Interim Statement 2007

Financial highlights:
 

Second half outlook:

• Crystallisation of the benefit from the partial sale of Netherlands onshore assets to Dyas B.V. realising €18 million cash, already in hand, plus producing and development assets; and
• Recognition of revenue with effect from 1 January 2007 from P12 gas field.

Operational highlights - 2007:

• First Netherlands production of 269 million cubic feet of gas (with a further 207 million cubic feet of attributable production from P12 gas field);
• Activities and progress on developing six Netherlands fields accelerated after final transfer of licences from NAM;
• Development operations undertaken at Brakel and Ottoland, with the Ottoland-1 (sidetrack) well testing oil at unstabilised rates of up to 1,447 bopd;
• Competent Persons Reports on Southern Adriatic oil discoveries due shortly; and
• Strategic Alliance with Dyas B.V. has commenced reviewing agreed opportunities.

Chairman’s Statement

Summary of Results

I am delighted to report that the results for the Group for the six months ending 30 June 2007 show a pre tax profit of £8.51 million compared to a (restated) loss of £0.96 million for the six months ending 30 June 2006. The main contributing factor to the significant improvement in the result for the period is the inclusion, within other operating income, of the Dyas B.V. (“Dyas”) Strategic Alliance fee of €14 million. Profitability has also been boosted by a six month contribution from the Waalwijk gas field that was acquired with an effective date of 1 January 2007, and by the rise in the Group’s financial income as a result of its enhanced cash balances. Of our net overheads, approximately £0.79 million (45%) comprises charges in relation to share based incentives that have arisen due to the significant increase in the Company’s share price from 103.5p to 195.5p over the period.  

These results are the first to be produced under International Financial Reporting Standards (“IFRS”). The comparative results for the six months to 30 June 2006 and the year to 31 December 2006 have been restated to IFRS. The net effect on the income statements are small increases in the loss attributable to equity holders of £20,000 and £50,000 for the respective periods. Taking into account all previous financial years the overall effect of IFRS is to reduce net assets and increase retained losses of the Group by only £0.25 million, which demonstrates the Group’s business model of predominantly building the exploration part of its portfolio by licence application at low cost rather than through acquisitions. The restated primary statements for earlier periods are detailed within note 8, “Transition to IFRS”, of the interim statement.

The balance sheet has strengthened during the period under review and shareholders can also expect that the Group will show a further benefit, and an increase in net assets, in the second half of 2007 when the profitable asset transactions with Dyas are expected to complete with the final transfer of the licences. Turnover and operating profit will also be boosted by a contribution from the P12 gas field from an effective date of 1 January 2007. As at 30 June 2007, the €20.35 million consideration, of which €18 million was in cash, has already been received in respect of those asset sales and is separately disclosed on the Consolidated balance sheet as a “Payment in advance”.  

Overview

Our strategy as a company has been limited to low risk political areas. As I take an overview of world events in the oil industry and outside, I am pleased that we are not deployed in areas where there are risks of Government confiscation, whatever the euphemism used.

I feel that larger companies will soon be forced to move towards our approach and our projects, which will aid our realisation of values.

The Company’s business model is simply defined as identifying value opportunities, adding value and realising those added values. We started many of our projects early, still during the period of low oil and gas pricing, which has enabled the building of a large project base. We are now increasingly moving into the adding value and realising value phases.

In the Netherlands the deal with Dyas covering 25% of our interests in six oil and gas discoveries is such an example of realising some of the profit, and it adds substantially to our financial resource to enable more projects to progress.  The process continues for realising value from our remaining interests in the six oil and gas fields through their development, with “value realisation” in the form of production income.

Upcoming projects include two oil discoveries of particular interest in the southern Adriatic, Giove and Rovesti. The evaluation of their potential reserves and value is underway. There is also the required workover of the Ottoland-1 (sidetrack) well which tested oil at unstabilised rates of up to 1,447 bopd and the oil field will then be put on production as soon as possible in 2008. In the UK there is the planned 2008 drilling of the Markwells Wood prospect, seen as the eastward extension of the Horndean oil field.

The Company now faces these activities with a stronger financial position than ever before, and can look past the current jitters in the capital markets even whilst developing six Netherlands fields with the assistance of Standard Bank.

Our exploration efforts can also continue within this financial comfort with several projects in the Netherlands and at Savio where, working with Stratic Energy and ATI Oil, we have identified a 100 bcf gas prospect in the same formation as the discoveries of Grove Energy and Agip/Eni which are soon to be developed.

Our position is very satisfactory. We are well prepared with projects and finance, and have continued to expand our highly competent technical and management team. Upon this base, I perceive that a period of substantial growth lies before us.

Richard Latham
Chairman
27 September 2007

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