Final Results

23rd Mar 2009 07:00



PRESS RELEASE

For immediate release: 23 March 2009

Matra Petroleum plc ("Matra" or the "Company")

Final Results for the 12 Months ended 31 December 2008

Matra Petroleum, the European Russia focussed oil and gas company, today announces its final results for the 12 Months ended 31 December 2008.

Peter Hind, Matra Petroleum's Managing Director, said:

"A complete reinterpretation of the Arkhangelovskoe area was completed in early 2008. This was completed with the benefit of well results, additional new seismic and reprocessing all existing seismic. This reinterpretation was the basis of Senergy's independent review that concluded a most likely estimate of recoverable resources of 19 mmbbls.

As the Sokolovskoe discovery well is located in the flanks of the reef a crestal well is required to determine the full extent of the potential within Sokolovskoe.

Of course the schedule for our work programme is dependent upon the timing of fund raising.

Delek, our largest shareholder, has agreed to provide limited interim funding, subject to certain conditions, for us to continue until we have secured suitable finance."

For further Information, please contact:

Matra Petroleum	www.matrapetroleum.com
Peter Hind, Managing Director	+44 (0) 7990 807855
Aquila Financial Limited (PR)	www.aquila-financial.com
Peter Reilly RFC Corporate Finance (Nominated Adviser)	+44 (0) 118 979 4100
Steve Allen	+61894802500

  REPORT AND ACCOUNTS FOR THE YEAR ENDED 31 DECEMBER 2008

CHAIRMAN'S STATEMENT

Dear Shareholders

2008 saw one of the biggest downturns ever witnessed in the global financial markets. This downturn has induced a worldwide recession that has in turn reduced the demand for oil and the oil price has dropped by around 70% from its peak.

 

In such market conditions, fledgling companies such as Matra that require further investment before moving to a steady cash flow position find themselves in a difficult position.

The board decided therefore to take action to safeguard the company by:

Reducing overhead costs

Delaying significant investment

Safeguarding the main asset of the company

Ensuring that sufficient funds are available to sustain the company

The management of the company has worked hard to reduce both head-office and Orenburg office costs, the Hungarian assets were sold realising a cash inflow and approval from the Russian authorities was obtained to defer drilling commitments in the Arkhangelovskoe License in Russia.

Matra's largest shareholder, Delek has also agreed to provide interim funding to enable the company to find the more substantial funds for drilling purposes.

The company is engaged in ongoing discussions with several parties regarding funding for the next stage of drilling in Arkhangelovskoe and we will update shareholders as soon as we have something to report.

Whilst these are indeed difficult times for all companies it is worth emphasising that Matra;

 has no debt

 owns 100% of a substantial oil discovery, with significant upside

 is strongly supported by its largest shareholder

We look forward to reporting further progress on funding as soon as we are able.

Sir Michael Jenkins

Chairman

19 March 2009  REPORT AND ACCOUNTS FOR THE YEAR ENDED 31 DECEMBER 2008

MANAGING DIRECTOR'S REVIEW 

Hungary

Although there was some technical success in Hungary and we tested gas at high rates in one well, our review of the acreage concluded that whilst there are clearly small accumulations of oil and gas on the block, considerable additional investment in 3D seismic and drilling would be required to further test this exploration play.

Our view is that additional investment in Inke was less attractive for the company than investment in Akhangelovskoe, Russia and for that reason we decided to dispose of the Hungarian assets to concentrate on Russia. That sale was completed in December 2008.

Russia

A complete reinterpretation of the Arkhangelovskoe area was completed in early 2008. This was completed with the benefit of well results, additional new seismic and reprocessing all existing seismic. This reinterpretation was the basis of Senergy's independent review that concluded a most likely estimate of recoverable resources of 19 mmbbls.

The reinterpretation showed that the discovery well had been drilled on the edge of the structure close to its spill point or oil/water contact. The crest of the structure is now estimated to be 52m higher than the point at which the discovery well intersected the reservoir.

A geological study utilising all the available local well data concludes that the deposition of these reefal reservoirs in surrounding fields shows the best quality lies at the crest of the structure. 

As the Sokolovskoe discovery well is located in the flanks of the reef a crestal well is required to determine the full extent of the potential within Sokolovskoe. This well will also intersect additional reservoir targets that will be in closure at the crestal location, introducing a considerable upside potential to the field to be tested with the next well.

The reinterpretation also confirmed the presence of a well defined prospective structure in the south of the block.

Early in the year the Sokolovskoe discovery well was acidized and formation damage was successfully removed. Shortly after successfully acidizing the well , it began to produce some water and the well ceased flowing when the water column eventually prevented natural flow. The well requires a work-over to ascertain the source of the water and to restore production. The data gathered suggests the water may be coming from an interval other than the reservoir but is inconclusive. Production from an exploration well is permitted for a 12 month period prior to the Production License being granted on the discovery. In order to produce the well further before the Production License is granted we will need further approval and that is being sought. A work-over is planned as soon as funds and any necessary approvals are available. 

The oil quality is excellent and because of the relatively high expected productivity (>1000bopd/well) of the field, an in-house evaluation concluded that the economics for the development of the field remain robust down to international oil prices of around $30/bbl.

Our forward plan for Arkhangelovskoe is to drill the crestal well, to work-over the discovery well in order to restore production and to drill the southern structure. Completion of this work programme will allow us to extend the validity of the Arkhangelovskoe License for a further period.

In accordance with local regulations an application for a Production License has been made over the discovery area in the north-east part of the block and approval is anticipated later this year.

Of course the schedule for our work programme is dependent upon the timing of fund raising.

Earlier in the year I reported that we were successful in the court case that had been brought against us in Russia. The legal system in Russia is such that following the initial court decision a further process is required to preclude further claim or appeal. This process was successfully completed in September 2008 after having signed a Settlement Agreement. Arbitration in London was subsequently cancelled.

Whilst this matter is now closed, the process prevented us from raising funds during the period until it was completely settled. By the end of September financial markets had worsened and limited the options available to us. In particular, offers of bank finance earlier in the year were withdrawn and investment funds became increasingly reluctant to make new investments. The hoped for market improvements at the start of 2009 have not materialised and investors of all kinds are slow to make decisions. I receive frequent calls from concerned shareholders asking me how the search for funding is progressing and of course the only truly useful progress is when we are able to announce that we have sourced the funds. I can say however that we are in discussions with several interested parties who are attracted by the technical and commercial merits of the project.

At the time of writing the oil price is hovering in the low $40's/bbl and even conservative pundits are predicting a modest rise in the next couple of years. The Russian government has recognised the difficulty of oil producers and reduced the total tax take and we continue to receive good cooperation and flexibility from all authorities that we deal with in Russia. The economic value of our discovery in Russia is substantial and will continue to grow as oil prices recover and as we complete further work in the area.

Our major shareholders continue to support us and no movement in significant shareholders has been reported to us. Delek, our largest shareholder, has agreed to provide limited interim funding, subject to certain conditions, for us to continue until we have secured suitable finance. The details of this interim funding will be notified to shareholders as soon as arrangements are finalised.

Peter Hind

Managing Director

19 March 2009  REPORT AND ACCOUNTS FOR THE YEAR ENDED 31 DECEMBER 2008

REVIEW OF OPERATIONS AND FINANCE 

Review of financial performance and position for the year

During the year, the exploration well Arkhangelovskoe-12 produced oil on test production at varying rates until it was shut-in in November 2008. The Group generated revenues €1,077,388 (2007: €nil) from subsequent oil sales during the year and a gross profit margin of €193,398 (18% 2007: nil %). 

In May 2008 the group announced the abandonment of the unsuccessful Arkhangelovskoe-11 exploration well. The cost of the well has been fully written-off in 2008 under the successful efforts method of accounting at a cost of €2,672,555.

Included within trade and other receivables is €1,046,873 of VAT recoverable on the drilling of both the Arkhangelovskoe-12 and Arkhangelvskoe-11 wells. The Group has been recovering this VAT through the sale of oil to the Russian domestic market, on which the VAT payable on the sales are credited against amounts owing to the Group. 

Included in inventories is €167,040 relating to well casing and equipment not required for use on the Arkhangelovskoe-11 well. The Group's management are continuing to review the most economic application of this inventory which includes its sale at market price to a third party. 

In December 2008 the Group disposed of its 40% holding in Gemstone Properties Limited to its US based equity partner HHE America Inc. following the board's decision to exit from Hungary in order to focus on its Russian asset. Proceeds from the asset sale totalled €633,204 and gave rise to a loss on disposal of €1,316,533.

Subsequent to the Russian court proceedings issued against Matra by the former owners of the Arkhangelovskoe licence in June 2008, the Group announced in November 2008 that a settlement agreement had been signed to take such steps in the Russian courts so as to prevent any further appeal and to cancel the arbitration instigated by Matra against the former owners of the licence in London.

During the year 11,000,000 options and 251,205 warrants were exercised at a price of 2.0p to 2.5p and 6.5p respectively. The proceeds of the issue totalled €303,639 and increased the issued share capital from 452,000,000 shares to 463,251,205 shares.

At the year end the Group had cash and cash equivalents totalling €530,265 (2007: €7,546,636). The directors and senior management are continuing to progress discussions with providers of finance to raise funds at the best possible price for shareholders to complete the 2009 work programme and commitments, further details of which are outlined in the Chairman's Statement and Managing Director's Review on pages 3 and 4 respectively.

Risks to the Group

The Group's Oil and Gas activities are subject to a range of fundamental financial and operational risks, as described below, which can significantly impact its performance:

Liquidity risk and interest rates - The Group has a significant capital programme to develop its asset. As a result management carefully monitor the liquidity position. Cash forecasts are produced regularly and are reviewed by management. 

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 historical experiences and other factors, including expectations of future events that are believed to be reasonable under the circumstances. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are as follows:

Exploration and evaluation costs

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.

 

Impairment review

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. The group has applied discount rates of 10% to the cash flow projections.

 

Share based payments

Employee services received, and the corresponding increase in equity, are measured by reference to the fair value of the equity instruments at the date of grant 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.

  DIRECTORS' REPORT

FOR THE YEAR ENDED 31 DECEMBER 2008

The Directors present their annual report and the audited consolidated financial statements of Matra Petroleum plc (the "Company" and together with its subsidiaries and associates, the "Group"), for the year ended 31 December 2008.

Principal activity and business review

The principal activity of the Group is that of oil and gas exploration and production.

A full review of the Group's activities during the year, recent events and future developments are contained in the Chairman's Statement, Managing Director's Review and Operational Review incorporated within the Annual Report and Accounts.

Corporate structure

Matra Petroleum plc is a Company limited by shares that is incorporated and domiciled in England and Wales. The Company has the following subsidiaries at 31 December 2008:

Matra Cyprus Petroleum Limited (100%)

OOO Arkhangelovskoe (100%)

Results and dividends

The loss of the Group after taxation amounted to €8,790,705 (2007: €4,170,741)

The Directors do not propose the payment of a dividend (2007: nil).

Business review and future developments

Likely developments in the operations of the group have been included in the Chairman's Statement and Managing Director's Review which is incorporated into this report and details of post balance sheet events can be found in note 22.

Directors

The following Directors held office during the year to 31 December 2008:

Sir Michael Jenkins

Peter Hind

Neil Hodgson

Craig Burton

Peter Gunzburg

Gideon Tadmor

Re-election of directors

The Articles of Association require one-third of the Directors who are subject to retirement by rotation to retire and submit themselves for re-election each year.

Annual general meeting

Details of the Company's forthcoming Annual General Meeting are set out in a separate circular that will be sent to all Shareholders with the Annual Report and Accounts.

Supplier payment policy

The Company's policy is that payments made to suppliers are made in accordance with those terms and conditions agreed between the Company and its suppliers, providing that all trading terms and conditions have been complied with. The supplier payment days are 27 days for the Group (2007: 41 days) and 38 days for the Company (2007: 40 days).

Political and charitable contributions

There were no political or charitable contributions made by the Company during the year ended 31 December 2008. 

Director's liabilities

The Company has granted an indemnity to all of its Directors and officers against liability in respect of proceedings brought by third parties, subject to the conditions set out in the Companies Act 1985. Such qualifying third party indemnity provision remains in force as at the date of approving the Directors' report and is provided by way of insurance policy with a collective limit of £10 million.

Financial instruments

Details of the use of financial instruments by the Company and its subsidiary undertakings are contained in note 18 of the financial statements.

  

Going Concern

After making enquiries, including the disclosures made in note 23 to the financial statements and the managing Director's Review, the Directors have a reasonable expectation that the Group will have adequate resources to continue in operational existence for the foreseeable future. For this reason, they continue to adopt the going concern basis in preparing the financial statements.

Auditors and disclosure of information to auditors

The Directors confirm the following applies:

BDO Stoy Hayward LLP offer themselves for re-appointment as auditors in accordance with section 385 of the Companies Act 1985 and an appropriate resolution will be put to the shareholders at the AGM.

By order of the Board

Peter Hind

Managing Director

19 March 2009  STATEMENT OF DIRECTORS' RESPONSIBILITIES

FOR THE YEAR ENDED 31 DECEMBER 2008

The directors are responsible for keeping proper accounting records which disclose with reasonable accuracy at any time the financial position of the company, for safeguarding the assets of the company, for taking reasonable steps for the prevention and detection of fraud and other irregularities and for the preparation of a Directors' Report which complies with the requirements of the Companies Act 1985.The directors are responsible for preparing the annual report and the financial statements in accordance with the Companies Act 1985. The directors are also required to prepare financial statements for the group in accordance with International Financial Reporting Standards as adopted by the European Union (IFRSs) and the rules of the London Stock Exchange for companies trading securities on the Alternative Investment Market. The directors have chosen to prepare financial statements for the company in accordance with IFRSs.International Accounting Standard 1 requires that financial statements present fairly for each financial year the company's financial position, financial performance and cash flows. This requires the faithful representation of the effects of transactions, other events and conditions in accordance with the definitions and recognition criteria for assets, liabilities, income and expenses set out in the International Accounting Standards Board's 'Framework for the preparation and presentation of financial statements'. In virtually all circumstances, a fair presentation will be achieved by compliance with all applicable IFRSs. A fair presentation also requires the Directors to: 

Financial statements are published on the group's website in accordance with legislation in the United Kingdom governing the preparation and dissemination of financial statements, which may vary from legislation in other jurisdictions. The maintenance and integrity of the group's website is the responsibility of the directors. The directors' responsibility also extends to the ongoing integrity of the financial statements contained therein.

  INDEPENDENT AUDITORS' REPORT

FOR THE YEAR ENDED 31 DECEMBER 2008

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 31 December 2008 which comprise the consolidated income statement, the consolidated and company statements of changes in equity, the consolidated and company balance sheets, the consolidated and company cash flow statements and the related notes. These financial statements have been prepared under the accounting policies set out therein.

Respective responsibilities of directors and auditors

The directors' responsibilities for preparing the annual report and financial statements in accordance with applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union are set out in the statement of directors' responsibilities.

Our responsibility is to audit the financial statements in accordance with relevant legal and regulatory requirements and International Standards on Auditing (UK and Ireland).

We report to you our opinion as to whether the financial statements give a true and fair view and have been properly prepared in accordance with the Companies Act 1985 and whether the information given in the directors' report is consistent with those financial statements. We also report to you if, in our opinion, the company has not kept proper accounting records, if we have not received all the information and explanations we require for our audit, or if information specified by law regarding directors' remuneration and other transactions is not disclosed.

We read other information contained in the annual report, and consider whether it is consistent with the audited financial statements. This other information comprises only the chairman's statement, the managing director's review, the review of operations and finance and the directors' report. We consider the implications for our report if we become aware of any apparent misstatements or material inconsistencies with the financial statements. Our responsibilities do not extend to any other information.

Our report has been prepared pursuant to the requirements of the Companies Act 1985 and for no other purpose. No person is entitled to rely on this report unless such a person is a person entitled to rely upon this report by virtue of and for the purpose of the Companies Act 1985 or has been expressly authorised to do so by our prior written consent. Save as above, we do not accept responsibility for this report to any other person or for any other purpose and we hereby expressly disclaim any and all such liability.

Basis of audit opinion

We conducted our audit in accordance with International Standards on Auditing (UK and Ireland) issued by the Auditing Practices Board. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the financial statements. It also includes an assessment of the significant estimates and judgments made by the directors in the preparation of the financial statements, and of whether the accounting policies are appropriate to the group and company circumstances, consistently applied and adequately disclosed.

We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or other irregularity or error. In forming our opinion we also evaluated the overall adequacy of the presentation of information in the financial statements.

 

Opinion

In our opinion:

Emphasis of matter - going concern

In forming our opinion on the financial statements, which is not qualified, we have considered the adequacy of the disclosures made in note 23 to the financial statements concerning the group's ability to continue as a going concern. This is dependent on raising further funds. These conditions together with the other matters referred to in note 23 indicate the existence of a material uncertainty which may cast significant doubt over the group's ability to continue as a going concern. The financial statements do not include any adjustments that would result if the group was unable to continue as a going concern.

BDO Stoy Hayward LLP

Chartered Accountants and Registered Auditors 55 Baker StreetLondon, W1U 7EUUnited Kingdom

19 March 2009

  CONSOLIDATED INCOME STATEMENT

FOR THE YEAR ENDED 31 DECEMBER 2008

			2008	2007
		Notes	€	€
Continuing operations
	Revenue	3	1,077,388	-
	Cost of sales		(883,990)	-
	Gross profit		193,398	-
	Other administration expenditure		(2,625,726)	(1,232,376)
	Impairment of exploration expenditure		(2,672,555)	-
	Loss on disposal of associate		(1,316,533)	-
	Total administration expenditure	4	(6,614,814)	(1,232,376)
	Loss from operations		(6,421,416)	(1,232,376)
	Finance income		107,074	572,352
	Finance costs	8	(21,537)	(62,933)
	Share of loss of associate		(2,353,526)	(1,292,078)
	Loss before taxation		(8,689,405)	(2,015,035)
	Taxation	6	(101,300)	(40,771)
	Loss after taxation		(8,790,705)	(2,055,806)
Dis-continuing operations
	Loss for the year from discontinued operations		-	(2,114,935)
	Loss for the year attributable to equity shareholders of the parent		(8,790,705)	(4,170,741)
	Loss per share	2
	Basic and diluted		(0.01919)	(0.01087)
	Loss per share from continuing operations	2
	Basic and diluted		(0.01919)	(0.00536)
	Loss per share from discontinuing operations	2
	Basic and diluted		-	(0.00551)

The notes on pages 18 to 36 form part of the financial statements.  STATEMENT OF CHANGES IN EQUITY

AS AT 31 DECEMBER 2008

	Share	Share	Foreign	Other	Retained	Total
	capital	premium	currency	Reserves	earnings
			translation
			reserve
Consolidated	€	€	€	€	€	€
Total equity as at 1st January 2007	389,122	16,828,038	(158,239)	1,127,014	(4,097,857)	14,088,078
Exchange differences on translating foreign operations	-	-	(915,873)	-	-	(915,873)
Net income recognised directly in equity	-	-	(915,873)	-	-	(915,873)
Loss for the year	-	-	-	-	(4,170,741)	(4,170,741)
Total recognised income and expense	-	-	(915,873)	-	(4,170,741)	(5,086,614)
Shares issued	257,849	11,718,559	-	-	-	11,976,408
Share issue costs	-	(22,264)	-	-	-	(22,264)
Recognition of share based payment	-	-	-	263,128	-	263,128
Total equity as at 31 December 2007	646,971	28,524,333	(1,074,112)	1,390,142	(8,268,598)	21,218,736
	Share	Share	Foreign	Other	Retained	Total
	capital	premium	currency	Reserves	earnings
			translation
			reserve
Consolidated	€	€	€	€	€	€
Total equity as at 1 January 2008	646,971	28,524,333	(1,074,112)	1,390,142	(8,268,598)	21,218,736
Exchange differences on translating foreign operations	-	-	(3,251,661)	-	-	(3,251,661)
Net income recognised directly in equity	-	-	(3,251,661)	-	-	(3,251,661)
Loss for the year	-	-	-	-	(8,790,705)	(8,790,705)
Total recognised income and expense	-	-	(3,251,661)	-	(8,790,705)	(12,042,366)
Shares issued	14,156	289,483	-	-	-	303,639
Recognition of share based payment	-	-	-	(1,390,142)	1,513,423	123,281
Total equity as at 31 December 2008	661,127	28,813,816	(4,325,773)	-	(15,545,880)	9,603,290

The notes on pages 18 to 36 form part of the financial statements.  STATEMENT OF CHANGES IN EQUITY

AS AT 31 DECEMBER 2008

	Share	Share	Foreign	Other	Retained	Total
	capital	premium	currency	Reserves	earnings
			translation
			reserve
Company	€	€	€	€	€	€
Total equity as at 1 January 2007	389,122	16,828,038	(230,587)	1,127,014	(2,367,297)	15,746,290
Exchange differences on translating foreign operations	-	-	(1,203,575)	-	-	(1,203,575)
Net income recognised directly in equity	-	-	(1,203,575)	-	-	(1,203,575)
Loss for the year	-	-	-	-	(5,540,734)	(5,540,734)
Total recognised income and expense	-	-	(1,203,575)	-	(5,540,734)	(6,744,309)
Shares issued	257,849	11,718,559	-	-	-	11,976,408
Share issue costs	-	(22,264)	-	-	-	(22,264)
Recognition of share based payment	-	-	-	263,128	-	263,128
Total equity as at 31 December 2007	646,971	28,524,333	(1,434,162)	1,390,142	(7,908,031)	21,219,253
	Share	Share	Foreign	Other	Retained	Total
	capital	premium	currency	Reserves	earnings
			translation
			reserve
Company	€	€	€	€	€	€
Total equity as at 1 January 2008	646,971	28,524,333	(1,434,162)	1,390,142	(7,908,031)	21,219,253
Exchange differences on translating foreign operations	-	-	(3,165,924)	-	-	(3,165,924)
Net income recognised directly in equity	-	-	(3,165,924)	-	-	(3,165,924)
Loss for the year	-	-	-	-	(8,876,959)	(8,876,959)
Total recognised income and expense	-	-	(3,165,924)	-	(8,876,959)	(12,042,883)
Shares issued	14,156	289,483	-	-	-	303,639
Recognition of share based payment	-	-	-	(1,390,142)	1,513,423	123,281
Total equity as at 31 December 2008	661,127	28,813,816	(4,600,086)	-	(15,271,567)	9,603,290

The notes on pages 18 to 36 form part of the financial statements.  BALANCE SHEET

AS AT 31 DECEMBER 2008

			Group		Company
			2008	2007	2008	2007
			€	€	€	€
	Non-current assets
	Property, plant & equipment	9	60,502	86,504	13,886	28,092
	Intangible assets	10	7,757,249	9,999,042	-	-
	Investment in subsidiary	11	-	-	1,431	1,890
	Investment in associate		-	-	-	1,975,938
	Share of net assets in associate	12	-	721,399	-	-
			7,817,751	10,806,945	15,317	2,005,920
	Current assets
	Inventories	13	167,040	1,194	-	-
	Trade and other receivables	14	1,265,701	3,972,177	9,221,310	12,371,882
	Cash and cash equivalents		530,265	7,546,636	509,914	7,075,180
			1,963,006	11,520,007	9,731,224	19,447,062
Total assets			9,780,757	22,326,952	9,746,541	21,452,982
	Capital and reserves attributable to equity holders of the Company
	Ordinary shares	17	661,127	646,971	661,127	646,971
	Share premium		28,813,816	28,524,333	28,813,816	28,524,333
	Foreign currency translation reserve		(4,325,773)	(1,074,112)	(4,600,086)	(1,434,162)
	Other reserves		-	1,390,142	-	1,390,142
	Retained earnings		(15,545,880)	(8,268,598)	(15,271,567)	(7,908,031)
	Total equity		9,603,290	21,218,736	9,603,290	21,219,253
	Current liabilities
	Trade and other payables	15	177,467	1,108,216	143,251	233,729
	Total liabilities		177,467	1,108,216	143,251	233,729
Total equity and liabilities			9,780,757	22,326,952	9,746,541	21,452,982

The notes on pages 18 to 36 form part of the financial statements.

The financial statements were authorised and approved by the Board on 19 March 2009

Peter Hind

Managing Director  CONSOLIDATED CASH FLOW STATEMENT

FOR THE YEAR ENDED 31 DECEMBER 2008

		Group		Company
		2008	2007	2008	2007
		€	€	€	€
Loss before taxation		(8,689,405)	(4,129,970)	(8,876,959)	(5,540,734)
	Adjustments for:
	Depreciation	24,804	16,782	7,365	7,892
	Share of loss of associates	2,353,526	1,292,078	-	-
	Impairment of exploration expenditure	2,672,555	1,674	-	-
	Loss on disposal of subsidiary	-	1,508,051	-	1,918,025
	Loss on disposal of associate	1,316,533	-	4,782,754	-
	Share based payments	123,281	263,128	123,281	263,128
	Foreign currency differences	(185,743)	444,096	(1,296,873)	(314,165)
Cash used in operating activities before changes in working capital and provisions		(2,384,449)	(604,161)	(5,260,432)	(3,665,854)
	Increase in inventories	(165,846)	(1,194)	-	-
	Increase in receivables	(875,389)	(1,369,825)	(431,292)	(6,136,012)
	Increase / (decrease) in payables	(930,749)	1,545,936	(90,478)	112,514
Cash used in operations		(4,356,432)	(429,243)	(5,782,202)	(9,689,351)
	Income taxes paid	(101,300)	(40,771)	-	-
Cash used in operating activities		(4,457,732)	(470,014)	(5,782,202)	(9,689,351)
	Acquisition of Matra Cyprus Petroleum Limited net of cash acquired	-	-	-	(1,890)
	Disposal of controlling interest of Gemstone Properties Limited net of cash disposed	-	(411,118)	-	1,512,165
	Disposal of associate interest of Gemstone Properties Limited	633,204	-	633,204	-
	Purchase of property, plant and equipment	(13,297)	(84,484)	12	(15,163)
	Expenditure on oil and gas assets	(1,700,684)	(6,891,957)	-	-
Cash used in investing activities		(1,080,777)	(7,387,559)	633,216	1,495,112
	Proceeds from issue of shares	303,639	8,063,032	303,639	8,063,032
	Share issue expenses paid	-	(22,264)	-	(22,264)
Cash used in financing activities		303,639	8,040,768	303,639	8,040,768
Net (decrease) / increase in cash and cash equivalents		(5,234,870)	183,195	(4,845,347)	(153,471)
Cash and cash equivalents at beginning of period		7,546,636	8,250,886	7,075,180	8,116,096
Effect of foreign exchange rate differences		(1,781,500)	(887,444)	(1,719,919)	(887,444)
Cash and cash equivalents at end of period		530,265	7,546,636	509,914	7,075,180

The notes on pages 18 to 36 form part of the financial statements.

  NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2008

1. Accounting policies 

Basis of preparation

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

These financial statements are presented in Euro, the functional currency of the group. The Company's functional currency is Sterling; however the company presents its financial statements in Euro as the majority of transactions of the group are in Euro.

Accounting standards issued but not adopted

The IFRS financial information has been drawn up on the basis of accounting standards, interpretations and amendments effective at the beginning of the accounting period on 1 January 2008:

The IASB and IFRIC have issued the following standards and interpretations which are effective for reporting periods beginning after the date of these financial statements:

The following will affect the measurement and presentation of financial statements:

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
·; IFRS 8	-	Operating segments	1 January 2009
·; IFRSs	-	Improvements to IFRSs	1 January 2009
International Financial Reporting Interpretations (IFRIC)
			Effective date
·; IFRIC 17	-	Distributions of non-cash assets to owners	1 July 2009
The following will have no effect on the measurement and presentation of the financial statements:
International Accounting Standards (IAS/IFRS)
			Effective date
·; IAS 32 / IAS 1	-	Amendment - Puttable financial instruments	1 January 2009
·; IAS 39 / IFRS 7	-	Amendment – Reclassification of financial instruments	1 July 2009
·; IAS 39	-	Amendment – Financial instruments: recognition and measurement	1 July 2009
·; IFRS 1	-	First time adoption of international financial reporting standards	1 January 2009
·; IFRS 1 / IAS 27	-	Amendment – Cost of an investment in a subsidiary or associate	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	-	The limit on a defined benefit asset and minimum funding requirements	1 January 2008
·; IFRIC 15	-	Agreements for the construction of real estate	1 January 2009
·; IFRIC 16	-	Hedges of a net investment in a foreign operation	1 October 2008
·; IFRIC 17	-	Distributions of non-cash assets to owners	1 July 2009
·; IFRIC 18	-	Transfer of assets from customers	1 July 2009

The adoption of these standards, interpretations and amendments will not significantly affect the Group results of operations or financial position.

Items marked * had not yet been endorsed by the European Union at the date that these financial statements were approved and authorised for issue by the Board. 

IAS 1 and IFRS 8 will affect the presentation of the financial statements. The other new standards and amendments are not expected to have a material affect on the financial statements.

 

Basis of consolidation

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

During the year the Group disposed of its associate Gemstone Properties Limited, the results of which have been equity accounted for up to and including the date of disposal (see note 12). 

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

Business combinations

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

Foreign currency translation

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

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

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

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

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

Profit from operations

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

Tangible non-current assets

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

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

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

 

Intangible non-current exploration assets

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

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

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

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

Investments

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

Inventories

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

Trade and other receivables 

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

Cash and cash equivalents

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

Trade and other payables

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

Tax

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

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

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

Deferred taxation

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

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

 

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

 

Contributed equity

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

Share Based Payments

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

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

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

Revenue

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

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

Key sources of estimation uncertainty

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

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

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

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

 

2. Loss per share

Loss per share of €0.01919 (2007: €0.01087) is calculated by dividing the loss for the period by the weighted average number of ordinary shares in issue during the period of 458,162,810. The loss per share on continuing and discontinuing operations is €0.01919 (2007: €0.00536) and €nil (2007: €0.00551) respectively. 

The effect of all potential ordinary shares arising from the exercise of options going forward is considered to be anti-dilutive. 30,673,141 (2007: 41,621,551) potential ordinary shares have been excluded from the above calculation as they are anti-dilutive.

3. Parent company's income statement 

The company has taken advantage of section 230 of the Companies Act 1985 and has not included its own income statement account in these financial statements. The company loss for the year was €8,876,959 (2007: €5,540,734).

4. Expenses by nature

Loss from operations is stated after charging:
	2008	2007
	€	€
Auditors remuneration
- Audit: fees payable to the Company's auditor for the audit of the parent company and consolidated financial statements	30,227	32,570
- Audit: fees payable for the audit of subsidiaries pursuant to legislation	19,531	16,964
- Fees payable to the company's auditor:
- Persuant to legislation	14,469	17,167
- Tax services	7,558	8,143
Impairment of exploration expenditure	2,672,555	1,674
Depreciation	24,804	16,782
Foreign exchange costs	(185,743)	444,096
Share based payment expense (all equity settled)	123,281	263,128

5. Salaries

Total staff costs (including Directors and key management personnel) comprise:
	Group		Company
	2008	2007	2008	2007
	€	€	€	€
Employee salaries and benefits	1,322,210	793,837	1,017,059	546,095
Share based payment expense	123,281	263,128	123,281	263,128
	1,445,491	1,056,965	1,140,340	809,223
Directors emoluments comprise:
	Group		Company
	2008	2007	2008	2007
	€	€	€	€
Employee salaries and benefits	779,554	442,138	779,554	442,138
Gains on exercising options	156,000	-	156,000	-
	935,554	442,138	935,554	442,138
Key management personnel:
	Group		Company
	2008	2007	2008	2007
	€	€	€	€
Employee salaries and benefits	1,108,536	553,126	994,355	525,426
Share based payment expense	123,281	263,128	123,281	263,128
	1,231,817	816,254	1,117,636	788,554
Average number of employees (including directors):
	Group		Company
	2008	2007	2008	2007
	€	€	€	€
Technical	5	3	2	1
Corporate & administrative	15	10	3	2
	20	13	5	3

The highest paid director was paid €352,710 (2007: €203,565).

 

Included in the above were pension contributions totalling €125,968 (2007: €nil). 

 

6. Taxation

	Group
	2008	2007
	€	€
Loss before taxation (including loss from discontinued operations)	(8,689,405)	(4,129,970)
Taxation at the UK corporation tax rate of 28.5% (2007: 30%)	(2,476,480)	(1,238,991)
Expenses disallowed for tax	1,409,673	1,543,318
Utilisation of previously unrecognised tax losses	-	(1,473,828)
Tax losses carried forward	1,168,108	1,210,272
Tax charge for the year	101,300	40,771

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

Factors that may affect future tax charges

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

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 reporting format is by geographical segment as the nature of the exploration activities are broadly homogenous across the company. The Directors consider that there were three 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 assets are located. The Directors no longer consider Hungary to be a geographical segment in 2008 following the disposal of the Company's controlling interest in Gemstone Properties Limited in June 2007. 

Geographical segment (Group) as at 31 December 2008
	Continuing operations	Continuing operations	31 December 2008
	United	Russia	Total
	Kingdom
	€	€	€
Revenue	-	1,077,388	1,077,388
Cost of sales	-	(883,990)	(883,990)
Administration expenses	(2,195,533)	(430,193)	(2,625,726)
Impairment of exploration expenditure	-	(2,672,555)	(2,672,555)
Loss on disposal of associate	(1,316,533)	-	(1,316,533)
Finance income	105,631	1,443	107,074
Financing costs	(2,513)	(19,024)	(21,537)
Share of profit / loss of associates	(2,353,526)	-	(2,353,526)
Taxation	-	(101,300)	(101,300)
	(5,762,474)	(3,028,231)	(8,790,705)
Non current assets	13,886	7,803,865	7,817,751
Inventories	-	167,040	167,040
Trade and other receivables	17,589	1,248,112	1,265,701
Cash and cash equivalents	509,914	20,351	530,265
Trade and other payables	(143,251)	(34,216)	(177,467)
	398,138	9,205,152	9,603,290
Geographical segment (Group) as at 31 December 2007
	Continuing operations	Continuing operations	Continuing operations	Dis-continuing operations	31 December 2007
	United	Russia	Total	Hungary	Total
	Kingdom
	Restated				Restated
	€	€	€	€	€
Revenue	-	-	-	19,271	19,271
Administration expenses	(1,006,748)	(225,628)	(1,232,376)	(623,416)	(1,855,792)
Impairment of exploration expenditure	-	-	-	(1,674)	(1,674)
Loss on disposal of subsidiary	-	-	-	(1,508,051)	(1,508,051)
Share of profit / loss of associates	(1,292,078)	-	(1,292,078)	-	(1,292,078)
Finance income	535,490	36,862	572,352	227	572,579
Financing costs	(5,874)	(57,059)	(62,933)	(1,292)	(64,225)
Taxation	-	(40,771)	(40,771)	-	(40,771)
	(1,769,210)	(286,596)	(2,055,806)	(2,114,935)	(4,170,741)
Non current assets	749,491	10,057,454	10,806,945	-	10,806,945
Inventories	-	1,194	1,194	-	1,194
Trade and other receivables	2,852,394	1,119,783	3,972,177	-	3,972,177
Cash and cash equivalents	7,075,180	471,456	7,546,636	-	7,546,636
Trade and other payables	(233,728)	(874,488)	(1,108,216)	-	(1,108,216)
	10,443,337	10,775,399	21,218,736	-	21,218,736

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

8. Finance costs

	Group
	2008	2007
	€	€
Bank interest	802	2,647
Bank charges	20,735	60,286
	21,537	62,933

9. Property, plant and equipment

	Group		Company
	2008	2007	2008	2007
	€	€	€	€
Acquisition cost
At 1st January	104,478	74,634	39,503	26,638
Additions	13,964	84,485	655	15,163
Disposals	(667)	(49,427)	(667)	-
Currency translation adjustments	(18,130)	(5,214)	(9,603)	(2,298)
At 31st December	99,645	104,478	29,888	39,503
Depreciation
At 1st January	(17,974)	(18,404)	(11,411)	(3,852)
Eliminated on disposal	-	16,735	-	-
Charge for year	(24,804)	(16,782)	(7,365)	(7,891)
Currency translation adjustments	3,635	477	2,774	332
At 31st December	(39,143)	(17,974)	(16,002)	(11,411)
Carrying value as at 31st December	60,502	86,504	13,886	28,092
Carrying value as at 31st December 2006	-	56,230	-	22,786

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

10. Intangible assets

Intangible assets as at 31 December 2008 were:

	License acquisition costs	Exploration and appraisal costs	2008
	€	€	€
Acquisition cost
At 1 January	3,913,376	6,085,666	9,999,042
Additions	-	1,700,684	1,700,684
Impairment	-	(2,672,555)	(2,672,555)
Disposal	-	-	-
Other movements	-	-	-
Currency translation adjustments	(590,801)	(679,121)	(1,269,922)
Carrying value at 31 December	3,322,575	4,434,674	7,757,249

Intangible assets as at 31 December 2007 were:

	License acquisition costs	Exploration and appraisal costs	2007
	€	€	€
Acquisition cost
At 1 January	5,712,694	-	5,712,694
Additions	3,913,376	6,891,957	10,805,333
Impairment	-	(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 31 December	3,913,376	6,085,666	9,999,042

   

Exploration and appraisal expenditure	Assets	Liabilities	Income	Expense	Operating cash flows	Investing cash flows
Group 2008	€	€	€	€	€	€
The Arkhangelovskoe license	7,757,249	34,216	1,077,388	883,990	-	1,491,515
The Inke concession	-	-	-	-	-	-
Total	7,757,249	34,216	1,077,388	883,990	-	1,491,515
Exploration and appraisal expenditure	`	Liabilities	Income	Expense	Operating cash flows	Investing cash flows
Group 2007	€	€	€	€	€	€
The Arkhangelovskoe license	9,999,042	831,151	-	-	-	6,891,957
The Inke concession	-	-	-	778,416	-	-
Total	9,999,042	831,151	-	778,416	-	6,891,957

During the year the Company wrote-off costs totalling €2,672,555 relating to abandoned wells on the Arkhangelovskoe Licence under the Successful Efforts method of accounting.

The value of the Group's interest in Exploration and Appraisal expenditure is dependent upon:

Licence acquisition costs represent costs incurred to purchase, lease or otherwise acquire a property including the costs of lease bonuses and options to purchase or lease properties, the portion of costs applicable to petroleum when land including petroleum rights is purchased, including brokers' fees and legal and other related costs.

Exploration and appraisal costs represent costs incurred after obtaining a licence or concession but before a decision is taken to develop a field or reservoir, including the costs of:

drilling, equipping and testing exploration and appraisal wells. Appraisal costs are those incurred in determining the size and characteristics of a reservoir discovered during the exploration stage and then assessing its commercial potential.   11. Investment in subsidiaries

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

12. Investment in associates

The following entities meet the definition of an associate and have been equity accounted for in the consolidated financial statements:
Name	Country of incorporation	Proportion of ownership 2008	Proportion of ownership 2007
Gemstone Properties Limited	British Virgin Islands	-	40%
Aggregated amounts relating to associates are as follows:
		2008	2007
		€	€
Total assets		-	3,436,506
Total liabilities		-	(2,715,107)
Revenues		-	10,160
Profit / (loss)		(2,353,526)	(1,292,078)
On 19 December 2008 the Company disposed of it's 40% holding in Gemstone Properties Limited. Details of the
disposal are as follows:
		€
	Proceeds:	633,204
	Less: share of net assets / liabilities in associate	-
	Less: write-off of loan to associate	(1,949,737)
	Loss on disposal of associate	(1,316,533)

13. Inventories

	Group		Company
	2008	2007	2008	2007
	€	€	€	€
Drilling and other supplies	167,040	1,194	-	-

 

14. Receivables

	Group		Company
	2008	2007	2008	2007
	€	€	€	€
Trade receivables	164,009	-	-	-
Prepayments and other receivables	1,101,692	1,144,064	17,589	24,281
Amounts due from associate undertaking	-	2,828,113	-	2,828,113
Intercompany loans	-	-	9,203,721	9,519,488
	1,265,701	3,972,177	9,221,310	12,371,882

Included within receivables is an amount of €1,046,873 (2007: €nil) relating to Russian sales taxes. This will be recovered against the sales tax added to domestic oil sales and therefore the timing of recovery is dependent upon the Group's production profile.

 

15. Payables

	Group		Company
	2008	2007	2008	2007
	€	€	€	€
Trade payables	82,216	949,101	67,923	203,287
Accruals and other payables	95,251	159,115	75,328	30,442
	177,467	1,108,216	143,251	233,729

 

16. Share based payments

Exercise price (p)	Grant date	Outstanding at start of year	Granted during the year	Exercised during the year	Outstanding at end of year	Final exercise date
2006
2.0	17/03/2005	10,000,000	-	-	10,000,000	30/06/2008
2.5	17/05/2005	1,000,000	-	-	1,000,000	30/06/2008
0.1	11/04/2006	-	5,000,000	-	5,000,000	11/04/2011
5.0	11/04/2006	-	10,000,000	-	10,000,000	11/04/2011
6.3	11/04/2006	-	2,620,000	-	2,620,000	11/03/2009
0.1	23/05/2006	-	1,200,000	-	1,200,000	23/05/2011
5.0	23/05/2006	-	6,000,000	-	6,000,000	23/05/2011
Total		11,000,000	24,820,000	-	35,820,000
2007
2.0	17/03/2005	10,000,000	-	-	10,000,000	30/06/2008
2.5	17/05/2005	1,000,000	-	-	1,000,000	30/06/2008
0.1	11/04/2006	5,000,000	-	-	5,000,000	11/04/2011
5.0	11/04/2006	10,000,000	-	-	10,000,000	11/04/2011
6.3	11/04/2006	2,620,000	-	-	2,620,000	11/03/2009
0.1	23/05/2006	1,200,000	-	-	1,200,000	23/05/2011
5.0	23/05/2006	6,000,000	-	-	6,000,000	23/05/2011
8.0	20/04/2007	-	24,000,000	-	24,000,000	15/02/2009
4.5	23/04/2007	-	8,000,000	-	8,000,000	22/04/2012
4.5	31/03/2007	-	500,000	-	500,000	31/03/2012
7.5	25/09/2007	-	250,000	-	250,000	25/09/2012
Total		35,820,000	32,750,000	-	68,570,000
2008
2.0	17/03/2005	10,000,000	-	(10,000,000)	-	30/06/2008
2.5	17/05/2005	1,000,000	-	(1,000,000)	-	30/06/2008
0.1	11/04/2006	5,000,000	-	-	5,000,000	11/04/2011
5.0	11/04/2006	10,000,000	-	-	10,000,000	11/04/2011
6.3	11/04/2006	2,620,000	-	-	2,620,000	11/03/2009
0.1	23/05/2006	1,200,000	-	-	1,200,000	23/05/2011
5.0	23/05/2006	6,000,000	-	-	6,000,000	23/05/2011
8.0	20/04/2007	24,000,000	-	-	24,000,000	15/02/2009
4.5	23/04/2007	8,000,000	-	-	8,000,000	22/04/2012
4.5	31/03/2007	500,000	-	-	500,000	31/03/2012
7.5	25/09/2007	250,000	-	-	250,000	25/09/2012
Total		68,570,000	-	(11,000,000)	57,570,000
Fair value
No share options were granted in the year to 31 December 2008.

The total charge for equity settled share based payments was €123,281 (2007: €263,128).

 

17. Share capital

	2008	2007
	€	€
Authorized:
10,000,000,000 ordinary shares of 0.1p each	13,571,000	13,571,000
Allotted, called-up and fully paid:
463,251,205 (December 2007: 452,000,000) ordinary shares of 0.1p each	661,127	646,971

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

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

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

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

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

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

On 20 March 2008 the Company issued 251,205 shares to warrant holders at an exercise price of 6.5 pence per share.

On 4 July 2008 the Company issued 9,000,000 shares to option holders at an exercise price of 2.0 pence per share.

On 30 July 2008 the Company issued 1,000,000 shares to option holders at an exercise price of 2.0 pence per share and 1,000,000 shares to option holders at an exercise price of 2.5 pence per share.

18. Financial instrument risk exposure and management

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

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

Principle financial instruments

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

Financial assets	Group		Company
	2008	2007	2008	2007
	Loans and receivables		Loans and receivables
	€	€	€	€
Trade receivables	164,009	-	-	-
Cash and cash equivalents	530,265	7,546,636	509,914	7,075,180
Inter-company loans	-	-	11,787,877	9,519,488
	694,274	7,546,636	12,297,791	16,594,668
Financial liabilities	Group		Company
	2008	2007	2008	2007
	Financial liabilities at amortised cost		Financial liabilities at amortised cost
	€	€	€	€
Trade and other payables	177,467	1,108,216	117,229	304,444
	177,467	1,108,216	117,229	304,444

Fair value of financial assets and liabilities

At 31 December 2008 and 2007, the fair value and the book value of the Group and Company's financial assets and liabilities were materially the same.

Principal financial instruments

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

cash at bank

trade and other payables

General objectives, policies and processes

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

 

Credit risk

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

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

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

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

Hedging policy

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

Capital

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

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

Liquidity risk

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

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

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

Trade and other payables are due on demand.

Interest rate risk

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

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

A 1% change in interest rates would have increased or decreased profit after tax by approximately €40,385 (2007: €78,988).

At the year end, the Group had a cash balance of €530,265 (2007: €7,546,636) and the Company had a cash balance of €509,914 (2007: €7,075,180) which was made up as follows:

	Group		Company
	2008	2007	2008	2007
	€	€	€	€
Great British pound	514,392	5,991,527	509,914	5,989,381
Euro	-	1,085,799	-	1,085,799
Russian rouble	15,873	469,310	-	-
	530,265	7,546,636	509,914	7,075,180

Included in the Group and Company totals above are amounts of €nil (2007: €6,975,198) held within deposit accounts.

 

Currency risk

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

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

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

A movement in the Russian Rouble of 15% would result in the expenditure in the year increasing or decreasing by €534,909 (2007: €47,276).

A movement in the Great British pound of 25% would result in the expenditure in the year increasing or decreasing by €1,114,677 (2007: €1,085,655).

A movement in the Great British pound of 25% would result in the average cash and cash equivalents increasing or decreasing by €813,240 (2007: €1,614,909)

19. Deferred tax 

	Group		Company
	2008	2007	2008	2007
	€	€	€	€
A deferred tax assets has not been recognised on the following:
- Temporary differences in share based payments	401,736	423,829	401,736	423,829
- Unused tax losses	2,791,195	1,623,087	2,721,233	1,623,087
	3,192,931	2,046,916	3,122,969	2,046,916

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

20. Commitments 

The Company has no operating or finance lease commitments.

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

	Group		Company
	2008	2007	2008	2007
	€	€	€	€
Within one year	7,210,265	3,055,197	-	-
Within two to five years	-	4,277,276	-	-
	7,210,265	7,332,473	-	-

The above commitments include VAT at the Russian VAT rate of 18% as the Group is currently only entitled to recover this cost through the domestic sale of oil in Russia. 

21. Related party transactions 

The Group had the following transactions (excluding Directors' fees) with related parties during the year ended 31 December 2008:

	Group		Company
	2008	2007	2008	2007
	€	€	€	€
During the year the parent entity provided the following management and consulting fees to its associate:
- Blue Star 95 KFT	295,763	194,333	295,763	194,333
During the year the parent entity provided the following loan funding to its associate:
- Blue Star 95 KFT	753,751	2,828,113	753,751	2,828,113
	1,049,514	3,022,446	1,049,514	3,022,446

22. Post balance sheet events

On 5 January 2009 the Company announced that it had been granted an extension to the deadline for fulfilling the license commitments on the Arkhangelovskoe license, which had been due to expire on 31 December 2008.

23. Going concern

The Directors have prepared cash projections, showing the need to raise additional funds to finance future activity in Russia and to cover ongoing overheads. Delek, the Company's largest shareholder has agreed, subject to finalising a formal agreement, to provide funds equivalent to 3 months working capital thereby providing the Company with an additional period in which to secure the additional funding required.

The Directors continue to pursue a number of opportunities to provide longer term funding sufficient to fund the work program on the Russian asset for at least the next 12 months. The funding options being actively pursued include both equity and debt and a number of negotiations are progressing. However in the current market there can be no certainty that any of these transactions will complete. Failure to raise the required funds within the required timeframe may result in the Group failing to meet its licence commitments. However the Directors are confident of being able to secure the required funding within the required timeframe.

The financial statements have been prepared on a going concern basis as the Directors are confident the Group will be able to raise the required funds. These conditions indicate the existence of a material uncertainty which may cast significant doubt over the Group's ability to continue as a going concern. The financial statements do not include any adjustments that would result if the Group was unable to continue as a going concern. These would principally be the write down of the oil and gas licence to a forced sale value and provisions against the inventory and VAT recoverable.

ENDFR CKBKQQBKDNNB

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Related Shares:

MTA.L