15th Apr 2005 07:00
Emerald Energy PLC15 April 2005 EMERALD ENERGY PLC 15 April 2005 FINAL RESULTS EMERALD ENERGY Plc, a United Kingdom based Company engaged in exploration andproduction of hydrocarbons in Colombia, announces its Preliminary Results foryear ended 31 December 2004. HIGHLIGHTS - Drilled 2 new wells in 2004, and 2 further wells in Q1 2005 - Production for 2004 up from 797 bopd in January to 2,344 bopd in December - Current production in excess of 3,000 bopd - Farm-in to 50% of El Algarrobo Association Contract - Awarded two Technical Evaluation Agreements covering 4,720 sq km in Llanos basin, Colombia - Entered into Sale and Purchase Agreement to acquire 25% of JSC Krasnoyarskgazprom CHAIRMAN'S STATEMENT 2004 was an exciting year for Emerald. A successful restart of the drillingprogramme led to continued growth in Colombia with new wells being drilled andproduction increasing. Outside of Colombia, Emerald has actively pursued newopportunities. Colombia Since 1 January 2004, Emerald has drilled four new wells - all in the Campo Ricoblock in the Llanos basin. Campo Rico #1, the Company's first new well forseveral years, discovered commercial reserves and was on production withineleven weeks of the discovery. Following the encouraging results of theproduction testing of Campo Rico #1, the Company drilled two further developmentwells, Campo Rico #2 and #3. The Campo Rico #2 well was flow tested and rates upto 650 bopd were recorded, however a workover is required to reduce waterproduction from a lower layer. At Campo Rico #3 three zones were tested atindividual rates of up to 1,700 bopd but, due to water production from anadjacent zone, the well also requires a workover. These workovers will becarried out after the completion of testing of Vigia #1. In March 2005 the Company completed the drilling of Vigia #1, an explorationwell some 11 km to the east of the Campo Rico field, to test the hydrocarbonpotential of a structure identified by seismic acquired in 2003. The well wasdrilled to a depth of 11,120 ft. Under natural flowing conditions the wellproduced oil from the Une formation at a rate of 440 bopd and from the Gachetaformation at a rate of 260 bopd. The Company plans to install a downhole pumpwhich should increase the production rate significantly. In 2004, Emerald commenced exploration work in the Fortuna block, where itacquired 59 km of new 2D seismic and re-processed the available existing seismicdata. Plans are now advancing for the first Fortuna exploration well. Emerald has continued its expansion in Colombia: - In October 2004, the Colombian National Agency for Hydrocarbons (the "ANH") awarded Emerald two Technical Evaluation Agreements ("TEAs"), the Mantecal and the Altamira TEAs, jointly covering 4,720 sq km. The new TEAs give Emerald the opportunity to evaluate the hydrocarbon potential in the areas covered by the agreements and the right of first refusal to enter into exploration and production contracts for all or part of these areas. In addition to the Mantecal and the Altamira TEAs, Emerald is currently in discussions with the ANH to secure more of the acreage in the Llanos basin within the TEA framework. - In November 2004, the Company exercised the option to acquire 50% of Rancho Hermoso SA's interest in the El Algarrobo Association Contract and Ecopetrol SA recently approved the assignment of interest to Emerald. It is expected that the first exploration well will be drilled in late 2005 or early 2006. Average gross production achieved in 2004 was 1,322 bopd, 86% up from 712 bopdachieved in 2003. Production from the Campo Rico field started in May 2004increasing the total average rate of gross production in Colombia to 1,971 bopdin the last quarter of 2004. Production for the first quarter of 2005 hasaveraged 2,292 bopd and is currently in excess of 3,000 bopd. Russia On 11 November 2004, the Company announced it had entered into a Sale andPurchase Agreement to acquire 25% of JSC Krasnoyarskgazprom from Star CapitalResearch Limited for the consideration of 12 million ordinary shares in theCompany. Since then, the Company has been advised by Star Capital of a potentialcapital restructuring of JSC Krasnoyarskgazprom by OAO Gazprom, the currentholder of 75% of JSC Krasnoyarskgazprom. Until the details of this restructuringare known, and the Company is completely satisfied with any possibleimplications of the restructuring, the Company will not proceed with theproposed transaction. The Company and Star Capital have agreed to amend thelong-stop date to complete this transaction to 31 December 2005. The Company remains fully committed to acquire an interest in this significantproject. The three fields, to which JSC Krasnoyarskgasprom holds exploration andproduction licences, represent a significant part of a regional oil and gasdevelopment in the Krasnoyarsk region of East Siberia. Financial results The results for the Group for the year ended 31 December 2004 show a profitbefore tax of $3.6 million achieved on the turnover of $12.6 million comparedwith a profit before tax of $0.3 million achieved on the turnover of $5.0million in the year ended 31 December 2003. Helped by growing production andcontinued strength of the oil prices in the reporting period, Emerald generatedadjusted EBITDA of $4.9 million compared to $0.7 million achieved in 2003. Cashat 31 December 2004 totalled $23.6 million compared with $9.0 million for 2003. The Company does not propose to declare a dividend for 2004 and will use itsstrong cash flow to finance the growth of the Group and its operations. Board changes Mr Keith Henry was appointed as a director on 6 February 2004. In accordancewith the Articles of Association of the Company, all directors, who had beenappointed since the Company's Annual General Meeting held in 2003, retired andstood for re-election at the Company's AGM held in 2004 and were duly elected. Other activities In June 2004, Emerald reached a settlement with certain underwriters at Lloydsin relation to the Group's claim for losses incurred during the blowout and fireat the Gigante #1A well in May 2000. The Company received $1.3 million net oflegal costs and dropped all further claims against the underwriters. In August 2004, the Company consolidated its shares on the basis of 1 newordinary share for 100 old ordinary shares and subsequently issued 7.7 millionnew shares at £1.20 per share raising $16.7 million before expenses to fund theaccelerated drilling programme in Colombia. In November 2004, the Company appointed Evolution Securities Limited as itsfinancial adviser and broker. Outlook In 2005, Emerald is on track to further its growth ambitions in Colombia. TheGroup intends to drill three new exploration and development wells in additionto the three wells drilled since November 2004. The results for 2004 demonstrate that the management team operates effectivelyin Colombia. The Group is highly motivated to increase production from itsexisting assets and to enter new projects to secure the Company's growth.Emerald is successfully building a track record as an active E&P company inColombia. The management can now use this track record to gain entry to new andbigger projects, focusing on the countries of South America and the FormerSoviet Union. Alastair BeardsallChairman14 April 2005 REVIEW OF OPERATIONS MATAMBO ASSOCIATION CONTRACT Area of 69 sq km; Emerald has 100% working interest. Exploration rights extendto November 2024. The Matambo contract covers the Gigante field and surrounding areas in the UpperMagdalena Valley. Emerald is operating the Gigante #1A well on a "sole-risk"basis; until Emerald has recovered 200% of the allowable costs attributable tothe project, Ecopetrol will not be able to take up its 50% participatinginterest. A reserved zone of up to 5 km around the sole risk area has beenestablished; Emerald retains exclusive exploration rights within this zone butwithout any additional work obligation. Emerald has recently obtained new well and seismic data from a nearbyexploration block that is directly relevant to Gigante and is integrating thisinformation with the latest Gigante production data prior to finalising theprogramme for further appraisal drilling in the Matambo contract area. The Gigante #1A well continued to produce 32degrees API gravity crude oil at anaverage rate of 715 bopd during 2004, despite an increase in the water-cut from38% to 46%. The well receives chemical treatment to inhibit the precipitation ofasphaltene particles within the producing reservoir and to remove any emulsionblocks that can restrict oil production. The cumulative oil production fromGigante #1A at the end of 2004 was 1.81 million barrels. The remaining Proven plus Probable plus Possible reserves of the Gigante fieldhave been estimated by RPS Troy-Ikoda, independent consulting engineers, to be18.16 million barrels. CAMPO RICO ASSOCIATION CONTRACT Area of 503 sq km; Emerald has 100% working interest. Contract awarded in May2002 with an exploration period of up to six years and an exploitation period ofup to 22 years. The Campo Rico block is in the productive Llanos basin and is adjacent to theRancho Hermoso-La Punta and Santiago-Entrerios producing oil fields. The Campo Rico #1 discovery well was drilled to a depth of 11,795 ft and, duringa short flow test in March 2004, produced at a rate of 250 bopd of 16degrees APIcrude oil from the Mirador sands. Since being put on long-term test in May, thewell has been operated at gradually increasing rates of oil production, reachingan average of 1580 bopd in December. The cumulative oil production from CampoRico #1 at the end of 2004 was 0.22 million barrels. The Campo Rico #2 development well was drilled directionally from the Campo Rico#1 well site to a measured depth of 11,354 ft and encountered the Miradorreservoir approximately 2,400 ft to the SSW of the Campo Rico #1 well. InFebruary 2005 the well was tested at a rate of 650 bopd but it is believed thatwater production from a lower zone is restricting oil production. A workoverwill be carried out to eliminate the water production. The Campo Rico #3 development well was drilled directionally from the Campo Rico#1 well site to a measured depth of 11,287 ft and encountered the Miradorreservoir approximately 2,700 ft to the NNE of the Campo Rico #1 well. Testscarried out in February and March 2005 established oil production rates of1,700, 1,100 and 250 bopd from the M1, M2 and M3 Mirador sands respectively.Recently it has been established that water is channelling from an adjacentformation to the production zone. A workover will be undertaken but until thenthe well will be produced at a controlled rate to avoid excessive waterproduction. When the two new Campo Rico field wells have been worked over it is anticipatedthat initially they will be capable of producing oil at an aggregate rate inexcess of 2,500 bopd. The remaining Proven plus Probable plus Possible reserves of the Campo Ricofield have been estimated by RPS Troy-Ikoda, independent consulting engineers,to be 8.48 million barrels. Since year-end, the Vigia #1 exploration well, drilled on a prospect similar tothe Campo Rico field, has reached a total depth of 11,120 ft. During the initialdrill stem tests, the well produced 16 degrees API crude oil from two separatezones. Under natural flowing conditions the well produced at a rate of 440 bopdfrom the Une sand and at a rate of 260 bopd from the Lower Gacheta sand. Approval will be sought for a long-term production test of Vigia #1 that willpermit early production from this well. The long-term test production will becarried out using a downhole pump that will increase the production ratesachieved during initial tests significantly. Following the completion of Vigia #1 for long term testing, the Company will use the Parker 222 drilling rig todrill the Vigia #2 appraisal well. Additional Vigia wells are now being plannedto be drilled in 2004 and 2005, with Vigia #2 to be spudded in the secondquarter of 2005. FORTUNA ASSOCIATION CONTRACT Area of 219 sq km; Emerald has 90% working interest. Contract awarded inDecember 2003, exploration period of up to six years and exploitation period ofup to 22 years. The Fortuna block lies in the oil-producing Middle Magdalena Valley basin. Thecontract area includes the Totumal oil field, produced by Ecopetrol until it wasabandoned in 1993 after producing over 800,000 barrels of oil. The principalprospects being developed on the block by Emerald are in the Lisama sands thatlie around the flanks of the Totumal field high. The Lisama formation is at adepth of 5,700 ft and wells to this depth can be drilled for less than $1million. Three oil fields that have produced from the Lisama sands lie just tothe south of the Fortuna block. Emerald carried out a 59 km 2D seismic survey in 2004 that has been integratedinto the existing seismic data set. Plans are now advancing for the first Lisamaexploration well, Silfide #1, that will be drilled this summer. EL ALGARROBO ASSOCIATION CONTRACT Area of 85 sq km; Emerald has 50% working interest. Contract awarded in December2003, exploration period of up to six years and exploitation period of up to 22years. The El Algarrobo block lies about 40 km from the Campo Rico field in the Llanosbasin. The target reservoirs are the Mirador, Gacheta and Une sands, as found inthe Campo Rico block and the prospect lies about 7 km to the north of theproducing Rancho Hermoso La Punta field. The assignment to Emerald by Rancho Hermoso of a 50% interest in the AssociationContract received the approval of Ecopetrol SA in March 2005 and is now beingratified by the ANH. Due to unseasonably poor weather in the Llanos this summer (December to March)it was not possible to commence construction of the El Algarrobo well locationand access road in time to allow the well to be drilled before the onset ofwinter (the rainy season from April to November) and Ecopetrol has granted anextension to the Contract to allow the well to be drilled later this year whenthe weather permits. TECHNICAL EVALUATION AGREEMENTS In October, the Company was awarded two new TEAs in the Llanos Basin ofColombia. The Mantecal (1875 sq km) and Altamira (2845 sq km) TEAs, awarded to Emerald bythe ANH and in which Emerald has a 100% working interest, lie in the north ofthe Llanos basin. The TEAs have a term of ten months and during that periodEmerald will carry out technical studies designed to identify the presence ofprospective exploration areas over which it may wish to apply to the ANH forExploration and Production Contracts ("E&P Contract"). Throughout the term of each TEA and for a short period thereafter, the Companyhas the first right of refusal over any E&P Contract proposed by a third partythat includes any part of the area covered by the TEA. The studies being carried out in the Mantecal and Altamira TEA areas includereprocessing and interpretation of existing seismic and well data and also anaero-magnetic survey designed to provide direct indications of the presence ofhydrocarbons in the area, by identifying micro-magnetic anomalies in the surfacemagnetic field. RESERVES --------------------------------------------------------------------------------Proven and probable reserves South America oil (bbl '000)--------------------------------------------------------------------------------As at 31 December 2003 11,815Revisions 1,951Production (484)As at 31 December 2004 13,282-------------------------------------------------------------------------------- Paul Ellis Alastair BeardsallChief Operating Officer Chief Executive 14 April 2005 GROUP PROFIT AND LOSS ACCOUNTfor the year ended 31 December ----------------------- 2004 2003 Notes $ '000 $ '000-------------------------------------------------------------------------------- Value of oil produced 14,774 5,961Royalty (2,246) (1,192)Other sales 66 273--------------------------------------------------------------------------------Turnover 12,594 5,042--------------------------------------------------------------------------------Cost of sales - excluding cost recovery (5,956) (2,363) - cost recovery 3 (1,272) ---------------------------------------------------------------------------------Total cost of sales (7,228) (2,363)--------------------------------------------------------------------------------Gross profit 5,366 2,679--------------------------------------------------------------------------------Administrative - excluding exceptional (3,263) (2,866)expenses items - exceptional items 4 - 528--------------------------------------------------------------------------------Total administrativeexpenses (3,263) (2,338)Exceptional item - settlement of insuranceclaim 4 1,266 ---------------------------------------------------------------------------------Operating profit 3,369 341Net interestreceivable/(payable) 238 (78)--------------------------------------------------------------------------------Profit on ordinaryactivities beforetaxation 3,607 263Tax on profit onordinary activities 5 2,868 (177)--------------------------------------------------------------------------------Profit for thefinancial year 6,475 86--------------------------------------------------------------------------------Earnings per ordinaryshare - cents 6 14.6 0.3*--------------------------------------------------------------------------------Earnings per ordinaryshare on diluted basis- cents 6 14.0 0.3*-------------------------------------------------------------------------------- * The 2003 earnings per share figures have been restated for the share consolidation GROUP STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSESfor the year ended 31 December -------------------- 2004 2003 $ '000 $ '000-------------------------------------------------------------------------------- Profit for the financial year 6,475 86--------------------------------------------------------------------------------Currency translation differences on foreign currency netInvestment 143 474--------------------------------------------------------------------------------Total recognised gains and losses 6,618 560-------------------------------------------------------------------------------- GROUP AND COMPANY BALANCE SHEETat 31 December --------------------- 2004 2003 $ '000 $ '000-------------------------------------------------------------------------------- Fixed assetsIntangible assets 1,805 -Tangible assets 22,433 18,169-------------------------------------------------------------------------------- 24,238 18,169--------------------------------------------------------------------------------Current assetsStock 157 23Debtors:--------------------------------------------------------------------------------Debtors 1,748 264Deferred tax 3,158 -Corporation tax debtor 269 --------------------------------------------------------------------------------- 5,175 264Cash at bank and in hand 23,646 8,951-------------------------------------------------------------------------------- 28,978 9,238--------------------------------------------------------------------------------Creditors: amounts falling due within one year (5,404) (1,843)--------------------------------------------------------------------------------Net current assets 23,574 7,395--------------------------------------------------------------------------------Total assets less current liabilities 47,812 25,564--------------------------------------------------------------------------------Creditors: amounts falling due after more than one year - (294)--------------------------------------------------------------------------------Net assets 47,812 25,270-------------------------------------------------------------------------------- Capital and reservesCalled-up share capital 8,068 27,766Share premium account 27,479 39,541Profit and loss account 12,265 (42,037)--------------------------------------------------------------------------------Equity and non-equity shareholders' funds 47,812 25,270-------------------------------------------------------------------------------- There are no differences between the Company and Group Balance Sheet for 2004 or2003. Alastair Beardsall Edward GraceChairman Finance Director GROUP CASH FLOW STATEMENTfor the year ended 31 December --------------------- 2004 2003 Notes $ '000 $ '000-------------------------------------------------------------------------------- Net cash inflow from operating activities beforeexceptional items 4,130 336Exceptional items 1,266 (238)--------------------------------------------------------------------------------Net cash inflow from operating activities 8 5,396 98--------------------------------------------------------------------------------Returns on investment and servicing of financeInterest received 226 65Interest paid - (143)-------------------------------------------------------------------------------- 226 (78)--------------------------------------------------------------------------------TaxationOverseas tax paid (559) (249)--------------------------------------------------------------------------------Capital expenditure and financial investmentExpenditure on fixed assets (6,445) (566)--------------------------------------------------------------------------------Net cash outflow before financing (1,382) (795)--------------------------------------------------------------------------------FinancingFinance lease payments - (8)Bank loans - (1,400)New share capital 16,714 10,831Share issue expenses (790) (712)-------------------------------------------------------------------------------- 15,924 8,711--------------------------------------------------------------------------------Increase in cash 14,542 7,916-------------------------------------------------------------------------------- NOTES TO THE ACCOUNTS 1. Basis of accounting The preliminary announcement is prepared on the same basis as set out in the2003 accounts. It covers the period from 1 January 2004 to 31 December 2004 andwas approved by the Board of Directors on 14 April 2005. The financial information contained in this statement does not constitute theGroup's statutory accounts. The figures for the year ended 31 December 2004 havebeen extracted from the Group's audited statutory account, which were approvedby the board on 14 April 2005 and will be lodged with the registrar of companiesin the Isle of Man. The report of the auditors on those accounts wasunqualified. 2. Dividend As was the case last year, no final dividend has been declared. 3. Cost recovery Cost recovery of $1,272,000 is the amount representing Emerald's recovery ofreimbursable costs under the Campo Rico Association Contract achieved by 31December 2004. This amount does not represent a cash payment but ratherrepresents the recovery of reimbursable costs, associated with drilling andoperating of the Campo Rico #1 well, that took place in 2004. 4. Exceptional items Administrative expenses --------------------- 2004 2003 $ '000 $ '000--------------------------------------------------------------------------------Release of accrual relating to the fine in Argentina - 766Termination payments to former board of directors - (238)-------------------------------------------------------------------------------- - 528-------------------------------------------------------------------------------- Settlement of insurance claim In 2004 the balance of the insurance claim relating to the Gigante #1A blow-outwas settled with the insurers, the net amount received after legal costs was$1.266m for which there is no tax impact due to available tax losses. 5. Tax on profit on ordinary activities ------------------------ 2004 2003 $ '000 $ '000--------------------------------------------------------------------------------Current taxUK corporation tax - -Overseas corporation tax 290 177-------------------------------------------------------------------------------- 290 177--------------------------------------------------------------------------------Deferred taxUK - -Overseas (3,158) --------------------------------------------------------------------------------- (3,158) -Tax on profit on ordinary activities (2,868) 177-------------------------------------------------------------------------------- Factors affecting current and future tax charge The tax assessed on the profit on ordinary activities for the year is lower thanthe standard rate of corporation tax in the UK of 30% (2003: 30%). Thedifferences are reconciled below. The tax assessed on the profit on ordinaryactivities for the year is provided below. ------------------------ 2004 2003 $ '000 $ '000--------------------------------------------------------------------------------Analysis of profit before taxationUK - -Overseas 3,607 263-------------------------------------------------------------------------------- 3,607 263--------------------------------------------------------------------------------Taxation 290 177--------------------------------------------------------------------------------Effective tax rate* 8.0% 67.0%-------------------------------------------------------------------------------- * The difference in effective tax rate for the Group between 2004 and 2003 isexplained by the following factors: (i) the Group currently pays tax in Colombiaonly; (ii) Colombian tax is charged on the higher of 'fiscal profit before tax'and 'presumptive income', which is 6% of 'fiscal equity'; the historical lossescan only be utilised to reduce the level of the fiscal profit before tax to thelevel of the presumptive income; (iii) the costs originating from the UK do notreduce taxable base in Colombia; (iv) the costs originating from the UK in 2003were higher in relation to taxable profit in Colombia than they were in 2004. The following table provides a reconciliation of the UK statutory corporationtax rate to the effective tax rate of the group on profit before taxation. -------------------------------------------------------------------------------- Percentage of profit before tax 2004 2003--------------------------------------------------------------------------------UK statutory corporation tax rate 30.0 30.0Increase/(decrease) resulting from:Higher taxes on overseas earnings 8.5 37.0Prior year losses utilised (30.5) ----------------------------------------------------------------------------------Effective tax rate 8.0 67.0-------------------------------------------------------------------------------- The group's overseas tax rates are higher than those in the UK primarily becausethe profit earned in Colombia are taxed at a rate of 38.5%. In 2003 no deferred tax asset was recognised as there was insufficient evidencethat the asset would be recoverable. In 2004, deferred tax assets have beenrecognised in relation to the losses taking into account the recognitioncriteria for deferred tax assets in FRS 19 "Deferred Tax". Deferred tax Provided Unprovided-------------------------------------------------------------------------------- 2004 2003 2004 2003UK - - - -Overseas * 3,158 - - 4,362-------------------------------------------------------------------------------- 3,158 - - 4,362-------------------------------------------------------------------------------- The Group has around $8.2 million of carry-forward tax losses in Colombia, whichare available to offset against future taxable income. As tax assets have to berecognised to the extent that it is considered more likely than not thatsuitable tax income will arise, recent improvement in the Group's profitabilityoutlook in Colombia necessitates recognition of the deferred tax asset. As thecurrent statutory corporation tax rate in Colombia is 38.5%, the Group hasrecognised $3,158,000 as deferred tax asset. 6. Earnings per ordinary share The number of shares used in this calculation has been restated to reflect the100 to 1 share consolidation in 2004. The calculation of the earnings per ordinary share is based on the profitattributable to shareholders of $6,475,000 (2003: $86,000) and on the weightedaverage number of ordinary shares in issue during the year of 44,367,265 (2003:28,735,021). The calculation of the earnings per ordinary share on a diluted basis is basedon the profit attributable to shareholders of $6,475,000 (2003: $86,000) and on46,373,687 (2003: 28,896,286) ordinary shares, calculated as follows: 2004 2003--------------------------------------------------------------------------------Basic weighted average number of shares 44,367,265 28,735,021Dilutive potential ordinary shares under EmployeeShare Option Scheme 2,006,422 161,265-------------------------------------------------------------------------------- 46,373,687 28,896,286-------------------------------------------------------------------------------- 7. Argentina provision The Group continues seeking settlement to the demands made by the Ministry ofPlanning, Public Investment and Services of the Argentine government (the"Ministry") requiring Emerald Energy (Argentina) Limited ("Emerald Argentina"),a former subsidiary of the Company, to pay the value of its minimum workobligations in relation to the exploration rights in the Nirihuau block inArgentina granted to Emerald Argentina in 1999. Aseguradora de Creditos yGarantias S.A. ("ACG"), the Argentine insurer, had issued a performanceguarantee bond to the Ministry, guaranteeing Emerald Argentina's minimum workobligations. On 9 February 2004, by means of Resolution No. 50/04 (the "Resolution") theMinistry rejected the appeal filed by Emerald on 27 June 2003 and demandedEmerald Argentina to make a payment of 825,000 Argentine peso adjusted forC.E.R. stabilisation coefficient (approximately US$420,000). The Resolutiondemanded specifically that the payment was settled by means of an Argentine pesocheque within 15 days of notification. In addition, the Resolution served noticeto ACG indicating that in the case of Emerald Argentina not complying with therequirement of the Resolution the performance bond issued to cover EmeraldArgentina's work obligation in respect of Nirihuau block would be foreclosed andexecuted. As the Group has no Argentine peso banking facilities, Emerald was notable to settle the payment in accordance with and in the manner specified by theMinistry. Emerald has repeatedly contacted the Ministry suggesting settling thepayment in US dollars, however the Ministry did not respond to Emerald'ssuggestion until 26 November 2004, when finally they agreed to a proposed methodof payment but demanded a sum of 2,447,420 Argentine peso (approximatelyUS$825,000), indicating that the increased amount included accrued interest. On10 December 2004, Emerald wrote to the Ministry stating that the application ofinterest in the settlement of the original demand was unacceptable (particularlyas Emerald had sought settling the claim in good faith), nor that the method ofcalculation of such interest was agreeable. In the same letter to the Ministry,Emerald confirmed its offer to settle the original demand for payment on theterms expressed in the Resolution with such payment being made in US dollars.This offer was subsequently reiterated in the following correspondence to theMinistry. The Board believes that the increase in the settlement amountrequested by the Ministry is unjustified and inconsistent with all the previousclaims made by the Ministry and that the level of provision for Argentineliability adequately reflects the level of the Company's exposure. 8. Net cash flow from operating activities --------------------- 2004 2003 $ '000 $ '000-------------------------------------------------------------------------------- Operating profit 3,369 341Release of accrual relating to the fine in Argentina - (766)Depletion, depreciation and impairment charges 1,509 811Ecopetrol cost recovery 1,272 -Exchange differences (17) (107)Loss on disposal of assets 1 17Increase in stock (134) -Increase in operating debtors * (1,471) (53)Increase/(decrease) in operating creditors 867 (145)--------------------------------------------------------------------------------Net cash inflow from operating activities 5,396 98-------------------------------------------------------------------------------- * Other debtors at 31 December 2004 include $1,000,000 relating to a paymentguarantee for Fortuna minimum work obligations, $500,000 of which was releasedin January 2005. 9. Analysis of net funds - cash Net funds - cash $ '000-------------------------------------------------------------------------------- At 1 January 2004 8,951Cash flow 14,542Exchange differences 153--------------------------------------------------------------------------------At 31 December 2004 23,646-------------------------------------------------------------------------------- 10. Annual Report and Accounts Copies of the annual report and accounts will be posted to shareholders in thenear future and will be available from the Company's office: Emerald Energy Plc,5th Floor, Kings House, 9/10 Haymarket, London SW1Y 4BP. The full text of the2004 Annual Report and up to date information regarding the Company's activitieswill be available from the Emerald Energy website www.emeraldenergy.com This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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