10th Mar 2006 07:00
Global Petroleum Ltd10 March 2006 Global Petroleum Ltd INTERIM FINANCIAL REPORT FOR THE HALF-YEAR ENDED 31 DECEMBER 2005 DIRECTORS' REPORT The directors of Global Petroleum Limited present their report on theconsolidated entity consisting of Global Petroleum Limited ("the Company" or"Global") and the entities it controlled during the half-year ended 31 December2005 ("consolidated entity" or "group"), together with the condensedconsolidated financial report for the half-year ended 31 December 2005 and thereview report thereon. DIRECTORS The directors of the Company at any time during or since the end of thehalf-year are: Dr John Armstrong (Executive Chairman) - appointed 31 May 2002Mr Peter Blakey - appointed 4 October 2001Mr Peter Dighton - appointed 23 December 2003Mr Mark Savage - appointed 23 November 1999Mr Peter Taylor - appointed 4 October 2001 REVIEW AND RESULTS OF OPERATIONS Operating results During the December 2005 half-year, the group recorded a loss of $338,677 (2004:$936,577). Principal activities The principal activities in regard to the Company's projects were: (a) Kenya: (i) Over 30 prospects and leads identified in L-5 and L-7; (ii) Woodside Energy withdraws from L-11; and (iii)Global and Dana Petroleum withdraw from L-10 and L-11. (b) Falkland Oil and Gas Limited ("FOGL") www.fogl.co.uk (i) Global has a 14.0% shareholding in listed FOGL (12.85 million shares). At 6 March 2006 FOGL shares traded at 158 p/share which values the Company's holding at A$47.9 million or 28 cents per Global ordinary share; (ii) FOGL has recorded 11,500 km of second round 15,000 km 2D seismic; (iii)FOGL is seeking Farminees to share risk, cost and upside; and (iv) New Chairman and CEO appointed. (c) Falkland Gold and Minerals Limited ("FGML") www.fgml.co.uk (i) The group sold its 10.1% interest in FGML in December 2005 for 10p per share for consideration of A$1.83 million. This resulted in a gain on disposal of $1.09 million. (d) Astral Petroleum Limited (i) Shareholders approved an extension of time for the issue of fully paid Global shares to Astral Petroleum vendors if farmouts from the Company's acreage in Ireland and Malta are achieved; (ii) Ireland Option License extended to 31 December 2006; and (iii)Malta Blocks extended to 26 June 2006. Review of operations (a) Kenya The Company holds a 20% interest in two blocks (L-5 and L-7) offshore Kenyatogether with Woodside Energy (50% and operator) and Dana Petroleum (30%). From the results of Woodside's mapping of the 2003 5,500 km 2D seismic surveyand the 2004/05 3,600 km 2D seismic survey, it is clear that L-5 and L-7 containover 30 prospects and leads, a number of which are each capable of containingseveral hundred to a billion barrels of recoverable oil. There are DirectHydrocarbon Indicators ("DHI": potential oil and gas indicator) on some of theleads. In its 2004 Annual Report, Dana noted that the two possible first targets- Pomboo (L-5) and Sokwe (L-7) - each have the potential to contain over onebillion barrels of oil in place. More recently in its late 2005 presentation to investors, Woodside noted thatits Kenya holdings contain "multiple large structural prospects", which itincludes in its group of "big hit" targets. The costs associated with the Company's 20% equity in L-5 and / or L-7 are fullycarried for all activities including the drilling and testing of the first twowells. Woodside will only earn its equity when these two wells are drilled. Woodside is still to make a firm commitment to a drilling rig in Kenya, althoughit continues to investigate rig possibilities. In its half-yearly report toshareholders dated 15 February 2006 Woodside advised that drilling is planned"Q3/4 2006" and it is hoped that Woodside will have established a firm positionon a rig to do this in the near future. The Company withdrew from Blocks L-10 and L-11 in October 2005. Woodside hadpreviously withdrawn from L-10 in August 2004 and in September 2005 it withdrewfrom L-11. In October 2005, both Dana and the Company withdrew from L-10 becausethe partners were unable to reach agreement with the Kenyan Government as to thework programme terms for an extension. The partners then also withdrew from L-11on the basis of its assessed low oil and gas prospectivity. (b) Falkland Oil and Gas Limited ("FOGL") (Global shareholding 14%) www.fogl.co.uk Global now holds 14% of FOGL which was diluted from 16.1% as a result of theCompany deciding to conserve its cash position and not to participate in aplacement of 11.765 million new shares at 85p per share in May 2005. At 6 March2006 FOGL shares traded at 158 p/share which values the Company's holding atA$47.9 million or 28 cents per Global ordinary share. FOGL holds licenses over 29,000 km2 which is held by FOGL 77.5% and HardmanResources 22.5% and licenses over 50,000 km2 which are held by FOGL in its ownright. The first round of 9,450 km of 2D seismic which commenced in December 2004identified 130 leads some of which are very large and capable of holding severalbillion barrels of oil. Based on these results a second round of 15,000 km 2Dseismic was commenced in June 2005. By mid-February 2006 some 11,500 km ofseismic had been completed. Results of the latest round are expected beavailable in the first half of calendar 2006. In view of the prospectivity of its areas FOGL appointed Stellar Energy Advisorsto introduce potential farminees to offset the costs associated with the nextstage of the project leading up to drilling, possibly in calendar 2007. In December 2005 Global's Dr John Armstrong stepped down as Executive Chairmanand FOGL appointed a new Chairman and new CEO. Dr Armstrong remains a directorof FOGL. (c) Falkland Gold and Minerals Limited ("FGML") www.fgml.co.uk The group sold its 10.1% interest in FGML in December 2005 for 10p per share forconsideration of A$1.83 million. This resulted in a gain on disposal of $1.09million. The sale will supplement cash resources and be used to fund existingand potential new projects. (d) Astral Petroleum Limited At the Company's AGM on 24 November 2005 shareholders approved a once onlyextension of time from 25 November 2005 until 30 June 2006 for the issue to thevendors of Astral Petroleum Limited an additional four million fully paidordinary shares in the Company if the Company achieves a conditional farmout ineach of the Irish and Malta licenses. That is, potentially an additional eightmillion shares. (i) Ireland Licence Option 03/3 (Global 100%) Global acquired 100% of this Licence Option in December 2004 for a period of 12months. An extension has been granted by the Irish Government from 31 December2005 until 31 December 2006. The area comprises part blocks 57/3, 57/4, 57/8 and57/9 in the North Celtic Sea Basin and is located 30-70 km to the south andsouth west of the Seven Heads and Kinsale Head gas fields. The Company continuesto reprocess the seismic data over the main prospect of below the Wealdon Sandswhich has Jurassic and Lower Cretaceous targets capable of holding a potential280 million barrels of oil in place. (ii) Malta Blocks 4 & 5 (Global 100%) Global acquired 100% of an Exploration Study Agreement for Blocks 4 and 5 inDecember 2004 for a period of 12 months. An extension has been granted from 26December 2005 until 26 June 2006. These blocks are located at the south end ofthe Ragusa Trough which appears to be the source of the oil in fields in thenorthern Italian part of the Trough. Reprocessing of key seismic lines of the 1991 Texaco Survey as required by thestudy agreement was conducted during the period. Previous mapping of the Gammaand Beta prospects suggest that they could be capable of containing 400-900million barrels of oil respectively. (iii) In 2005 the Company appointed Envoi Limited, a petroleum industry projectbroker based in London, to seek Farminees to join Global in these projects. (e) New prospects The Company continues to seek new opportunities in Iraq and other areas. Lead Auditor's Independence Declaration under Section 307C of the CorporationsAct 2001 The lead auditor's independence declaration is set out on page 8 and forms partof the directors' report for the half-year ended 31 December 2005. Signed in accordance with a resolution of directors. J D ArmstrongDirectorBrisbane9 March 2006 CONDENSED CONSOLIDATED INTERIM INCOME STATEMENTFOR THE SIX MONTHS ENDED 31 DECEMBER 2005 Note 31 Dec 2005 31 Dec 2004 $ $ Revenue - rendering of services 2 62,111 270,817 Gains on disposal - available-for-saleinvestments 5 1,093,589 - Depreciation expense (11,530) (33,412)Salaries and employee benefits expense (229,045) (219,670)Consulting and professional fees (315,772) (213,235)Shareholder costs (60,744) (163,126)Occupancy costs (18,673) (19,868)Losses on disposal - exploration assets - (114,083)Exploration and evaluation expenditurewritten off (944,482) (320,228)Net other expenses (66,357) (198,140) -------- --------Loss before financing (490,903) (1,010,945) -------- -------- Financial income - interestreceived/receivable 150,782 149,195Net foreign exchange gain 1,444 1,303 -------- --------Net financing income 152,226 150,498 -------- -------- Share of losses of associates accounted forusing the equity method - (76,130) -------- --------Loss before tax (338,677) (936,577) Income tax expense - - -------- --------Loss for the period attributable to equityholders of the parent 2 (338,677) (936,577) -------- -------- Cents CentsBasic loss per share (0.20) (0.59)Diluted loss per share (0.20) (0.59) CONDENSED CONSOLIDATED INTERIM STATEMENT OF RECOGNISED INCOME AND EXPENSEFOR THE SIX MONTHS ENDED 31 DECEMBER 2005 Note 31 Dec 31 Dec 2005 2004 $ $ Recognised directly in equityFair value reserveAvailable-for-sale investments - change infair value 1,041,766 -Available-for-sale investments -transferred to profit/loss on disposal (5,352,938) - -------- --------Net expense recognised directly in equity (4,311,172) -Loss for the period (338,677) (936,577) -------- --------Total recognised income and expense for theperiod attributable to equity holders ofthe parent * 6 (4,649,849) (936,577) -------- -------- Effect of change in accounting policyEffect of adoption of AASB 132 and AASB 139 on 1July 2005 (with 2004 not restated)Net increase in fair value reserveAvailable-for-sale investments - change infair value 9 39,188,153 - Other movements in equity arising from transactions with owners as owners areset out in note 6. * This amount does not include the impact of changes in accounting policy. CONDENSED CONSOLIDATED INTERIM BALANCE SHEETAS AT 31 DECEMBER 2005 31 Dec 2005 30 June 2005 Note $ $ Current assetsCash and cash equivalents 5,487,651 6,159,540Trade and other receivables 1,946,847 213,340Other financial assets 600 600Other assets - 72,710 --------- ---------Total current assets 7,435,098 6,446,190 --------- --------- Non-current assetsAvailable-for-sale investments 5 36,638,953 2,495,798Property, plant and equipment 58,236 73,897Exploration and evaluation expenditure 17,563,652 18,068,045 --------- ---------Total non-current assets 54,260,841 20,637,740 --------- ---------TOTAL ASSETS 61,695,939 27,083,930 --------- --------- Current liabilitiesTrade and other payables 252,121 303,247Employee benefits 8,247 7,095 --------- ---------Total current liabilities 260,368 310,342 --------- ---------TOTAL LIABILITIES 260,368 310,342 --------- ---------NET ASSETS 61,435,571 26,773,588 --------- --------- EquityIssued capital 34,559,814 34,436,135Reserves 34,925,436 48,455Accumulated losses (8,049,679) (7,711,002) --------- ---------TOTAL EQUITY 6 61,435,571 26,773,588 --------- --------- CONDENSED CONSOLIDATED INTERIM STATEMENT OF CASH FLOWSFOR THE SIX MONTHS ENDED 31 DECEMBER 2005 31 Dec 2005 31 Dec 2004 $ $Cash flows from operating activitiesCash paid to suppliers and employees (700,876) (773,658)Interest received 200,652 128,598Management fees received 168,627 293,787 -------- --------Net cash used in operating activities (331,597) (351,273) -------- -------- Cash flows from investing activitiesAcquisition of property, plant and equipment (2,497) (6,650)Exploration expenditure, including overheadscapitalised (461,474) (308,435)Proceeds from disposal of exploration assets - 852,933Acquisition of subsidiaries - (741,782)Cash paid for other financial assets - (1,183,369)Proceeds from other financial assets - 60,879 -------- --------Net cash used in investing activities (463,971) (1,326,424) -------- -------- Cash flows from financing activitiesProceeds from the issue of share capital 125,000 5,536,518Share issue expenses (1,321) (123,046) -------- --------Net cash from financing activities 123,679 5,413,472 -------- -------- Net (decrease) / increase in cash and cashequivalents (671,889) 3,735,775Cash acquired on acquisition of subsidiaries - 21,126Cash and cash equivalents at 1 July 6,159,540 3,289,133 -------- --------Cash and cash equivalents at 31 December 5,487,651 7,046,034 -------- -------- NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS Note 1 Significant accounting policies 2 Segment reporting 3 Acquisitions of subsidiaries 4 Interests in joint venture operations 5 Non-current assets - Available-for-sale investments 6 Capital and reserves 7 Contingencies 8 Explanation of transition to AIFRS 9 Changes in accounting policy NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS 1. SIGNIFICANT ACCOUNTING POLICIES Global Petroleum Limited (the "Company") is a company domiciled in Australia.The condensed consolidated interim financial report of the Company for the sixmonths ended 31 December 2005 comprise the Company and its subsidiaries(together referred to as the "consolidated entity") and the consolidatedentity's interest in associates and jointly controlled entities. The condensed consolidated interim financial report was authorised for issue bythe directors on 9 March 2006. (a) Statement of compliance The condensed consolidated interim financial report is a general purposefinancial report which has been prepared in accordance with AustralianAccounting Standards adopted by the Australian Accounting Standards Board("AASB") and the Corporations Act 2001. International Financial Reporting Standards ("IFRS") form the basis ofAustralian Accounting Standards adopted by the AASB, and for the purpose of thisreport are called Australian equivalents to IFRS ("AIFRS") to distinguish fromprevious Australian GAAP. The interim financial report of the consolidatedentity also complies with IFRS and interpretations adopted by the InternationalAccounting Standards Board. This is the consolidated entity's first AIFRS condensed consolidated interimfinancial report for part of the period covered by the first AIFRS annualfinancial report and AASB 1 First time adoption of Australian equivalents toInternational Financial Reporting Standards. The condensed consolidated interimfinancial report does not include all of the information required for a fullannual financial report. The interim financial report is to be read in conjunction with the most recentannual financial report, however, the basis of their preparation is different tothat of the most recent annual financial report due to the first time adoptionof AIFRS. This report must also be read in conjunction with any publicannouncements made by Global Petroleum Limited during the half-year inaccordance with continuous disclosure obligations arising under the CorporationsAct 2001. An explanation of how the transition to AIFRS has affected the reportedfinancial position, financial performance and cash flows of the consolidatedentity is provided in note 8. This note includes reconciliations of equity andprofit or loss for comparative periods reported under Australian GAAP (previousGAAP) to those reported for those periods under AIFRS. (b) Basis of preparation The financial report is presented in Australian dollars. The financial report is prepared on the historical cost basis except that thefollowing assets and liabilities are stated at their fair value: financialinstruments classified as available-for-sale. Non-current assets held for sale are stated at the lower of carrying amount andfair value less costs to sell. The preparation of an interim financial report in conformity with AASB 134Interim Financial Reporting requires management to make judgements, estimatesand assumptions that affect the application of policies and reported amounts ofassets and liabilities, income and expenses. These estimates and associated assumptions are based on historical experienceand various other factors that are believed to be reasonable under thecircumstances, the results of which form the basis of making the judgementsabout carrying values of assets and liabilities that are not readily apparentfrom other sources. Actual results may differ from these estimates. This condensed consolidated interim financial report has been prepared on thebasis of AIFRS in issue that are effective or available for early adoption atthe consolidated entity's first AIFRS annual reporting date, 30 June 2006. Basedon these AIFRS, the Board of Directors have made assumptions about theaccounting policies expected to be adopted when the first AIFRS annual financialreport is prepared for the year ended 30 June 2006. The consolidated entity has not elected to early adopt any accounting standardsunder AIFRS at 31 December 2005. The consolidated entity has elected to earlyadopt IFRS 6 Exploration for and Evaluation of Mineral Resources with effectfrom 1 July 2005 under IFRS. The Australian Accounting Standards and UIG Interpretations that will beeffective or available for voluntary early adoption in the annual financialstatements for the period ended 30 June 2006 are still subject to changetherefore cannot be determined with certainty. Accordingly, the accountingpolicies for that annual period that are relevant to this interim financialinformation will be determined only when the first AIFRS financial statementsare prepared at 30 June 2006. The preparation of the condensed consolidated interim financial report inaccordance with AASB 134 resulted in changes to the accounting policies ascompared with the most recent annual financial statements prepared underprevious GAAP. Except for the change in accounting policy relating toclassification and measurement of financial instruments (refer note 9), theaccounting policies set out below have been applied consistently to all periodspresented in these condensed consolidated interim financial statements. Theyalso have been applied in preparing an opening AIFRS balance sheet at 1 July2004 for the purposes of the transition to Australian Accounting Standards -AIFRS, as required by AASB 1. The impact of the transition from previous GAAP toAIFRS is explained in note 8. Where relevant, the accounting policies applied tothe comparative period have been disclosed if they differ from the currentperiod policy. The accounting policies have been applied consistently throughoutthe consolidated entity for the purposes of this condensed consolidated interimfinancial report. (c) Principles of consolidation Subsidiaries Subsidiaries are entities controlled by the Company. Control exists when theCompany has the power, directly or indirectly, to govern the financial andoperating policies of an entity so as to obtain benefits from its activities. Inassessing control, potential voting rights that presently are exercisable orconvertible are taken into account. The financial statements of subsidiaries areincluded in the condensed consolidated interim financial report from the datethat control commences until the date that control ceases. Associates Associates are those entities for which the consolidated entity has significantinfluence, but not control, over the financial and operating policies. Thecondensed consolidated interim financial statements include the consolidatedentity's share of the total recognised gains and losses of associates on anequity accounted basis, from the date that significant influence commences untilthe date that significant influence ceases. When the consolidated entity's shareof losses exceeds its interest in an associate, the consolidated entity'scarrying amount is reduced to nil and recognition of further losses isdiscontinued except to the extent that the consolidated entity has incurredlegal or constructive obligations or made payments on behalf of an associate. Joint ventures Joint ventures are those entities over whose activities the consolidated entityhas joint control, established by contractual agreement. Jointly controlled operations and assets The interest of the consolidated entity in unincorporated joint ventures andjointly controlled assets are brought to account by recognising in its financialstatements the assets it controls and the liabilities that it incurs, and theexpenses it incurs and its share of income that it earns from the sale of goodsor services by the joint venture. Transactions eliminated on consolidation Intragroup balances, and any unrealised gains and losses or income and expensesarising from intragroup transactions, are eliminated in preparing the condensedconsolidated interim financial statements. Unrealised gains arising from transactions with associates and jointlycontrolled entities are eliminated to the extent of the consolidated entity'sinterest in the entity with adjustments made to the "Investment in associates"and "Share of associate's net profit" accounts. Unrealised losses are eliminated in the same way as unrealised gains, but onlyto the extent that there is no evidence of impairment. Gains and losses are recognised as the contributed assets are consumed or soldby the associates and jointly controlled entities or, if not consumed or sold bythe associate or jointly controlled entity, when the consolidated entity'sinterest in such entities is disposed of. (d) Foreign currency Foreign currency transactions Transactions in foreign currencies are translated at the foreign exchange rateruling at the date of the transaction. Monetary assets and liabilitiesdenominated in foreign currencies at the balance sheet date are translated toAustralian dollars at the foreign exchange rate ruling at that date. Foreignexchange differences arising on translation are recognised in the incomestatement. Non-monetary assets and liabilities that are measured in terms ofhistorical cost in a foreign currency are translated using the exchange rate atthe date of the transaction. Non-monetary assets and liabilities denominated inforeign currencies that are stated at fair value are translated to Australiandollars at foreign exchange rates ruling at the dates the fair value wasdetermined. Financial statements of foreign operations The assets and liabilities of foreign operations, including goodwill and fairvalue adjustments arising on consolidation, generally are translated toAustralian dollars at foreign exchange rates ruling at the balance sheet date.The revenues and expenses of foreign operations, excluding foreign operations inhyperinflationary economies, are translated to Australian dollars at ratesapproximating the foreign exchange rates ruling at the dates of thetransactions. The revenues, expenses, assets and liabilities of foreignoperations in hyperinflationary economies are translated to Australian dollarsat the foreign exchange rates ruling at the reporting date. Foreign exchangedifferences arising on retranslation are recognised directly in a separatecomponent of equity. Prior to translating the financial statements of foreign operations inhyperinflationary economies, the financial statements, including comparatives,are restated to account for changes in the general purchasing power of the localcurrency. The restatement is based on relevant price indices at the reportingdate. Net investment in foreign operations Exchange differences arising from the translation of the net investment inforeign operations are taken to the translation reserve. They are released intothe income statement upon disposal. In respect of all foreign operations, any differences that have arisen before 1July 2004, the date of transition to AIFRS, are presented as a separatecomponent of equity (see note 8). (e) Exploration and evaluation expenditure Exploration and evaluation costs are accumulated in respect of each separatearea of interest. Exploration and evaluation costs are carried forward where right of tenure ofthe area of interest is current and they are expected to be recouped throughsale or successful development and exploitation of the area of interest, orwhere exploration and evaluation activities in the area of interest have not yetreached a stage that permits reasonable assessment of the existence ofeconomically recoverable reserves. When an area of interest is abandoned or the directors decide that it is notcommercial, any accumulated costs in respect of that area are written off in thefinancial period the decision is made. The carrying amounts of exploration and evaluation expenditure are reviewed inaccordance with the impairment policy (see accounting policy (j)). Theconsolidated entity performs an impairment test on capitalised exploration andevaluation costs if there is an impairment indicator such as: • the right to explore has expired during the period or will expire in the near future and is not expected to be renewed • substantive expenditure on further exploration for and evaluation of mineral resources in the specific area is neither budgeted nor planned • exploration and evaluation in the specific area has not led to the discovery of commercially viable quantities of mineral resources and the entity has decided to discontinue such activities in the specific area • sufficient data exists to indicate that the carrying amount of the asset is unlikely to be recovered in full from successful development or by sale even if development in the specific area is likely to proceed. In the event of impairment, write-downs to the income statement are made. Anysubsequent increments are also recognised in the income statement to the extentthat it is a reversal of the previous write-down. (f) Property, plant and equipment Owned assets Items of property, plant and equipment are stated at cost less accumulateddepreciation and impairment losses (see accounting policy (j)). The cost ofacquired assets includes (i) the initial estimate at the time of installationand during the period of use, when relevant, of the costs of dismantling andremoving the items and restoring the site on which they are located, and (ii)changes in the measurement of existing liabilities recognised for these costsresulting from changes in the timing or outflow of resources required to settlethe obligation or from changes in the discount rate. Where parts of an item of property, plant and equipment have different usefullives, they are accounted for as separate items of property, plant andequipment. Leased assets Leases in terms of which the consolidated entity assumes substantially all ofthe risks and rewards of ownership are classified as finance leases. Otherleases are classified as operating leases. Lease payments are accounted for asdescribed in accounting policy (o). Subsequent costs The consolidated entity recognises in the carrying amount of an item ofproperty, plant and equipment the cost of replacing part of such an item whenthat cost is incurred if it is probable that the future economic benefitsembodied within the item will flow to the consolidated entity and the cost ofthe item can be measured reliably. All other costs are recognised in the incomestatement as an expense as incurred. Depreciation Depreciation is charged to the income statement on a straight-line or reducingbalance basis over the estimated useful lives of each part of an item ofproperty, plant and equipment. The depreciation rates used for each class ofasset in the current and comparative periods are as follows: 2005 2004Plant and equipment - reducing balance method of depreciation 11.25% to 40% 11.25% to 40%- straight line method of depreciation 40% 40% The residual value, if not insignificant, is reassessed annually. (g) Investments Investments in debt and equity securities Current accounting policy Financial instruments held by the consolidated entity classified as beingavailable-for-sale are stated at fair value, with any resultant gain or lossrecognised directly in equity, except for impairment losses and, in the case ofmonetary items such as debt securities, foreign exchange gains and losses. Wherethese investments are derecognised, the cumulative gain or loss previouslyrecognised directly in equity is recognised in profit or loss. Where theseinvestments are interest-bearing, interest calculated using the effectiveinterest method is recognised in the income statement. The fair value of financial instruments classified as available-for-sale istheir quoted bid price at the balance sheet date. Financial instruments classified as available-for-sale investments arerecognised / derecognised by the consolidated entity on the date it commits topurchase / sell the investments. Securities held to maturity are recognised /derecognised on the day they are transferred to / by the consolidated entity. Comparative period policy Investments in other listed entities are measured at the lower of cost andrecoverable amount. The quantitative effect of the change in accounting policy is set out in note 9. (h) Trade and other receivables Trade and other receivables are stated at cost less impairment losses (seeaccounting policy (j)). (i) Cash and cash equivalents Cash and cash equivalents comprises cash balances and call deposits with anoriginal maturity of three months or less. Bank overdrafts that are repayable ondemand and form an integral part of the consolidated entity's cash managementare included as a component of cash and cash equivalents for the purpose of thestatement of cash flows. (j) Impairment The carrying amounts of the consolidated entity's assets are reviewed at eachreporting date to determine whether there is any indication of impairment. Ifany such indication exists, the asset's recoverable amount is estimated (seebelow). An impairment loss is recognised whenever the carrying amount of an asset of itscash generating unit exceeds its recoverable amount. Impairment losses arerecognised in the income statement unless the asset has previously beenrevalued, in which case the impairment loss is recognised as a reversal to theextent of that previous revaluation with any excess recognised through theincome statement. Impairment losses recognised in respect of cash-generating units are allocatedfirst to reduce the carrying amount of any goodwill allocated to thecash-generating unit (group of units) and then, to reduce the carrying amount ofthe other assets in the unit (group of units) on a pro rata basis. When a decline in the fair value of an available-for-sale financial asset hasbeen recognised directly in equity and there is objective evidence that theasset is impaired, the cumulative loss that had been recognised directly inequity is recognised in profit or loss even though the financial asset has notbeen derecognised. The amount of the cumulative loss that is recognised inprofit or loss is the difference between the acquisition cost and current fairvalue, less any impairment loss on that financial asset previously recognised inprofit or loss. Calculation of recoverable amount The recoverable amount of assets is the greater of their fair value less coststo sell and value in use. In assessing value in use, the estimated future cashflows are discounted to their present value using a pre-tax discount rate thatreflects current market assessments of the time value of money and the risksspecific to the asset. For an asset that does not generate largely independentcash inflows, the recoverable amount is determined for the cash-generating unitto which the asset belongs. Reversals of impairment An impairment loss in respect of an investment in an equity instrumentclassified as available-for-sale is not reversed through profit or loss. In respect of other assets, an impairment loss is reversed if there has been achange in the estimates used to determine the recoverable amount. An impairmentloss is reversed only to the extent that the asset's carrying amount does notexceed the carrying amount that would have been determined, net of depreciationor amortisation, if no impairment loss had been recognised. (k) Share capital Transaction costs Transaction costs of an equity transaction are accounted for as a deduction fromequity, net of any related income tax benefit. (l) Employee benefits Wages, salaries and annual leave Liabilities for employee benefits for wages, salaries and annual leave representpresent obligations resulting from employees' services provided to reportingdate, calculated at undiscounted amounts based on remuneration wage and salaryrates that the consolidated entity expects to pay as at reporting date,including related on-costs. Defined contribution plans Obligations for contributions to defined contribution pension plans arerecognised as an expense in the income statement as incurred. Share-based payment transactions The fair value of options granted is recognised as an employee expense with acorresponding increase in equity. The fair value is measured at grant date andspread over the period during which the employees become unconditionallyentitled to the options. The fair value of the options granted is measured usingthe binomial method, taking into account the terms and conditions upon which theoptions were granted. The amount recognised as an expense is adjusted to reflectthe actual number of share options that vest except where forfeiture is only dueto market-related conditions. Options granted after 7 November 2002 that vested before 1 January 2005 have notbeen recognised on transition to AIFRS, as permitted by AASB 1 First TimeAdoption of Australian Equivalents to International Financial ReportingStandards. (m) Trade and other payables Trade and other payables are stated cost. (n) Revenue, net financing income and other income Rendering of services Revenue from management services is recognised in the income statement in linewith the management agreements and contracts. Net financing income Net financing income comprises interest receivable on funds invested, dividendincome and foreign exchange gains and losses. Interest income is recognised in the income statement as it accrues, using theeffective interest method. Dividend income is recognised in the income statementon the date the entity's right to receive payments is established. In the caseof distributions from controlled entities recognised by the parent entity, thisdate is when dividends are declared by the controlled entities. Other income - Sale of non-current assets The proceeds of non-current asset sales are recognised at the date control ofthe asset passes to the buyer, usually when an unconditional contract of sale issigned. The gain or loss on disposal is calculated as the difference between thecarrying amount of the asset at the time of disposal and the net proceeds ondisposal (including incidental costs). (o) Expenses Operating lease payments Payments made under operating leases are recognised in the income statement on astraight-line basis over the term of the lease. Lease incentives received arerecognised in the income statement as an integral part of the total leaseexpense and spread over the lease term. (p) Income tax Income tax on the income statement comprises current and deferred tax. Incometax is recognised in the income statement except to the extent that it relatesto items recognised directly in equity, in which case it is recognised inequity. Current tax is the expected tax payable on the taxable income for the year,using tax rates enacted or substantially enacted at the balance sheet date, andany adjustment to tax payable in respect of previous years. Deferred tax is provided using the balance sheet liability method, providing fortemporary differences between the carrying amounts of assets and liabilities forfinancial reporting purposes and the amounts used for taxation purposes. Thefollowing temporary differences are not provided for: the initial recognition ofassets or liabilities that affect neither accounting nor taxable profit anddifferences relating to investments in subsidiaries to the extent that they willprobably not reverse in the foreseeable future. The amount of deferred tax provided is based on the expected manner ofrealisation or settlement of the carrying amount of assets and liabilities,using tax rates enacted or substantively enacted at the balance sheet date. A deferred tax asset is recognised only to the extent that it is probable thatfuture taxable profits will be available against which the asset can beutilised. Deferred tax assets are reduced to the extent that it is no longerprobable that the related tax benefit will be realised. Additional income taxes that arise from the distribution of dividends arerecognised at the same time as the liability to pay the related dividend. Tax consolidation The Company and its wholly-owned Australian resident entities have formed a taxconsolidated group with effect from 1 July 2003 and are therefore taxed as asingle entity from that date. The head entity within the tax-consolidated groupis Global Petroleum Limited. Current tax expense / income, deferred tax liabilities and deferred tax assetsarising from temporary differences of the members of the tax-consolidated groupare recognised in the separate financial statements of the members of thetax-consolidated group using the "separate taxpayer within group" approach byreference to the carrying amounts in the separate financial statements of eachentity and the tax values applying under tax consolidation. Current tax liabilities and assets and deferred tax assets arising from unusedtax losses and tax credits of the members of the tax-consolidated group arerecognised by the Company (as head entity in the tax-consolidated group).Deferred tax assets and deferred tax liabilities are measured by reference tothe carrying amounts of the assets and liabilities in the Company's balancesheet and their tax values applying under tax consolidation. Any current tax liabilities (or assets) and deferred tax assets arising fromunused tax losses assumed by the head entity from the subsidiaries in the taxconsolidated group will be recognised as amounts receivable or payable to otherentities in the tax consolidated group in conjunction with any tax fundingarrangement amounts. Any difference between these amounts will be recognised bythe Company as an equity contribution to or distribution from the subsidiary.Distributions would firstly reduce the carrying amount of the investment in thesubsidiary and would then be recognised as revenue. The Company recognisesdeferred tax assets arising from unused tax losses of the tax-consolidated groupto the extent that it is probable that future taxable profits of thetax-consolidated group will be available against which the asset can beutilised. Any subsequent period adjustments to deferred tax assets arising from unused taxlosses assumed from subsidiaries are recognised by the head entity only. (q) Segment reporting A segment is a distinguishable component of the consolidated entity that isengaged in providing products or services within a particular economicenvironment (geographical segment) which is subject to risks and rewards thatare different from those of other segments. (r) Goods and services tax Revenues, expenses and assets are recognised net of the amount of goods andservices tax (GST), except where the amount of GST incurred is not recoverablefrom the taxation authority. In these circumstances, the GST is recognised aspart of the cost of acquisition of the asset or as part of the expense. Receivables and payables are stated with the amount of GST included. The netamount of GST recoverable from, or payable to, the Australian Taxation Office(ATO) is included as a current asset or liability in the statement of financialposition. Cash flows are included in the statement of cash flows on a gross basis. The GSTcomponents of cash flows arising from investing and financing activities whichare recoverable from, or payable to, the ATO are classified as operating cashflows. 2. SEGMENT REPORTING Segment information is presented in the condensed consolidated interim financialstatements in respect of the consolidated entity's geographical segments, whichare the primary basis of segment reporting. The geographical segment reportingformat reflects the consolidated entity's management and internal reportingstructure. Inter-segment pricing is determined on an arm's length basis. Segment resultsinclude items directly attributable to a segment as well as those that can beallocated on a reasonable basis. Segment capital expenditure is the total costincurred during the period to acquire segment assets that are expected to beused for more than one period. Geographical segments The consolidated entity's geographical segments are as follows: 31 Dec Falkland 2005 Australia Europe Africa Islands Iraq Indonesia Eliminations Consolidated $ $ $ $ $ $ $ $ SegmentrevenueExternalrevenue - - - 62,111 - - - 62,111 ------- ------ ------ ------- ------ ------ -------- --------Total revenue 62,111 --------ResultSegment result (280,620) (203,531) (943,158) 1,100,182 (11,550) - - (338,677) ------- ------ ------ ------- ------ ------ -------- --------Income tax expense - --------Loss forthe period (338,677) --------31 Dec2004SegmentrevenueExternalrevenue - - - 270,817 - - - 270,817 ------- ------ ------ ------- ------ ------ -------- --------Total revenue 270,817 --------ResultSegment result (490,530) (270,165) - (114,578) (32,057) (29,247) - (936,577) ------- ------ ------ ------- ------ ------ -------- --------Income tax expense - --------Loss forthe period (936,577) -------- Business segments The consolidated entity operates within one business segment, being thepetroleum and mineral exploration industry. Accordingly, the consolidatedentity's total revenue and loss for the period relates to that business segment. 3. ACQUISITIONS OF SUBSIDIARIES The consolidated entity did not gain control over any entities during thecurrent half-year period. During the corresponding half-year period, the Company acquired 100% of AstralPetroleum Limited and its controlled entities under the terms of an acquisitionagreement approved by shareholders at the annual general meeting on 25 November2004. In each case, the consolidated entity's interest is 100%. Name of entity Country of incorporationAstral Petroleum Limited United KingdomAstral Petroleum Resources (Ireland) Ltd British Virgin IslandsAstral Petroleum (Malta) Ltd British Virgin Islands The consideration payable under the acquisition agreement consists of threetranches. The Company paid cash of £195,000 ($504,322) and issued 1 millionordinary shares in December 2004 (Tranche 1). Tranches 2 and 3 are contingent oncertain conditions relating to the farmout of the interests acquired by theconsolidated entity in the Irish and Maltese permit areas (refer note 7). Theeffect of the results of the Astral Petroleum Limited group on the loss for thesix months ended 31 December 2004 was not material. 4. INTERESTS IN JOINT VENTURE OPERATIONS The consolidated entity holds the following interests in joint ventures, whoseprincipal activities are in petroleum exploration. Joint venture % interest held ConsolidatedJoint venture Principal activity 31 Dec 2005 31 Dec 2004 % %Kenya Petroleum exploration 20.0 20.0TM Services -Global (Iraq) Petroleum exploration 50.0 -Fira - Global (Iraq) Production sharing - 20.0 applications 5. NON-CURRENT ASSETS - Available-for-sale investments 31 Dec 2005 30 June 2005 Shares - listed - at fair value 36,638,953 -Shares - listed - at cost - 2,495,798 --------- -------- 36,638,953 2,495,798 --------- --------- Investments in listed shares at cost at 30 June 2005 represented investments inFalkland Gold and Minerals Limited ("FGML") and Falkland Oil and Gas Limited("FOGL"). Under previous GAAP, the consolidated entity recordedavailable-for-sale investments at cost. In accordance with AIFRS theseinvestments have been recognised at fair value (current market value) witheffect from 1 July 2005. Refer note 9 for further details of this change inaccounting policy. The consolidated entity disposed of its investment in FGML in December 2005 fornet proceeds of $1,827,416 and recorded a net gain on disposal of $1,093,589. 6. CAPITAL AND RESERVES Reconciliation of movement in capital and reserves attributable to equityholders of the parent entity Consolidated Share Fair value Foreign Accumulated Total capital reserve currency losses equity translation reserve $ $ $ $ $ Balance at 1July 2005 34,436,135 - 48,455 (7,711,002) 26,773,588Totalrecognisedincome andexpense - (4,311,172) - (338,677) (4,649,849)Effect ofchange inaccountingpolicy - 39,188,153 - - 39,188,153(note 9)Shares issued 125,000 - - - 125,000Share issueexpenses (1,321) - - - (1,321) -------- -------- -------- -------- --------Balance at31 December 2005 34,559,814 34,876,981 48,455 (8,049,679) 61,435,571 -------- -------- -------- -------- -------- Share capital The consolidated entity recorded the following amounts within shareholders'equity as a result of the issuance of ordinary shares. Number of Issue price ordinary shares $ $ Balance at 1 July 2005 169,794,787 34,436,135Shares issued on exercise of options23 September 2005 500,000 0.25 125,000 Share issue expenses (1,321) ---------- -------- ---------Balance at 31 December 2005 - fully paid 170,294,787 34,559,814 ---------- -------- --------- 7. CONTINGENCIES Other than as set out below, there were no changes in contingent liabilitiessince 30 June 2005. Acquisition of Astral Petroleum Limited - contingent consideration The Company received approval at the 24 November 2005 AGM for an extension oftime for the issue of the contingent consideration payable upon the acquisitionof Astral Petroleum Limited. The effect of the approval is that if theconsolidated entity enters into a farmout in relation to the Irish permit areathat satisfies the conditions under the acquisition agreement by 30 June 2006,the Company will be required to issue an additional 4 million ordinary shares(Tranche 2) to the vendors. If the consolidated entity enters into a farmout inrelation to the Maltese permit area that satisfies the conditions under theacquisition agreement by 30 June 2006, the Company will be required to issue afurther 4 million ordinary shares (Tranche 3) to the vendors. Guarantees Bank guarantees of $28,000 in relation to prospecting activities in Queensland,Australia, were cancelled during the half-year. 8. EXPLANATION OF TRANSITION TO AIFRS As stated in note 1(a), these are the consolidated entity's first condensedconsolidated interim financial statements for part of the period covered by thefirst AIFRS annual consolidated financial statements prepared in accordance withAustralian Accounting Standards - AIFRS. The accounting policies in note 1 have been applied in preparing the condensedconsolidated interim financial statements for the six months ended 31 December2005, the comparative information for the six months ended 31 December 2004, thefinancial statements for the year ended 30 June 2005 and the preparation of anopening AIFRS balance sheet at 1 July 2004 (the consolidated entity's date oftransition). In preparing its opening AIFRS balance sheet, comparative information for thesix months ended 31 December 2004 and financial statements for the year ended 30June 2005, the consolidated entity has adjusted amounts reported previously infinancial statements prepared in accordance with its previous basis ofaccounting (previous GAAP). An explanation of how the transition from previous GAAP to AIFRS has affectedthe consolidated entity's financial position, financial performance and cashflows is set out in the following tables and the notes that accompany thetables. Only those balances where there has been a material impact have beendisclosed below. Reconciliation of equity Note 30 June 31 Dec 1 July 2005*** 2004** 2004* $ $ $ Total equity under previous GAAP 26,948,866 27,878,189 22,824,220Adjustments to reserves:Foreign currency translation reserve (a) 48,455 44,981 44,981Accumulated losses:Exploration and evaluationexpenditure (b) (223,733) (574,477) (367,403) -------- -------- --------Total equity under AIFRS 26,773,588 27,348,693 22,501,798 -------- -------- -------- * This column represents the adjustments as at the date of transition to AIFRS. ** This column represents the cumulative adjustments as at the date oftransition to AIFRS and those for the half-year ended 31 December 2004. *** This column represents the cumulative adjustments as at the date oftransition to AIFRS and those for the year ended 30 June 2005. Notes to the reconciliation of equity (a) Under AASB 121 The Effects of Changes in Foreign Exchange Rates, the assetsand liabilities of the consolidated entity's controlled foreign operations witha functional currency other than Australian currency are translated at theclosing exchange rate at the balance date, with exchange differences arising ontranslation recognised as a separate component of equity. Under previous GAAP the assets and liabilities of foreign operations that are integrated aretranslated using the temporal method whereby monetary assets and liabilities aretranslated into Australian currency at rates of exchange current at balancedate, while non-monetary items are translated at exchange rates current when thetransactions occurred, with exchange differences arising on translation broughtto account in the statement of financial performance. The aggregate impact on the foreign currency translation reserve and explorationand evaluation expenditure carried in the balance sheet of the consolidatedentity at 1 July 2004 and 31 December 2004 is an increase of $44,981. Theaggregate impact on the foreign currency translation reserve and exploration andevaluation expenditure carried in the balance sheet of the consolidated entityat 30 June 2005 is an increase of $48,455. (b) Under AASB 6 Exploration for and Evaluation of Mineral Resources, costsincurred before an entity has legal right of access to an exploration area mustbe expensed. For the consolidated entity, at 1 July 2004 an amount of $367,403was reclassified from exploration and evaluation expenditure carried in thebalance sheet to accumulated losses. The adjustment to profit and loss for thehalf-year ended 31 December 2004 was $207,074 (increase in loss before tax) anddecrease in capitalised exploration and evaluation expenditure as at 31 December2004 of $207,074. The adjustment to profit and loss for the year ended 30 June2005 was $143,670 (decrease in loss before tax) and decrease in capitalisedexploration and evaluation expenditure as at 30 June 2005 of $223,733. An amountof $350,744 relating to Iraq had been written off under previous GAAP in the sixmonths ended 30 June 2005. Under AIFRS, $318,687 of this amount was reclassifiedfrom exploration and evaluation expenditure carried in the balance sheet toaccumulated losses at 1 July 2004, and the remaining $32,057 was written off inthe six months ended 31 December 2004. Reconciliation of loss for 2005 Note For the year For the 6 months ended ended 30 June 2005 31 Dec 2004 $ $ Loss as reported under previousGAAP (1,772,832) (729,503)Exploration and evaluationexpenditure (b) 143,670 (207,074) ----------- -----------Loss under AIFRS (1,629,162) (936,577) ----------- ----------- Loss per share Basic loss per share and diluted loss per share for the six months ended 31December 2004 under previous GAAP were both 0.46 cents. Under AIFRS the amountis 0.59 cents. Basic loss per share and diluted loss per share for the yearended 30 June 2005 under previous GAAP were both 1.08 cents. Under AIFRS theamount is 0.99 cents. Revenue - proceeds on sale of non-current assets Under AIFRS the gain or loss on the disposal of non-current assets is recognisedon a net basis as a gain or loss rather than as under previous GAAP whichseparately recognised the consideration received as revenue. This resulted in areduction in revenue of $50 and $850,745 for the consolidated entity for thefinancial year ended 30 June 2005 and the half-year ended 31 December 2004. Statement of cash flows There are no material differences between the statement of cash flows presentedunder AIFRS and the statement of cash flows presented under previous GAAP. 9. CHANGES IN ACCOUNTING POLICY Reconciliation of financial instruments as if AASB 139 was applied at 1 July2005 In the current financial year the consolidated entity adopted AASB 132 FinancialInstruments: Disclosure and Presentation and AASB 139 Financial Instruments:Recognition and Measurement. This change in accounting policy has been adoptedin accordance with the transition rules contained in AASB 1, which does notrequire the restatement of comparative information for financial instrumentswithin the scope of AASB 132 and AASB 139. The adoption of AASB 139 has resulted in the consolidated entity recognisingavailable-for-sale investments as assets at fair value. This change has beenaccounted for by adjusting the opening balance of equity (fair value reserve) at1 July 2005. Under previous GAAP, the consolidated entity recorded available-for-saleinvestments at cost. In accordance with AIFRS, they are recognised at fairvalue. The effect on the consolidated entity is to increase available-for-saleinvestments and fair value reserve by $39,188,153 at 1 July 2005, representingthe excess of fair value over the previous GAAP carrying value of theinvestments in Falkland Oil and Gas Limited and Falkland Gold and MineralsLimited (refer note 5). Under previous GAAP, the consolidated entity classified prepayments as otherassets. In accordance with AIFRS, prepayments of $63,033 at 31 December 2005have been classified as trade and other receivables. The comparative of $72,710for 30 June 2005 has not been restated. The transitional provisions will not have any effect in future reportingperiods. DIRECTORS' DECLARATION In the opinion of the directors of Global Petroleum Limited ("the Company"): 1. the financial statements and notes, set out on pages 9 to 26, are in accordance with the Corporations Act 2001 including: (a) giving a true and fair view of the financial position of the consolidatedentity as at 31 December 2005 and of its performance, as represented by theresults of its operations and cash flows, for the half-year ended on that date;and (b) complying with Australian Accounting Standard AASB 134 Interim FinancialReporting and the Corporations Regulations 2001; and 2. there are reasonable grounds to believe that the Company will be able to payits debts as and when they become due and payable. Signed in accordance with a resolution of the directors. J D ArmstrongDirectorBrisbane9 March 2006 INDEPENDENT REVIEW REPORT TO THE MEMBERS OFGLOBAL PETROLEUM LIMITED Scope The financial report and directors' responsibility The financial report comprises the condensed consolidated interim statement ofincome, statement of changes in recognised income and expense, balance sheet,statement of cash flows, accompanying notes 1 to 9 to the financial statements,and the directors' declaration set out on pages 9 to 27 for the Global PetroleumLimited consolidated entity ("consolidated entity"), for the half-year ended 31December 2005. The consolidated entity comprises Global Petroleum Limited ("theCompany') and the entities it controlled during that half-year. The directors of the Company are responsible for the preparation and true andfair presentation of the financial report in accordance with the CorporationsAct 2001. This includes responsibility for the maintenance of adequateaccounting records and internal controls that are designed to prevent and detectfraud and error, and for the accounting policies and accounting estimatesinherent in the financial report. The directors are also responsible forpreparing the relevant reconciling information regarding adjustments requiredunder the Australian Accounting Standard AASB 1 First-Time Adoption ofAustralian equivalents to International Financial Reporting Standards. Review approach We conducted an independent review in order for the Company to lodge thefinancial report with the Australian Securities and Investments Commission. Ourreview was conducted in accordance with Australian Auditing Standards applicableto review engagements. We performed procedures in order to state whether on the basis of the proceduresdescribed anything has come to our attention that would indicate the financialreport does not present fairly, in accordance with the Corporations Act 2001,Australian Accounting Standard AASB 134 Interim Financial Reporting and othermandatory financial reporting requirements in Australia, a view which isconsistent with our understanding of the consolidated entity's financialposition, and of its performance as represented by the results of its operationsand cash flows. We formed our statement on the basis of the review procedures performed, whichwere limited primarily to: • enquiries of company personnel; and • analytical procedures applied to the financial data. While we considered the effectiveness of management's internal controls overfinancial reporting when determining the nature and extent of our procedures,our review was not designed to provide assurance on internal controls. The procedures do not provide all the evidence that would be required in anaudit, thus the level of assurance is less than given in an audit. We have notperformed an audit and, accordingly, we do not express an audit opinion. A review cannot guarantee that all material misstatements have been detected. Statement Based on our review, which is not an audit, we have not become aware of anymatter that makes us believe the half-year financial report of Global PetroleumLimited is not in accordance with: (a) the Corporations Act 2001, including: (i) giving a true and fair view of the consolidated entity's financial position as at 31 December 2005 and of its performance for the half-year ended on that date; and (ii)complying with Australian Accounting Standard AASB 134 Interim Financial Reporting and the Corporations Regulations 2001; and (b) other mandatory financial reporting requirements in Australia. KPMG Robert S JonesPartnerBrisbane9 March 2006 This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
Global Petroleum