Annual Report and Financial Statements
Annual Report and Financial Statements
Annual Report and Financial Statements
EUROPA OIL & GAS (HOLDINGS) plc
For the year ended 31 July 2009 Company registration number
5217946
Europa Oil & Gas (Holdings) plc
Contents
Directors and advisers
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1
Highlights
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2
Chairman's statement
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3
Operational review
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4
Financial review
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10
Directors' report
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12
Statement of directors‟ responsibilities
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14
Corporate governance statement
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15
Report of the independent auditors
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17
Consolidated income statement for the year ended 31 July 2009
.......................................................................
19
Consolidated balance sheet as at 31 July 2009
.......................................................................................................
20
Consolidated statement of changes in equity for the year ended 31
July 2009 .................................................
21
Company balance sheet as at 31 July 2009
.............................................................................................................
22
Company statement of changes in equity for the year ended 31 July
2009 .......................................................
23
Consolidated cash flow statement for the year ended 31 July 2009
...................................................................
24
Company cash flow statement for the year ended 31 July 2009
.........................................................................
25
Notes to the financial statements
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26
Europa Oil & Gas (Holdings) plc
1
Directors and advisers
Company registration number 5217946
Registered office 11 The Chambers Vineyard Abingdon OX14 3PX
Directors J M Y Oliver - Non Executive Chairman C W
Ahlefeldt-Laurvig - Non Executive R J H M Corrie - Non Executive P
A Barrett - Managing Director P Greenhalgh - Finance Director E S
Syba - Operations Director
Secretary P Greenhalgh
Banker Royal Bank of Scotland plc 1 Albyn Place Aberdeen AB10
1BR
Solicitor Charles Russell LLP 7600 The Quorum Oxford Business Park
North Oxford OX4 2JZ
Auditor BDO LLP 55 Baker Street London W1U 7EU Nominated advisor
and broker Seymour Pierce Limited 20 Old Bailey London EC4M 7EN
Registrar Computershare Investor Services plc PO Box 82 The
Pavilions Bridgwater Road Bristol BS99 7NH
Europa Oil & Gas (Holdings) plc
2
Highlights
Operational highlights Crude oil sales of 77,743 barrels, a
decrease of 12% on 2008 Drilled top hole section of Hykeham-1 well
Proved a potential 40% production increase for West Firsby Reduced
equity in Brates block to 20% Secured extension to West Darag
licence to 31 December 2009
Financial highlights Revenue of £2.9 million (2008: £4.4 million)
Profit before tax of £0.4 million (2008: £2.1 million) Profit after
tax from continuing operation of £0.1 million (2008: £0.4 million)
Basic earnings per share from continuing operations 0.11 pence
(2008: 0.71 pence)
Post balance sheet events Elected not to participate in any future
Lilieci-1 development Placed 12.5 million shares to raise £1.7
million Drilled Voitinel-1. First test flowed gas at a rate of 1.6
mmscfpd. £1.6 million of available funding at 30 September 2009,
post drilling of Voitinel Rig contract executed with BDF for the
main section of Hykeham-1
Europa Oil & Gas (Holdings) plc
3
Chairman's statement
The Group‟s financial year spans a period of unprecedented
turbulence in commodity and equity markets, with Brent oil price
falling from $120/bbl to under $40/bbl during the twelve months.
The fall in oil prices, albeit from an unsustainable and artificial
peak, adversely affected Europa‟s production revenues which fell to
£2.9 million from £4.4 million in 2008. The directors reacted
constructively to this situation by reducing their salaries by 20%
while the oil price was below $50/bbl. Despite this challenging
business environment, the Group has posted a pre-tax profit of £0.4
million (2008: £2.1 million). The Group‟s production stream was
also impacted by a fire at West Firsby, which caused a shutdown of
that site‟s production in June and July 2009, resulting in an
annual average production of 213 bopd (2008: 242 bopd).
Experimental production optimisation at West Firsby, conducted in
May, confirmed the potential for around 40% production increase at
the site by upgrading the facilities. Although delayed by the fire,
a programme of work to increase production at both West Firsby and
Crosby Warren fields is now on-track to deliver improvements by the
end of 2009. In the Aquitaine basin of SW France, the Group has
reprocessed the existing seismic data over most of the Béarn des
Gaves and Tarbes Val d‟Adour permits. The forward programme is to
develop a drilling location in conjunction with possible new
seismic acquisition in 2010. Further afield, we successfully
negotiated an extension of Phase 1 of the West Darag concession in
Egypt in order to undertake the acquisition of a new seismic
survey. The seismic survey is due to commence in October 2009 and a
decision will then be made regarding a commitment to enter Phase 2
on the concession. In early 2009, Europa participated in the
drilling of the Lilieci-1 well Bacau, Romania, which is currently
suspended. The well was drilled as part of an agreement with the
Operator whereby our costs were carried and we had an option to
back-in to the well, after testing, on payment of the carried costs
plus a premium. Our assessment of the well tests was that there was
insufficient gas in place to warrant backing-in to any future
development and the option was not exercised. The results
underlined the soundness of the decision to drill this well at
almost nil cost to Europa. The high profile Voitinel well Brodina,
Romania spudded on 21 August 2009 and reached TD on 19 September
2009. The primary target of the prospect did not contain
hydrocarbons, however the Brodina group decided that the gas shows
in a secondary target at a shallower depth warranted testing. The
test is currently in progress. Initial results are promising, with
the first test flowing at a rate of 1.6 mmscfpd. The Operator will
report when the tests are completed at the end of October.
Following the spudding of Voitinel-1 the directors took advantage
of an opportunity to raise equity funds. This resulted in net
proceeds of £1.7 million. Directors and employees subscribed to 20%
of the amount raised, with only a 16.6% dilution to existing
shareholders. This capital allows the Group to quicken the pace on
the production enhancement programmes, a process which is already
underway. It is anticipated that production will rise to over 350
bopd after completion of these programmes. At 30 September 2009
Europa had £1.6 million of available funding. Attention now
switches to the East Midlands again with the Hykeham-1 exploration
well PEDL150, UK, a low risk drill offsetting our producing Whisby
oilfield. The well was spudded early in 2009 and drilled to 88m
before being suspended due to summer bird breeding season drilling
restrictions. The Hykeham-1 well targets 10mmbo in place and has
all the essential elements for a low risk oilfield prospect. We
believe the well has a 1 in 3 chance of success. We expect this
well to be completed by January 2010 and if successful, could be
put on production immediately providing an indicative Group
production level of over 500 bopd. Since June, oil prices have
rallied and steadied in the $60-70/bbl range and most economies
have started to recover. This bodes well for a more stable and
predictable year ahead in terms of revenue stream. Combining this
with increased production, drilling in the UK, Romania and
potentially France and Egypt, make for a very exciting 2010. Sir
Michael Oliver
Chairman
Europa Oil & Gas (Holdings) plc
4
Operational review
Licence Interests Table Country Project Equity Operator Status UK
Crosby Warren Oilfield 100% Europa Production UK West Firsby
Oilfield 100% Europa Production UK Whisby Oilfield (W4 only) 65%
BPEL Production UK PEDL143 (Holmwood) 40% Europa Exploration,
Holmwood-1 well planned 2010 UK PEDL150 (SW Lincoln) 75% Europa
Exploration, Hykeham-1 well, West Whisby prospect UK PEDL180 (NE
Lincs) 50% Europa Exploration, Wressle prospect UK PEDL181 (NE
Lincs) 50% Europa Exploration, Caister Horst prospect UK PEDL222
(Torksey Area) 50% Valhalla Exploration, maturing prospects Romania
EIII-1 Brodina 28.75% Aurelian Exploration, Voitinel-1 on test
Romania EPI-3 Brates 20% MND Exploration, Barchiz-1 well and Tazaul
Mare prospect Romania EIII-3 Cuejdiu 17.5% Aurelian Boistea-1
commercial feasibility study Romania EIII-4 Bacau 19% Aurelian
Exploration, 4 year extension secured France Béarn des Gaves 100%
Europa Exploration possible field development France Tarbes val
d'Adour 100% Europa Field re-development, exploration Poland Blocks
434, 435, 454 and 455 2.5% * RWE-Dea Appraisal drilling of Pola oil
discovery to commence in late 2009 Egypt West Darag Onshore 60%
Europa Exploration, seismic acquisition Western Sahara Bir Lehlou
100% Europa Inactive - force majeure Western Sahara Hagounia 100%
Europa Inactive - force majeure
* Overriding royalty interest
Europa Oil & Gas (Holdings) plc
5
Operational review (continued) Summary The Group holds interests in
18 licences (see table), with 15 in Europe and 3 in North Africa.
The company strives to maintain a balanced portfolio and has, on an
unrisked reserves potential basis, 2% of the portfolio in
production, 9% in appraisal, 58% low risk exploration and 31% in
high risk, high reward exploration. We believe this balance allows
the Group to use production to build revenue through low risk
drilling, and pay for high reward wells. United Kingdom
Production/Development Crosby Warren Crosby Warren produces oil
from the CW1 well, at about 45bopd. The CW2 well is currently
shut-in awaiting a workover. The field is undergoing a production
enhancement programme which includes a larger pump on CW1 and a
proppant frac stimulation on CW2, a technique which was used to
great effect on CW1. These are scheduled to complete during the
fourth quarter of 2009. West Firsby In May, a series of engineering
studies proved that the West Firsby Oilfield had been
underperforming and production could be increased by over 40% from
its average production of 120 bopd. An upgrade of the facilities
will be required to maximize and sustain this production increase
and ensure production reliability. In September, OSL Consulting
Limited were engaged to design these modifications. Work has
already begun and is scheduled to complete in 16 weeks. On the
morning of 22 June 2009, a fire caused damage to two engines and
pumps. The emergency shutdown system activated and damage was
contained within the engine bund. There were no injuries, no spill
of oil, and the equipment was fully insured. Production was quickly
restored from the WF7 well and at the time of writing, production
from the field was averaging 80 bopd. Work continues to bring both
wells back to full production. The field is being remapped with the
aim of determining infill drilling locations. This work is expected
to be completed before the end of October. Planning permission has
already been obtained for a new well at West Firsby and once a
location is determined, this well can be drilled relatively quickly
and cheaply. Whisby Production continues along a well-defined
decline curve for the W4 well. At the end of the reporting period,
the well was producing 90 bopd (58 bopd net to Europa) with a
cumulative production of approximately 350,000 bbls. No additional
work is planned on the well. Exploration The UK onshore has several
petroleum basins and our exploration efforts over the past year
have concentrated on the East Midlands Petroleum Basin and the
Weald Basin in Southern England. The East Midlands has a long
history of oil and gas production from the Carboniferous and
currently produces mainly oil, with rates of up to 2,500 bopd. The
Weald Basin produces both gas and oil from Jurassic
reservoirs.
Europa Oil & Gas (Holdings) plc
6
Operational review (continued) United Kingdom (continued)
Exploration (continued) PEDL150 (75%) - Hykeham & West Whisby
Prospects (East Midlands Petroleum Basin) The Hykeham prospect
received planning consent for drilling in 2008. A moratorium during
the bird breeding season at the adjacent Whisby Nature Park means
that the well cannot be drilled between the beginning of March and
the end of August. For this reason, it was cost effective to spud
the well in January 2009 and drill to a depth of 88m before setting
surface casing and suspending until the end of the bird breeding
season. Europa has signed a contract with British Drilling and
Freezing Limited (BDF) for their Rig 28 to drill the main section
of Hykeham-1 and it is anticipated that drilling will commence in
late 2009 after the rig‟s current campaign. Hykeham is a
well-defined prospect with clear four-way dip closure and a common
spillpoint with the Whisby Oilfield, 1.5km to the northwest. The
nearby Caledonian Farm well encountered good oil shows in a 10m
thick channel sandstone reservoir, significantly thicker than that
seen in the Whisby Oilfield. The well is targeting 10 million
barrels of oil in place and is given an in-house risk assessment of
better than a 1 in 3 chance of success. We are excited about
drilling this well and regard it as having a good chance of
containing commercial hydrocarbons with an estimated 2.4 million
barrels of potential recoverable oil. If successful, this well will
more than double our reserves and can immediately be in production
and generate revenue. In April 2009 Europa received planning
permission to drill an exploration well at West Whisby on the same
licence. The West Whisby Prospect has an estimated 2.5 mmbo of most
likely prospective reserves. PEDL180 and PEDL181 (50%) (East
Midlands Petroleum Basin) These two licences cover an area of some
600km2 of the Humber Basin. On this acreage the Wressle prospect,
only 7 km from Crosby Warren, is the most-likely low-risk first
drill target. In addition, reprocessing of the Immingham 3D seismic
survey is underway and there is a strong possibility that the
Caister Horst lead, identified for the licence application, will
develop into a Saltfleetby Field "lookalike‟ (the largest onshore
gasfield, with over 73bcf of 2P reserves) and therefore mature into
a "must-drill‟ prospect. Management believes that the acquisition
of this large prospective area stole a march on the competition and
will create a flow of high quality drillable prospects over the
coming years. PEDL222 (50%) (East Midlands Petroleum Basin) This is
primarily protection acreage, connecting the three disparate parts
of PEDL150, but also covering the Torksey Field, a subcommercial
discovery with potential stratigraphic upside. Work continues on
the block, operated by Valhalla. PEDL143 (40%) - Holmwood Prospect
(Weald Basin) Following a lengthy process of environmental and
planning management a planning application was lodged with Surrey
County Council in January 2009. In April, the Council requested
further information in order for the planning department to submit
their recommendation to the committee. A planning decision is
expected in late 2009. There has been some local objection to this
application due to its location in an Area of Outstanding Beauty in
the Surrey Hills. While understandable, we believe the objections
are unjustified. Enormous effort has been made to ensure that the
location will not be adversely affected by this temporary
development in a secluded, working, Forestry Commission conifer
plantation site. Extensive ecological, archeological, noise, light
and traffic assessments have been commissioned and these have not
revealed any specific causes for concern over the proposed
drilling.
Europa Oil & Gas (Holdings) plc
7
Operational review (continued) United Kingdom (continued)
Exploration (continued) P1545 (50%) - East Irish Sea blocks 109/5
and 112/30 (UK Offshore) The existing 2D seismic database was
reprocessed and amplitude variations with offset (AVO) work
undertaken to attempt to de-risk the presence of gas in the large
structural closure. Amplitude anomalies in the anticipated
reservoir sequence did not result in an AVO anomaly. Following this
result, it was decided to allow the licence to lapse in 2009
without entering into a drilling commitment. Romania EIII-4 Bacau
Concession (19%) - Lilieci Discovery Lilieci-1 reached a total
depth of 2,958m in December 2008 encountering a number of
gas-bearing sands. Three zones were tested at an aggregate flowrate
of 4.6mmscfpd (800 boepd) in February. The Bacau group undertook a
further test of extended duration in April-May 2009. The test
flowed gas at 2mmscfpd, but demonstrated linear pressure decline
during the flow periods. Our assessment is that the well is in
contact with a limited volume of gas. The well was drilled as part
of an agreement with the operator whereby Europa‟s costs were
carried and we had an option to back-in to the well after testing,
on payment of the carried costs plus a premium. Following the
results of the extended test, we elected not to participate in any
development of the discovery on commercial grounds. The consequence
of this is that Europa foregoes its 19% working interest in the
Lilieci discovery but retains its interest in the remainder of the
block, covering some 1,250km2 and including oil plays in the thrust
belt in the western part of the licence. This area remains under
explored and is likely to benefit from further seismic
investigation in 2010. Work continues on maturing the prospectivity
of the Bacau licence. A four-year extension has been secured which
will allow work to progress on developing prospects in the western,
thrustbelt, area of the block. In addition, it is expected that
partner Romgaz will acquire seismic in late 2009 over the southern
part of the licence. EIII-1 Brodina Concession (28.75%) - Voitinel
Prospect The high potential Voitinel Prospect was spudded in August
2009. The well targeted the sub-thrust Badenian sandstones which
produce in the Lopushnya Field to the north. Disappointingly, the
primary target sandstones were dry. Several shallower sandstones
had gas shows and the deepest of these flowed on test at a rate of
1.6 mmscfpd with a flowing pressure of 55 bar. The forward plan is
to perforate additional zones and undertake multi-rate tests during
late October and we will report the full results in due course. The
Voitinel-1 well was scheduled to take 52 days to reach total depth
(TD) but actually reached TD in under 30 days. The savings achieved
have allowed the Group to bring forward the UK production
enhancement programmes. EPI-3 Brates Concession (20%) - Barchiz and
Deep Tazlaul Mare Prospectivity Equity interest in the concession
was previously split differently between Eastern and Western parts.
During the year Europa agreed to reduce overall interest in the
combined Brates block to 20%. Specialised seismic processing of
seismic data acquired in 2008 over the complex thrust belt area has
demonstrated some remarkable improvement in imaging, notably in the
Tazlaul Mare area. Structural modeling has postulated that a
thrusted sequence of prospective Oligocene sediments must underpin
the Tazlaul Mare structure, where a gas condensate field has been
developed in the shallower section. On conventional seismic data,
it is not possible to see any of the detailed structure of the deep
Tazlaul Mare area, but trials of the new processing clearly
demonstrates highly promising structural rollover with size in the
50-100mmbo prospective resources range. Further lines will be
processed using this technique in order to mature this lead for
drilling.
Europa Oil & Gas (Holdings) plc
8
Operational review (continued) Romania (continued) EPI-3 Brates
Concession (20%) - Barchiz and Deep Tazlaul Mare Prospectivity
(continued) Elsewhere on the concession, the Barchiz Prospect,
situated on the same structural trend as the 50mmbo Geamana
Oilfield, is anticipated to be drilled in 2010. EIII-3 Cuejdiu
Concession (17.5%) - Boistea Gas Discovery The Boistea-1 well
tested gas at modest rates from Sarmatian sands after suffering
formation damage during testing. It is clear from the flow rates at
Lilieci-1, where reservoir quality and pressure are similar, that
un-damaged formation at Boistea should flow at significantly higher
rates than the original test. It is therefore possible that a
reservoir frac treatment, coupled with a long-term test, could
generate a viable commercial development for Boistea. France Europa
holds two licences in the Aquitaine Basin. Tarbes Val d‟Adour
(100%) In Tarbes Val d‟Adour, effort is focused on the potential
re-development of the Osmets Oilfield. This field was shut-in by
Total during a time of very low oil price in the mid 80‟s. Europa
has reprocessed a large amount of seismic, including 600km of 2D
data in the vicinity of the Osmets play and is working with BRGM,
the French Geological Survey, to undertake a regional geological
study. With the early production data now received from Total,
Europa intends to re-interpret the area with the expertise of BRGM,
with the aim of finding a suitable well location in 2010 to
re-develop the Osmets Oilfield. Béarn des Gaves (100%) In the Béarn
des Gaves permit, there are a number of wells that have showed gas,
including the deep Berenx-1 well, which encountered high pressure
gas in the same reservoir as the 5TCF Lacq gasfield. In the western
part of the licence, several shallow wells drilled in the early
part of the 20th century flowed oil and gas. This western part of
the licence is therefore the primary focus for exploration. Poland
An early stage investment for Europa was in the North Carpathian
area of Poland, home to a number of oil and gas fields in similar
settings to the Company‟s Romanian acreage. As a result of this
initial working interest in Blocks 434, 435, 454 and 455 in
southern Poland, Europa acquired a 2.5% overriding royalty interest
in any oil and gas production. The current operator RWE Dea, the
E&P arm of the German utility, has recently drilled several
wells in the licence areas and plans to drill a number of appraisal
wells to the Pola-1 oil discovery starting in November 2009. In
advance of any production from these Blocks, the Company is in the
process of clarifying the legal status of the royalty. Egypt
Europa, along with its partner Solaris Energy plc, has identified
several structural leads each with reserves potential of 15 -
35mmbo recoverable in the Sukhna area of the concession. Sukhna is
a coastal plain where the Gulf of Suez (GOS) rift comes onshore and
its proven petroleum system is indicated to extend into the area of
these mapped leads. The GOS, despite its small overall size, is an
extraordinarily prolific petroleum system, having produced over 5
billion barrels to date. Although Europa has made significant
progress with the existing seismic data, we have been unable to
reprocess as planned due to degradation of the original tape
records. We have therefore decided to progress directly to seismic
acquisition with the objective of firming up drillable targets. The
cost of the survey, detailed in the winning tender, will for the
most part be covered by the existing letter of guarantee that
Europa provided in favour of Egyptian General Petroleum Corporation
(EGPC). In June EGPC granted Europa a six month extension on the
first phase of the West Darag concession in order to permit the
acquisition of approximately 350km of 2D seismic data prior to
making the decision to enter into Phase 2. The preferred contractor
for this new seismic acquisition has indicated its availability to
undertake the survey starting in October.
Europa Oil & Gas (Holdings) plc
9
Operational review (continued) Western Sahara Europa holds two
large exploration permits, Bir Lehlou and Hagounia in Western
Sahara licensed by the Saharawi Arab Democratic Republic. Due to
the ongoing dispute over sovereignty between the indigenous
Saharawi people and the Moroccan state, the licences are
effectively in force majeure until such time as a resolution is
reached. Bir Lehlou (100%) The Bir Lehlou permit is located in
southwest of the Tindouf Basin. This is a sub-set of the large
Palaeozoic basin which once covered North Africa and shares a
common history with the Sirte and Murzuq Basins in Libya, along
with the Ghadammes and Reggane Basins in Algeria. While these
analogous basins have world-class volumes of proven hydrocarbons,
the Tindouf is almost totally unexplored. This is primarily a
function of it remote location and the fact that the basin is
thought to be over mature for oil but remains gas bearing in the
southern portion, where the Bir Lehlou permit is located. The basin
is estimated to contain over 8000 metres of sediment and if found
to be hydrocarbon bearing could be equally as prolific as the
Libyian and Algerian Basins. Hagounia (100%) The Hagounia permit
lies in the El Aaiun Basin in the coastal region of Western Sahara
in a setting similar to other West African coastal margin basins,
such as Mauritania. The basin formed as an extensional rift system
during the Late Triassic to Lower Jurassic, followed by subsidence
and renewed rifting during the Cretaceous period. Source rocks
which were deposited in the basin during the Jurassic are now
mature for oil and overlain by Cretaceous clastics and further
organic-rich marine shales. Triassic age organic-rich shales may
also provide a second deeper petroleum system. Although there has
been little exploration in the El Aaiun, gas shows have been
recorded in Triassic through Tertiary age sediments. Oil shows were
present in one well in Jurassic age sediments and the Cap Juby
Field, which lies on trend in Morocco, produced heavy oil on test
at a rate of 2,400 bopd from Jurassic carbonates. Ukraine A letter
of intent was signed between the company and a Swedish-listed oil
and gas company in anticipation of an outright sale of the Ukraine
assets. Progress has been slow due to the legal process in Ukraine
but we move towards completion. Paul Barrett Managing
Director
Europa Oil & Gas (Holdings) plc
10
Financial review
Results for the year Group revenue for the year was £2,936,000
(2008: £4,418,000). UK oil revenues during the year ended 31 July
2009 were 77,743 barrels or 213 bopd (2008: 88,710 barrels or 242
bopd). Crosby Warren production was down by 7,931 barrels or 22
bopd due to technical problems with the CW2 well. Approximately
2,000 barrels of West Firsby production was delayed as a result of
reduced production following the fire on 22 June 2009. The selling
price for Europa‟s UK production is contracted at a small discount
to Brent crude price. Average price achieved in the year to 31 July
2009 was $62.30 per barrel (2008: $99.45). A stronger US Dollar in
the year to 31 July 2009 meant that some of the reduced Dollar
revenue was recovered as the sales were translated to Sterling at
an average rate of $1.6533 (2008: $2.0050). The Crosby Warren field
sells a very small quantity of gas to the nearby Corus steelworks.
Cost of sales increased due to site maintenance and higher
chemicals costs. For the calculation of the depletion charge
included in cost of sales, the Group adopted the findings of the
reserves report issued by Energy Resource Consultants Limited dated
23 November 2008. The intangible asset associated with the East
Irish Sea exploration was written off in the year. Administrative
expenses increased as a result of a charge in respect of stock
options granted to two directors in the previous year. Finance
income and finance costs were both affected by exchange
fluctuations. The cost of an out-of-the-money interest rate swap
with current fair value of £40,000 was recognised. The results for
2009 show a profit before taxation of £423,000 (2008: £2,054,000).
Taxation The total tax charge (current and deferred) for the year
was £356,000 (2008: £1,609,000). All of the charge relates to UK
activities where the 20% Supplemental Charge applies to producing
fields. The Field Allowance incentive announced by HMRC in April
2009, will exempt future UK onshore discoveries from the
Supplemental Charge. Profit after tax The results for 2009 show a
profit from continuing activities after taxation of £67,000 (2008:
£445,000). Discontinued operations As announced in 2008, Europa has
entered into discussions with a Swedish oil and gas company to
divest the Group‟s remaining assets in Ukraine. The assets were
substantially written down in 2007 and are presented as a
discontinued activity, with a full provision. Cashflow Net cash
inflow from operating activities was £1,411,000 (2008: £2,942,000).
Net cash used in investing activities was £1,121,000 (2008:
£4,058,000). The net overdraft at the end of the year was £292,000
(2008: £1,019,000). Financial risk Europa‟s activities are subject
to a range of financial risks including commodity prices, liquidity
within the business and of counterparties, exchange rates and loss
of operational equipment or wells. These risks are managed through
ongoing review taking into account the operational, business and
economic circumstances at that time. Commodity price and currency
The Board has considered the use of financial instruments to hedge
oil price and US Dollar exchange rate movements. To date, the Board
has not hedged against price or exchange rate movements, but
intends to regularly review this policy.
Europa Oil & Gas (Holdings) plc
11
Financial review (continued) Financial risk (continued) Commodity
price and currency (continued) Sales revenue is generated primarily
in US Dollars and these funds are matched where possible against
expenditures within the business. However, most capital and
operating expenditures are Euro and Sterling denominated which
results in a currency exposure. US Dollar receipts have been used
to purchase Euros and Sterling. Liquidity Detailed cash forecasts
are prepared frequently and reviewed by management and the Board.
The Group‟s production provides a monthly inflow of cash and is the
main source of working capital and project finance. Additional cash
is available from a £1 million multi option facility and a £1
million term loan provided by Europa‟s bankers. The principal
interest rate risk for the Group is the interest charge arising
from utilisation of this facility. On 12 March 2008, with the bank
facility fully utilised, short term funding was provided by the
Sherborne Trust, a discretionary trust of which C W
Ahlefeldt-Laurvig was a beneficiary. The Trust provided a £512,000
loan. On 2 April 2008 this loan was assigned to C W and Mrs M
Ahlefeldt-Laurvig. The loan, plus £25,000 of accrued interest, was
outstanding at 31 July 2008 but fully repaid in August 2008. On 1
December 2008 the share finance facility with Headstart terminated.
Since the facility was put in place on 1 June 2006 three draw downs
were made for a total £300,000 in exchange for the issue of new
ordinary shares. On 31 May 2009, 300,000 warrants which were issued
to the Headstart Group of Funds as part of the above financing
arrangement expired. Exploration, drilling and operational risk The
business of exploration and production of oil and gas involves a
high degree of risk. Few properties that are explored are
ultimately developed into producing oil and gas fields. Significant
expenditure is required to establish the extent of oil and gas
reserves through seismic surveys and drilling and there can be no
certainty that oil and gas reserves will be found. The exploration
and development of oil and gas assets may be curtailed, delayed or
cancelled by unusual or unexpected geological formation pressures,
oceanographic conditions, hazardous weather conditions or other
factors. There are numerous risks inherent in drilling and
operating wells, many of which are beyond the company‟s control.
The Group‟s operations may be curtailed, delayed or cancelled as a
result of environmental hazards, industrial accidents, occupational
and health hazards, technical failures, shortage or delays in the
delivery of rigs and/or other equipment, labour disputes and
compliance with governmental requirements. Drilling may involve
unprofitable efforts, not only with respect to dry wells, but also
to wells which, though yielding some oil or gas, are not
sufficiently productive to justify commercial development.
Completion of a well does not assure a profit on the investment or
recovery of drilling, completion and operating costs. Appropriate
insurance cover is obtained annually for all of Europa‟s
exploration, development and production activities. Accounting
policies The Group has not made any material changes to its
accounting policies in the year to 31 July 2009 Phil
Greenhalgh
Finance Director
Europa Oil & Gas (Holdings) plc
12
Directors' report
The directors present their report and the audited financial
statements for the year ended 31 July 2009. Principal activities
The principal activity of the Group is investment in oil and gas
exploration, development and production. The Group‟s assets and
activities are located in the United Kingdom, Romania, France,
Egypt, Western Sahara and Ukraine. The Board has considered and
will continue to consider investments in Europe and the North
Africa region. Business review A detailed review of the Group‟s
business and prospects is set out in the Chairman‟s statement and
Operational review. The Financial review and Corporate governance
statement detail the risks to which the Group is exposed and how
these risks are managed with the oversight of the Board and the
Audit Committee. The directors consider that the combination of
production and exploration activities is a key strength of the
Group. All activities are closely managed from the head office.
Results for the year and dividends The Group profit for the year
after taxation was £20,000 (2008:£149,000). The directors do not
recommend the payment of a dividend (2008: £nil). Policy and
practice on payment of suppliers The Group‟s policy on payment of
suppliers is to settle amounts due on a timely basis taking into
account the credit period given. At 31 July 2009, the Group had 47
days of purchases outstanding (2008: 31 days) and the Company had
83 days of purchases outstanding (2008: 44). Directors and their
interests The directors of the Company throughout the year, and
their interests in the share capital of the Company at 31 July
were:
Number of ordinary shares
Number of ordinary share options
2009
2008
2009
2008
C W Ahlefeldt-Laurvig 1
23,252,442
23,252,442
-
-
P A Barrett & E S Syba 2
16,832,929
16,047,694
-
-
R J H M Corrie 3
37,500
37,500
500,000
500,000
P Greenhalgh
100,000
-
1,250,000
1,250,000
J M Y Oliver
-
-
200,000
200,000
1. C W Ahlefeldt-Laurvig jointly with his wife is the registered
owner of 17,258,886 shares. Mrs Ahlefeldt-Laurvig is the registered
owner of 5,993,556 shares
2. P A Barrett is the registered owner of 6,537,758 shares and the
beneficial owner of 1,674,257 shares held in a self invested
personal pension (SIPP). E S Syba is the registered owner of
7,623,732 shares and the beneficial owner of 997,182 shares held in
a SIPP. As they are married to each other, the holding of the
other, is deemed to be part of their own.
3. R J H M Corrie‟s wife has a 50% interest in R.T. Property
Investments Limited which owns 50,000 shares and Corrie Limited, of
which Mr Corrie is a director, owns 12,500 shares.
Share options are exercisable: one third after 18 months, a further
third after 30 months and the balance after 42 months, from the
date of grant. J M Y Oliver was granted options on 11 November 2004
which are exercisable at 25 pence per share. R J H M Corrie and P
Greenhalgh options were granted on 8 May 2008 and are exercisable
at 20 pence per share.
Europa Oil & Gas (Holdings) plc
13
Directors' report (continued) Director's interests in transactions
No director had, during the year or at the end of the year, other
than disclosed below, a material interest in any contract in
relation to the Group‟s activities except in respect of service
agreements. During the year, C W Ahlefeldt-Laurvig provided
services as a petroleum engineer on a consultancy basis at a cost
of £2,000 (2008: £22,000). It is anticipated that these services
will continue into the next financial year. In August 2008 the
Company repaid a £512,000 loan plus £25,000 of interest to C W
Ahlefeldt-Laurvig. Full details are included in Note 25. The Group
places annual insurance to cover director‟s and officer‟s
liability. Post balance sheet events Details of post balance sheet
events are included in Note 26 to the financial statements. Capital
structure The directors took the opportunity to raise £1.7 million
of new equity financing in September 2009. Directors consider that
the capital structure is appropriate for the current needs of the
Group. Further details on the Group‟s capital structure are
included in Note 22. Accounting policies A full list of accounting
policies is set out in Note 1 to the financial statements.
Disclosure of information to the auditors In the case of each
person who was a director at the time this report was
approved:
So far as that director was aware there was no relevant available
information of which the company‟s auditors were unaware.
That director had taken all necessary steps to make themselves
aware of any relevant audit information, and to establish that the
company‟s auditors were aware of that information.
Auditors A resolution to re-appoint the auditors, BDO LLP will be
proposed at the next Annual General Meeting. On behalf of the Board
19 October 2009 P Greenhalgh
Finance Director
Europa Oil & Gas (Holdings) plc
14
Statement of directors‟ responsibilities
Directors' responsibilities The directors are responsible for
preparing the annual report and the financial statements in
accordance with applicable law and regulations. Company law
requires the directors to prepare financial statements for each
financial year. Under that law the directors have prepared the
Group and elected to prepare the Company financial statements in
accordance with International Financial Reporting Standards (IFRSs)
as adopted by the European Union. Under company law the directors
must not approve the financial statements unless they are satisfied
that they give a true and fair view of the state of affairs of the
Group and Company and of the profit or loss of the Group for that
year. The directors are also required to prepare financial
statements in accordance with the rules of the London Stock
Exchange for companies trading securities on the Alternative
Investment Market. In preparing these financial statements, the
directors are required to: select suitable accounting policies and
then apply them consistently; make judgements and accounting
estimates that are reasonable and prudent; state whether they have
been prepared in accordance with IFRSs as adopted by the European
Union, subject to any material departures disclosed and explained
in the financial statements; prepare the financial statements on
the going concern basis unless it is inappropriate to presume that
the company will continue in business.
The directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the company‟s
transactions and disclose with reasonable accuracy at any time the
financial position of the company and enable them to ensure that
the financial statements comply with the requirements of the
Companies Act 2006. They are also responsible for safeguarding the
assets of the company and hence for taking reasonable steps for the
prevention and detection of fraud and other irregularities. Website
publication The directors are responsible for ensuring the annual
report and the financial statements are made available on a
website. Financial statements are published on the company'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 company's website is the
responsibility of the directors. The directors' responsibility also
extends to the ongoing integrity of the financial statements
contained therein.
Europa Oil & Gas (Holdings) plc
15
Corporate governance statement
The Combined Code on Corporate Governance as issued by the
Financial Reporting Council is not mandatory for companies on AIM;
however, the directors support the principles and are applying the
requirements where they are considered appropriate to the size and
nature of the Group. Where practice differs from the Code, the
Board will explain to shareholders why it considers it is in the
Group‟s best interest not to have applied the Code. The Board will
consider on a regular basis changes to those areas in which there
is not full compliance. The Board The Board consists of three
non-executive and three executive directors. The role of Chairman
is held by a non-executive and the role of Managing Director is
held by an executive director. This creates a clear distinction and
division of responsibilities at the head of the Group. The Board is
responsible to the shareholders of the company for all significant
financial and operational issues which include strategy, reviewing
and approving budgets, ensuring adequate cash resources, approval
of capital expenditure and acquisition and divestment
opportunities. Matters for consideration at formal meetings are
clearly laid out. A record is kept of proceedings and any decisions
taken. Each director retires and stands for re-election by
shareholders at least once every three years. All directors are
subject to election by shareholders at the first opportunity
following their appointment. All directors have full access to
management and employees, the Company Secretary and independent
professional advice in order to execute their duties. During the
year, the Board held nine meetings (2008: eight). All directors
were able to attend other than J M Y Oliver on one occasion. The
Board intends to meet at least six times a year. The non-executive
directors hold, either directly or through beneficial interest,
ordinary shares and options. The company believes that this serves
to align non-executives with shareholders and does not adversely
affect their independence. Remuneration Committee The Remuneration
Committee consists of the three non executive directors and is
chaired by J M Y Oliver. This committee aims to meet at least twice
a year. It is responsible for establishing and developing the
Group‟s policy on director and senior management remuneration and
contracts. The Board as a whole decides on the remuneration and
contracts of the non-executive directors. No director is involved
in deciding their own remuneration. Nomination Committee The
directors do not consider it appropriate to appoint a Nomination
Committee given the size of the Group. The need for a Nomination
Committee will be kept under regular review by the Board. Audit
Committee The Audit Committee consists of the three non executive
directors and is chaired by C W Ahlefeldt-Laurvig. The committee
aims to meet three times a year. The Group‟s auditors and executive
directors attend meetings by invitation. For at least one meeting,
or part thereof, the committee meets the auditors without executive
Board members present.
The Audit Committee is responsible for reviewing the annual and
interim accounts, annual audit, accounting policies, internal
control and compliance procedures, and decision making processes,
particularly with regard to the management of risk.
Europa Oil & Gas (Holdings) plc
16
Corporate governance statement (continued) Audit Committee
(continued) In April the committee recommended the appointment of
new auditors and Nexia Smith & Williamson were asked to resign.
Following a short selection process, BDO LLP were appointed as
Group auditors. During the year the committee considered the need
for an internal audit function. Given the nature and current size
of the Group, it is not considered appropriate to have a dedicated
internal audit function. Internal control The directors are
responsible for the process and system of internal controls and
reviewing their effectiveness. The process and system of internal
controls is designed to manage, rather than eliminate, the risk of
failure to achieve business objectives and can only provide
reasonable and not absolute assurance against material misstatement
or loss. Internal controls along with business risks were monitored
during the course of 2009. Communication with shareholders
The company provides information to shareholders about the Group‟s
activities in the annual report and accounts and the interim
report. This is complemented with information available through
regulatory announcements of the London Stock Exchange and the
Company‟s website at www.europaoil.com. Shareholders may register
on the website to receive news releases issued by the Group
directly to their email. Shareholders are encouraged to attend the
Annual General Meeting at which directors are introduced and
available for questions.
Europa Oil & Gas (Holdings) plc
17
Report of the independent auditors
Independent auditor's report to the members of Europa Oil & Gas
(Holdings) plc We have audited the financial statements of Europa
Oil & Gas (Holdings) plc for the year ended 31 July 2009 which
comprise the Consolidated Income Statement, the Consolidated
Balance Sheet, the Consolidated Statement of Changes in Equity, the
Company Balance Sheet, the Company Statement of Changes in Equity,
the Consolidated Cash Flow Statement, the Company Cash Flow
Statement, and the related Notes 1 to 26. The financial reporting
framework that has been applied in the preparation of both the
Group financial statements and the parent company financial
statements is applicable law and International Financial Reporting
Standards (IFRSs) as adopted by the European Union and applied in
accordance with the provisions of the Companies Act 2006. This
report is made solely to the company‟s members, as a body, in
accordance with sections 495 and 496 of the Companies Act 2006. Our
audit work has been undertaken so that we might state to the
company‟s members those matters we are required to state to them in
an auditor‟s report and for no other purpose. To the fullest extent
permitted by law, we do not accept or assume responsibility to
anyone other than the company and the company‟s members as a body,
for our audit work, for this report, or for the opinions we have
formed.
Respective responsibilities of directors and auditors As explained
more fully in the Statement of directors‟ responsibilities, the
directors are responsible for the preparation of the financial
statements and for being satisfied that they give a true and fair
view. Our responsibility is to audit the financial statements in
accordance with applicable law and International Standards on
Auditing (UK and Ireland). Those standards require us to comply
with the Auditing Practices Board‟s (APB‟s) Ethical Standards for
Auditors. Scope of the audit of the financial statements An audit
involves obtaining evidence about the amounts and disclosures in
the financial statements sufficient to give reasonable assurance
that the financial statements are free from material misstatement,
whether caused by fraud or error. This includes an assessment of:
whether the accounting policies are appropriate to the Group‟s and
the parent company‟s circumstances and have been consistently
applied and adequately disclosed; the reasonableness of significant
accounting estimates made by the directors; and the overall
presentation of the financial statements. Opinion on financial
statements In our opinion: the financial statements give a true and
fair view of the state of the Group‟s and the parent Company‟s
affairs as at 31 July 2009 and of the Group‟s profit for the year
then ended; the Group financial statements have been properly
prepared in accordance with IFRSs as adopted by the European Union;
the Group financial statements have been prepared in accordance
with the requirements of the Companies Act 2006; the parent company
financial statements have been properly prepared in accordance with
IFRSs as adopted by the European Union and as applied in accordance
with the provisions of the Companies Act 2006.
Opinion on other matters prescribed by the Companies Act 2006 In
our opinion the information given in the Directors‟ report for the
financial year for which the financial statements are prepared is
consistent with the financial statements.
Europa Oil & Gas (Holdings) plc
18
Report of the independent auditors (continued) Matters on which we
are required to report by exception We have nothing to report in
respect of the following matters where the Companies Act 2006
requires us to report to you if, in our opinion: adequate
accounting records have not been kept by the parent company, or
returns adequate for our audit have not been received from branches
not visited by us; or the parent company financial statements are
not in agreement with the accounting records and returns; or
certain disclosures of directors‟ remuneration specified by law are
not made; or we have not received all the information and
explanations we require for our audit.
Anne Sayers, Senior Statutory Auditor For and on behalf of BDO LLP,
Statutory Auditor London United Kingdom 19 October 2009
BDO LLP is a limited liability partnership registered in England
and Wales (with registered number OC305127).
Europa Oil & Gas (Holdings) plc
19
Consolidated income statement for the year ended 31 July 2009
2009
2008
Pence per share
Pence per share
Earnings / (loss) per share (eps)
Note
Basic eps from continuing operations
10
0.11p
0.71p
Basic eps from discontinued operations
10
(0.08)p
(0.47)p
Basic eps from continuing and discontinued operations
10
0.03p
0.24p
Diluted eps from continuing operations
10
0.11p
0.70p
Diluted eps from discontinued operations
10
(0.08)p
(0.47)p
Diluted eps from continuing and discontinued operations
10
0.03p
0.24p
The accompanying accounting policies and notes form part of these
financial statements.
2009
2008
£000
£000
Continuing operations
Note
Revenue
2
2,936
4,418
Other cost of sales
(1,694)
(1,548)
Exploration write-off
11
(297)
(1)
Total cost of sales
(1,991)
(1,549)
------------------------------------
----------------------------------
Gross profit
945
2,869
Administrative expenses
(498)
(376)
Finance income
7
224
12
Finance costs
8
(248)
(451)
------------------------------------
----------------------------------
Profit before taxation
3
423
2,054
Taxation
9
(356)
(1,609)
------------------------------------
----------------------------------
Profit for the year from continuing operations
67
445
------------------------------------
----------------------------------
Discontinued operations
Loss for the year from discontinued operations
6
(47)
(296)
------------------------------------
----------------------------------
Profit for the year attributable to the equity shareholders of the
parent
20
149
=====================================
=====================================
Europa Oil & Gas (Holdings) plc
20
Consolidated balance sheet as at 31 July 2009
2009
2008
Note
£000
£000
Assets
Non-current assets
Intangible assets
11
7,473
7,241
Property, plant and equipment
12
5,554
5,996
----------------------------------
------------------------------------
Total non-current assets
13,027
13,237
----------------------------------
------------------------------------
Current Assets
Inventories
14
15
16
Trade and other receivables
15
469
656
Cash and cash equivalents
4
3
----------------------------------
-------------------------------------
Total current assets
488
675
----------------------------------
--------------------------------------
Total assets
13,515
13,912
==================================
======================================
Liabilities
Current liabilities
Trade and other payables
16
(900)
(1,752)
Current tax liabilities
(588)
(380)
Fair value through profit or loss
16
(40)
-
Short-term borrowings
17
(767)
(1,548)
------------------------------------
--------------------------------------
Total current liabilities
(2,295)
(3,680)
------------------------------------
--------------------------------------
Non-current liabilities
Long-term borrowings
17
(772)
(302)
Deferred tax liabilities
18
(2,651)
(2,701)
Long-term provisions
19
(1,137)
(1,058)
----------------------------------
-------------------------------------
Total non-current liabilities
(4,560)
(4,061)
----------------------------------
-------------------------------------
Total liabilities
(6,855)
(7,741)
-----------------------------------
-------------------------------------
Net assets
6,660
6,171
==================================
=====================================
Capital and reserves attributable to equity holders of the
parent
Share capital
20
626
626
Share premium account
20
4,692
4,692
Merger reserve
20
2,868
2,868
Forex reserve
20
352
(21)
Retained earnings
20
(1,878)
(1,994)
----------------------------------
-------------------------------------
Total equity
6,660
6,171
==================================
=====================================
These financial statements were approved by the Board of directors
and authorised for issue on 19 October 2009 and signed on its
behalf by: P Greenhalgh, Finance Director Company registration
number 5217946 The accompanying accounting policies and notes form
part of these financial statements.
Europa Oil & Gas (Holdings) plc
21
Consolidated statement of changes in equity for the year ended 31
July 2009
Attributable to the equity holders of the parent
Share capital
Share premium
Merger reserve
Forex reserve
Retained earnings
Total equity
£000
£000
£000
£000
£000
£000
Balance at 1 August 2007
620
4,597
2,868
5
(2,140)
5,950
Exchange difference on translation of foreign operations
-
-
-
(26)
-
(26)
Profit for the year
-
-
-
-
149
149
-------------------------------------
------------------------------------
-----------------------------------
-----------------------------------
---------------------------------
----------------------------------
Total recognised income and expense for the year
-
-
-
(26)
149
123
Share based payment
-
-
-
-
(3)
(3)
Issue of share capital
6
95
-
-
-
101
-----------------------------------
----------------------------------
---------------------------------
----------------------------------
----------------------------------
--------------------------------------
Balance at 31 July 2008
626
4,692
2,868
(21)
(1,994)
6,171
====================================
===================================
==================================
===================================
===================================
=====================================
Share capital
Share premium
Merger reserve
Forex reserve
Retained earnings
Total equity
£000
£000
£000
£000
£000
£000
Balance at 1 August 2008
626
4,692
2,868
(21)
(1,994)
6,171
Exchange difference on translation of foreign operations
-
-
-
373
-
373
Profit for the year
-
-
-
-
20
20
-------------------------------------
------------------------------------
-----------------------------------
-----------------------------------
---------------------------------
----------------------------------
Total recognised income and expense for the year
-
-
-
373
20
393
Share based payment
-
-
-
-
96
96
-------------------------------------
------------------------------------
-----------------------------------
-----------------------------------
---------------------------------
----------------------------------
Balance at 31 July 2009
626
4,692
2,868
352
(1,878)
6,660
======================================
=====================================
====================================
====================================
==================================
==================================
The accompanying accounting policies and notes form part of these
financial statements.
Europa Oil & Gas (Holdings) plc
22
Company balance sheet as at 31 July 2009
2009
2008
£000
£000
Note
Assets
Non-current assets
Property, plant and equipment
12
384
406
Investments
13
3,312
3,303
Loans to Group companies
15
3,976
4,464
------------------------------------
------------------------------------
Total non-current assets
7,672
8,173
------------------------------------
------------------------------------
Current assets
Other receivables
15
19
26
Cash and cash equivalents
297
131
--------------------------------------
-------------------------------------
Total current assets
316
157
---------------------------------------
--------------------------------------
Total assets
7,988
8,330
========================================
====================================
Liabilities
Current liabilities
Trade and other payables
16
(100)
(133)
Current tax liabilities
-
(14)
Fair value through profit or loss
16
(40)
-
Short-term borrowing
17
(20)
(526)
------------------------------------
--------------------------------------
Total current liabilities
(160)
(673)
------------------------------------
---------------------------------------
Non-current liabilities
Long-term borrowings
17
(272)
(302)
------------------------------------
------------------------------------
Total non-current liabilities
(272)
(302)
-------------------------------------
------------------------------------
Total liabilities
(432)
(975)
------------------------------------
------------------------------------
Net assets
7,556
7,355
====================================
====================================
Equity
Share capital
20
626
626
Share premium
20
4,692
4,692
Merger reserve
20
2,868
2,868
Retained earnings
20
(630)
(831)
--------------------------------------
---------------------------------------
Total equity
7,556
7,355
=======================================
======================================
These financial statements were approved by the Board of directors
and authorised for issue on 19 October 2009 and signed on their
behalf by:
P Greenhalgh Finance Director Company registration number 5217946
The accompanying accounting policies and notes form part of these
financial statements.
Europa Oil & Gas (Holdings) plc
23
Company statement of changes in equity for the year ended 31 July
2009
Share capital
Share premium
Merger reserve
Retained earnings
Total equity
£000
£000
£000
£000
£000
Balance at 1 August 2007
620
4,597
2,868
(472)
7,613
Changes in equity for year
Loss for the year
-
-
-
(356)
(356)
---------------------------------
----------------------------------
---------------------------------
-------------------------------
-----------------------------------
Total recognised income and expense for the year
-
-
-
(356)
(356)
Share based payment
-
-
-
(3)
(3)
Issue of share capital
6
95
-
-
101
----------------------------------
----------------------------------
---------------------------------
------------------------------
-------------------------------
Balance at 31 July 2008
626
4,692
2,868
(831)
7,355
==================================
==================================
==================================
===============================
==============================
Share capital
Share premium
Merger reserve
Retained earnings
Total Equity
£000
£000
£000
£000
£000
Balance at 1 August 2008
626
4,692
2,868
(831)
7,355
Changes in equity for year
Profit for the year
-
-
-
105
105
---------------------------------------
---------------------------------------
--------------------------------------
------------------------------------
----------------------------------------
Total recognised income and expense for the year
-
-
-
105
105
Share based payment
-
-
-
96
96
----------------------------
-----------------------------
----------------------------
----------------------------
------------------------
Balance at 31 July 2009
626
4,692
2,868
(630)
7,556
=============================
=============================
============================
===========================
========================
The accompanying accounting policies and notes form part of these
financial statements
Europa Oil & Gas (Holdings) plc
24
Consolidated cash flow statement for the year ended 31 July
2009
2009
2008
£000
£000
Cash flows from operating activities
Note
Profit after taxation from continuing operations
67
445
Adjustments for:
Share based payments
21
96
(3)
Depreciation
12
576
590
Exploration write-off
297
1
Loss on sale of non-current assets
-
2
Finance income
7
(224)
(12)
Finance expense
8
248
451
Taxation expense
9
356
1,609
Decrease in trade and other receivables
187
351
Decrease in inventories
1
20
Increase / (decrease) in trade and other payables
34
(190)
------------------------------------
-----------------------------------
Cash generated from continuing operations
1,638
3,264
Loss after taxation from discontinued operations
6
(47)
(296)
Adjustment for:
Depreciation including exploration and write offs
-
296
------------------------------------
-----------------------------------
Cash used in discontinued operations
(47)
-
Income taxes paid
(180)
(322)
-----------------------------------
----------------------------------
Net cash from operating activities
1,411
2,942
-----------------------------------
-----------------------------------
Cash flows used in investing activities
Purchase of property, plant and equipment
(191)
(1,438)
Purchase of intangible assets
(930)
(3,655)
Proceeds from sale of property, plant and equipment
-
23
Proceeds from sale of discontinued operations
-
1,000
Interest received
-
12
-----------------------------------
-----------------------------------
Net cash used in investing activities
(1,121)
(4,058)
-----------------------------------
------------------------------------
Cash flows from financing activities
Proceeds from issue of share capital
-
100
Underwriting fee
-
(5)
Proceeds from long-term borrowings
1,000
496
Repayment of borrowings
(585)
(452)
Interest paid
(138)
(144)
------------------------------------
------------------------------------
Net cash from / (used in) financing activities
277
(5)
-----------------------------------
------------------------------------
Net increase /(decrease) in cash and cash equivalents
567
(1,121)
Exchange gain / (loss) on cash and cash equivalents
160
(47)
Cash and cash equivalents at beginning of year
(1,019)
149
------------------------------------
----------------------------------
Cash and cash equivalents at end of year
(292)
(1,019)
=====================================
====================================
The accompanying accounting policies and notes form part of these
financial statements.
Europa Oil & Gas (Holdings) plc
25
Company cash flow statement for the year ended 31 July 2009
2009
2008
£000
£000
Cash flows from operating activities
Note
Profit / (loss) after taxation
105
(356)
Adjustments for:
Share based payments
86
(11)
Depreciation
12
34
56
Loss on sale of non-current assets
-
1
Finance income
(320)
(132)
Finance expense
94
143
Taxation expense
9
-
205
Decrease in trade and other receivables
23
87
Increase / (decrease) in trade and other payables
17
(37)
-----------------------------------
----------------------------------
Net cash generated from / (used in) operating activities
39
(44)
-----------------------------------
-----------------------------------
Cash flows from investing activities
Purchase of property, plant and equipment
(12)
(21)
Movement on loan to Group companies
656
(523)
Interest received
-
12
-----------------------------------
-----------------------------------
Net cash from / (used in) investing activities
644
(532)
-----------------------------------
------------------------------------
Cash flows from financing activities
Proceeds from issue of share capital
-
100
Underwriting fee
-
(5)
Proceeds from long-term borrowings
-
496
Repayment of borrowings
(535)
(12)
Interest paid
(79)
(76)
------------------------------------
------------------------------------
Net cash (used in) / from financing activities
(614)
503
-----------------------------------
------------------------------------
Net increase /(decrease) in cash and cash equivalents
69
(73)
Exchange gain / (loss) on cash and cash equivalents
97
(42)
Cash and cash equivalents at beginning of year
131
246
------------------------------------
----------------------------------
Cash and cash equivalents at end of year
297
131
=====================================
=====================================
The accompanying accounting policies and notes form part of these
financial statements
Europa Oil & Gas (Holdings) plc
26
Notes to the financial statements
1 Accounting Policies General information Europa Oil & Gas
(Holdings) plc is a company incorporated and domiciled in England
and Wales with registered number 5217946. The address of the
registered office is 11 The Chambers, Vineyard, Abingdon OX14 3PX.
The company‟s administrative office is at the same address. The
nature of the company‟s operations and its principal activities are
set out in the Operational review, the Financial review and the
Directors‟ report. The functional and presentational currency of
the company is Sterling (UK£). Basis of accounting The consolidated
financial statements have been prepared in accordance with
applicable International Financial Reporting Standards (IFRS) as
adopted by the EU. The policies have not changed from the previous
year. The accounting policies that have been applied in the opening
balance sheet have also been applied throughout all periods
presented in these financial statements. These accounting policies
comply with each IFRS that is mandatory for accounting periods
ending on 31 July 2009. Future changes in accounting standards 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. The IASB and IFRIC have
issued the following standards and interpretations: There were no
amendments to published standards and interpretations to existing
standards effective in the year adopted by the Group. Standards,
interpretations and amendments to published standards effective in
the year but which are not relevant to the Group: Effective date
(periods beginning on or after) IFRIC 12 Service concession
arrangements 1 Jan 2008 IFRIC 14 IAS 19 - The limit on a defined
benefit asset, minimum funding requirements and their interaction 1
Jan 2008 IFRIC 13 Customer loyalty programmes 1 Jul 2008 IAS
39/IFRS7 Reclassification of financial instruments 1 Jul 2008 IAS
39/IFRS7* Reclassification of financial instruments - effective
date and transition 1 Jul 2008 Standards, interpretations and
amendments, which are effective for reporting periods beginning
after the date of these financial statements: Effective date
(periods beginning on or after) IFRIC 16 Hedges of a net investment
in a foreign operation 1 Oct 2008 IAS 1 Amendment - presentation of
financial statements: a revised presentation 1 Jan 2009 IAS 23
Amendment - borrowing costs 1 Jan 2009 IAS 32 and 1 Amendments -
puttable financial instruments and obligations arising on
liquidation 1 Jan 2009 IFRS 1* First-time adoption of international
accounting standards 1 Jan 2009 IFRS 2 Amendment - share-based
payment: vesting conditions and cancellations 1 Jan 2009
Europa Oil & Gas (Holdings) plc
27
Notes to the financial statements (continued) 1 Accounting Policies
(continued) Future changes in accounting standards (continued)
Standards, Interpretations and amendments, which are effective for
reporting periods beginning after the date of these financial
statements (continued): IFRS 7* Amendment - improving disclosures
about financial instruments 1 Jan 2009 IFRS 8 Operating segments 1
Jan 2009 IFRS1 and Amendments - cost of an investment in a
subsidiary, jointly controlled IAS 27 entity or associate 1 Jan
2009 IFRIC 15 Agreements for the construction of real estate 1 Jan
2009 IFRIC9 and Amendments - embedded derivatives IAS 39* 30 Jun
2009 IAS 27 Amendment - consolidated and separate financial
statements 1 Jul 2009 IAS 39 Amendment -recognition and
measurement: eligible hedged items 1 Jul 2009 IFRS 3 Revised -
business combinations 1 Jul 2009 IFRIC 17* Distributions of
non-cash assets to owners 1 Jul 2009 IFRIC 18* Transfers of assets
from customers 1 Jul 2009 IFRS 1* Additional exemptions for
first-time adopters 1 Jan 2010 IFRS 2* Amendment - group
cash-settled share based payment transactions 1 Jan 2010 In
addition the "improvements to IFRS‟s project" is ongoing, with most
changes expected 1 Jan 2010. Except for the adoption of IFRS 3
(Revised) and the adoption of IAS 23 the above standards,
interpretations and amendments will not significantly affect the
Group‟s results or financial position, although the adoption of
IFRS 8 may affect note disclosures. 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. Basis of consolidation The Group financial statements
consolidate those of the Company and all of its material subsidiary
undertakings drawn up to 31 July 2009. Subsidiaries are entities
over which the Group has the power to control the financial and
operating policies so as to obtain benefits from its activities.
The Group obtains and exercises control through voting rights.
Intra Group balances are eliminated on consolidation. Unrealised
gains on transactions between the Group and its subsidiaries are
eliminated. Unrealised losses are also eliminated unless the
transaction provides evidence of an impairment of the asset
transferred. Amounts reported in the financial statements of
subsidiaries have been adjusted where necessary to ensure
consistency with the accounting policies adopted by the Group. The
Group is engaged in oil and gas exploration, development and
production through unincorporated joint arrangements. The Group
accounts for its share of the results and net assets of these joint
arrangements. In addition, where the Group acts as operator to the
joint arrangement, the gross liabilities and receivables (including
amounts due to or from non-operating partners) of the joint
arrangement are included in the consolidated balance sheet.
Restatement The Group financial statements for the twelve months
ended 31 July 2008 have been restated in accordance with IAS8 as a
review of accounting treatment revealed errors in respect of
transactions under the scope of IAS21 (para 32). The restatement
affected the Company only and had the effect of moving £67,000 of
exchange gain arising on the translation of foreign subsidiaries
from the Forex reserve to the Company Income statement.
Europa Oil & Gas (Holdings) plc
28
Notes to the financial statements (continued) 1 Accounting Policies
(continued) Going Concern After making enquiries, the directors
have formed a judgement at the time of approving the financial
statements that there is a reasonable expectation that the Group
can secure adequate resources to continue in operational existence
for the foreseeable future. This is based on correspondence with
the Group‟s bankers, the performance of its existing oil
production, and the spread of its prospective resources. Revenue
Recognition Revenue, excluding value added tax and similar taxes,
represents net invoiced sales of the Group‟s share of oil and gas
revenues in the year. Revenue is recognised at the end of each
month based upon the quantity and price of oil and gas delivered to
the customer. Non-current assets Oil and gas interests The
financial statements with regard to oil and gas exploration and
appraisal expenditure have been prepared under the full cost basis.
This accords with IFRS 6 which permits the continued application of
a previously adopted accounting policy. Pre-production assets
Pre-licence expenditure is expensed as directed by IFRS 6.
Expenditure on licence acquisition costs, geological and
geophysical costs, costs of drilling exploration, appraisal and
development wells, and an appropriate share of overheads (including
directors‟ costs) are capitalised and accumulated in cost pools on
a geographical basis. These costs which relate to the exploration,
appraisal and development of oil and gas interests are initially
held as intangible non-current assets pending determination of
commercial viability. On commencement of production these costs are
transferred to Production assets. Production assets With the
determination of commercial viability and approval of an oil and
gas project the related pre-production assets are transferred from
intangible non-current assets to tangible non-current assets and
depreciated upon commencement of production within the appropriate
cash generating unit. Impairment tests For the purposes of
assessing impairment, assets are grouped at the lowest levels for
which there are separately identifiable cash flows (cash generating
units). As a result, some assets are tested individually for
impairment and some are tested at cash generating unit level. An
impairment loss is recognised for the amount by which the asset's
or cash generating unit's carrying amount exceeds its recoverable
amount. The recoverable amount is the higher of fair value,
reflecting market conditions less costs to sell, and value in use
based on an internal discounted cash flow evaluation. Impairment
losses recognised for cash-generating units, to which goodwill has
been allocated, are credited initially to the carrying amount of
goodwill. Any remaining impairment loss is charged pro rata to the
other assets in the cash generating unit. With the exception of
goodwill, all assets are subsequently reassessed for indications
that an impairment loss previously recognised may no longer exist.
Property, plant and equipment Items of property, plant and
equipment are initially recognised at cost. As well as the purchase
price, cost includes directly attributable costs and the estimated
present value of any future unavoidable costs of dismantling and
removing items. The corresponding liability is recognised within
provisions.
Europa Oil & Gas (Holdings) plc
29
Notes to the financial statements (continued) 1 Accounting Policies
(continued) Non-current assets (continued) Depreciation All
expenditure within each geographical cost pool is depreciated from
the commencement of production, on a unit of production basis,
which is the ratio of oil and gas production in the period to the
estimated quantities of proven plus probable commercial reserves at
the end of the period, plus the production in the period. Costs
used in the unit of production calculation comprise the net book
value of capitalised costs plus the estimated future field
development costs within each geographical cost pool. Changes in
the estimates of commercial reserves or future field development
costs are dealt with prospectively. Computer equipment, software,
and furniture are depreciated on a 25% per annum straight line
basis. Leasehold properties are depreciated on a 2% per annum
straight line basis. Future decommissioning costs A provision for
decommissioning is recognised in full at the commencement of oil or
gas production. A corresponding tangible non-current asset of an
amount equivalent to the provision is also created. The amount
recognised is the estimated cost of decommissioning, discounted to
its net present value and is reassessed each year in accordance
with local conditions and requirements. This asset is subsequently
depreciated as part of the capital costs of production facilities
within tangible non current assets, on a unit of production basis.
Changes in the estimates of commercial reserves or decommissioning
cost estimates are dealt with prospectively by recording an
adjustment to the provision, and a corresponding adjustment to the
decommissioning asset. The unwinding of the discount on the
decommissioning provision is included within interest expense.
Reserves Proven and probable oil and gas reserves are estimated
quantities of commercially producible hydrocarbons which the
existing geological, geophysical and engineering data shows to be
recoverable in future years. The proven reserves included herein
conform to the definition approved by the Society of Petroleum
Engineers (SPE) and the World Petroleum Congress (WPC). The
probable and possible reserves conform to definitions of probable
and possible approved by the SPE/WPC using the deterministic
methodology. Reserves used in accounting estimates for depreciation
are updated periodically to reflect management‟s view of reserves
in conjunction with third party formal reports. Reserves are
reviewed at the time of formal updates or as a consequence of
operational performance, plans and the business environment at that
time. Reserves are adjusted, in the year that formal updates are
undertaken or as a consequence of operational performance and
plans, and the business environment at that time, with any
resulting changes not applied retrospectively. Taxation Current tax
is the tax payable based on taxable profit for the year. Deferred
income taxes are calculated using the balance sheet liability
method on temporary differences. Deferred tax is generally provided
on the difference between the carrying amounts of assets and
liabilities and their tax bases. However, deferred tax is not
provided on the initial recognition of goodwill, nor on the initial
recognition of an asset or liability unless the related transaction
is a business combination or affects tax or accounting profit.
Deferred tax on temporary differences associated with shares in
subsidiaries and joint ventures is not provided if reversal of
these temporary differences can be controlled by the Group and it
is probable that reversal will not occur in the foreseeable future.
Tax losses available to be carried forward as well as other income
tax credits to the Group are assessed for recognition as deferred
tax assets.
Europa Oil & Gas (Holdings) plc
30
Notes to the financial statements (continued) 1 Accounting Policies
(continued) Taxation (continued) Deferred tax liabilities are
provided in full, with no discounting. Deferred tax assets are
recognised to the extent that it is probable that the underlying
deductible temporary difference will be able to be offset against
future taxable income. Current and deferred tax assets and
liabilities are calculated at tax rates that are expected to apply
to their respective period of realisation, provided they are
enacted or substantively enacted at the balance sheet date. Changes
in deferred tax assets or liabilities are recognised as a component
of tax expense in the income statement, except where they relate to
items that are charged or credited directly to equity in which case
the related deferred tax is also charged or credited directly to
equity. Foreign currency The Group and Company prepare their
financial statements in Sterling. Transactions denominated in
foreign currencies are translated at the rates of exchange ruling
at the date of the transaction. Monetary assets and liabilities in
foreign currencies are translated at the rates of exchange ruling
at the balance sheet date. Non-monetary items that are measured at
historical cost in a foreign currency are translated at the
exchange rate at the date of transaction. Non-monetary items that
are measured at fair value in a foreign currency are translated
using the exchange rates at the date the fair value was determined.
Any exchange differences arising on the settlement of monetary
items or on translating monetary items at rates different from
those at which they were initially recorded are recognised in the
Income Statement in the period in which they arise. Exchange
differences on non-monetary items are recognised in the Statement
of Changes in Equity to the extent that they relate to a gain or
loss on that non-monetary item taken to the Statement of Changes in
Equity, otherwise such gains and losses are recognised in the
Income Statement. The monetary assets and liabilities in the
financial statements of foreign subsidiaries are translated at the
rate of exchange ruling at the balance sheet date. Income and
expenses are translated at monthly average rates providing there is
no significant change in the month. The exchange differences
arising from the retranslation of the opening net investment in
subsidiaries are taken directly to the "Forex reserve" in equity.
On disposal of a foreign operation the cumulative translation
differences are transferred to the income statement as part of the
gain or loss on disposal. Europa Oil and Gas (Holdings) plc is
domiciled in the UK, which is its primary economic environment and
the Company‟s functional currency is Sterling. The Group‟s current
operations are based in the UK, Ukraine, Romania, France, Western
Sahara and Egypt, and the functional currencies of the Group's
entities are the prevailing local currencies in each jurisdiction.
Given that the functional currency of the Company is Sterling,
management has elected to continue to present the consolidated
financial statements of the Group and Company in Sterling. The
Group has taken advantage of the exemption in IFRS 1 and has deemed
cumulative translation differences for all foreign operations to be
nil at the date of transition to IFRS. The gain or loss on disposal
of these operations excludes translation differences that arose
before the date of transition to IFRS and includes later
translation differences. Investments Investments, which are only
investments in subsidiaries, are carried at cost less any
impairment.
Europa Oil & Gas (Holdings) plc
31
Notes to the financial statements (continued) 1 Accounting Policies
(continued) Financial instruments Financial assets and liabilities
are recognised on the balance sheet when the Group becomes a party
to the contractual provisions of the instrument. The Group and
Company classifies its financial assets into loans and receivables,
which comprise trade and other receivables and cash and cash
equivalents. The Group has not classified any of its financial
assets as held to maturity or available for sale or fair value
through profit or loss. Trade and other receivables are measured at
fair value. A provision is established when there is objective
evidence that the Group will not be able to collect all amounts
due. The amount of any provision is recognised in the Income
statement. Cash and cash equivalents comprise cash held by the
Group and short-term bank deposits with an original maturity of
three months or less. The Group and Company classifies its
financial liabilities into one of two categories, depending on the
purpose for which the asset was acquired. The accounting policy for
each category is as follows: Fair value through profit or loss.
This category comprises only out-of-the-money derivatives. They are
carried in the balance sheet at fair value with changes in fair
value recognised in the consolidated Income statement. Other than
these derivative financial instruments, the Group does not have any
liabilities held for trading nor has it designated any financial
liabilities as being at fair value through profit or loss. Other
financial liabilities. Include the following items: Bank borrowings
are initially recognised at fair value net of any transaction costs
directly attributable to the issue of the instrument. Such interest
bearing liabilities are subsequently measured at amortised cost
using the effective interest rate method, which ensures that any
interest expense over the period to repayment is at a constant rate
on the balance of the liability carried in the balance sheet.
Interest expense in this context includes initial transaction costs
and any interest or coupon payable while the liability is
outstanding. Trade payables and other short-term monetary
liabilities, which are initially recognised at fair value and
subsequently carried at amortised cost using the effective interest
method. Financial liabilities and equity instruments issued by the
Group are classified in accordance with the substance of the
contractual arrangements entered into and the definitions of a
financial liability and an equity instrument. An equity instrument
is any contract that evidences a residual interest in the assets of
the Group after deducting all of its liabilities. Equity
instruments issued by the company are recorded at the proceeds
received, net of direct issue costs. Leased assets In accordance
with IAS 17, the economic ownership of a leased asset is
transferred to the lessee if the lessee bears substantially all the
risks and rewards related to the ownership of the leased asset. The
related asset is recognised at the time of inception of the lease
at the fair value of the leased asset or, if lower, the present
value of the minimum lease payments plus incidental payments, if
any, to be borne by the lessee. A corresponding amount is
recognised as a finance leasing liability. The interest element of
leasing payments represents a constant proportion of the capital
balance outstanding and is charged to the income statement over the
period of the lease. All other leases are regarded as operating
leases and the payments made under them are charged to the income
statement on a straight line basis over the lease term. Lease
incentives are spread over the term of the lease. During the
current or prior year the group did not have any finance
leases.
Europa Oil & Gas (Holdings) plc
32
Notes to the financial statements (continued) 1 Accounting Policies
(continued) Defined contribution pension schemes The pension costs
charged against profits are the contributions payable to the scheme
in respect of the accounting period. Inventories Inventories
comprise oil in tanks stated at the lower of cost and net
realisable value. Joint arrangements Joint arrangements are those
in which the Group holds an interest on a long term basis which are
jointly controlled by the Group and one or more venturers under a
contractual arrangement. When these arrangements do not constitute
entities in their own right, the consolidated financial statements
reflect the relevant proportion of costs, revenues, assets and
liabilities applicable to the Group‟s interests in accordance with
IAS 31. The Group‟s exploration, development and production
activities are generally conducted jointly with other companies in
this way. Share-based payments All goods and services received in
exchange for the grant of any share-based payment are measured at
their fair values. Where employees are rewarded using share-based
payments, the fair values of employees' services are determined
indirectly by reference to the fair value of the instrument granted
to the employee. This fair value is appraised at the grant date and
excludes the impact of non-market vesting conditions (for example,
profitability and sales growth targets). All equity-settled
share-based payments are ultimately recognised as an expense in the
income statement with a corresponding credit to reserves. Where
options over the parent company‟s shares are granted to employees
of subsidiaries of the parent, the charge is recognised in the
income statement of the subsidiary. In the parent company accounts
there is an increase in the cost of the investment in the
subsidiary receiving the benefit. If vesting periods or other
non-market vesting conditions apply, the expense is allocated over
the vesting period, based on the best available estimate of the
number of share options expected to vest. Estimates are
subsequently revised if there is any indication that the number of
share options expected to vest differs from previous estimates. Any
cumulative adjustment prior to vesting is recognised in the current
period. No adjustment is made to any expense recognised in prior
periods if the number of share options ultimately exercised is
different to that initially estimated. Upon exercise of share
options the proceeds received, net of attributable transaction
costs, are credited to share capital, and where appropriate share
premium. Non-current assets held for sale and disposal groups
Non-current assets and disposal groups are classified as held for
sale when: they are available for immediate sale management is
committed to a plan to sell it is unlikely that significant changes
to the plan will be made or that the plan will be withdrawn an
active programme to locate a buyer has been initiated the asset or
disposal group is being marketed at a reasonable price in relation
to its fair value; and a sale is expected to complete within 12
months from the date of classification
Europa Oil & Gas (Holdings) plc
33
Notes to the financial statements (continued) 1 Accounting Policies
(continued) Non-current assets held for sale and disposal groups
(continued) Non-current assets and disposal groups classified as
held for sale are measured at the lower of their carrying amount
immediately prior to being classified as held for sale in
accordance with the Group's accounting policy; and fair value less
costs to sell. Following their classification as held for sale,
non-current assets (including those in a disposal group) are not
depreciated. The results of operations disposed during the year are
included in the consolidated income statement up to the date of
disposal. A discontinued operation is a component of the Group's
business that represents a separate major line of business or
geographical area of operations or its subsidiary acquired
exclusively with a view to resale, that has been disposed of, has
been abandoned or that meets the criteria to be classified as held
for sale. Discontinued operations are presented in the income
statement (including the comparative period) as a single line which
comprises the post tax profit or loss of the discontinued operation
and the post-tax gain or loss recognised on the re-measurement to
fair value less costs to sell or on disposal of the assets/disposal
groups constituting discontinued operations. Critical accounting
judgements and key sources of estimation uncertainty Details of the
Group‟s significant accounting judgements and critical accounting
estimates are set out in these financial statements and include:
Discontinued operations (Note 6) Carrying value of intangible
assets (Note 11) Carrying value of property, plant and equipment
(Note 12) Decommissioning provision (Note 19) Share-based payments
(Note 21) Financial instruments (Note 22)
2 Business segment analysis In the opinion of the directors the
Group has one class of business, being oil and gas exploration
development and production. The Group's primary reporting format is
determined to be the geographical segment according to the location
of the oil and gas asset. There are currently 5 geographic
reporting segments.
Europa Oil & Gas (Holdings) plc
34
Notes to the financial statements (continued) 2 Business segment
analysis (continued) Segmental income statement for the year ended
31 July 2009
UK
Romania
France
North Africa
Ukraine
Total
£000
£000
£000
£000
£000
£000
Continuing operations
Revenue
2,936
-
-
-
-
2,936
Other cost of sales
(1,694)
-
-
-
-
(1,694)
Exploration write-off
(297)
-
-
-
-
(297)
Cost of sales
(1,991)
-
-
-
-
(1,991)
-----------------------------------
-----------------------------------
-----------------------------------
-----------------------------------
-----------------------------------
----------------------------------------
Gross profit
945
-
-
-
-
945
Administrative expenses
(403)
(79)
-
(16)
-
(498)
Finance income
213
11
-
-
-
224
Finance costs
(232)
(16)
-
-
-
(248)
-----------------------------------
-----------------------------------
-----------------------------------
-----------------------------------
-----------------------------------
----------------------------------------
Profit / (loss) before tax
523
(84)
-
(16)
-
423
Taxation
(356)
-
-
-
-
(356)
-----------------------------------
-----------------------------------
-----------------------------------
-----------------------------------
-----------------------------------
-----------------------------------
Profit / (loss) for the year from continuing operations
167
(84)
-
(16)
-
67
Discontinued operations
Loss for the year from discontinued operation
-
-
-
-
(47)
(47)
-----------------------------------
-----------------------------------
-----------------------------------
-----------------------------------
-----------------------------------
-----------------------------------
Profit/(loss) for the year
167
(84)
-
(16)
(47)
20
==============
==============
==============
==============
==============
==============
Segmental balance sheet as at 31 July 2009
In Romania, a 2008 creditor balance was written off in 2009 causing
a reduction in intangible assets
UK
Romania
France
North Africa
Ukraine
Total
£000
£000
£000
£000
£000
£000
Segment assets
6,700
6,133
139
539
-
13,511
Cash and cash equivalents
-
4
-
-
-
4
---------------------------------
---------------------------------
-----------------------------------
--------------------------------------
---------------------------------
---------------------------------
Total assets
6,700
6,137
139
539
-
13,515
---------------------------------
--------------------------------
---------------------------------
---------------------------------
---------------------------------
---------------------------------
Segment liabilities
(3,444)
(172)
-
-
-
(3,616)
Current tax liabilities
(588)
-
-
-
-
(588)
Deferred tax liabilities
(2,651)
-
-
-
-
(2,651)
---------------------------------
---------------------------------
-----------------------------------
--------------------------------------
---------------------------------
---------------------------------
Total liabilities
(6,683)
(172)
-
-
-
(6,855)
---------------------------------
---------------------------------
-----------------------------------
--------------------------------------
---------------------------------
---------------------------------
Other segment items
Capital expenditure
652
(227)
91
146
-
662
Depreciation
576
-
-
-
-
576
Share based payments
88
-
-
8
-
96
Europa Oil & Gas (Holdings) plc
35
Notes to the financial statements (continued) 2 Business segment
analysis (continued) Segmental income statement for the year ended
31 July 2008
UK
Romania
France
North Africa
Ukraine
Total
£000
£000
£000
£000
£000
£000
Continuing operations
Revenue
4,418
-
-
-
-
4,418
Other cost of sales
(1,548)
-
-
-
-
(1,548)
Exploration write-off
-
(1)
-
-
-
(1)
Cost of sales
(1,548)
(1)
-
-
-
(1,549)
---------------------------------
---------------------------------
---------------------------------
---------------------------------
---------------------------------
---------------------------------
Gross profit
2,870
(1)
-
-
-
2,869
Administrative expenses
(340)
(36)
-
-
-
(376)
Finance income
12
-
-
-
-
12
Finance costs
(240)
(211)
-
-
-
(451)
-----------------------------------
-----------------------------------
-----------------------------------
-----------------------------------
-----------------------------------
-----------------------------------
Profit / (loss) before tax
2,302
(248)
-
-
-
2,054
Taxation
(1,609)
-
-
-
-
(1,609)
-----------------------------------
-----------------------------------
-----------------------------------
-----------------------------------
-----------------------------------
-----------------------------------
Profit / (loss) for the year from continuing operations
693
(248)
-
-
-
445
Discontinued operations
(Loss) for the year from discontinued operation
-
(251)
-
-
(45)
(296)
-----------------------------------
-----------------------------------
-----------------------------------
-----------------------------------
-----------------------------------
-----------------------------------
Profit / (loss) for the year
693
(499)
-
-
(45)
149
================
================
================
================
================
================
Segmental balance sheet as at 31 July 2008
UK
Romania
France
North Africa
Ukraine
Total
£000
£000
£000
£000
£000
£000
Segment assets
7,357
6,110
49
393
-
13,909
Cash and cash equivalents
-
3
-
-
-
3
-----------------------------------
-----------------------------------
-----------------------------------
-----------------------------------
-----------------------------------
-----------------------------------
Total assets
7,357
6,113
49
393
-
13,912
-----------------------------------
-----------------------------------
-----------------------------------
-----------------------------------
-----------------------------------
-----------------------------------
Segment liabilities
(3,629)
(1,031)
-
-
-
(4,660)
Current tax liabilities
(380)
-
-
-
-
(380)
Deferred tax liabilities
(2,701)
-
-
-
-
(2,701)
-----------------------------------
-----------------------------------
-----------------------------------
-----------------------------------
-----------------------------------
-----------------------------------
Total liabilities
(6,710)
(1,031)
-
-
-
(7,741)
-----------------------------------
-----------------------------------
-----------------------------------
-----------------------------------
-----------------------------------
-----------------------------------
Other segment items
Capital expenditure
2,071
2,321
49
203
-
4,644
Depreciation
590
-
-
-
-
590
Share based payments
(5)
-
-
2
-
(3)
Europa Oil & Gas (Holdings) plc
36
Notes to the financial statements (continued) 3 Profit for the year
is stated after charging: Profit from continuing operations:
2009
2008
Note
£000
£000
Depreciation
576
590
Staff costs including directors
5
716
643
Exploration write-off
297
1
Fees payable to the auditor for the Company audit
25
22
Fees payable to the auditor for the audit of subsidiaries
56
48
Operating leases
36
32
================
===============
The Company has taken advantage of the exemption provided under
Section 408 of the Companies Act 2006 not to publish its individual
income statement and related notes. The profit dealt with in the
financial statements of the parent company is £105,000 (2008 loss:
£356,000) 4 Directors' emoluments
Directors' salaries, fees and employer's costs
2009
2008
£000
£000
C W Ahlefeldt-Laurvig
19
20
K E Ainsworth (to 22 January 2008)
-
46
P A Barrett (the highest paid director)
137
141
R J H M Corrie (from 22 January 2008)
20
11
P Greenhalgh (from 22 January 2008)
124
66
J M Y Oliver
19
20
E S Syba
81
83
-----------------------------------
-----------------------------------
400
387
===================================
===================================
C W Ahlefeldt-Laurvig for service as petroleum engineer
2
22
Directors' pensions
2009
2008
£000
£000
K E Ainsworth (to 22 January 2008)
-
13
P A Barrett
19
19
P Greenhalgh (from 22 January 2008)
16
10
E S Syba
11
11
-----------------------------------
-----------------------------------
46
53
====================================
====================================
The above charge represents premiums paid to money purchase pension
plans during the year.
The above represents the accounting charge in respect of stock
options with vesting periods during the year. No share options were
exercised during the period (2008: none).
Directors' share based payments
2009
2008
£000
£000
K E Ainsworth (to 22 January 2008)
-
(17)
R J H M Corrie (from 22 January 2008)
25
6
P Greenhalgh (from 22 January 2008)
61
15
J M Y Oliver
-
2
-----------------------------------
-----------------------------------
86
6
===================================
===================================
Europa Oil & Gas (Holdings) plc
37
Notes to the financial statements (continued) 5 Employee
information
Average number of employees including directors
2009
2008
Number
Number
Management and technical
13
11
Field exploration and production
15
16
-------------------------------
-------------------------------
28
27
===============================
================================
Total includes 15 (2008: 16) based in the Ukraine (reported as
discontinued operations).
Staff costs
2009
2008
£000
£000
Wages and salaries
384
362
Social security and tax
170
212
Pensions
66
72
Share based payment
96
(3)
------------------------------
------------------------------
716
643
===============================
===============================
Total staff costs for the Company were £552,000 (2008: £462,000) 6
Loss on disposal of investment and discontinued operations
2009
2008
£000
£000
Ukraine costs
47
45
Loss on sale of Bilca gas field in Romania
-
251
-------------------------------
-------------------------------
47
296
================================
================================
A letter of intent was signed between the company and a
Swedish-listed oil and gas company in anticipation of an outright
sale of the Ukraine assets. Costs relate to expenses incurred in
progressing the completion of the sale which has required asset
transfers from joint investment companies. The sale is expected to
complete in the next few months. In May 2007 agreement was reached
with Aurelian Oil & Gas (Romania) SRL for the sale of Europa‟s
interest in the Bilca gas field in Romania for £2 million. The sale
was accounted for from the effective date of 31 March 2007 since
from this date, all revenues and costs were received and paid for
by Aurelian Oil & Gas (Romania) SRL. Additional Bilca costs
were written off in Europa Oil & Gas SRL in 2008.
7 Finance income
2009
2008
£000
£000
Bank interest receivable
-
12
Exchange rate gains
224
-
-----------------------------------
-----------------------------------
224
12
========================================
========================================
Europa Oil & Gas (Holdings) plc
38
Notes to the financial statements (continued) 8 Finance
expense
2009
2008
£000
£000
Bank interest payable
88
99
Loan interest payable
19
50
Interest on tax payment
-
15
Unwinding of discount on decommissioning provision
79
21
Exchange rate losses
16
257
Bank charges
6
4
Interest rate swap fair value charge (Note 22)
40
-
Underwriting fee
-
5
------------------------------
------------------------------
248
451
================================
================================
9 Taxation
2009
2008
£000
£000
Current tax charge / (credit)
407
756
Deferred tax (credit)/charge
(51)
853
--------------------------------
--------------------------------
356
1,609
================================
=================================
UK corporation tax is calculated at 30% (2008 - 30%) of the
estimated assessable profit for the year. Taxation in other
jurisdictions is calculated at the rates prevailing in the
respective jurisdictions.
2009
2008
£000
£000
Profit on ordinary activities per the accounts
423
2,054
================================
=================================
Tax reconciliation
Profit / (loss) on ordinary activities multiplied by the standard
rate of corporation tax in the UK of 30% (2008: 30%)
127
616
Expenses not deductible for tax purposes
64
272
Supplementary North Sea oil taxation
175
338
Adjustment re prior year
(10)
178
Deferred tax asset written off
-
205
---------------------------------
---------------------------------
Total tax charge
356
1,609
==================================
==================================
10 Earnings per share Basic earnings per share (EPS) has been
calculated on the profit after taxation divided by the weighted
average number of shares in issue during the period. Diluted EPS
uses an average number of shares adjusted to allow for the issue of
shares, on the assumed conversion of all in the money options and
warrants. The company‟s average share price for the year to 31 July
2009 was lower than the exercise price of the share options in
issue. Therefore the share options in issue have no dilutive effect
and there is no difference between the basic and diluted earnings
per share. The company‟s average share price for the year to 31
July 2008 was 21p per share resulting in dilution of 778,990
shares.
Europa Oil & Gas (Holdings) plc
39
Notes to the financial statements (continued) 10 Earnings per share
(continued) The calculation of the basic and diluted
earnings/(loss) per share is based on the following:
2009
2008
£000
£000
Earnings / (losses)
Profit after tax from continuing operations
67
445
Loss after tax from discontinued operations
(47)
(296)
-----------------------------------
-----------------------------------
Profit after tax from continuing and discontinued operations
20
149
Weighted average number of shares
for the purposes of basic eps
62,563,730
62,401,492
for the purposes of diluted eps
62,563,730
63,180,482
11 Intangible assets
2009
2008
£000
£000
Cost
At 1 August
7,242
4,514
Additions
529
2,728
-----------------------------------
--------------------------------
At 31 July
7,771
7,242
===================================
================================
Impairment
At 1 August
1
-
Change for the year
297
1
-----------------------------------
--------------------------------
At 31 July
298
1
==================================
=================================
Net book value
At end of year
7,473
7,241
==================================
================================
At start of year
7,241
4,514
==================================
================================
Intangible assets comprise the Group‟s pre-production expenditure
on licence interests as follows:
2009 £000
2008 £000
Romania
5,874
6,110
Egypt
434
288
France
139
49
Western Sahara
105
105
UK PEDL 143 (Holmwood)
177
138
UK PEDL 150 (SW Lincoln)
588
252
UK PEDL 180/181 (NE Lincs)
115
31
UK PEDL 222
41
-
UK Continental Shelf
-
268
--------------------------------
--------------------------------
Total
7,473
7,241
================================
================================
In Romania, a 2008 creditor balance was written off in 2009 causing
a reduction in intangible assets. Following reprocessing of seismic
data in the current year it was decided to allow the licence over
block P1545 to lapse and therefore write-off the entire value of
the UK Continental Shelf resulting in an impairment charge of
£297,000. Licence commitments are explained further in Note
23.
Europa Oil & Gas (Holdings) plc
40
Notes to the financial statements (continued) 12 Property, plant
and equipment Property, plant & equipment - Group
Furniture & computers
Leasehold building
Producing fields
Total
£000
£000
£000
£000
Cost
At 1 August 2007
7
437
6,404
6,848
Additions
22
-
1,894
1,916
Disposals
(2)
-
(1,085)
(1,087)
-------------------------------
-------------------------------
-------------------------------
-------------------------------
At 31 July 2008
27
437
7,213
7,677
Additions
12
-
122
134
-------------------------------
-------------------------------
-------------------------------
-------------------------------
At 31 July 2009
39
437
7,335
7,811
===============================
===============================
===============================
===============================
Depreciation and depletion
At 1 August 2007
3
-
2,152
2,155
Charge for year
4
52
534
590
Disposals
(1)
-
(1,063)
(1,064)
-------------------------------
-------------------------------
-------------------------------
-------------------------------
At 31 July 2008
6
52
1,623
1,681
Charge for year
9
25
542
576
-------------------------------
-------------------------------
-------------------------------
-------------------------------
At 31 July 2009
15
77
2,165
2,257
===============================
===============================
===============================
===============================
Net Book Value
At 31 July 2009
24
360
5,170
5,554
===============================
===============================
===============================
===============================
At 31 July 2008
21
385
5,590
5,996
===============================
===============================
===============================
===============================
At 31 July 2007
4
437
4,252
4,693
===============================
===============================
===============================
===============================
The producing fields referred to in the table above are the
production assets of the Group, namely the oilfields at Crosby
Warren and West Firsby; and the Group‟s share in the Whisby W4
well. The carrying value of the Crosby Warren oilfield has been
tested for impairment. No impairment has been recorded because the
carrying value of the asset was lower than the asset‟s value under
a value-in-use calculation, which was based on the expected outcome
of the production enhancement programme using a 10% discount rate.
Further details of the production enhancement programme are
described in the Operational review. If this work is unsuccessful
then a write down in the value of this asset will be required. In
the 2008 Annual report and accounts, certain fully written down
assets which had been disposed were incorrectly recorded. As a
result, cost and depreciation of producing fields at 1 August 2008
were overstated by £443,000. Figures for 2008 are restated,
corrected for these mis-statements. Net book value at 31 July 2008
is unchanged.
Europa Oil & Gas (Holdings) plc
41
Notes to the financial statements (continued) 12 Property, plant
and equipment (continued) Property, plant and equipment -
Company
Furniture & computers
Leasehold building
Total
£000
£000
£000
Cost
At 1 August 2007
7
437
444
Additions
22
-
22
Disposal
(2)
-
(2)
-------------------------------
-------------------------------
-------------------------------
At 31 July 2008
27
437
464
Additions
12
-
12
-------------------------------
-------------------------------
-------------------------------
At 31 July 2009
39
437
476
===============================
===============================
===============================
Depreciation
At 1 August 2007
3
-
3
Charge for the year
4
52
56
Disposals
(1)
-
(1)
-------------------------------
-------------------------------
-------------------------------
At 1 August 2008
6
52
58
Charge for year
9
25
34
-------------------------------
-------------------------------
-------------------------------
At 31 July 2009
15
77
92
===============================
===============================
===============================
Net Book Value
At 31 July 2009
24
360
384
===============================
===============================
===============================
At 31 July 2008
21
385
406
===============================
===============================
===============================
At 31 July 2007
4
437
441
===============================
===============================
===============================
The leasehold building was depreciated at 2% (2008: 2%). An
impairment of £17,000 (2008: £43,000) was recorded to reflect loss
in market value of the property in the year. The loss in value was
assessed by an expert familiar with the local property market and
was charged to administrative expenses in the Income Statement. The
loan of £292,000 (2008: £316,000) described in Note 17 is secured
against this property. 13 Investments - Company
Investment in subsidiaries
2009
2008
£000
£000
At 1 August
3,303
3,295
Current year additions
9
8
-----------------------------------------
-------------------------------------
31 July
3,312
3,303
===========================
=========================
The Company‟s investments at the balance sheet date in the share
capital of unlisted companies include 100% of Europa Oil & Gas
Limited, registered in England and Wales (this company undertakes
oil and gas exploration, development and production) and 100% of
Europa Oil & Gas (West Firsby) Limited, also registered in
England and Wales (this company is non-trading).
Europa Oil & Gas (Holdings) plc
42
Notes to the financial statements (continued) 13 Investments -
Company (continued) The results of both of these companies have
been included in the consolidated accounts. Europa Oil & Gas
Limited owns 100% of the ordinary share capital of each of: Europa
Oil & Gas SRL registered in Romania; Europa Nafta & Gas
Ukraine registered in Ukraine and Malopolska Oil & Gas Company
Sp.z.o.o., registered in Poland. The result of the Polish company
has not been consolidated on the grounds that it is not material to
the Group. Additions to the cost of investments represents the
value of options over the shares of the Company issued to employees
of subsidiary companies. 14 Inventories - Group
2009
2008
£000
£000
Oil in tanks
15
16
======================================
======================================
15 Trade and other receivables
Group
Company
2009
2008
2009
2008
Current trade and other receivables
£000
£000
£000
£000
Trade receivables
164
341
-
-
Other receivables
220
251
2
8
Prepayments
85
64
17
18
-----------------------------------
-----------------------------------
-----------------------------------
-----------------------------------
469
656
19
26
===================================
===================================
===================================
===================================
Non current other receivables
Owed by Group undertakings
-
-
3,976
4,464
===================================
===================================
===================================
===================================
Group other receivables includes a VAT debtor in Romania. Loans to
subsidiaries are interest free, have no fixed repayment date and
are repayable on demand. 16 Trade and other payables
Group
Company
2009
2008
2009
2008
£000
£000
£000
£000
Trade payables
455
1,105
62
62
Other payables
381
550
-
-
Accruals
64
97
38
71
----------------------------------
--------------------------------
-----------------------------------
-----------------------------------
900
1,752
100
133
================================
==================================
=====================================
======================================
Interest rate swap
40
-
40
-
Group other payables includes advances received from partners on
projects in UK and Egypt. More information on the interest rate
swap is included in Note 22. 17 Borrowings On 1 May 2009 the
Company agreed a £1 million uncommitted multi-option facility and a
£1million term loan with its bankers. This replaced a £2 million
multi option facility which was being renegotiated at the previous
year end. The multi-option facility can be utilised in either
Sterling or foreign currency via an overdraft or the issue of
bonds, guarantees, indemnities or letters of credit. At 31 July
2009 this facility was drawn to £297,000 (2008: £1,022,000) and one
guarantee for £475,000 (2008: £581,000) was outstanding. The
facility is available until 30 April 2010. The term loan is
repayable in 10 quarterly installments. At 31 July 2009 it was
drawn to £950,000 of which £450,000 was classified as short
term.
Europa Oil & Gas (Holdings) plc
43
Notes to the financial statements (continued) 17 Borrowings
(continued) On 12 March 2008, the Sherborne Trust, a discretionary
trust of which C W Ahlefeldt-Laurvig was a beneficiary, provided a
€650,000 (£512,000) loan to the Company. On 2 April 2008 the Trust
assigned the loan to C W and Mrs M Ahlefeldt-Laurvig. The loan,
plus €32,000 (£25,000) of accrued interest remained outstanding at
31 July 2008 but was fully repaid in August 2008. A loan of
£292,000 (2008: £316,000) secured against the Abingdon property is
repayable over 13 years.
Group
Company
Loans repayable in less than 1 year
2009 £000
2008 £000
2009 £000
2008 £000
Multi-option facility
297
1,022
-
-
Term loan
450
-
-
-
Related party loan
-
512
-
512
Property loan
20
14
20
14
-----------------------------------
---------------------------------------
-----------------------------------
-----------------------------------
Total short term borrowing
767
1,548
20
526
============
===========
===========
===========
Loans repayable in 1 to 2 years
Term loan
400
-
-
-
Property loan
21
15
21
15
-----------------------------------
-----------------------------------
-----------------------------------
-----------------------------------
Total loans repayable in 1 to 2 years
421
15
21
15
Loans repayable in 2 to 5 years
Term loan
100
-
-
-
Property loan
65
52
65
52
-----------------------------------
-----------------------------------
-----------------------------------
-----------------------------------
Total loans repayable in 2 to 5 years
165
52
65
52
Loans repayable after 5 years
Property loan
186
235
186
235
-----------------------------------
-----------------------------------
-----------------------------------
-----------------------------------
Total loans repayable after 5 years
186
235
186
235
-----------------------------------
-----------------------------------
-----------------------------------
-----------------------------------
Total long term borrowing
772
302
272
302
============
============
============
============
18 Deferred Tax - Group
Recognised deferred tax liability:
2009
2008
£000
£000
As at 1 August
2,701
1,847
(Credited)/charged to income statement
(50)
854
------------------------------------------
-----------------------------------------
At 31 July
2,651
2,701
=====================================
=====================================
The Group has a net deferred tax liability of £2,651,000 (2008:
£2,701,000) arising from accelerated capital allowances.
Unrecognised deferred tax asset:
2009
2008
£000
£000
Accelerated capital allowances
(1,194)
(1,162)
Trading losses
1,845
1,859
------------------------------------
-----------------------------------
Net deferred tax asset
651
697
=====================================
==================================
Europa Oil & Gas (Holdings) plc
44
Notes to the financial statements (continued) 18 Deferred Tax -
Group (continued) The Group has a net deferred tax asset of
£651,000 (2008: £697,000), in relation to mainly overseas trading
losses, that has not been recognised in the accounts as the
transfer of economic benefits is uncertain. 19 Long term provision
- Group
2009
2008
£000
£000
As at 1 August
1,058
438
Charged to income statement
79
21
Added to tangible non current assets
-
599
--------------------------------
--------------------------------
At 31 July
1,137
1,058
================================
===============================
A provision for decommissioning is recognised in full at the
commencement of production. A corresponding tangible non current
asset of an amount equivalent to the provision is also created. The
amount recognised is the estimated cost of decommissioning,
discounted to its net present value. The tangible non current asset
is depreciated as part of the capital cost of production facilities
on a unit of production basis. Decommissioning provisions are based
on third party estimates of work which will be required and the
judgement of directors. By its nature, the detailed scope of work
required and timing is uncertain. No decommissioning is anticipated
before 2022. 20 Called up share capital
2009
2008
£000
£000
Authorised
150,000,000 ordinary shares of 1p each
1,500
1,500
=============
=============
Allotted, called up and fully paid
62,563,730 ordinary shares of 1p each (2008: 62,563,730)
626
626
=============
=============
All the authorised and allotted shares are of the same class and
rank pari passu. On 1 June 2006 the Company entered into an
agreement with the Headstart Group of funds under which a share
finance facility of up to £1.5 million was made available. The
facility could be drawn down in monthly increments of up to
£100,000 in exchange for the issue of new ordinary shares. During
the year the Company made no draw downs from the facility (2008:
one draw down of £100,000). The facility terminated on 1 December
2008. In 2006 Europa issued 300,000 warrants to Headstart granting
the right to subscribe for ordinary shares at 31.20p per share.
These warrants expired on 31 May 2009. In 2005, the Company issued
39,999,998 ordinary shares of 1p at a nil premium in exchange for
the entire shareholding of Europa Oil & Gas Limited. This gave
rise to the merger reserve at 31 July 2009 of £2,868,000 (2008:
£2,868,000). Note 26 describes a further issue of share capital
which occurred in September 2009. The following describes the
purpose of each reserve within owners‟ equity:
Reserve
Description and purpose
Share premium
Amount subscribed for share capital in excess of nominal
value
Merger reserve
Reserve created on issue of shares on acquisition of subsidiaries
in prior years
Forex reserve
Reserve arising on translation of foreign subsidiaries
Retained earnings
Cumulative net gains and losses recognised in the consolidated
income statement.
Europa Oil & Gas (Holdings) plc
45
Notes to the financial statements (continued) 21 Share based
payments There are 3,550,000 ordinary share options of 1p
outstanding (2008: 3,750,000). These are held by certain members of
the Board, (R J H M Corrie 500,000; P Greenhalgh 1,250,000; and J M
Y Oliver 200,000) management and employees of the Group (400,000)
and advisers at the time of the 2004 AIM flotation (1,200,000). Of
the 3,550,000 options, 1,200,000 granted on 11 November 2004 the
date of admission to AIM are exercisable at any time up to 11
November 2009. The remaining 2,350,000 options are exercisable: one
third 18 months after grant; a further third 30 months after grant
and the balance 42 months after grant. There are no further vesting
conditions. The latest date at which these can be exercised is the
10th anniversary from the date of award. No options were granted or
exercised, and 200,000 expired during the year. The fair value of
the various options was determined using a Black Scholes Merton
model, and the inputs used to determine these values are detailed
in the table below:
Grant date
11 November 2004
1 December 2006
8 May 2008
8 May 2008
Number of options
1,560,000
80,000
1,750,000
160,000
Share price at grant
32.5p
21.5p
21.5p
21.5p
Exercise price
25p
25p
20p
18.75p
Volatility
40%
50%
50%
50%
Dividend yield
nil
nil
nil
nil
Risk free investment rate
4.80%
4.90%
4.42%
4.42%
Option life (years)
6.25
6.25
6
6
Fair value per share
16.76p
10.16p
10.96p
11.31p
Volatility for the shares granted on 11 November 2004 was based on
the company's share price volatility in the first year of flotation
on the AIM market. Volatility for subsequent grants has been based
on the company's share price volatility since flotation. Based on
the above fair values the charge arising from the forfeit and grant
of employee share options was £96,000 (2008: credit £3,000 due to
the forfeit of unvested options).
2009 Number of options
2009 Average exercise price
2008 Number of options
2008 Average exercise price
Outstanding at the start of the year
3,750,000
25p
2,460,000
25p
Granted
-
19.9p
1,910,000
19.9p
Forfeited
-
25p
(620,000)
25p
Expired
(200,000)
-
-
-
-------------------------------------------------
-----------------------------------
-------------------------------------------------
-----------------------------------
Outstanding at the end of the year
3,550,000
22.25p
3,750,000
22.4p
Exercisable at the end of the year
1,613,334
25p
1,786,667
25p
No options were exercised in the year (2008: nil).
Europa Oil & Gas (Holdings) plc
46
Notes to the financial statements (continued) 22 Financial
instruments The Group‟s and Company‟s financial instruments
comprise cash, bank borrowings, loans, interest rate derivatives,
cash, and items such as receivables and payables which arise
directly from its operations. Europa‟s activities are subject to a
range of financial risks the main ones being credit, liquidity,
interest rates, commodity prices, foreign exchange and capital.
These risks are managed through ongoing review taking into account
the operational, business and economic circumstances at that time.
Credit risk The Group is exposed to credit risk as all crude oil
production is sold to one multinational oil company. The customer
is invoiced monthly for the oil delivered to the refinery in the
previous month and invoices are settled in full on the 15th of the
following month. At 31 July 2009 trade receivables were £164,000
(2008: £341,000) representing one month of oil revenue (2008: one
month). The fair value of trade receivables and payables
approximates to their carrying value because of their short
maturity. Any surplus cash is held on deposit with Royal Bank of
Scotland. The maximum credit exposure in the year was £400,000
(2008: £550,000). The Company exposure to credit risk is
negligible. Liquidity risk Though the Group has the benefit of a
regular revenue stream, there is still a need for bank financing.
On 1 May 2009 the Company agreed a £1 million uncommitted
multi-option facility and a £1million term loan with its bankers.
The multi-option facility can be utilised in either Sterling or
foreign currency via an overdraft or the issue of bonds,
guarantees, indemnities or letters of credit. The term loan is
repayable in 10 quarterly installments.
Included within short term borrowings is an overdraft of £297,000
(2008: £1,022,000) which has been utilised under the multi-option
facility. An amount of £950,000 is owed at 31 July 2009 on the term
loan. The Group and Company monitor their levels of working capital
to ensure it can meet liabilities as they fall due. The following
table shows the contractual maturities of the Group‟s financial
liabilities, all of which are measured at amortised cost.
At 31 July 2009
Trade and other payables £000
Short term borrowings £000
Long term borrowings £000
6 months or less
644
554
-
6-12 months
296
213
-
1-2 years
-
-
421
2-5 years
-
-
165
Over 5 years
-
-
186
---------------------------------
---------------------------------
---------------------------------
Total
940
767
772
===========
=============
=============
At 31 July 2008
6 months or less
928
1,541
-
6-12 months
824
7
-
1-2 years
-
-
15
2-5 years
-
-
52
Over 5 years
-
-
235
---------------------------------
---------------------------------
---------------------------------
Total
1,752
1,548
302
===========
=============
=============
Trade and other payables do not normally incur interest charges.
Borrowings bear interest at variable rates, except for the property
loan of £292,000 (2008: 316,000) which was swapped for a fixed rate
of interest.
Europa Oil & Gas (Holdings) plc
47
Notes to the financial statements (continued) 22 Financial
instruments (continued) Interest rate risk The Group has interest
bearing liabilities as described in Note 17. The £1 million
multi-option facility and £1 million term loan are secured over the
assets of Europa Oil & Gas (Holdings) plc and Europa Oil &
Gas Limited. Interest is charged on the multi-option facility at
base rate plus 3% (2008: base plus 2%) and on the term loan at
libor plus 3.25%. A loan of £292,000 (2008: £316,000) is secured
over a long lease property and is repayable over 13 years. At the
time of the purchase of the property in 2007, the Company
considered it prudent to enter into an interest rate swap which
fixed the interest rate for the life of the loan (until May 2022)
at 7.02%. The fair value of the swap at 31 July was £40,000 (2008:
nil) and this has been recorded as a current liability of the
Company. The table below shows the sensitivity of the swap to
changes in interest rates. There would be a corresponding charge or
credit to the income statement.
Commodity price risk The selling price of the Group‟s production of
crude oil is set at a small discount to Brent prices. The year saw
massive volatility in oil prices and this has a direct impact on
the Group‟s revenue and profitability. The table below shows the
range of prices achieved in the year and the sensitivity of the
Group‟s Profit / (Loss) Before Taxation (PBT) to such an extreme
movement in oil price. There would be a corresponding increase or
decrease to net assets. There is no commodity price risk in the
Company.
Oil price
Month
Price $/bbl
PBT £000
Highest achieved
August 2008
$111.28
2,720
Average
$62.30
423
Lowest achieved
December 2008
$39.35
(663)
Foreign exchange risk The Group‟s production of crude oil is
invoiced in US Dollars. Revenue is translated into Sterling using a
monthly exchange rate set by reference to the market rate. The
table below shows the range of average monthly US Dollar exchange
rates used in the year and the sensitivity of the Group‟s PBT to
similar movements in US Dollar exchange. There would be a
corresponding increase or decrease to net assets.
US Dollar
Month
Rate $/£
PBT £000
Highest rate
August 2008
$1.9355
(11)
Average
$1.6533
423
Lowest rate
March 2009
$1.4331
867
The table below shows the Group‟s currency exposures. Exposures
comprise the net financial assets and liabilities of the Group that
are not denominated in the functional currency.
2009
2008
Currency
£000
£000
Euro
(42)
(1,445)
US Dollar
915
485
----------------------------
----------------------------
Total
873
(960)
============================
==============================
Long term forward Sterling base rate
Fair value of swap £000
1%
71
3%
40
5%
11
Europa Oil & Gas (Holdings) plc
48
Notes to the financial statements (continued) 22 Financial
instruments (continued) Capital risk management The Group‟s
objectives when managing capital are to safeguard the Group‟s
ability to continue as a going concern in order to provide returns
for shareholders and maintain an optimal capital structure to
reduce the cost of capital. The Group defines capital as being the
consolidated shareholder equity and bank borrowings. The Board
monitors the level of capital as compared to the Group‟s long term
debt commitments and adjusts the ratio of debt to capital as is
determined to be necessary, by issuing new shares, reducing or
increasing debt, paying dividends and returning capital to
shareholders. The Group is not subject to any externally imposed
capital requirements. 23 Capital commitments and guarantees As at
the 31 July 2009 the Group had contractual commitments to drill 2
wells in the UK, 3 wells in Romania and to acquire seismic in the
UK and Egypt. We estimate that our share of costs for these wells
and other exploration activities over the next 3 years is
approximately £4.4 million. This commitment is expected to be met
from cash generated from production and borrowings referred to in
Note 17. As at the 31 July 2009 the Company has a financial
guarantee in place for £475,000 (2008: £581,000) in favour of the
Egyptian General Petroleum Corporation (EGPC) in relation to the
licence concession in Egypt. This financial guarantee is held by
the EGPC to ensure that an agreed work programme for a minimum of
the same value is undertaken by Europa. The guarantee has been
provided by utilising part of the £1 million multi-option facility
referred to in Note 17. A cash sum of £190,000 has been provided to
Europa by our joint venture partner in the project representing
their share of the guarantee. In the Western Sahara a further £3
million is committed pending a resolution of the political
situation in the country. 24 Operating lease commitments Europa Oil
& Gas Limited pays an annual site rental for the land upon
which the West Firsby and Crosby Warren oil field facilities are
located. The West Firsby lease runs until September 2022 and can be
determined upon giving 2 months notice. The annual cost is
currently £16,000 and increases in line with the retail price
index. The Crosby Warren lease is until December 2022 and can be
determined on 3 months notice. The annual cost is currently £20,000
and is reviewed every 5 years, the next review being in 2010. 25
Related party transactions Key management are those persons having
authority and responsibility for planning, controlling and
directing the activities of the Group. In the opinion of the Board,
the Group‟s and the Company‟s key management are the directors of
Europa Oil & Gas (Holdings) plc. Information regarding their
compensation is given in Note 4. During the year, C W
Ahlefeldt-Laurvig provided services as a petroleum engineer on a
consultancy basis at a total cost of £2,000 (2008: £22,000). It is
anticipated that these services will continue in the next financial
year. At 31 July 2009 the Company owed C W Ahlefeldt-Laurvig £nil
(2008: £25,000) in respect of directors fees and his services as a
petroleum engineer. On 12 March 2008, the Sherborne Trust, a
discretionary trust of which C W Ahlefeldt-Laurvig was a
beneficiary, provided a £512,000 loan to the Company. On 2 April
2008 the Trust assigned the loan to C W and Mrs M
Ahlefeldt-Laurvig. The loan, plus £25,000 of accrued interest
remained outstanding at 31 July 2008 but was fully repaid in August
2008.
Europa Oil & Gas (Holdings) plc
49
Notes to the financial statements (continued) 25 Related party
transactions (continued) During the year, the Company provided
services to subsidiary companies as follows:
2009 £000
2008 £000
Europa Oil & Gas Limited
677
585
Europa Oil & Gas SRL
38
75
-------------------------------
-------------------------------
Total
715
660
==============
=============
At the end of the year the Company was owed the following amounts
by subsidiaries:
26 Post balance sheet events On 19 August 2009 following analysis
of the test results from Lilieci-1, the directors decided not to
participate in the development of the well in Bacau, Romania on
commercial grounds. The Voitinel-1 well in Brodina, Romania spudded
on 21 August and reached TD on 19 September. Though the main target
did not contain hydrocarbons, gas shows in a secondary target at a
shallower depth warranted testing. The test is currently in
progress. Initial results are promising, with the first test
flowing at a rate of 1.6 mmscfpd. The Operator will report when the
tests are completed at the end of October. As Europa considers its
Romanian assets in one cost pool, there is no impairment resulting
from the Voitinel well. On 10 September the Company issued
12,500,000 shares at 14p and raised £1.7 million. The new shares
were placed with new and existing investors by Seymour Pierce
Limited. They represent 16.6% of the Company's enlarged share
capital. On 24 September Europa signed a contract with British
Drilling and Freezing (BDF) to drill the main section of Hykeham-1.
It is anticipated that the well will commence drilling in late
2009. The target is at a depth of around 1000m and the well is
anticipated to take 15-20 days to drill. Work continues towards
completing the sale of the Ukrainian subsidiary.
2009 £000
2008 £000
Europa Oil & Gas Limited
2,735
3,454
Europa Oil & Gas SRL
1,241
1,010
-------------------------------
-------------------------------
Total
3,976
4,464
==============
=============
