the group's and company's circumstances, consistently applied and adequatelydisclosed. We planned and performed our audit so as to obtain all theinformation and explanations which we considered necessary in order to provideus with sufficient evidence to give reasonable assurance that the financialstatements are free from material misstatement, whether caused by fraud or otherirregularity or error. In forming our opinion we also evaluated the overalladequacy of the presentation of information in the financial statements. OpinionIn our opinion: • the group financial statements give a true and fair view, in accordance with IFRSs as adopted by the European Union, of the state of the group's affairs as at 31st December 2007 and of its loss for the year then ended; • the parent company financial statements give a true and fair view, in accordance with IFRSs as adopted by the European Union as applied in accordance with the provisions of the Companies Act 1985, of the state of the parent company's affairs as at 31st December 2007; • the financial statements have been properly prepared in accordance with the Companies Act 1985; and • the information given in the directors' report is consistent with the financial statements. BDO Stoy Hayward LLPChartered Accountants and Registered AuditorsLondon17th March 2008 CONSOLIDATED INCOME STATEMENTFOR THE PERIOD ENDED 31st DECEMBER 2007 2007 2006 Restated Notes • •Continuing operations Revenue 3 - 1,753 Cost of sales - - --------- ---------- Gross profit - 1,753 Administration expenses 4 (1,232,376) (1,520,341) --------- ---------- Loss from operations (1,232,376) (1,518,588) Finance income 572,352 267,771 Finance costs 8 (62,933) (7,159) Share of loss of associate 12 (1,292,078) - --------- ---------- Loss before taxation (2,015,035) (1,257,976) Taxation 6 (40,771) - --------- ---------- Loss after taxation (2,055,806) (1,257,976) Dis-continuing operations Loss for the year from discontinued 7 (2,114,935) (2,706,697) operations --------- ---------- Loss for the year attributable to 2 (4,170,741) (3,964,673) equity shareholders of the parent ======== ========== Loss per share 2 Basic and diluted (0.01087) (0.01943) Loss per share from continuing operations 2 Basic and diluted (0.00536) (0.00617) Loss per share from discontinuing operations 2 Basic and diluted (0.00551) (0.01327) STATEMENT OF CHANGES IN EQUITYAS AT 31st DECEMBER 2007 Share Share Foreign Other Retained Total capital premium currency Reserves earnings translation reserve Restated Restated Restated RestatedConsolidated • • • • • •------------------ ------- -------- --------- -------- -------- --------Total equity as at 1st January 2006 79,212 1,424,480 - 79,286 (133,184) 1,449,794Exchange differences on translatingforeign operations - - (158,239) - - (158,239)------------------ ------- -------- --------- -------- -------- --------Net income recogniseddirectly in equity - - (158,239) - - (158,239)Loss for the year - - - - (3,964,673) (3,964,673)------------------ ------- -------- --------- -------- -------- --------Total recognisedincome and expense - - (158,239) - (3,964,673) (4,122,912)Shares issued 309,910 16,365,492 - 594,080 - 17,269,482Share issue costs - (961,934) - - - (961,934)Recognition of share based payment - - - 453,648 - 453,648------------------ ------- -------- --------- -------- -------- --------Total equity as at 31st December 2006 389,122 16,828,038 (158,239) 1,127,014 (4,097,857) 14,088,078================== ======= ======== ========= ======== ======== ======== Share Share Foreign Other Retained Total capital premium currency Reserves earnings translation reserveConsolidated • • • • • •------------------ ------- -------- --------- -------- -------- --------Total equity as at 1st January 2007 389,122 16,828,038 (158,239) 1,127,014 (4,097,857) 14,088,078Exchange differences on translatingforeign operations - - (915,873) - - (915,873)------------------ ------- -------- --------- -------- -------- --------Net income recogniseddirectly in equity - - (915,873) - - (915,873)Loss for the year - - - - (4,170,741) (4,170,741)------------------ ------- -------- --------- -------- -------- --------Total recognisedincome and expense - - (915,873) - (4,170,741) (5,086,614)Shares issued 257,849 11,718,559 - - - 11,976,408Share issue costs - (22,264) - - - (22,264)Recognition of share based payment - - - 263,128 - 263,128------------------ ------- -------- --------- -------- -------- --------Total equityas at 31stDecember 2007 646,971 28,524,333 (1,074,112) 1,390,142 (8,268,598) 21,218,736================== ======= ======== ========= ======== ======== ======== STATEMENT OF CHANGES IN EQUITYAS AT 31st DECEMBER 2007 Share Share Foreign Other Retained Total capital premium currency Reserves earnings Restated translation Restated Restated Restated reserveCompany • • • • • •-------------------- ------- -------- -------- -------- -------- --------Total equity as at 1st January 2006 79,212 1,424,480 - 79,286 (133,184) 1,449,794Exchange differences - - (230,587) - - (230,587)-------------------- ------- -------- -------- -------- -------- --------Net income recogniseddirectly in equity - - (230,587) - - (230,587)Loss for the year - - - - (2,234,113) (2,234,113)-------------------- ------- -------- -------- -------- -------- --------Total recognisedincome and expense - - (230,587) - (2,234,113) (2,464,700)Shares issued 309,910 16,365,492 - 594,080 - 17,269,482Share issue costs - (961,934) - - - (961,934)Recognition of share based payment - - - 453,648 - 453,648------------------- ------- --------- -------- -------- -------- ---------Total equity as at 31st December 2006 389,122 16,828,038 (230,587) 1,127,014 (2,367,297) 15,746,290=================== ======= ========= ======== ======== ======== ========= Share Share Foreign Other Retained Total capital premium currency Reserves earnings translation reserveCompany • • • • • •------------------- ------- --------- -------- -------- -------- ---------Total equity as at 1st January 2007 389,122 16,828,038 (230,587) 1,127,014 (2,367,297) 15,746,290Exchange differences - - (1,203,575) - - (1,203,575)------------------- ------- --------- -------- -------- -------- ---------Net income recogniseddirectly in equity - - (1,203,575) - - (1,203,575)Loss for the year - - - - (5,540,734) (5,540,734)------------------ ------- --------- -------- -------- -------- ---------Total recognisedincome and expense - - (1,203,575) - (5,540,734) (6,744,309)Shares issued 257,849 11,718,559 - - - 11,976,408Share issue costs - (22,264) - - - (22,264)Recognition of share based payment - - - 263,128 - 263,128------------------ ------- --------- -------- -------- -------- ---------Total equity as at 31st December 2007 646,971 28,524,333 (1,434,162) 1,390,142 (7,908,031) 21,219,253================== ======= ========= ======== ======== ======== ========= BALANCE SHEETAS AT 31st DECEMBER 2007 Group Company 2007 2006 Restated 2007 2006 Restated Notes • • • • Non-current assets Property, plant & 9 86,504 56,230 28,092 22,786 equipment Intangible assets 10 9,999,042 5,712,694 - - Investment in 11 - - 1,890 5,406,128 subsidiary Investment in 12 - - 1,975,938 - associate Share of net assets 12 721,399 - - - in associate -------- ---------- -------- ---------- 10,806,945 5,768,924 2,005,920 5,428,914 Current assets Inventories 13 1,194 150,048 - - Trade and other 14 3,972,177 71,945 12,371,882 2,322,495 receivables Cash and cash 7,546,636 8,250,886 7,075,180 8,116,096 equivalents --------- ---------- --------- ---------- 11,520,007 8,472,879 19,447,062 10,438,591 --------- ---------- --------- ----------Total assets 22,326,952 14,241,803 21,452,982 15,867,505 ========= ========== ========= ========== Capital and reserves attributable to equity holders of the Company Ordinary shares 19 646,971 389,122 646,971 389,122 Share premium 28,524,333 16,828,038 28,524,333 16,828,038 Foreign currency (1,074,112) (158,239) (1,434,162) (230,587) translation reserve Other reserves 1,390,142 1,127,014 1,390,142 1,127,014 Retained earnings (8,268,598) (4,097,857) (7,908,031) (2,367,297) --------- ---------- --------- ---------- Total equity 21,218,736 14,088,078 21,219,253 15,746,290 Current liabilities Trade and other 15 1,108,216 149,850 233,729 121,215 payables Current income tax - 3,875 - - liabilities --------- ---------- --------- ---------- Total liabilities 1,108,216 153,725 233,729 121,215 --------- ---------- --------- ----------Total equity and liabilities 22,326,952 14,241,803 21,452,982 15,867,505 ========= ========== ========= ========== The financial statements were approved by the Board on 17th March 2008 Peter HindManaging Director CONSOLIDATED CASH FLOW STATEMENTFOR THE PERIOD ENDED 31st DECEMBER 2007 Group Company 2007 2006 Restated 2007 2006 Restated Notes • • • • -------- -------- -------- --------Cash used in operating activities 17 (470,014) (485,284) (9,689,351) (3,722,884)Cash used in investing activities Acquisition of OOO Matra Cyprus - - (1,890) - Petroleum net of cash acquired Acquisition of Inke Petroleum Pty - 693,434 - - Ltd net of cash acquired Disposal of Gemstone Properties (411,118) - 1,512,165 - Limited net of cash disposed Purchase of property, plant (84,484) (74,634) (15,163) (26,638) and equipment Expenditure on oil and gas (6,891,957) (3,748,247) - - assets -------- -------- -------- -------- Cash used in investing activities (7,387,559) (3,129,447) 1,495,112 (26,638)Cash used in financing activities Proceeds from issue of shares 8,063,032 11,863,354 8,063,032 11,863,354 Share issue expenses paid (22,264) (961,934) (22,264) (961,934) -------- -------- -------- -------- Cash used in financing activities 8,040,768 10,901,420 8,040,768 10,901,420 Net increase/(decrease) in cash and cashequivalents 183,195 7,286,689 (153,472) 7,151,898Cash and cash equivalents at beginning ofperiod 8,250,886 1,105,859 8,116,096 1,105,859Effect of foreign exchange ratedifferences (887,444) (141,661) (887,444) (141,661)Cash and cash equivalents atend of period 7,546,636 8,250,886 7,075,180 8,116,096 NOTES TO THE FINANCIAL STATEMENTSFOR THE PERIOD ENDED 31st DECEMBER 2007 1. Accounting policiesBasis of preparationThe financial statements have been prepared on the going concern basis inaccordance with International Financial Reporting Standards (IFRS as adopted bythe EU) and the provisions of the SORP "Accounting for Oil and Gas Exploration,Development, Production and Decommissioning Activities". These financial statements are presented in Euro, the functional currency of thegroup. The Company's functional currency is Sterling; however the companypresents its financial statements in Euro as the majority of transactions of thegroup are in euro. Accounting standards issued but not adoptedThe IFRS financial information has been drawn up on the basis of accountingstandards, interpretations and amendments effective at the beginning of theaccounting period on 1st January 2007: The IASB and IFRIC have issued the following standards and interpretations whichare effective for reporting periods beginning after the date of these financialstatements: International Accounting Standards (IAS/IFRS) Effective date • IAS 1* - Amendment - Presentation of financial statements: a revised presentation 1 January 2009• IAS 23* - Amendment - Borrowing costs 1 January 2009• IAS 27* - Amendment - Consolidated and separate financial statements 1 July 2009• IFRS 2* - Amendment - Share based payment: vesting conditions and cancellations 1 January 2009• IFRS 3* - Revised - Business combinations 1 July 2009• IAS 31 and 1* - Puttable financial instruments and obligations arising on Liquidation 1 January 2009 International Financial Reporting Interpretations (IFRIC) Effective date • IFRIC 11 - (IFRS 2) Group and treasury share transactions 1 January 2008• IFRIC 12* - Service concession arrangements 1 January 2008• IFRIC 13* - Customer loyalty programmes 1 July 2008• IFRIC 14* - IAS 19 - The limit on a defined benefit asset, minimum funding requirements and their interaction 1 January 2008 The adoption of these standards, interpretations and amendments will notsignificantly affect the Group results of operations or financial position. Items marked * had not yet been endorsed by the European Union at the date thatthese financial statements were approved and authorised for issue by the Board. Basis of consolidationWhere the company has the power, either directly or indirectly, to govern thefinancial and operating policies of another entity or business so as to obtainbenefits from its activities, it is classified as a subsidiary. The consolidatedfinancial statements present the results of the company and its subsidiaries("the group") as if they formed a single entity. Intercompany transactions andbalances between group companies are therefore eliminated in full. During the year the Group disposed of subsidiaries Gemstone Properties Limitedand Inke Petroleum Pty Limited, the results of which have been consolidated upto and including the date of disposal (see note 11). Associates are accounted for using the equity accounting method. The share ofnet assets or liabilities of the associate are capitalized in proportion to theGroup's holding in the associate at the year end and the share of profits orlosses in the associate are included in the Group income statement in proportionto the Group's holding in the associate. Business combinationsThe consolidated financial statements incorporate the results of businesscombinations using the purchase method. In the consolidated balance sheet, theacquiree's identifiable assets, liabilities and contingent liabilities areinitially recognised at their fair values at the acquisition date. The resultsof acquired operations are included in the consolidated income statement fromthe date on which control is obtained Foreign currency translationTransactions entered into by group entities in a currency other than thecurrency of the primary economic environment in which they operate (their"functional currency") are recorded at the rates ruling when the transactionsoccur. Foreign currency monetary assets and liabilities are translated at therates ruling at the balance sheet date. Exchange differences arising on theretranslation of unsettled monetary assets and liabilities are recognisedimmediately in the consolidated income statement. On consolidation, the results of overseas operations are translated into Euro atrates approximating to those ruling when the transactions took place. All assetsand liabilities of overseas operations, including goodwill arising on theacquisition of those operations, are translated at the rate ruling at thebalance sheet date. Exchange differences arising on translating the opening netassets at opening rate and the results of overseas operations at actual rate arerecognised directly in equity (the "foreign exchange reserve"). Exchange differences recognised in the income statement of group entities'separate financial statements on the translation of long-term monetary itemsforming part of the group's net investment in the overseas operation concernedare reclassified to the foreign exchange reserve on consolidation. On disposal of a foreign operation, the cumulative exchange differencesrecognised in the foreign exchange reserve relating to that operation up to thedate of disposal are transferred to the consolidated income statement as part ofthe profit or loss on disposal. Profit from operationsProfit from operations is defined as the profit on all continuing activitiesbefore Finance income, Finance costs, Share of profit / (loss) in Associates andTaxation. Tangible non-current assetsTangible non-current assets are stated at cost less depreciation. Depreciationis provided at rates calculated to write off the cost of assets, less theirestimated residual value, over their expected useful economic lives on thefollowing basis: Property, plant and equipment 25% per annum straight line. The useful lives and residual values of tangible non-current assets arere-assessed annually and any revisions taken to the income statement in thecurrent period. Intangible non-current exploration assetsThe Group applies the successful efforts method of accounting for explorationand appraisal costs. Under the successful efforts method of accounting, alllicence acquisition, exploration and appraisal costs are initially capitalisedin well, field or specific exploration well cost centres as appropriate, pendingdetermination. Expenditure incurred during the various exploration and appraisalphases is then written off unless commercial reserves have been established orthe determination process has been completed. Pre-licence costs: costs incurred prior to having obtained the legal rights toexplore an area are expensed directly to the income statement as they areincurred. Licence acquisition costs: costs which have not been allocated are depreciatedover the maximum period of the licence. Exploration and appraisal costs are initially capitalised as an intangibleasset. Intangible assets are not amortised prior to the conclusion of appraisalactivities and determination of commercial reserves. All intangible assets are reviewed for impairment on an annual basis. Anyimpairment is immediately written off to the Income Statement. InvestmentsIn its separate financial statements the Company recognises its investments insubsidiaries and associates at cost less provision for any allowance forimpairment in value. InventoriesInventories are valued initially at fair value and subsequently at amortisedcost. Trade and other receivablesTrade and other receivables are stated initially at fair value and subsequentlyat amortised cost. Cash and cash equivalentsThe Company considers all highly liquid investments, with an original maturityof 90 days or less, to be cash equivalents. Trade and other payablesTrade and other payables are stated initially at fair value and subsequently atamortised cost. TaxIncome tax on the profit or loss from ordinary activities includes current anddeferred tax. Current tax is based on the profit or loss from ordinary activities adjusted foritems that are non-assessable or disallowed and is calculated using tax ratesthat have been enacted or substantively enacted by the balance sheet date. Income tax is charged or credited to the income statement, except when the taxrelates to items credited or charged directly to equity, in which case the taxis also dealt with in equity. Deferred taxationDeferred tax assets and liabilities are recognised where the carrying amount ofan asset or liability in the balance sheet differs to its tax base, the initialrecognition of an asset or liability in a transaction which is not a businesscombination and at the time of the transaction affects neither accounting ortaxable profit, investments in subsidiaries and jointly controlled entitieswhere the Group is able to control the timing of the reversal of the differenceand it is probable that the difference will not reverse in the foreseeablefuture. Recognition of deferred tax assets is restricted to those instances where it isprobable that taxable profit will be available against which the difference canbe utilised. The amount of the asset or liability is determined using tax ratesthat have been enacted or substantially enacted by the balance sheet date andare expected to apply when the deferred tax liabilities/ (assets) are settled/(recovered). Deferred tax assets and liabilities are offset when the Group has a legallyenforceable right to offset current tax assets and liabilities and the deferredtax assets and liabilities relate to taxes levied by the same tax authority oneither the same taxable Group Company or different Group Entities which intendeither to settle current tax assets and liabilities on a net basis or to realisethe assets and settle the liabilities simultaneously, in each future period inwhich significant amounts of deferred tax assets or liabilities are expected tobe settled or recovered. Contributed equityIssued and paid up share capital is recognised at the fair value of theconsideration received by the Company. Any transaction costs arising on theissue of ordinary shares are recognised directly in equity as a reduction of theshare proceeds received. Share Based Payments Where equity settled share options are awarded to employees, the fair value ofthe options at the date of grant is charged to the consolidated income statementover the vesting period. Non-market vesting conditions are taken into account byadjusting the number of equity instruments expected to vest at each balancesheet date so that, ultimately, the cumulative amount recognised over thevesting period is based on the number of options that eventually vest. Marketvesting conditions are factored into the fair value of the options granted. Aslong as all other vesting conditions are satisfied, a charge is madeirrespective of whether the market vesting conditions are satisfied. Thecumulative expense is not adjusted for failure to achieve a market vestingcondition. Where the terms and conditions of options are modified before they vest, theincrease in the fair value of the options, measured immediately before and afterthe modification, is also charged to the consolidated income statement over theremaining vesting period. Where equity instruments are granted to persons other than employees, theconsolidated income statement is charged with the fair value of goods andservices received. The group also operates a phantom share option scheme (a cash settledshare-based payment). An option pricing model is used to measure the group'sliability at each balance sheet date, taking into account the terms andconditions on which the bonus is awarded and the extent to which employees haverendered service. Movements in the liability (other than cash payments) arerecognised in the consolidated income statement. RevenueRevenue is measured at the fair value of the consideration received orreceivable and represents amounts receivable for oil & gas products and servicesprovided in the normal course of business, net of discounts, VAT and other salesrelated taxes to third party customers. Interest income is accrued on a time basis, by reference to the principaloutstanding at the effective interest rate applicable, which is the rate thatexactly discounts estimated future cash receipts through the expected life ofthe financial asset to that asset's net carrying amount Key sources of estimation uncertaintyThe Group makes estimates and assumptions regarding the future. Estimates andjudgements are continually evaluated based on historical experiences and otherfactors, including expectations of future events that are believed to bereasonable under the circumstances. In the future, actual experience may deviatefrom these estimates and assumptions. The estimates and assumptions that have asignificant risk of causing a material adjustment to the carrying amounts ofassets and liabilities within the next financial year are as follows: Exploration and evaluation costs are capitalised as intangible assets (note 10)and are assessed for impairment when circumstances suggest that the carryingamount may exceed the recoverable value thereof. This assessment involvesjudgement as to the likely future commerciality of the asset and when suchcommerciality should be determined as well as future revenues and costspertaining to the utilisation of the exploration and production rights to whichsuch capitalised costs relate and the discount rate to be applied to such futurerevenues and costs in order to determine a recoverable value. While conducting an impairment review of its assets, the Group exercisesjudgement in making assumptions about future oil & gas prices and futuredevelopment and production costs. Changes in the estimates used can result insignificant charges to the income statement. Employee services received, and the corresponding increase in equity, aremeasured by reference to the fair value of the equity instruments at the date ofgrant, excluding the impact of any non-market vesting conditions. The fair valueof share options is estimated by using the Black Scholes valuation model, on thedate of grant based on certain assumptions. Those assumptions are described inNote 16 and include, among others, the dividend growth rate, expectedvolatility, expected life of the options and number of options expected to vest.More details including carrying values are disclosed in Note 16. 2. Loss per share Loss per share of €0.01087 (2006: €0.01943) is calculated by dividing the lossfor the period by the weighted average number of ordinary shares in issue duringthe period of 383,616,438. The loss per share on Continuing and discontinuingoperations is €0.00536 (2006: 0.01327) and €0.00551 (2006: 00617) respectively. The effect of all potential ordinary shares arising from the exercise of optionsgoing forward is considered to be anti-dilutive. 41,621,551 (2006: 12,347,532)potential ordinary shares have been excluded from the above calculation as theyare anti-dilutive. 3. Revenue and income Loss for the year includes the following revenue items: 2007 2006 • • -------- --------Revenue- Geological & geophysical revenue - 1,753---------------------------------- -------- --------Total revenue - 1,753================================== ======== ======== The company has taken advantage of section 230 of the Companies Act 1985 and hasnot included its own income statement account in these financial statements. Thecompany loss for the year was €5,540,734 (2006: €2,234,113). 4. Expenses by nature Loss from operations is stated after charging: 2007 2006 Restated • • ------- ----------Auditors remuneration- Audit: fees payable to the Company's auditor 40,713 29,704- Audit: fees payable for the audit of subsidiariespursuant to legislation 21,445 10,244- Taxation 1,357 7,426- Other - 9,071Impairment of exploration expenditure 1,674 2,748,247Depreciation 16,782 18,404Foreign exchange costs 443,579 (16,578)Share based payment expense 263,128 453,648 5. Salaries Total staff costs (including Directors and key management personnel) comprise: Group Company 2007 2006 2007 2006 • • • • --------- --------- --------- ---------Employee salaries and benefits 793,837 592,020 546,095 493,976Share based payment expense 263,128 453,648 263,128 453,648 --------- --------- --------- --------- 1,056,965 1,045,668 809,223 947,624 ========= ========= ========= ========= Directors emoluments comprise: Group Company 2007 2006 2007 2006 • • • • --------- --------- --------- ---------Employee salaries and benefits 442,138 479,724 442,138 479,724Share based payment expense 263,128 450,267 263,128 450,267 --------- --------- --------- --------- 705,266 929,991 705,266 929,991 ========= ========= ========= ========= Key management personnel: Group Company 2007 2006 2007 2006 • • • • --------- --------- --------- ---------Employee salaries and benefits 110,988 13,023 83,288 13,023Share based payment expense 2,621 - 2,621 - --------- --------- --------- --------- 113,609 13,023 85,909 13,023 ========= ========= ========= ========= Average number of employees (including directors): Group Company 2007 2006 2007 2006 • • • • --------- --------- --------- ---------Technical 3 1 1 1Corporate & administrative 10 3 2 1 --------- --------- --------- --------- 13 4 3 2 ========= ========= ========= ========= The highest paid director was paid €464,984 (2006: €318,254), which includedshare based payments totalling €236,270 (2006: €166,081). There were no pension contributions made on behalf of employees during the year. 6. Taxation Group 2007 2006 • • --------- ---------Loss before taxation (including loss fromdiscontinued operations) (4,129,969) (3,964,673) --------- ---------Taxation at the UK corporation tax rate of 30%(2006: 30%) (1,238,991) (1,189,402)Effect of overseas tax rates 294,763 394,678Expenses disallowed for tax 249,468 237,199Tax charge on transfer of license to Russiansubsidiary 40,771 -Tax losses carried forward 694,760 557,525 --------- ---------Tax charge for the year 40,771 - ========= ========= Factors that may affect future tax chargesNo deferred tax asset has been recognised on accumulated tax losses as therecoverability of any such assets is not probable in the foreseeable future (seenote 22). No tax charge arose on the discontinuing activity or its discontinuance. 7. Segmental reporting Based on risks and returns the Directors consider that the primary reportingformat is by geographical segment as the nature of the exploration activitiesare broadly homogenous across the company. The Directors consider that there arethree geographical segments being exploration activities in Hungary and Russia,in addition with the head office and corporate costs in the United Kingdom.Segment assets and capital expenditures are allocated based on where the assetsare located. Geographical segment (Group) as at 31st December 2007 Continuing Continuing Continuing Dis-continuing 31st December operations operations operations operations 2007 United Russia Total Hungary Total Kingdom • • • • • ------------- ------------- ------------ --------------- -------------Revenue - - - 19,271 19,271Cost of sales - - - - -Other income - - - - -Administration expenses (1,006,747) (225,628) (1,232,376) (623,416) (1,855,792)Share of profit / loss of associates (1,292,078) - (1,292,078) - (1,292,078)Impairment ofexploration expenditure - - - (1,674) (1,674)Profit/(loss) ondisposal of subsidiary - - - (1,508,051) (1,508,051)Finance income 535,489 36,862 572,352 227 572,579Financing costs (5,874) (57,059) (62,933) (1,292) (64,225)Taxation - (40,771) (40,771) - (40,771) ------------- ------------- ------------- --------------- ------------- (1,769,209) (286,596) (2,055,806) (2,114,935) (4,170,741) ============= ============= ============= =============== =============Non current assets 749,491 10,057,455 10,806,946 - 10,806,945Inventories - 1,194 1,194 - 1,194Trade and otherreceivables 2,852,394 1,119,783 3,972,177 - 3,972,177Cash and cashequivalents 7,075,180 471,456 7,546,636 - 7,546,636Trade andother payables (233,728) (874,488) (1,108,216) - (1,108,216) ------------- ------------- ------------- --------------- ------------- 10,443,336 10,775,400 21,218,736 - 21,218,736 ============= ============= ============= =============== ============= Geographical segment (Group) as at 31st December 2006 (Restated) Continuing Continuing Continuing Dis-continuing 31st December operations operations operations operations 2006 United Russia Total Hungary Total Kingdom • • • • • ------------- ------------- ------------- --------------- -------------Revenue 1,753 - 1,753 17,598 19,351Cost of sales - - - - -Other income - - - - -Administration expenses (1,520,341) - (1,520,341) 28,779 (1,491,562)Share of profit/ loss of associates - - - - -Impairment ofexploration expenditure - - - (2,748,247) (2,748,247)Profit/(loss) on disposal of subsidiary - - - - -Finance income 267,771 - 267,771 171 267,942Financing costs (7,159) - (7,159) (4,998) (12,157) ------------- ------------- ------------- --------------- ------------ (1,257,976) - (1,257,976) (2,706,697) (3,964,673) ============= ============= ============= =============== =============Non current assets 22,786 - 22,786 5,746,138 5,768,924Inventories - - - 150,048 150,048Trade and otherreceivables 15,626 - 15,626 56,319 71,945Cash and cashequivalents 8,116,097 - 8,116,097 134,789 8,250,886Trade andother payables (118,481) - (118,481) (35,244) (153,725) ------------- ------------- ------------- --------------- ------------- 8,036,028 - 8,036,028 6,052,050 14,088,078 ============= ============= ============= =============== ============= The 2006 numbers have been restated for impairment of exploration expenditurewhich includes €1,258,617 with respect to goodwill amortisation which has beenreversed (see note 20). 8. Finance costs Group 2007 2006 • •Bank interest 36,984 3,220Bank charges 25,949 3,939 ---------- --------- 62,933 7,159 ========== ========= 9. Property, plant and equipment Group Company 2007 2006 2007 2006 • • • •Acquisition costAt 1st January 74,634 - 26,638 -Additions 84,485 74,634 15,163 26,638Disposals (49,427) - - -Currency translation adjustments (5,214) - (2,298) - -------- -------- --------- --------At 31st December 104,478 74,634 39,503 26,638 DepreciationAt 1st January (18,404) - (3,852) -Eliminated on disposal 16,735 - - -Charge for year (16,782) (18,404) (7,891) (3,852)Currency translation adjustments 477 - 332 - -------- -------- --------- --------At 31st December (17,974) (18,404) (11,411) (3,852) -------- -------- --------- --------Carrying value as at 31st December 86,504 56,230 28,092 22,786 ======== ======== ========= ======== -------- -------- --------- --------Carrying value as at 31st December 2005 - - - - ======== ======== ========= ======== Property, plant and equipment is comprised of office and computer equipment. 10. Intangible assets Intangible assets as at 31st December 2007 were: License acquisition Exploration and 2007 costs appraisal costs • • •Acquisition costAt 1st January 5,712,694 - 5,712,694Additions 3,913,376 6,891,957 10,805,333Impairment - (1,674) (1,674)Disposal (5,246,411) (804,617) (6,051,028)Other movements - - -Currency translation adjustments (466,283) - (466,283) --------------- ------------------ ---------Carrying value at 31stDecember 3,913,376 6,085,666 9,999,042 =============== ================== ========= Intangible assets as at 31st December 2006 were: License acquisition Exploration and appraisal 2006 costs Restated costs Restated Restated • • • ---------------- ---------------------- ---------Acquisition costAt 1st January - - -Additions 5,712,694 2,748,247 8,460,941Impairment - (2,748,247) (2,748,247)Disposal - - -Other movements - - -Currency translation adjustments - - - ----------------- ---------------------- ---------Carrying value at 31stDecember 5,712,694 - 5,712,694 =================== ====================== ========= ------------------- ---------------------- ---------Carrying value as at - - -31st December 2005 =================== ====================== ========= License acquisition costs for 2006 have been restated to include €2,803,225 inrespect of a fair value adjustment of €1,544,608 and reversal of goodwillpreviously amortised of €1,258,617 (see note 20). Exploration and Assets Liabilities Income Expense Operating cash flows Investing cash flowsappraisalexpenditureConsolidated 2007 • • • • • • -------- -------- ------- -------- ------------- -------------The Arkhangelovskoe license 9,999,042 831,151 - - - 6,891,957The Inke concession - - - (6,517,311) - - -------- -------- ------- -------- ------------- -------------Total 9,999,042 831,151 - (6,517,311) - 6,891,957 -------- -------- ------- -------- ------------- ------------- Exploration and Assets Liabilities Income Expense Operating cash flows Investing cash flowsappraisalexpenditureConsolidated 2006 • • • • • • -------- -------- ------- -------- ------------- -------------The Arkhangelovskoelicense - - - - - -The Inke concession 5,712,694 - - 2,748,247 - 3,748,247 -------- -------- ------- -------- ------------- -------------Total 5,712,694 - - 2,748,247 - 3,748,247 -------- -------- ------- -------- ------------- ------------- During the year the company disposed of 60% of Gemstone Properties Limited,which led to an expense of €6,517,311. In 2006 the company wrote-off costs totalling €2,748,247 relating to abandonedwells in the Inke Concession under the Successful Efforts method of accounting. The value of the Group's interest in Exploration and Appraisal expenditure isdependent upon: • The continuance of the Group's rights to tenure of the areas of interest; • The results of future exploration; and • The recovery of costs through successful development and exploitation of the areas of interest, or alternatively, by their sale. Licence acquisition costs represent costs incurred to purchase, lease orotherwise acquire a property including the costs of lease bonuses and options topurchase or lease properties, the portion of costs applicable to petroleum whenland including petroleum rights is purchased, including brokers' fees and legaland other related costs. Exploration and appraisal costs represent costs incurred after obtaining alicence or concession but before a decision is taken to develop a field orreservoir, including the costs of: - geological and geophysical studies;- holding undeveloped properties; and drilling, equipping and testing exploration and appraisal wells. Appraisal costsare those incurred in determining the size and characteristics of a reservoirdiscovered during the exploration stage and then assessing its commercialpotential. 11. Investment in subsidiaries The principal subsidiaries of Matra Petroleum plc, all of which have beenincluded in these consolidated financial statements, are as follows: Name Country of incorporation Proportion of ownershipMatra Cyprus Petroleum Limited Cyprus 100%OOO Arkhangelovskoe Russian Federation 100% Matra Cyprus Petroleum Limited owns 100% of the shares in OOO Arkhangelovskoe. Effective 12th June 2007, the Company sold 60% of Gemstone Properties Limited,the holding company of Blue Star 95 KFT, the Hungarian oil & gas explorationcompany, to HHE America Limited, a private company registered in the UnitedStates of America. The disposal of 60% of the equity in Gemstone was in exchangefor a 100% carry on the $5,500,000 2007 exploration work programme and thedeemed consideration was $2,200,000. The net assets of Gemstone at the date of disposal and at the end of thecomparative year were as follows: At date of disposal 2006 • • ------------ ------------Non-current assets 6,083,718 5,746,138Inventories 148,545 150,048Trade & other receivables 297,705 56,319Cash & cash equivalents 1,923,283 134,789Trade & other payables (3,419,558) (2,373,034) ------------ ------------ 5,033,693 3,714,260 ============ ============ Total consideration $2,200,000 1,512,165Less: 60% of net assets on disposal (3,020,216) ------------ (1,508,051) ============ Effective 1st October 2007, Inke Petroleum Pty Limited was put into MembersVoluntary Liquidation. The net assets of Inke at the date of disposal and at the end of the comparativeyear were as follows: At date of disposal 2006 • • ------------ ------------Non-current assets 1,000,000 1,000,000Trade & other payables (1,142,681) (1,142,681) ------------ ------------ (142,681) (142,681) ============ ============Total consideration -Less: net assets on disposal 142,681 ------------ 142,681 ============ 12. Investment in associates The following entities meet the definition of an associate and have been equity accounted for in theconsolidated financial statements: Name Country of incorporation Proportion of ownership 2007 Proportion of ownership 2006GemstonePropertiesLimited British Virgin Islands 40% 100% Matra Cyprus Petroleum Limited owns 100% of the shares in OOO Arkhangelovskoe. Aggregated amounts relating to associates are as follows: 2007 2006 • • ----------------- -----------------Total assets 3,436,506 -Total liabilities (2,715,107) -Revenues 10,160 -Profit /(loss) (1,292,078) - 13. Inventories Group Company 2007 2006 2007 2006 • • • •Drilling and other supplies 1,194 150,048 - - 14. Receivables Group Company 2007 2006 2007 2006 • • • •Trade receivables - 3,650 - 131,376Prepayments and otherreceivables 3,972,177 65,334 2,852,394 13,566Intercompany loans - 2,961 9,519,488 2,177,553 --------- --------- --------- --------- 3,972,177 71,945 12,371,882 2,322,495 ========= ========= ========= =========Included in prepayments and other receivables is an amount of €2,828,113 (2006:nil) relating to amounts due from associate undertakings. 15. Payables Group Company 2007 2006 2007 2006 • • • •Trade payables 949,101 49,820 203,287 32,950Accruals and other payables 159,115 100,030 30,442 88,265 --------- --------- --------- --------- 1,108,216 149,850 233,729 121,215 ========= ========= ========= ========= 16. Share based payments Exercise Grant Outstanding at Granted during Lapsed during Outstanding at Final exerciseprice date start of year the year the year end of year date(p) 20062.0 17/03/2005 10,000,000 - - 10,000,000 30/06/20082.5 17/05/2005 1,000,000 - - 1,000,000 30/06/20080.1 11/04/2006 - 5,000,000 - 5,000,000 11/04/20115.0 11/04/2006 - 10,000,000 - 10,000,000 11/04/20116.3 11/04/2006 - 2,620,000 - 2,620,000 11/03/20090.1 23/05/2006 - 1,200,000 - 1,200,000 23/05/20115.0 23/05/2006 - 6,000,000 - 6,000,000 23/05/2011 ---------------- -------------- -------------- --------------- ------------Total 11,000,000 24,820,000 - 35,820,000 ---------------- -------------- -------------- --------------- ------------20072.0 17/03/2005 10,000,000 - - 10,000,000 30/06/20082.5 17/05/2005 1,000,000 - - 1,000,000 30/06/20080.1 11/04/2006 5,000,000 - - 5,000,000 11/04/20115.0 11/04/2006 10,000,000 - - 10,000,000 11/04/20116.3 11/04/2006 2,620,000 - - 2,620,000 11/03/20090.1 23/05/2006 1,200,000 - - 1,200,000 23/05/20115.0 23/05/2006 6,000,000 - - 6,000,000 23/05/20118.0 20/04/2007 - 24,000,000 - 24,000,000 15/02/20094.5 23/04/2007 - 8,000,000 - 8,000,000 22/04/20124.5 31/03/2007 - 500,000 - 500,000 31/03/20127.5 25/09/2007 - 250,000 - 250,000 25/09/2012 ---------------- -------------- -------------- --------------- ------------Total 35,820,000 32,750,000 - 68,570,000 ---------------- -------------- -------------- --------------- ------------ Fair valueThe fair value of the options granted have been valued using the Black Scholes model which takes into account such factors as the option life, the volatility of the share price, vesting periods and the expected early exercise of share options. Options granted during the year have been valued using the following assumptions: Grant date 20/04/2007 23/04/2007 31/03/2007 25/09/2007------------------ --------- --------- --------- ---------Share price at date of grant (p) 5.1 5.1 4.8 7.2Exercise price (p) 8.0 4.5 4.5 7.5Volatility of share price 55% 55% 55% 55%Option life (days) 667 1826 1827 1827Dividend yield 0 0 0 0Risk-free investment rate 4.8% 4.8% 4.8% 4.8%Fair value (p) 0.9 2.8 2.6 3.7Number of options 24,000,000 8,000,000 500,000 250,000 Grant date 11/04/2006 11/04/2006 11/04/2006 23/05/2006 23/05/2006----------------- -------- -------- -------- -------- --------Share price atdate of grant (p) 6.9 6.9 6.9 3.3 3.3Exercise price (p) 0.1 5.0 6.3 0.1 5.0Volatility ofshare price 55% 55% 55% 55% 55%Option life(days) 1826 1826 1826 1826 1826Dividend yield 0 0 0 0 0Risk-free investmentrate 4.8% 4.8% 4.8% 4.8% 4.8%Fair value (p) 6.9 4.3 3.1 3.2 1.3Number of options 5,000,000 10,000,000 2,620,000 1,200,000 6,000,000 Volatility has been based on the following:- The annualised volatility of the Company's share since its floatation on the AIM market; and- The volatility of comparable listed Companies that are considered to be most like Matra based on historical share price information. The total charge for equity settled share based payments was €263,128 (2006:€453,648 as restated, see note 20). 17. Notes to the cash flow statement Group Company 2007 2006 Restated 2007 2006 Restated • • • •Loss after taxation (4,170,741) (3,964,673) (5,540,734) (2,464,700) Depreciation 16,782 18,405 7,892 3,853 Share of loss of 1,292,078 - - - associates Impairment of 1,674 2,748,247 - - exploration expenditure Loss on disposal of 1,508,051 - 1,918,025 - subsidiary Share based payments 263,128 453,648 263,128 453,648 Foreign currency 444,096 (16,578) (314,165) 141,661 differences Income tax expense 40,771 - - - -------- ---------- -------- ----------Cash used in operating activities before changesin working capital andprovisions (604,161) (760,951) (3,665,854) (1,865,538) Decrease / (increase) (1,194) (150,048) - - in inventories Decrease / (increase) (1,369,824) 298,167 (6,136,011) (1,952,383) in receivables Increase / (decrease) 1,545,936 127,548 112,514 95,038 in payables -------- ---------- -------- ----------Cash used in operations (429,243) (485,284) (9,689,351) (3,722,883) Income taxes paid (40,771) - - - -------- ---------- -------- ----------Net cash used in operatingactivities carried forward (470,014) (485,284) (9,689,351) (3,722,884) ======== ========== ======== ========== The following cashflows relate to operations discontinued during the year: Group Company 2007 2006 Restated 2007 2006 Restated • • • •Cash flows from operatingactivities (342,655) (398,395) - -Expenditure on oil and gasassets (804,618) (3,748,247) - - -------- ---------- ------ ---------- (1,147,273) (4,146,642) - - ======== ========== ====== ========== Restatement of 2006 results Finance income of €255,785 (Group) and €266,122 (Company) has been reclassifiedas Cash Flows from Operating Activities from Cash Flows from InvestingActivities. Group and Company net proceeds from issue of shares have decreased to reflectthe fair value of warrants issued as part of the AIM fundraising (see note 20). Neither of these adjustments has not affected the Group nor Company cashpositions as at 31st December 2006. 18. Acquisitions On 23rd April 2007, the Group acquired 100% of the share capital of OOOArkhangelovskoe, a Russian Company whose principle activity is oil and gasexploration in the Orenburg Region, Southern Russia. Details of the fair valueof the identifiable assets and liabilities acquired and purchase considerationare as follows: 2007 2007 2007 Book value Fair value Fair value adjustment • • •Fair value of assets acquiredIntangible exploration assets 916,462 3,910,606 4,827,068Trade and other receivables 2,770 - 2,770Trade and other payables (916,462) - (916,462) ---------- -------- ------- 2,770 3,910,606 3,913,376Consideration paid55 million ordinary shares at a fairvalue of 5p per share (3,913,376) - (3,913,376) 19. Called up share capital 2007 2006 • •Authorized:------------------------------- --------- ---------10,000,000,000 ordinary shares of 0.1p each 13,571,000 13,571,000=============================== ========= =========Allotted:------------------------------- --------- ---------452,000,000 (2006: 260,000,000) ordinary shares of0.1p each 646,971 389,122=============================== ========= ========= Reserve Description and purposeThe following describes the nature and purpose of each reserve within owners'equity: • Share capital: Amount subscribed for share capital at nominal value. • Share premium: Amount subscribed for share capital in excess of nominal value. • Other reserves: Comprises a charge relating to the fair value of the option granted of €716,776 (2006: €453,648) and a charge relating to the fair value of the warrant granted of €594,080 (2006: €594,080). • Foreign currency translation reserve: Exchange Gains/losses arising on retranslating the net assets of operations into the presentation currency. • Retained earnings: Cumulative net gains and losses recognised in the consolidated income statement. The following issues of new shares in the Company took place in the period: 1. On 24th April 2007 the Company completed the acquisition of 100% of theRussian company "OOO" Arkhangelovskoe (Arkhangel). In accordance with theacquisition agreement the Company issued 55,000,000 ordinary shares asconsideration to the owners of Arkhangel. 2. On 16th May 2007, following shareholder approval, the Company completedthe placement for cash of 135,000,000 shares at 4.5 pence to Delek-InternationalEnergy Limited. Under the terms of the Subscription Agreement, Gideon Tadmor,President and CEO of Delek Energy Systems Limited, was appointed as a Directorof the Company. 20. Adjustment to prior period As consideration for the acquisition of Inke Petroleum Pty Limited on 6th April2006, the Company issued 52,000,000 shares at 5p in the Company in accordancewith IFRS 3. The Fair Value of this consideration has been revised from thePlacing Price of 5p to 7p, being the Market Price on the Company's re-admissionto AIM on 11th April 2006 and has been re-allocated to License Acquisition Costsfrom Goodwill on Acquisition as in the opinion of the Directors this betterreflects standard industry practice. The Goodwill previously amortized in 2006of €1,258,617 has been fully reversed and together with the fair valueadjustment of €1,544,608 has increased the value of license costs withinIntangible Assets by €2,803,225 to €5,712,694. On the Company's re-admission to AIM, 80 million Warrants were granted 1 for 2to the 160 million initial subscribers in Matra shares. The Warrants are deemedto have a Fair Value of 0.5p, being the difference between the exercise price of6.5p and the Market Price on the Company's re-admission to AIM on 11th April2006 which was 7p. An allocation of €594,080 has been made to the Share basedpayments reserve from share premium to reflect this. The net adjustment to sharepremium of €950,528 reflects €1,544,608 with respect to the fair valueadjustment on the issue of shares less €594,080 warrant allocation to otherreserves. The adjustments in the historical financial statements resulting from the changein accounting treatment are summarised in the table below: Adjustments in the Group Income Statement: Original Adjustment Restated 2006 2006 2006 Notes • • •Continuing operations Loss after taxation (1,257,976) - (1,257,976)Dis-continuing operations Loss for the year from (3,965,314) 1,258,617 (2,706,697) discontinued operations -------- --------- -------- Loss for the year attributable (5,223,290) 1,258,617 (3,964,673) to equity shareholders of the parent ======== ========= ======== Loss per share Basic and diluted (0.01362) (0.01943) Loss per share from continuing operations Basic and diluted (0.00328) (0.00617) Loss per share from discontinuing operations Basic and diluted (0.01034) (0.01327) Adjustments in the Group Balance Sheet: Original Adjustment Restated 2006 2006 2006 • • • Intangible assets 2,909,469 2,803,225 5,712,694 --------- ---------- ----------Total assets 11,438,578 2,803,225 14,241,803 ========= ========== ========== Capital and reserves attributable to equity holders of the Company Share premium 15,877,510 950,528 16,828,038 Share based payments reserve 532,934 594,080 1,127,014 Retained earnings (5,356,474) 1,258,617 (4,097,857) --------- ---------- ----------Total equity and liabilities 11,438,578 2,803,225 14,241,803 ========= ========== ========== Adjustments in the Company Balance Sheet: Original Adjustment Restated 2006 2006 2006 • • • Investment in subsidiary 3,861,520 1,544,608 5,406,128 --------- ---------- ----------Total assets 14,322,897 1,544,608 15,867,505 ========= ========== ========== Share premium 15,877,510 950,528 16,828,038 Share based payments reserve 532,934 594,080 1,127,014 --------- ---------- ----------Total equity and liabilities 14,322,897 1,544,608 15,867,505 ========= ========== ========== 21. Financial instrument risk exposure and management In common with all other businesses, the Group is exposed to risks that arisefrom its use of financial instruments. This note describes the Group'sobjectives, policies and processes for managing those risks and the methods usedto measure them. Further quantitative information in respect of these risks ispresented throughout these financial statements. There have been no substantive changes in the Group's exposure to financialinstrument risks, its objectives, policies and processes for managing thoserisks or the methods used to measure them from previous periods unless otherwisestated in this note. Fair value of financial assets and liabilities At 31st December 2007 and 2006, the fair value and the book value of the Group'sfinancial assets and liabilities were materially the same. Principal financial instrumentsThe principal financial instruments used by the Group, from which financialinstrument risk arises, are as follows: cash at bank trade and other payables General objectives, policies and processesThe Board has overall responsibility for the determination of the Group's riskmanagement objectives and polices and, whilst retaining ultimate responsibilityfor them, it has delegated the authority for designing and operating processesthat ensure the effective implementation of the objectives and policies to theGroup's finance function. The overall objective of the Board is to set policesthat seek to reduce risk as far as possible without unduly affecting the Group'scompetitiveness and flexibility. Further details regarding these policies areset out below: Liquidity riskLiquidity risk arises from the Group's management of working capital. It is therisk that the Group will encounter difficulty in meeting its financialobligations as they fall due. The Group's policy is to ensure that it will always have sufficient cash toallow it to meet its liabilities when they become due. To achieve this aim, itseeks to maintain cash balances (or agreed facilities) to meet expectedrequirements for a period of at least 30 days. The Group also seeks to reduceliquidity risk by maximising interest rates (and hence cash flows) on its cashdeposits, this is further discussed in the 'interest rate risk' section below. The Board receives rolling 12-month cash flow projections on a periodic basis aswell as information regarding cash balances and (as noted above) theseprojections indicated that the Group expected to have sufficient liquidresources to meet its obligations under all reasonably expected circumstancesfor the foreseeable future. Details on the Group's commitments can be found innote 23. Interest rate riskIt is the Group's policy to minimise interest rate risk over the cash flows onits long-term debt finance through the use of deposit accounts. The Groupinvests surplus cash in accessible cash deposit accounts and in doing so itexposes itself to the fluctuations in interest rates that are inherent in such amarket. The annualised effect of a 0.5% decrease in the interest rate at thebalance sheet date on the variable rate debt carried at that date would, allother variables held constant, have resulted in an increase in post-tax profitfor the year of €34,876 (2006: €34,276). A 0.5% increase in the interest ratewould, on the same basis, have decreased post-tax profit by the same amount. The group manage the interest rate risk associated with the Group cash assets byensuring that interest rates are as favourable as possible whilst managing theaccess the Group requires to the funds for working capital purposes. At the year end, the Group had a cash balance of €7,546,636 (2006: 8,250,886)which was made up as follows: Group Company 2007 2006 2007 2006Great British Pound 5,991,526 6,927,742 5,989,380 6,927,742Euro 1,085,799 1,323,144 1,085,799 1,188,355Russian Rouble 469,310 - - - --------- --------- --------- --------- 7,546,636 8,250,886 7,075,179 8,116,096 --------- --------- --------- --------- Included in the consolidated totals above are amounts of €6,975,198 (2006:6,855,106) held within deposit accounts. Currency riskThe Group's policy is, where possible, to allow group entities to settleliabilities denominated in their functional currency (primarily Euro or RussianRoubles) in that currency. Where group entities have liabilities denominated ina currency other than their functional currency (and have insufficient reservesof that currency to settle them) cash already denominated in that currency will,where possible, be transferred from elsewhere within the Group. In order to monitor the continuing effectiveness of this policy, the Boardreceives a periodic forecast, analysed by the major currencies held by the Group.The Group is primarily exposed to currency risk on purchases made from suppliersin Orenburg, Southern Russia in Russian Roubles. As it is not possible for theGroup to transact in Russian Roubles outside of Russia, a Sterling account ismaintained in Orenburg and all funding is transferred to its Russian subsidiaryin this currency. Once the funding has been received, the local finance teamnegotiates a favourable spot rate with its Russian bank for transferringSterling to Russian Roubles. The UK finance team, along with its advisors,carefully monitors movements in the Sterling / Russian Rouble rate and choosesthe most beneficial times for transferring monies to its subsidiary, whilstensuring that it has sufficient funds to continue its operations. An adverse movement in the Russian Rouble at the year-end of 0.5% would resultin the commitments within one year increasing by €15,276 (2006: nil). 22. Deferred tax Group Company 2007 2006 2007 2006 • • • •A deferred tax assets has not beenrecognised on the following:- Temporary differences in sharebased payments 660,503 - 660,503 -- Unused tax losses 1,295,535 600,775 642,856 277,827 -------- ------- -------- ------- 1,956,038 600,775 1,303,359 277,827 ======== ======= ======== ======= No deferred tax asset has been recognised as the recovery of such assets are notprobable in the foreseeable future. 23. Commitments The Company has no operating or finance lease commitments. In order to maintain the current rights of tenure to exploration licenses, thegroup has the following exploration expenditure commitments up until the expiryof the licenses. These obligations are not provided for in the financialstatements and are payable: Group Company 2007 2006 2007 2006 • • • •Within one year 3,055,197 - - -Within two to five years 4,277,276 - - - --------- --------- --------- --------- 7,332,473 - - - ========= ========= ========= ========= 24. Related party transactions The Group had the following transactions (excluding Directors' fees) withrelated parties during the year ended 31st December 2007: Group Company 2007 2006 2007 2006 • • • •During the year the parent entityprovided the following management andconsulting fees to its associate:- Blue Star 95 KFT 194,333 - 194,333 - During the year the parent entityprovided the following loan funding toits associate:- Blue Star 95 KFT 2,828,113 - 2,828,113 - -------- -------- -------- ------- 3,022,446 - 3,022,446 - ======== ======= ======== ======= 25. Post balance sheet events On 3rd January 2008, Arkhangelovskoe, the 100% owned subsidiary, announced thespudding of its second exploration well on the Arkhangelovskoe license inOrenburg, Russia. The new well, Arkhangelovskoe-11, will test the Laptevskayastructure and is due to be completed in mid-May 2008. On 5th February 2008, Blue Star 95 KFT, the 40% owned associate, announced thecompletion of testing on the Horvatkut-1 and Marcali-1 wells. The Horvatkut-1well tested at rates of up to 4 million scfd, however the reservoir intervalswere shown to be of limited extent and pressure analysis concludes that it isunlikely to be economic. The Marcali-1 well flowed water on test and istherefore not economic. Full impairment against these assets has already beenmade in these accounts. This information is provided by RNS The company news service from the London Stock Exchange

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