Half Yearly Results for the Six Months Ended 30 June 2009
(Thomson Reuters ONE) - Immediate Release 22 September 2009 Gulfsands Petroleum PLC Half-Yearly Results for the Six Months Ended 30 June 2009HighlightsOperational * Average working interest production 6,165 boepd vs. 1,699 boepd in H1 08 * US production still not fully restored following 2008 hurricanes * 850 km² of 3D seismic data acquired on Block 26, Syria * Average sales price for Syrian production in H1 09 : $44.0/bbl, a discount to average Brent of $7.9/bblFinancial * Revenues up 47% to $29.0 million (H1 08: $19.7 million) * Net profit $3.7 million (H1 08: loss of $10.3 million (restated)) * Net cash from operations, before working capital movements, $12.4 million (H1 08: $5.4 million) * Capital expenditure $14.7 million (H1 08: $11.3 million) * Cash balance at period end of $31.9 million (31.12.08: $36.8 million).Post Period Events * Capacity of Early Production Facility increased to 18,000 bopd gross * Year-end target of 16,000 bopd from Khurbet East Field reached mid-September * Average discount to Brent of Syrian oil sales in July and August fell to below $3/bblGulfsands' Chairman, Andrew West, said:"The first half of 2009 has demonstrated the tangible financialbenefits of Gulfsands' Middle Eastern strategy. Despite a relativelyweak oil price during the period, we have not only increased revenueand operating cash flow substantially as compared to the first halfof 2008 but have delivered the first profit for shareholders for fiveyears. We are also delighted to welcome Sinochem as our provisionalnew partner in Block 26 and look forward to working closely with themto exploit aggressively the significant development and explorationopportunities remaining within the Block."For further information please contact:Gulfsands Petroleum (London) +44 (0)20 7434 6060Richard Malcolm, Chief Executive OfficerAndrew Rose, Chief Financial OfficerKenneth Judge, Director of Corporate +44 (0)7733 001 002DevelopmentBuchanan Communications Limited (London) +44 (0)20 7466 5000Bobby MorseBen RomneyRBC Capital Markets (London) +44 (0)20 7653 4667Sarah WharryThese half-yearly results, together with a copy of the presentationto be given analysts at 9.30am today and a webcast thereof, can beviewed onhttp://mediaserve.buchanan.uk.com/2009/gulfsands220909/registration.aspand a recording will be available on the Gulfsands' website:www.gulfsands.com thereafter.CHAIRMAN'S STATEMENTAt the time of writing, Gulfsands' working interest production fromBlock 26 Syria has just reached 8,000 barrels of oil per day, thetarget we set ourselves for the end of 2009. This represents acrucial milestone in the Company's evolution and underlinesdefinitively the shift in our geographical and strategic focus.The cash flow from this production means that the full fielddevelopment of our two discoveries at Khurbet East and Yousefieh,together with much of our planned exploration activity elsewhere inBlock 26, will be self-funding. Ensuring that this development andexploration activity is put on the fastest possible track is and willremain our foremost priority.We are delighted to welcome Sinochem as our provisional new partnerin Block 26. Sinochem is a world-class oil and gas company stronglyendowed with both financial resources and the determination to buildthe long term value of its strategic assets. We look forward to anactive collaboration aimed in the first instance at the aggressiveexploitation of the opportunities presented by Block 26 and, we hope,in due course beyond.We are also exploring actively a number of other opportunities topartner with major oil companies in Syria, Iraq and possibly, in duecourse, elsewhere in the Middle East. Our success to date inoperating Block 26, together with our established presence andcredentials in the region, position us ideally to add significantvalue to such collaborations.The Gulf of Mexico is clearly now of lesser strategic importance tothe Company. In part due to continuing weak gas prices and in partas a result of the legacy of the 2008 hurricane damage, these assetsmade a negative financial contribution for the half year. Ourintention remains to seek to dispose of these assets as and whencircumstances become more favourable to such a disposal. In theinterim, we will continue to invest the minimum amounts necessary tomaintain the value of our holdings.We look forward to continuing this positive trajectory in the secondhalf of the year.Andrew WestChairman22 September 2009CHIEF EXECUTIVE'S STATEMENTThe year to date has seen a significant step forward in theexploitation of our core Syrian assets, with daily gross productionfrom the Khurbet East field currently running over 60% higher than atthe start of the year and already exceeding our original target of16,000 bopd for the end of 2009. We have laid the ground for futuregrowth, having launched the tender process for a permanent centralproduction facility and acquired additional 3D seismic data over an850 km² area around the Khurbet East field. We have also reinforcedour local staff, including hiring an experienced operations manager,Khalid Mogharbel, who was previously general manager in charge of allof Schlumberger's oilfield services in the Middle East.In April independent estimates of reserves on the Khurbet East andYousefieh fields as at 31 December were published which showedcombined 2P gross reserves, attributable to our 50% working interest,of 35 million barrels, an increase in 20% on the previous year-endfigure, updating the figures contained in our 2008 Annual Report. Theperformance of the Khurbet East field since then indicates that thereis significant scope for future reserves increases.The loss recorded by our US operations in the first half wasdisappointing. Performance has been severely impacted by thecontinued absence of production from certain properties affected bylast year's hurricanes, by the substantial fall in US gas prices, andby impairment charges. We will work towards restoring theprofitability of this business as soon as possible. In Iraq progresson the Maysan gas capture project has proved to be very slow. Weprepared, with the assistance of external consultants, a verydetailed proposal covering all aspects of the project which has beensubmitted to the Iraqi authorities and a response is still awaited.With the current focus in the Oil Ministry being on the licenserounds to take over operation of the supergiant oil fields, and thepolitical focus increasingly being on the upcoming parliamentaryelections next January, we do not expect to see much progress on ourproposals until 2010.Operations ReviewSyriaThe performance of the Khurbet East field has continued to exceedexpectations: cumulative gross oil production passed the 4.5 millionbarrels mark in mid-September, with negligible associated waterproduction and little reservoir depletion being observed. The currentgross oil production from the field is 16,400 barrels of oil per day("bopd"), having increased from an average of 10,730 bopd during themonth of June with the tie-in in July of wells KHE-9 and 10 and thesuccessful cementing operation conducted on the KHE-2 well to isolatesmall amounts of water production that had been experienced from thewell.During the first half four wells were completed on Khurbet East andone on the neighbouring Yousefieh discovery.The first two wells on Khurbet East, KHE-7 and 8, were delineationwells drilled to the north and south of the field respectively withthe aim of providing structural and stratigraphic information on thenorthern and southern limits of the field as well as identifying thefield-wide oil-water contact. The KHE-7 well encountered good oilshows while drilling through the Cretaceous Massive interval butoverall reservoir quality was found to be substantially lower than inthe central portion of the field, and no flow test was undertaken atthat time. The KHE-8 well encountered a 15 metre net oil columnwithin the Massive reservoir interval with average porosity of 23%,and flowed oil to surface on a drill-stem test at an average rate of617 bopd using nitrogen artificial lift and after acid stimulation.Neither KHE-7 nor KHE-8 encountered a definitive oil water contactfor the Field. Wells KHE-9 and 10 were development wells in thecentral portion of the field and are currently contributing over4,400 bopd between them. Since 30 June two further wells, KHE-11 and12, have been completed. KHE-11 produced oil under test at astabilised rate of 1,660 bopd, with an associated water cut ofapproximately 30%. Whilst the oil flow rate from this well iscommercially attractive, further analysis of well data will beundertaken to determine the source of the water and identify possibleremedial operations prior to bringing the well online as an oilproducer.The results of the KHE-8 well indicated that the Khurbet East Fieldextends further south than had been previously interpreted, andKHE-12 was therefore drilled 3.2 km to the south of KHE-8 in order totry once again to determine the southern limits of the Field. Thiswell encountered a 10 metre reservoir section with oil shows incuttings and core. As in other wells at Khurbet East, a definitiveoil-water contact could not be identified, however it is believed thereservoir section lies within an oil-water transition zone.Production testing will be undertaken within the next few weeks inorder to determine the nature of the fluids that will be produced.At Yousefieh the Yousefieh-2 appraisal well, completed in February,encountered a 16 metre net oil column with average porosity of 16%,but continuous flow to surface was not established under an initialdrill-stem test. This well has subsequently been re-entered using awork-over rig, and, following acid treatment and with nitrogen lift,flowed 17°API oil to surface at a rate of 139 bopd with an associatedwater cut of 49%. A similar re-entry operation was also performed inAugust on the Yousefieh-1 discovery well, which flowed under test at823 bopd with negligible water under similar stimulation toYousefieh-2. A second appraisal well, Yousefieh-3, has just beenspudded which, if successful, will enable Gulfsands to apply forcommercial development of the Yousefieh field.In July the expansion of the Khurbet East early production facilitywas completed, raising the nameplate production capacity of the fieldfrom 10,000 bopd to 18,000 bopd. We plan to drill two furtherdevelopment wells before the end of the year in order tosubstantially fill this additional capacity going into 2010. Formalinvitations to tender will be issued shortly for the design,construction and installation of a central processing facility toserve the combined Khurbet East and Yousefieh fields, which isexpected to be commissioned in mid-2011. Its design capacity will be50,000 barrels of fluid per day ("bfpd").In the rest of Block 26, the final processed data from the 3D seismicsurvey over an 850 km² area adjacent to the Khurbet East field is dueto be received in early October, when interpretation will commencewith a view to identifying prospects for exploration drilling inearly 2010.United StatesProduction from our non-operated Gulf of Mexico assets is currentlyat around 1,300 boepd and has not yet been fully restored followingthe damage caused by the 2008 hurricanes to certain properties and tothird party infrastructure. Working interest production during thefirst half averaged 501 bopd of oil and NGLs plus 3,193 mcfd of gas,equating on a conventional oil equivalent basis to 1,033 boepd, or810 boepd on a net revenue interest basis after royalty. Thiscompared with working interest production in H1 08 of 558 bopd and6,845 mcfd, equivalent to 1,699 boepd (or 1,333 boepd on a netrevenue interest basis).Production is likely to increase in coming weeks with the re-entryinto service of a gas pipeline from one of our larger Eugene Islandproperties, which prior to the hurricanes had been producing gas ataround 2,000 mcfd (333 boepd) on a net revenue interest basis, aswell as resumption of production from a gas field at West Cameronfollowing installation of a compressor.Activity in the first half has been dominated by expenditure relatingto hurricane repairs and decommissioning operations. The low gasprices currently prevailing in the US mean that the emphasis in thenear term must be on reducing operating costs associated with our gasproducing properties, and we are in dialogue with certain operatorson this subject. Going forward we intend to look at selectivereinvestment opportunities, particularly on our oil producingproperties where there is a clear potential to add value, but willotherwise endeavour to keep expenditure to a minimum.OutlookIn Syria we are aiming to substantially complete the interpretationof our 3D seismic dataset by the year-end and have identifiedprospects for exploration drilling on Block 26 next year. Aftercompleting the drilling of the Yousefieh-3 appraisal well which iscurrently under way we intend to drill two further development wellson Khurbet East and then spud an exploration well before the end ofthe year.We are also intending to build a 30km 8" pipeline from our earlyproduction facility to the processing facilities at Soudieh operatedby Syrian Petroleum Company ("SPC"), to replace the current truckingoperation which is seen as a potential bottleneck as productionincreases. This pipeline is anticipated to be completed in April2010.We envisage 2010 being another active year of drilling, with acombination of exploration and development wells the precise balanceof which will depend on the outcome of the seismic interpretation.Ric MalcolmChief Executive Officer22 September 2009Financial ReviewSelected Financial Data H1 2009 H1 2008 (restated) Change US$ US$ million million %Revenue 29.0 19.7 47%Gross Profit 13.4 6.5 107%Operating Profit (Loss) 3.9 (9.9) n/aProfit (Loss) after tax 6.7 (11.2) n/aNet cash from Operations before workingcapitalmovements 12.4 5.4 131%Net cash provided by Operating Activities 8.0 5.4 48%Capital expenditure (14.7) (11.3) 30%Decommissioning costs net of escrow cashreleased 0.4 1.9 -79%Productionand SalesPrices Working Discount Interest Entitlement Average Sales to Production Production Price Brent Revenue Oil Gas Oil Gas Oil Gas Oil bopd mcf/d bopd mcf/d US$/bbl US$/mcf US$/bbl US$ MMH1 2009Syria 5,087 - 2,998 - 44.0 n.a. (7.9) 23.9USA 501 3,193 393 2,504 46.4 4.0 n.a. 5.1Total 5,588 3,193 3,391 2,504 29.0Total(boepd) 6,120 3,808 41.8H1 2008Syria - - - - - n.a. -USA 558 6,845 438 5,370 113.9 10.1 19.7Total 558 6,845 438 5,370 19.7Total(boepd) 1,699 1,333 81.2The H1 2008 results have been restated to reflect prior yearadjustments made in the financial statements for the year end 31December 2008. Adjustments were made to include future forecastcapital expenditure within the depletion calculation and also toadjust the decommissioning provision to reflect information containedin a report from a third party specialist surveyor. Theseadjustments are more fully described in note 12 to the Half-YearlyFinancial Report.Revenue and ProfitRevenues grew by 47% to $29.0 million (H1 08: $19.7 million), as thegrowth in production outweighed the fall in oil and gas prices.Average working interest production in H1 09 was 6,120 boepd (5,087bopd from Syria, 1,033 boepd from the US) compared with 1,699 boepdin H1 08, all of which derived from the US as production from Syriadid not commence until July that year. Group entitlement productionwas 3,808 boepd, nearly three times that in H1 2008 (1,333 boepd):all production was sold.The average realised price during the period was $44.1/bbl for oilsales and $4.0/mcf for gas. Syrian oil production realised an averageprice of $44.0/bbl, representing a $7.9/bbl discount to averageBrent. In the last few months the discount to Brent has narrowedsignificantly and August 2009 production from Syria has been sold ata price of $69.9/bbl, a $2.6/bbl discount to Brent.Excluding depletion and impairment charges, cost of sales fell by 16%to $8.2 million (H1 08: $9.8 million). Depletion charges increased by38% to $5.6 million (H1 08: $4.0 million as restated): Syrian unitdepletion charges are lower than those for the US so the increase inthe depletion charge was less than the increase in Group entitlementproduction. An impairment charge of $1.8 million was made against theUS assets following a revision to the discount rate used for futureabandonment liabilities. The resultant gross profit of $13.4 millionwas approximately double that of H1 08 ($6.5 million as restated).Administrative expenses were $7.6 million, a significant reduction onthe $16.7 million in H1 08 owing to much lower charges forshare-based payments. In H1 08 a number of options awards were made,the bulk of which vested immediately and so the value of those awardshad to be expensed in that period. Comparatively few awards have beenmade since then.A further $1.9 million was expensed for repairs to equipmentfollowing the 2008 hurricanes in the US Gulf of Mexico. Totalestimated repair costs have increased to $5.5 million, of which it isestimated that $0.9 million is recoverable from insurance. Of theresidual net cost to the Group of $4.6 million, $2.8 million wascharged to the Income Statement in 2008.The operating profit for the period was $3.9 million compared with anoperating loss of $9.9 million (as restated) in H1 08. Syria made anoperating profit of $15.5 million, the US made a loss of $8.2million, and general Group expenses were $3.3 million.After adjusting for the accrual of the decommissioning provision anda small amount of interest income, the resultant net profit for theperiod was $3.7 million, compared with a loss for H1 2008 of $11.2million (as restated). No tax charge was made in the period comparedwith a $0.9 million charge in H1 08.Cash FlowNet cash from operations was $7.7 million compared with $5.3 millionin H1 08. However this is after an increase in working capital of$4.7 million: before working capital movements the cash fromoperations was $12.4 million vs. an equivalent figure of $5.4 millionin H1 08. The large increase in working capital arose primarily fromthe deferral of $4.8 million of sales proceeds, representing 20% ofsales during the period, in accordance with the terms of the oilsales agreement in Syria (see below). After interest and tax, the netcash from operating activities amounted to $8.0 million (H1 08: $5.4million)Capital expenditure was $14.7 million (H1 08: $11.3 million) of which$11.2 million was in Syria and $3.0 million was in the US.Decommissioning payments of $0.6 million (H1 08: $0.4 million) weremade in the US but this was more than funded by the release of $1.0million from escrow accounts held against future decommissioningliabilities.The exercise of options during the period yielded proceeds of $1.5million. The resultant net decrease in cash over the period was $4.9million, leaving cash balances at 30 June 2009 of $31.9 million(excluding cash held in escrow to meet decommissioning liabilities inthe US). The Group has no outstanding debt.The terms of the current oil sales arrangements in Syria provide that20% of invoiced sales be withheld until September 2009 pending thecompletion of certain assay tests to determine the quality of thecrude oil delivered from the Khurbet East field. As at 30 June 2009the cumulative amount of such withheld sales proceeds attributable tothe Group amounted to $9.9 million. It is expected that this amountwill be paid in full before the end of September. If this withheldamount were to have been received on or before 30 June the pro-formacash balance at that date would have been $41.8 million.Going ConcernThe group had cash and bank balances available for immediate use ofover $31 million at 30 June 2009 and no debt. Having reviewed theGroup's forecasts for the period to 31 December 2010 and after makingenquiries, the Directors expect the Group to remain cash positivethroughout the period and have a reasonable expectation that theGroup has adequate resources to continue in operational existence forthe foreseeable future. Consequently the Directors believe that theGroup is able to manage its financial and operational risks and,accordingly, they continue to adopt the going concern basis inpreparing the Half-Yearly Financial Report.Andrew RoseChief Financial Officer22 September 2009INDEPENDENT REVIEW REPORT TO GULFSANDS PETROLEUM PLCWe have been engaged by the Company to review the condensed set offinancial statements in the half year financial report for the sixmonths ended 30 June 2009 which comprises the condensed consolidatedincome statement, the condensed consolidated balance sheet, thecondensed consolidated statement of changes in equity, the condensedconsolidated cash flow statement and related notes 1 to 12. We haveread the other information contained in the half year financialreport and considered whether it contains any apparent misstatementsor material inconsistencies with the information in the condensed setof financial statements.This report is made solely to the Company in accordance withInternational Standard on Review Engagements (UK and Ireland) 2410"Review of Interim Financial Information Performed by the IndependentAuditor of the Entity" issued by the Auditing Practices Board. Ourwork has been undertaken so that we might state to the Company thosematters we are required to state to them in an independent reviewreport and for no other purpose. To the fullest extent permitted bylaw, we do not accept or assume responsibility to anyone other thanthe Company, for our review work, for this report, or for theconclusions we have formed.Directors' responsibilitiesThe half year financial report is the responsibility of, and approvedby, the directors. The directors are responsible for preparing thehalf year financial report in accordance with the AIM rules of theLondon Stock Exchange.As disclosed in note 1, the annual financial statements of the Groupare prepared in accordance with IFRSs as adopted by the EuropeanUnion. The condensed set of financial statements included in thishalf year financial report has been prepared in accordance withInternational Accounting Standard 34, "Interim Financial Reporting"as adopted by the European Union.Our responsibilityOur responsibility is to express to the Company a conclusion on thecondensed set of financial statements in the half year financialreport based on our review.Scope of ReviewWe conducted our review in accordance with International Standard onReview Engagements (UK and Ireland) 2410 "Review of Interim FinancialInformation Performed by the Independent Auditor of the Entity"issued by the Auditing Practices Board for use in the United Kingdom.A review of interim financial information consists of makinginquiries, primarily of persons responsible for financial andaccounting matters, and applying analytical and other reviewprocedures. A review is substantially less in scope than an auditconducted in accordance with International Standards on Auditing (UKand Ireland) and consequently does not enable us to obtain assurancethat we would become aware of all significant matters that might beidentified in an audit. Accordingly, we do not express an auditopinion.ConclusionBased on our review, nothing has come to our attention that causes usto believe that the condensed set of financial statements in the halfyear financial report for the six months ended 30 June 2009 is notprepared, in all material respects, in accordance with InternationalAccounting Standard 34 as adopted by the European Union and the AIMrules of the London Stock Exchange.Deloitte LLPChartered AccountantsLondon, United Kingdom21 September 2009CONDENSED CONSOLIDATED INCOME STATEMENT FOR THE SIX MONTHS ENDED 30JUNE 2009 6 months ended Year ended 31 December 30 June 2009 30 June 2008 2008 (Unaudited and (Unaudited) restated*) (Audited) Notes $' 000 $' 000 $' 000Revenue 2 28,981 19,699 53,600Cost of sales Depletion (5,552) (4,034) (8,767) Impairment (1,783) 653 (6,327) Other cost of sales (8,242) (9,838) (16,588)Total cost of sales (15,577) (13,219) (31,682)Gross profit 13,404 6,480 21,918Administrativeexpenses beforeexceptionalitems (7,534) (5,233) (13,033)Foreign exchangegains / (losses) 720 414 (4,729)Share based payments (743) (11,878) (12,572)Total administrativeexpenses (7,557) (16,697) (30,334)Hurricane repairs (1,934) 335 (2,750)Operating profit /(loss) 3,913 (9,882) (11,166)Discount expense ondecommissioningprovision 9 (525) (821) (1,667)Net interest income 341 403 1,229Profit / (loss)before taxation 3,729 (10,300) (11,604)Taxation - (870) 1,932PROFIT / (LOSS) FOR THEPERIOD - attributable to equity holders of the Company 2 3,729 (11,170) (9,672)Profit / (loss) pershare (cents):Basic 3 3.14 (9.89) (8.37)Diluted 3 3.12 (9.89) (8.37)* See note 12.The results shown above relate entirely to continuing operations.Comprehensive income for all periods shown relates solely to theprofit or loss shown above.CONDENSED CONSOLIDATED BALANCE SHEETAS AT 30 JUNE 2009 30 June 31 December 2009 2008 (Unaudited) (Audited) Notes $' 000 $' 000ASSETSNon-current assets Property, plant and equipment 4 86,207 79,661 Intangible assets 5 5,421 343 Long term financial assets 7 12,120 13,167 103,748 93,171Current assets Inventory 4,227 2,401 Trade and other receivables 6 21,781 15,536 Cash and cash equivalents 7 31,892 36,812 57,900 54,749Total Assets 161,648 147,920LIABILITIESCurrent liabilities Trade and other payables 8 14,514 11,245 Provision for decommissioning 9 7,428 5,877 21,942 17,122Non-current liabilities Provision for decommissioning 9 23,399 20,430 23,399 20,430Total Liabilities 45,341 37,552NET ASSETS 116,307 110,368EQUITYCapital and reserves attributable to equityholders Share capital 10 12,877 12,814 Share premium 99,934 98,530 Share-based payments reserve 15,048 14,305 Merger reserve 11,709 11,709 Retained losses (23,261) (26,990)TOTAL EQUITY 116,307 110,368CONDENSED CONSOLIDATED CASH FLOW STATEMENT FOR THE SIX MONTHS ENDED30 JUNE 2009 Year 6 months ended ended 30 June 30 June 31 December 2009 2008 2008 (Unaudited and (Unaudited) restated) (Audited) Notes $' 000 $' 000 $' 000Cash flows fromoperating activitiesOperating profit /(loss) 3,913 (9,882) (11,166)Depreciation,depletion andamortisation 4&5 5,779 4,034 8,953Impairment charge /(credit) 1,783 (653) 6,327Decommissioning costspaid in excess ofprovision 200 - 2,987Share-based paymentcharge 743 11,878 12,572Loss on disposal ofassets - 5 9Increase inreceivables (6,153) (2,342) (4,066)Increase in payables 3,269 2,226 4,781Increase in inventory (1,826) - (2,401)Net cash provided byoperations 7,708 5,266 17,996Interest received 341 403 1,229Taxation paid (92) (284) (524)Net cash provided byoperating activities 7,957 5,385 18,701Investing activitiesExploration andevaluation expenditure 5 (4,923) (7,605) (645)Oil and gas propertiesexpenditure 4 (9,196) (3,444) (16,157)Other capitalexpenditures (624) (295) (923)Change in long termfinancial assets 1,047 2,257 2,911Decommissioning costspaid 9 (648) (398) (5,566)Net cash used ininvesting activities (14,344) (9,485) (20,380)Financing activitiesCash proceeds fromissue of shares 1,467 19,359 19,958Net cash provided byfinancing activities 1,467 19,359 19,958(Decrease) / Increasein cash and cashequivalents (4,920) 15,259 18,279Cash and cashequivalents atbeginning of period 36,812 18,533 18,533Cash and cashequivalents at end ofperiod 31,892 33,792 36,812CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE SIXMONTHS ENDED 30 JUNE 2009 Share based Share Share payments Merger Retained Total capital premium reserve reserve losses equity $'000 $'000 $'000 $'000 $'000 $'000Six months ended30 June 2009At 1 January 2009 12,814 98,530 14,305 11,709 (26,990) 110,368Options exercised 63 1,404 - - - 1,467Share -basedpayment charge - - 743 - - 743Profit for theperiod - - - - 3,729 3,729At 30 June 2009 12,877 99,934 15,048 11,709 (23,261) 116,307Six months ended30 June 2008At 1 January 2008(restated) 11,997 79,389 1,733 11,709 (17,318) 87,510Options exercised 89 730 - - - 819Shares issued 623 17,917 - - - 18,540Share -basedpayment charge - - 11,878 - - 11,878Loss for theperiod (restated) - - - - (11,170) (11,170)At 30 June 2008(restated) 12,709 98,036 13,611 11,709 (28,488) 107,577NOTES TO THE HALF-YEARLY FINANCIAL REPORT FOR THE SIX MONTHS ENDED 30JUNE 20091. Basis of preparationThis half-yearly financial report, which includes a condensed set offinancial statements of the Company and its subsidiary undertakings("the Group") has been prepared using the historical cost conventionand in accordance with the recognition and measurement criteria ofInternational Financial Reporting Standards ("IFRS") including IAS 34'Interim Financial Reporting' and IFRS 6 'Exploration for andEvaluation of Mineral Reserves', as adopted by the European Union("EU").This condensed set of financial statements for the six months ended30 June 2009 is unaudited and does not constitute statutory accountsas defined by the Companies Act. They have been prepared usingaccounting bases and policies consistent with those used in thepreparation of the audited financial statements of the Company andthe Group for the year ended 31 December 2008 and those to be used inthe year ending 31 December 2009. The information for the year ended31 December 2008 does not constitute statutory accounts as defined inSection 240 of the Companies Act 1985.The financial statements for the year ended 31 December 2008 havebeen delivered to the Registrar of Companies and the auditors' reporton those financial statements was unqualified, did not draw attentionby way of emphasis of matter and did not contain a statement madeunder Section 237(2) or Section 237(3) of the Companies Act 1985.During the period ended 30 June 2009 the Group adopted IFRS 8Operating Segments and International Accounting Standard 1 (revised2007) Presentation of Financial Statements. The adoption of IFRS 8did result in any changes to the segments required to be disclosed.The adoption of IAS 1 (revised) did not have any impact. Thecondensed set of financial statements included in this half-yearlyfinancial report has been prepared on a going concern basis ofaccounting for the reasons set out in the Financial Review section ofthis report.This half-yearly financial report was approved by the Board ofDirectors on 21 September 2009.NOTES TO THE HALF-YEARLY FINANCIAL REPORT FOR THE SIX MONTHS ENDED 30JUNE 20092. Segmental informationThe Group operates a single class of business being oil and gasexploration and production.The Group's operations are located in the Middle East, primarilySyria, and offshore USA and form the basis on which the Group reportsits segment information. There are no inter-segmental revenues.Segmental results analysed by geographical area are presented below: Six months ended 30 June 2009 USA Syria Other Total $' 000 $' 000 $' 000 $' 000Revenues 5,134 23,847 - 28,981Depreciation, depletionand amortisation (1,923) (3,807) (48) (5,778)Impairment (1,783) - - (1,783)Hurricane repairs (1,934) - - (1,934)Other cost of sales (6,362) (1,880) - (8,242)Administrative expensesbefore exceptional itemsanddepreciation (1,343) (2,689) (3,276) (7,308)Foreign exchange gains /(losses) - - 720 720Share based payments - - (743) (743)(Loss) / profit beforeinterest and taxation (8,209) 15,471 (3,349) 3,913Net interest andunwinding of discount (467) 169 114 (184)Inter-segment interest (1,844) - 1,844 -Profit / (loss) for theperiod (10,520) 15,640 (1,391) 3,729 Six months ended 30 June 2008 (Restated) USA Syria Other Total $' 000 $' 000 $' 000 $' 000Revenues 19,699 - - 19,699Depreciation, depletionand amortisation (3,983) (50) (1) (4,034)Impairment 653 - - 653Hurricane repairs 335 - - 335Other cost of sales (9,838) - - (9,838)Administrative expensesbefore exceptional itemsanddepreciation (2,346) (438) (2,449) (5,233)Foreign exchange gains /(losses) - - 414 414Share based payments - - (11,878) (11,878)(Loss) / profit beforeinterest and taxation 4,520 (488) (13,914) (9,882)Net interest andunwinding of discount (924) - 506 (418)Inter-segment interest (1,818) - 1,818 -Taxation (829) - (41) (870)Loss / (profit) for theperiod 949 (488) (11,631) (11,170)NOTES TO THE HALF-YEARLY FINANCIAL REPORT FOR THE SIX MONTHS ENDED 30JUNE 20092. Segmental information (continued) Year ended 31 December 2008 USA Syria Other Total $' 000 $' 000 $' 000 $' 000Revenues 28,121 25,479 - 53,600Depreciation, depletionand amortisation (6,010) (2,930) (23) (8,963)Impairment (6,327) - - (6,327)Hurricane repairs (2,750) - - (2,750)Other cost of sales (15,270) (1,318) - (16,588)Administrative expensesbefore exceptional itemsanddepreciation (3,208) (3,026) (6,603) (12,837)Foreign exchange gains /(losses) - 74 (4,803) (4,729)Share based payments - - (12,572) (12,572)Profit / (loss) beforeinterest and taxation (5,444) 18,279 (24,001) (11,166)Net interest andunwinding of discount (1,204) 133 633 (438)Inter-segment interest (3,618) - 3,618 -Taxation 1,932 - - 1,932(Loss) / profit for theyear (8,334) 18,412 (19,750) (9,672) Segmental assets and liabilities analysed by geographical area arepresented below: At 30 June 2009 (Unaudited) USA Syria Other Total $' 000 $' 000 $' 000 $' 000Assets 66,462 70,701 24,485 161,648Liabilities (37,240) (7,423) (678) (45,341)Inter-segment balances (44,740) (31,675) 76,415 -Capital expenditure 7,424 11,233 529 19,186 At 31 December 2008 USA Syria Other Total $' 000 $' 000 $' 000 $' 000Assets 68,866 52,475 26,579 147,920Liabilities (33,397) (3,757) (398) (37,552)Inter-segment balances (40,466) (32,466) 72,932 -Capital expenditure 5,887 11,125 156 17,168NOTES TO THE HALF-YEARLY FINANCIAL REPORT FOR THE SIX MONTHS ENDED 30JUNE 20093. Earnings / (Loss) per shareThe calculation of the basic and diluted earnings / (loss) per shareis based on the following shares in issue: 6 months ended (Unaudited) Year ended 30 June 2008 31 December 30 June 2009 (restated) 2008Weighted average numberof ordinary shares 118,762,500 112,976,368 115,520,651Options 730,579 3,118,533 1,976,391Weighted average numberof diluted shares 119,493,079 116,094,901 117,497,042The calculation of basic earnings / (loss) per share is based on theprofit / (loss) attributable to equity shareholders and the weightedaverage number of ordinary shares in issue during the period. Thediluted earnings / (loss) per share is calculated using the weightedaverage number of ordinary shares in issue on the assumption ofconversion of all dilutive potential ordinary shares.4. Property, plant and equipment Oil and gas properties Other fixed USA Syria assets Total $' 000 $' 000 $' 000 $' 000Cost:At 1 January 2009 87,591 39,221 873 127,685Additions 7,639 6,000 390 14,029At 30 June 2009 95,230 45,221 1,263 141,714Accumulated depreciation anddepletion:At 1 January 2009 (31,869) (2,806) (327) (35,002)Charge for the period (1,905) (3,648) (147) (5,700)At 30 June 2009 (33,774) (6,454) (474) (40,702)Accumulated impairment:At 1 January 2009 (13,022) - - (13,022)Charge for the period (1,783) - - (1,783)At 30 June 2009 (14,805) - - (14,805)Net book value at 30 June2009 46,651 38,767 789 86,207Net book value at 31December 2008 42,700 36,415 546 79,661Included in additions to oil and gas properties in the USA is anamount of $4,443,000 relating to a change in estimateddecommissioning costs (see note 9).NOTES TO THE HALF-YEARLY FINANCIAL REPORT FOR THE SIX MONTHS ENDED 30JUNE 20095. Intangible assets Exploration and evaluation assets Computer Syria software Total $' 000 $' 000 $' 000Cost:At 1 January 2009 - 377 377Additions 4,923 234 5,157At 30 June 2009 4,923 611 5,534Accumulated amortisation:At 1 January 2009 - (34) (34)Charge for 2009 - (79) (79)At 30 June 2009 - (113) (113)Net book value at 30 June2009 4,923 498 5,421Net book value at 31 December2008 - 343 3436. Trade and other receivables 30 June 31 December 2009 2008 $' 000 $' 000Trade receivables 16,531 8,266Other receivables 344 28Underlift 919 919Corporation tax recoverable 408 316Prepayments and accrued income 1,934 1,378Amounts due from oil and gas partnerships 1,645 4,629 21,781 15,536Included in trade receivables is an amount of $9.9 million (2008 -$5.1 million) representing a 20% retention on the Group's oil salesin Syria. This retention is due for collection in full duringSeptember 2009.Underlift represents a cumulative net gas underlift position oncertain of the Group's properties. An amount of $ 0.3 million isexpected to be received during September 2009 upon the disposal ofone of the Group's properties. The remaining amount is due after morethan one year.NOTES TO THE HALF-YEARLY FINANCIAL REPORT FOR THE SIX MONTHS ENDED 30JUNE 20097. Cash and cash equivalents 30 June 31 December 2009 2008 $' 000 $' 000Short term cash deposits 16,642 -Cash at bank and in hand 15,250 36,812Restricted cash balances 12,120 13,167 44,012 49,979Included in long term financial assets 12,120 13,167Total cash and cash equivalents 31,892 36,812The restricted cash balances include (i) amounts held in escrow tocover decommissioning expenditures under the requirements of theregulatory authorities that manage the oil and gas and other mineralresources in the Gulf of Mexico and (ii) a bank guarantee that isrequired under the terms of the Production Sharing Contract with theSyrian Petroleum Company and which is reduced quarterly as theobligations under the required work programmes are completed.8. Trade and other payables 30 June 2009 31 December 2008 $' 000 $' 000Trade payables 12,780 9,266Other payables 1,734 1,979 14,514 11,245NOTES TO THE HALF-YEARLY FINANCIAL REPORT FOR THE SIX MONTHS ENDED 30JUNE 20099. Provision for decommissioningThe provision for decommissioning relates to the expected futurecosts of plugging and abandoning the oil and gas properties held byGulfsands Petroleum USA, Inc and Darcy Energy LLC. At 30 June 2009the oil and gas properties have estimated plugging and abandonmentdates between 2009 and 2036. The Group has no materialdecommissioning obligations relating to its operations in Syria. Theportion of the provision for decommissioning expected to be settledwithin a year totalling approximately $7.4 million is included incurrent liabilities and the remainder totalling approximately $23.4million is included in non-current liabilities in the consolidatedbalance sheet at 30 June 2009.The provision for decommissioning was as follows: $' 000 At 1 January 2009 26,307 Changes in estimates 4,443 Costs in excess of provision 200 Decommissioning costs paid (648) Discount expense 525 At 30 June 2009 30,827 Less: current portion 7,428 Non-current portion 23,399NOTES TO THE HALF-YEARLY FINANCIAL REPORT FOR THE SIX MONTHS ENDED 30JUNE 200910. Share capital 30 June 31 December 2009 2008 Number NumberAuthorised:Ordinary shares of 5.714 penceeach 175,000,000 175,000,000 30 June 31 December 2009 2008 $' 000 $' 000Allotted, called up and fullypaid:119,272,500 (2008 - 118,522,500) ordinaryshares of 5.714 pence each 12,877 12,814The movements in share capital and shareoptions were: Weighted average exercise Number of Number of price of share ordinary options options sharesAt 1 January 2009 £1.64 10,165,000 118,522,500Share options exercised for cash £1.32 (750,000) 750,000Share options lapsed £1.86 (20,000) -Share options issued £1.87 385,000 -At 30 June 2009 £1.67 9,780,000 119,272,500NOTES TO THE HALF-YEARLY FINANCIAL REPORT FOR THE SIX MONTHS ENDED 30JUNE 200911. Post balance sheet eventsDuring September 2009 the Group negotiated the sale of a property inthe Gulf of Mexico for a net selling price of $660,000. Thisrepresents a premium of approximately $342,000 to the net book valueof the asset as shown in the financial statements at 30 June 2009. Itis anticipated that this agreement will be completed on 28 September2009.12. Restatement of Half-Yearly Financial Report for the sixmonths ended 30 June 2008During the process of preparing the Annual Report and Accounts forthe year ended 31 December 2008 the Group identified correctionsrequired to certain balances and also in the classification ofcertain other balances in the financial statements of prior periods.The 2008 Annual Report included corresponding restatements of theBalance Sheets, Income Statements and Statements of Cash Flows as at,and for the periods ended 31 December 2007 and 31 December 2006 andthe Half-Yearly Financial Report incorporates equivalent restatementsfor the six months ended 30 June 2008. A summary of the restatementsis provided below, with full details in the 2008 Annual Report:(i) In prior years the Group had calculated depletion charges on itsoil and gas assets over the estimated proved and probable reserves.No allowance had been made for forecast future capital expenditureassociated with producing those reserves.(ii) In prior years the Group had provided for decommissioningliabilities using an outdated estimate of the cost of decommissioningwork required. Prior to the completion of the financial statementsfor those years the Group had received a report from third partyspecialist surveyors in connection with insurance related matterswhich also included an update of the estimated cost ofdecommissioning and which, if adopted for use in the preparation ofthe financial statements, would more accurately reflect the currentcost of decommissioning work. The decommissioning liabilities forprior periods have been restated to reflect the higher figure in thisreport.(iii) In prior years bank balances held in escrow accounts weretreated as cash and cash equivalents. These balances were, however,not available to the Group to fund short term requirements and theGroup now considers that these should more accurately be classifiedas other financial assets. Retrospective adjustments have been madeto the Balance Sheets and Statement of Cash Flows for the Group toreclassify such balances.NOTES TO THE HALF-YEARLY FINANCIAL REPORT FOR THE SIX MONTHS ENDED 30JUNE 200912. Restatement of Half-Yearly Financial Report for the sixmonths ended 30 June 2008 (continued)The effect of these restatements to the income statement, balancesheet and statement of cash flows for the six months ended 30 June2008 is set out below:Impact of prior period restatements on CondensedConsolidated Income Statementfor the six monthsended 30 June 2008 6 months ended 30 June 2008 (Unaudited) As Effect Effect originally of (i) of As stated and (ii) (iii) restated $' 000 $' 000 $' 000 $' 000 Depletion (2,098) (1,936) - (4,034) Impairment - 653 - 653 Discount expense on decommissioning provision (1,128) 307 - (821) Loss for the period (10,194) (976) - (11,170)Impact of prior period restatements onLoss per Share (cents)for the six monthsended 30 June 2008 6 months ended 30 June 2008 (Unaudited) Effect Effect As originally of (i) of As stated and (ii) (iii) restated Loss per share (basic and diluted) (9.02) (0.87) - (9.89)NOTES TO THE HALF-YEARLY FINANCIAL REPORT FOR THE SIX MONTHS ENDED 30JUNE 200912. Restatement of Half-Yearly Financial Report for the sixmonths ended 30 June 2008 (continued)Impact of prior period restatements onCondensed Consolidated Balance sheetfor the six monthsended 30 June 2008 6 months ended 30 June 2008 (Unaudited) As Effect of originally (i) Effect of As stated and (ii) (iii) restated $' 000 $' 000 $' 000 $' 000 Property, plant and equipment 48,492 3,454 - 51,946 Long term financial assets - - 13,821 13,821 Cash and cash equivalents 47,613 - (13,821) 33,792 All other assets 49,758 - - 49,758 Total Assets 145,863 3,454 - 149,317 Provision for decommissioning - short term 2,520 9,006 - 11,526 Provision for decommissioning - long term 10,197 8,606 - 18,803 All other liabilities 11,411 - - 11,411 Total Liabilities 24,128 17,612 - 41,740 Net Assets 121,735 (14,158) - 107,577 Retained losses (14,330) (14,158) - (28,488) All other capital and reserves 136,065 - - 136,065 Total Equity 121,735 (14,158) - 107,577Impact of prior period restatements onCondensed Consolidated Cash Flow Statementfor the six monthsended 30 June 2008 6 months ended 30 June 2008 (Unaudited) As Effect originally of (i) Effect of As stated and (ii) (iii) restated $' 000 $' 000 $' 000 $' 000Cash flows fromoperating activities Operating loss (8,599) (1,283) - (9,882) Depreciation, depletion and amortisation 2,098 1,936 - 4,034 Impairment charge reversed - (653) - (653)Net cash provided byoperations 5,266 - - 5,266Investing activities Change in long term financial assets - - 2,257 2,257Net cash provided byoperations (11,742) - 2,257 (9,485)Increase in cash andcash equivalents 13,002 - 2,257 15,259Cash and cashequivalents atbeginning ofperiod 34,611 (16,078) 18,533Cash and cashequivalents at endof period 47,613 - (13,821) 33,792Note that the adjustments required to restate the depletion,impairment charges and decommissioning liabilities in (i) and (ii)above are not practicable to separate and are aggregated in thepresentation above.---END OF MESSAGE---This announcement was originally distributed by Hugin. The issuer is solely responsible for the content of this announcement.
Datum: 22.09.2009 - 08:07 Uhr
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