borders&southern
petroleum plc
2008
annual reports & accounts
01 Highlights
03 Chairman’s Statement
05 Chief Executive’s Review
07 Financial Review
08 Board of Directors
09 Directors’ Report
12 Audit Committee Report
13 Remuneration Committee
Report
14 Independent Auditors’ Report
17 Consolidated Income Statement
18 Consolidated Balance Sheet
19 Consolidated Statement of
Changes in Equity
20 Company Balance Sheet
21 Company Statement of Changes
in Equity
22 Consolidated Cash Flow
Statement
23 Company Cash Flow Statement
24 Notes forming part of the
Financial Statements
39 Corporate Directory
40 Notice of Annual General
Meeting
ii
Borders & Southern Annual Report 2008
Highlights
• Completed 3D seismic acquisition and processing
• Completed the interpretation of the fast track and fully
processed data
•
Integrated 3D interpretation into regional evaluation
• Compiled ranked prospect inventory
• Concluded benthic sampling programme
• Progressing Environmental Impact Assessment
• Cash balance as at 31 December 2008 was US$19.5 million
Borders & Southern Annual Report 2008
1
2
Borders & Southern Annual Report 2008
Borders & Southern Petroleum has a 100% interest in five deep
water production licenses in the South Falkland Basin (80 blocks,
nearly 20,000 sq km). The basin is untested, comprising similar
geology to the contiguous Malvinas and Magallanes Basins to the
west where discoveries of approximately six billion barrels of oil
equivalent have been reported.
Chairman’s Statement
Activity in 2008 has seen the Company
focus on its technical objectives. During
this period we have completed the
acquisition and processing of a large 3D
survey and finalised its interpretation.
The results of this work have yielded
what we believe to be a very attractive
and exciting prospect inventory.
evaluation by the correct choice of data
acquisition and the areas we select in which
to collect the data. In this regard, the Board
of Directors considers that it has been very
successful. Multiple, high quality, large volume
prospects have been defined, many of which
are supported by geophysical attributes of
the type we had hoped for at the onset of the
exploration programme.
Against a challenging economic background,
the Company, whilst experiencing a decrease in
value along with market trends, has performed
well relative to its peer group of AIM listed
Exploration & Production Companies. We also
have a strong cash balance.
During the period we have witnessed the oil price
decline from $147 per barrel down to around
$35 per barrel. Recently the oil price has showed
signs of recovery with prices approaching $60
per barrel again. However, it should be noted that
our projects in the Falkland Islands are likely to
be commercial at the $35 level.
Whilst we cannot impact the external
environment, we can influence the technical
With the completion of the main phase of 3D
seismic interpretation there will be no further
requirement for additional data acquisition
prior to drilling a well. We are now in a position
to define drilling locations on our prioritised
prospects. As we have previously reported, the
first two high-graded prospects are Darwin
and Stebbing.
As we look forward, technical work will continue
but our energy will be placed into bringing a
partner into the licences to help fund the wells.
Given the scale and quality of the prospect
inventory we are optimistic that we can attract a
credible partner.
Borders & Southern Annual Report 2008
3
4
Borders & Southern Annual Report 2008
Falkland Islands
Chief Executive’s Review
The technical programme undertaken in
2008 involved the acquisition, processing
and interpretation of 1,492 sq km of 3D
seismic data. The 3D data has been fully
integrated into our regional evaluation
so that we now have a comprehensive
understanding of the South Falkland
Basin. As a result, not only have we been
able to define a high quality multi-billion
barrel (recoverable) prospect inventory,
but also identify those play types within
the basin that we think are most likely to
deliver success.
As previously reported, the step change in
understanding from 2D to 3D seismic data
has been dramatic and justifies the size and
expenditure of the 3D survey. Prospect sizes
are large (up to 150 sq km of mapped structural
closure) and display important geophysical
attributes that help reduce the risk. These include
seismic amplitude conformance to structure, flat
spot and AVO anomalies, along with gas hydrates
located above prospects. We interpret these
seismic attributes to indicate that the structures
have received a hydrocarbon charge.
Individual prospect volumes in some cases
exceed 1 billion barrels of recoverable oil.
The previously reported Darwin and Stebbing
prospects have P50 recoverable oil volumes of
300 million and 710 million barrels respectively.
Additional stacked reservoirs on the same
structures could increase these numbers. These
prospects represent different play types and
have been prioritised due to the chance of
success rather than size.
Whilst the exploration drilling programme will
target high-graded oil prospects, each prospect
has also been considered as a gas case. If gas
was the only outcome, and we consider it
unlikely, then the prospect gas volumes would
be sufficient to justify an LNG development.
Individual prospect volumes can exceed (P50)
5 trillion cubic feet of recoverable gas.
Borders & Southern Annual Report 2008
5
Chief Executive’s Review (continued)
Aside from producing a ranked prospect
inventory we have conducted a benthic sampling
programme, one of the key requirements for the
Environmental Impact Assessment (EIA). The
operations were completed efficiently and the
analysis is currently underway. Once the EIA has
been submitted and approved we will be ready
to drill and should the opportunity arise will be
able to share in a combined drilling operation
with other operators in the area.
Whilst the Company has a strong cash balance it
does not have sufficient funds to execute a two
well programme. Given the economic climate
the Board has decided the best way to finance
our wells is to seek a partner. Within the coming
months we will further discussions with third
parties and will report later in the year. Given
the strength of the prospect inventory, scale of
opportunity and the quality of the geophysical
attributes, the Board is confident of securing a
competent partner.
Prospect Inventory – Key Features
• Multi-billion barrel recoverable prospect potential
• Structurally robust prospects up to 150 sq km in area
• Amplitude conformance to structure
• Credible flat spot and AVO anomalies
• Gas Hydrates above prospects
• Multiple play types and large prospect inventory
6
Borders & Southern Annual Report 2008
The naming theme for our
prospects has been chosen to
celebrate the exploration voyage of
HMS Beagle under the command
of Robert FitzRoy. Each prospect is
named after a member of the crew
or passenger on the ship. During
the Beagle’s circumnavigation of
the world it carried out important
surveying work of the South
American coastline, including the
Falkland Islands where it stopped
twice in 1833 and 1834.
Charles Darwin joined the voyage
as a companion to Robert FitzRoy.
Famous for his observations and
theories as a naturalist, which led
to the publication of his work On
The Origin of Species, Darwin was
also a very good geologist. He had
been inspired by the work of Charles
Lyell and carried Lyell’s book
“Principles of Geology” with him on
the voyage. This book suggested that
modern day geological processes
such as sediment erosion and
deposition and volcanic eruptions
had occurred in the past. Because of
the incredibly slow pace of many of
these processes, it pointed towards
a vast timescale for the age of the
earth, a very controversial issue at
the time. Darwin’s own observations
from the voyage supported this
view. He collected many geological
specimens, including fossils from
the Falkland Islands, now kept
in the Natural History Museum
in London.
As explorers for oil and gas we
use many of the basic principles of
geology described in Lyell’s book to
help us understand the sedimentary
basins responsible for the generation
and entrapment of hydrocarbons.
Today, with the advancement of
science, we now know that the age
of the source rocks surrounding the
Falklands (those organic rich rocks
responsible for the generation of
hydrocarbons) are between 120 and
160 million years old.
Financial Review
As you will have read elsewhere in this
report, the Company completed the 3D
seismic acquisition in the first quarter
of the year and spent the balance of
the year processing and interpreting
the data. All of this was fully funded
through the two private share
placements during 2007.
As a result, the Company is fortunate to have
around US$19.5 million in cash at year end
which was held in near term bank deposits and
UK Treasury Stock.
Looking forward, it is clear that drilling activity
in the Company’s licenses is the next key
objective and the most significant potential
capital expenditure. We are currently actively
seeking a partner, via a farm-out, to fund these
costs in return for equity in the licenses. It is not
clear, at this stage, the impact such a farm-out
transaction would have on the Company’s cash
position and it’s forward capital commitments.
However, given that we go into the farm-out
process with both a strong cash balance and
technical case, we feel that we are well placed to
attract a favourable outcome.
This year the Company’s functional currency
changed to US$ reflecting the nature of the
Company’s activities and at the same time the
presentation currency changed to US$ to be
more comparable with peer group companies.
As a result, the Group is now exposed to
foreign exchange movements on its balances
and transactions denominated in £, whereas
in the prior year, the Group was exposed on its
balances and transactions in US$.
The Group made a loss for the year of $4.7m
(2007: $0.3m). This was primarily due to a
$4.4m (2007: nil) foreign exchange loss on £
denominated cash and other financial assets due
to the devaluation of the £ against the $ during
the second half of the year. Administrative costs
for the year were $1.3m (2007: $1.7m) and in line
with expectations.
Capital additions of $12.9m (2007: $19.9m)
to the Group’s oil and gas exploration and
evaluation assets were made during the year.
As you can see from the charts, despite the
financial turmoil during 2008 and 2009 to date,
the Company’s shares have performed well
both in absolute terms and relative to our AIM
listed peers.
BOR.L
140
120
100
80
60
40
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WTI Oil
AIM Oil & Gas Index
BOR.L
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Borders & Southern Annual Report 2008
7
Board of Directors
Number of Meetings
Board
Committee
Committee
Remuneration
Audit
Harry Dobson
Howard Obee
Peter Fleming
Stephen Posford
Nigel Hurst-Brown
3
3
3
3
3
1
–
–
1
1
2
–
–
2
2
David Harry Williamson Dobson
(Non-Executive Chairman) age 61
Harry Dobson is a former investment banker and senior partner of Yorkton Securities. He currently engages in
various merchant banking and venture capital activities in North America and Europe, and has acted as Chairman
of a number of resource companies (including American Pacific Mining Company Inc. and Lytton Minerals Limited).
He is currently the Chairman of Kirkland Lake Gold Inc. (a Toronto Stock Exchange and AIM quoted Company) and
Rambler Metals and Mining plc (an AIM quoted Company). He is experienced in the organisation and funding of
resource projects, including those located in inaccessible locations.
Howard Kevin Obee
(Chief Executive) age 49
Howard Obee was appointed Chief Executive when the Company was incorporated in June 2004. He has a PhD in
structural geology from Imperial College, and has spent 20 years in the oil industry, initially with BP (1985-1992), and
subsequently with BHP Billiton (1992-2004). He trained as an exploration geologist, but has been appointed to various
technical and commercial roles, incorporating exploration, new ventures, strategic planning, and business development.
His most recent roles for BHP Billiton were West Africa Asset Team Leader, and Exploration Manager, London. He has
experience of executing seismic and drilling programmes in frontier basins, including those in deep water.
Peter William Fleming
(Finance Director) age 47
Peter Fleming has over 12 years of upstream oil and gas experience, the majority of which was gained at BHP Billiton
both in London and Melbourne. Whilst at BHP Billiton, Peter held senior positions in exploration and business
development, investment evaluation, acquisitions and disposals and strategic planning. Prior to joining BHP Billiton,
he worked for Bridge Oil and Banque Indosuez. He holds Masters degrees in Business Administration and Finance.
Stephen James Douglas Posford
(Non-Executive Director) age 62
Stephen Posford was a partner of stockbrokers W.Greenwell and Co. In 1986, he became Managing Director of
Greenwell Montagu Gilt Edged, and in 1989 moved to Salomon Brothers to head up their proprietary trading
department in London. He then became Salomon Brothers European CEO before retiring in 1996.
Christopher Nigel Hurst-Brown
(Non-Executive Director) age 57
Since qualifying as a Chartered Accountant, Nigel Hurst-Brown has pursued a career in fund management. From
1986-1990 he was Chairman of Lloyd’s Investment Managers. In 1990 he moved to Mercury Asset Management
as a main board Director and following Mercury’s acquisition by Merrill Lynch in 1997 became a Managing Director
of Merrill Lynch Investment Managers. Currently he is Chief Executive of Hotchkis and Wiley (UK) Limited and a
member of the Executive Committee of its US parent Hotchkis and Wiley Capital Management LLC.
8
Borders & Southern Annual Report 2008
Directors’ Report
for the Year Ended
31 December 2008
The directors present their report and the
audited consolidated financial statements for
the year ended 31 December 2008.
sub-committee of the board. The company’s
management implements the policies set by the
board of directors.
Domicile
Price risk
The parent company of the group (which is
also the ultimate parent), Borders & Southern
Petroleum Plc, is a public limited company and is
registered and domiciled in England.
The company is exposed to price risk due to
normal inflationary increases in the purchase
price of goods and services. The company has
no exposure to equity securities price risk, as it
holds no listed or other equity investments.
Principal activity
The principal activity of the group is the
exploration for oil and gas.
Results and dividends
The group income statement is set out on
page 17 and shows the result for the year.
The directors do not recommend the payment of
a dividend.
Review of business and future developments
A review on the operations of the group is
contained in the Chief Executive’s Review and
Financial Review on pages 5-7.
Principal risks and uncertainties and financial
risk management
Exploration risk
The exploration for and development of
hydrocarbons is speculative and involves a
high degree of risk. These risks include the
uncertainty that the Group will discover
sufficient oil or gas to exploit commercially.
Financial risk management
The company’s operations are such that it has
a limited exposure to a variety of financial
risks. These may, from time to time, include the
effects of changes in price risk, liquidity risk and
a foreign exchange risk. The company does not
use derivative financial instruments to manage
interest rate or currency risks and as such, no
hedge accounting is applied.
Given the size of the company, the directors
have not delegated the responsibility of
monitoring financial risk management to a
Liquidity risk
The company has no long term commitments and
is able to satisfy any current liability from cash
reserves.
Foreign exchange risk
The company has potential exposure due
to some of its purchases being invoiced in
currencies other than the US dollar functional
currency. The exposure relates mainly to items
denominated in £. To mitigate the risk, the
company when it becomes aware of a liability in
a different currency, seeks to minimise the risk
by either immediately converting the required
funds to the relevant currency or taking out a
forward contract. Other than forward contracts,
the company does not use any other type of
currency hedging.
Key performance indicators
The Company’s key performance indicators
(discussed in the Chief Executive’s Review
and Finance Review on pages 5-7 are the
management of its cash position ($19.5m at year
end, 2007: $39.1m) and the fulfilment of the
exploration program.
Post balance sheet events
No events have occurred since the year end
which require reporting or disclosing in the
financial statements.
Charitable and political donations
There were no political or charitable
contributions made by the company or the
group during the period.
Borders & Southern Annual Report 2008
9
Directors’ Report (continued)
Health, safety and environment
The group has an overriding commitment to health, safety and environmental responsibility. The group works closely with host governments
and communities in the countries in which it operates, together with its contractors and partners, to ensure internationally recognised
standards are implemented and maintained along with compliance to local legislation.
The group’s exploration activities are subject to the relevant environmental protection acts. The group closely monitors its activities to ensure
to the best of its knowledge there is no potential for the breach of such regulations. There have been no convictions in relation to breaches of
these Acts recorded against the group during the reporting period.
Creditor payment policy
It is the group’s policy to settle the terms of payment with suppliers when agreeing the terms of the transaction, to ensure that suppliers are
aware of these terms and to abide by them.
The amounts owed to the company and group’s trade creditors at the year end represented 5 days (2007: 39 days) as a proportion of the total
amounts invoiced by suppliers during the year.
Financial instruments
Details of the use of financial instruments by the company and its subsidiary undertaking are contained in note 21 of the financial statements.
Directors and their interests
The beneficial and other interests of the directors and their families in the share capital at the beginning of the year or the date of their
appointment to the board, whichever is later, and at 31 December 2008, were as follows:
David Harry Williamson Dobson
Stephen James Douglas Posford
Howard Kevin Obee
Christopher Nigel Hurst-Brown
Peter William Fleming
At 31
At 31
December 2008
December 2007
Number
26,670,000
26,695,000
10,000,000
1,330,000
2,200,000
Number
26,670,000
26,670,000
10,000,000
1,330,000
2,200,000
The ordinary shares in which Mr D H W Dobson is interested are held by the Zila Corporation, a company owned by the Whitmill Trust
Company Limited, as trustee of The Lotus Trust of which he is a beneficiary.
The group has provided the directors with qualifying third party indemnity insurance.
Share options
Howard Kevin Obee
Peter William Fleming
Number of options held at
the beginning and end of the year
50,000
50,000
Fair value
of options
21p
21p
Exercise
price
48p
48p
Vesting
period
3 years
3 years
10
Borders & Southern Annual Report 2008
Substantial shareholders
At 26 May 2009 the following had notified the company of disclosable interests in 3% or more of the nominal value of the company’s shares
carrying voting rights:
Landsdowne Partners Limited Partnership
Stephen James Douglas Posford
Zila Corporation
Allianz SE
Petroleum Geo-Services
Howard Kevin Obee
Credit Suisse Securities (Europe)
Directors’ responsibilities
Number of
% of share
ordinary shares
27,125,000
26,695,000
26,670,000
18,460,000
16,656,670
10,000,000
6,792,231
capital
13.96
13.74
13.72
9.50
8.57
5.15
3.49
The directors are responsible for keeping proper accounting records which disclose with reasonable accuracy at any time the financial position
of the company, for safeguarding the assets of the company, for taking reasonable steps for the prevention and detection of fraud and other
irregularities and for the preparation of a Directors’ Report which complies with the requirements of the Companies Act 1985.
The directors are responsible for preparing the annual report and the financial statements in accordance with the Companies Act 1985. The
directors are also required to prepare financial statements for the group in accordance with International Financial Reporting Standards
as adopted by the European Union (IFRSs) and the rules of the London Stock Exchange for companies trading securities on the Alternative
Investment Market. The directors have chosen to prepare financial statements for the company in accordance with IFRSs.
International Accounting Standard 1 requires that financial statements present fairly for each financial year the company’s financial position,
financial performance and cash flows. This requires the faithful representation of the effects of transactions, other events and conditions in
accordance with the definitions and recognition criteria for assets, liabilities, income and expenses set out in the International Accounting
Standards Board’s ‘Framework for the preparation and presentation of financial statements’. In virtually all circumstances, a fair presentation
will be achieved by compliance with all applicable IFRSs. A fair presentation also requires the directors to:
• consistently select and apply appropriate accounting policies;
•
•
present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable
information; and
provide additional disclosures when compliance with the specific requirements in IFRSs is insufficient to enable users to understand the
impact of particular transactions, other events and conditions on the entity’s financial position and financial performance.
Financial statements are published on the group’s website in accordance with legislation in the United Kingdom governing the preparation and
dissemination of financial statements, which may vary from legislation in other jurisdictions. The maintenance and integrity of the group’s
website is the responsibility of the directors. The directors’ responsibility also extends to the ongoing integrity of the financial statements
contained therein.
Auditors
All of the current directors have taken all the steps that they ought to have taken to make themselves aware of any information needed by the
company’s auditors for the purposes of their audit and to establish that the auditors are aware of that information. The directors are not aware
of any relevant audit information of which the auditors are unaware.
BDO Stoy Hayward LLP have expressed their willingness to continue in office and a resolution to reappoint them will be proposed at the
Annual General Meeting.
By order of the board
.........................................
William John Walton Slack
Company Secretary
28 May 2008
Borders & Southern Annual Report 2008
11
Audit Committee Report
The Board has established an Audit Committee comprising Mr Hurst-Brown (Chairman), Mr Dobson and Mr Posford, all independent, non-
executive directors.
The Audit Committee meets at least biannually and is responsible for:
-
Reviewing the integrity of the financial statements and related disclosures, based on adequate books, records and internal controls and
selection and consistent application of appropriate accounting policies;
-
The appropriateness of the internal financial controls;
- The independent auditors’ qualifications, independence, and performance; and
- The compliance with legal and regulatory requirements.
12
Borders & Southern Annual Report 2008
Remuneration Committee Report
The Board has established a Remuneration Committee comprising Mr Dobson (Chairman), Mr Hurst-Brown and Mr Posford, all independent
non-executive Directors.
The Remuneration Committee meets at least annually and is responsible for:
-
Reviewing the performance of the CEO and other executive directors and senior management of the company and determines their
remuneration and the basis of their service agreements with due regard to the interests of shareholders;
- The payment of any bonuses to the CEO, other executive directors and senior management; and
-
Making recommendations to the board with respect to equity-based incentive plans and to act as a preparatory body for the board of
directors in the management of any company award and option plans.
Directors’ remuneration and service contracts
On 18 May 2005, all of the company’s directors entered into a service agreement with the company.
The remuneration of the directors for the year ended 31 December 2008 was as follows:
David Harry Williamson Dobson
Stephen James Douglas Posford
Howard Kevin Obee
Christopher Nigel Hurst-Brown
Peter William Fleming
Pensions
Basic salary
payment
Total 2008
Total 2007
Share based
$
–
–
170,223
–
45,135
$
–
–
6,082
–
6,083
$
–
–
176,305
–
51,218
$
–
–
181,335
–
53,170
The group does not operate a pension scheme for its directors or employees.
Borders & Southern Annual Report 2008
13
Independent Auditors’ Report
Independent auditors’ report to the shareholders of Borders and Southern Petroleum Plc
We have audited the group and parent company financial statements (the “financial statements”) of Borders and Southern Petroleum plc for
the year ended 31 December 2008 which comprise the Consolidated Income Statement, the Consolidated and Company Balance Sheets, the
Consolidated and Company Cash Flow Statements, the Consolidated and Company Statements of Changes in Equity and the related Notes.
These financial statements have been prepared under the accounting policies set out therein.
Respective responsibilities of directors and auditors
The directors’ responsibilities for preparing the Annual Report and financial statements in accordance with applicable law and International
Financial Reporting Standards (IFRSs) as adopted by the European Union are set out in the statement of directors’ responsibilities.
Our responsibility is to audit the financial statements in accordance with relevant legal and regulatory requirements and International
Standards on Auditing (UK and Ireland).
We report to you our opinion as to whether the financial statements give a true and fair view and have been properly prepared in accordance
with the Companies Act 1985 and whether the information given in the directors’ report is consistent with those financial statements. We also
report to you if, in our opinion, the company has not kept proper accounting records, if we have not received all the information and explanations
we require for our audit, or if information specified by law regarding directors’ remuneration and other transactions is not disclosed.
We read other information contained in the Annual Report, and consider whether it is consistent with the audited financial statements. This
other information comprises the Highlights, Chairman’s Statement, the Chief Executive’s Review, the Financial Review, the Board of Directors,
the Directors’ Report, the Audit Committee Report and the Remuneration Committee Report. We consider the implications for our report
if we become aware of any apparent misstatements or material inconsistencies with the financial statements. Our responsibilities do not
extend to any other information.
Our report has been prepared pursuant to the requirements of the Companies Act 1985 and for no other purpose. No person is entitled to rely
on this report unless such a person is a person entitled to rely upon this report by virtue of and for the purpose of the Companies Act 1985 or
has been expressly authorised to do so by our prior written consent. Save as above, we do not accept responsibility for this report to any other
person or for any other purpose and we hereby expressly disclaim any and all such liability.
Basis of audit opinion
We conducted our audit in accordance with International Standards on Auditing (UK and Ireland) issued by the Auditing Practices Board. An
audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the financial statements. It also includes an
assessment of the significant estimates and judgments made by the directors in the preparation of the financial statements, and of whether
the accounting policies are appropriate to the group’s and company’s circumstances, consistently applied and adequately disclosed.
We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order to provide
us with sufficient evidence to give reasonable assurance that the financial statements are free from material misstatement, whether caused
by fraud or other irregularity or error. In forming our opinion we also evaluated the overall adequacy of the presentation of information in the
financial statements.
14
Borders & Southern Annual Report 2008
Opinion
In our opinion:
•
•
the Group financial statements give a true and fair view, in accordance with IFRSs as adopted by the European Union, of the state of the
group’s affairs as at 31 December 2008 and of its loss for the year then ended;
the parent Company’s financial statements give a true and fair view, in accordance with IFRSs as adopted by the European Union as applied
in accordance with the provisions of the Companies Act 1985, of the state of the parent company’s affairs as at 31 December 2008;
• the financial statements have been properly prepared in accordance with the Companies Act 1985; and
• the information given in the Directors’ Report is consistent with the financial statements.
.........................................
BDO Stoy Hayward LLP
Chartered Accountants & Registered Auditors
London
Date:................................
Borders & Southern Annual Report 2008
15
Financial Statements
16
Borders & Southern Annual Report 2008
Consolidated Income Statement
for the year ended 31 December 2008
Continuing operations
Administrative expenses
Loss from operations
Finance income
Finance expense – foreign exchange losses
Loss before tax
Income tax expense
Loss for the year
Loss per share - basic and diluted (see note 3)
Note
2
8
8
9
2008
$
(1,287,544)
(1,287,544)
986,177
(4,426,533)
(4,727,900)
–
(4,727,900)
(2.43) cents
2007
$
(1,715,392)
(1,715,392)
1,379,691
–
(335,701)
–
(335,701)
(0.23) cents
The notes on pages 24 to 38 form an integral part of these financial statements.
Borders & Southern Annual Report 2008
17
Consolidated Balance Sheet
for the year ended 31 December 2008
Assets
Non-current assets
Property, plant and equipment
Intangible assets
Total non-current assets
Current assets
Trade and other receivables
Other financial assets
Cash and cash equivalents
Total current assets
Total assets
Liabilities
Current liabilities
Trade and other payables
Total net assets
Capital and reserves
Share capital
Share premium reserve
Other reserves
Retained earnings
Foreign currency reserve
Total equity
Note
$
2008
$
$
2007
$
313,400
–
39,064,938
251,788
9,950,668
9,522,035
10
11
13
14
15
16
14,929
36,040,860
36,055,789
19,724,491
55,780,280
(194,770)
55,585,510
3,867,741
57,906,686
209,409
(6,381,930)
(16,396)
55,585,510
7,749
23,155,802
23,163,551
39,378,338
62,541,889
(2,309,741)
60,232,148
3,867,741
57,906,686
108,032
(1,654,030)
3,719
60,232,148
The financial statements were approved by the board of directors and authorised for issue on 28 May 2009.
HOWARD KEVIN OBEE
Director
PETER WILLIAM FLEMING
Director
The notes on pages 24 to 38 form an integral part of these financial statements.
18
Borders & Southern Annual Report 2008
Consolidated Statement of Changes in Equity
for the year ended 31 December 2008
Share
capital
$
Share
Foreign
premium
Other
currency
reserve
reserves
reserve
$
$
Balance at 1 January 2007 brought forward
2,541,173
21,018,756
30,209
Loss for the year and total recognised income
–
–
and expense for the year
Issue of share capital
1,326,568
36,887,930
Recognition of share based payments
Foreign exchange on change in presentation
–
–
–
–
currency
–
–
77,823
–
3,719
Retained
earnings
$
Total
$
(1,318,330)
22,271,808
(335,700)
(335,700)
–
–
–
38,214,498
77,823
3,719
$
–
–
–
–
Balance at 31 December 2007
3,867,741
57,906,686
108,032
3,719
(1,654,030)
60,232,148
Loss for the year and total recognised income
and expense for the year
Recognition of share based payments
Foreign exchange on change in functional
currency
–
–
–
–
–
–
–
101,377
–
–
–
(20,115)
(4,727,900)
(4,727,900)
–
–
101,377
(20,115)
Balance at 31 December 2008
3,867,741
57,906,686
209,409
(16,396)
(6,381,930)
55,585,510
The following describes the nature and purpose of each reserve within owners’ equity:
Reserve
Share capital
Description and purpose
This represents the nominal value of shares issued.
Share premium reserve
Amount subscribed for share capital in excess of nominal value.
Other reserves
Fair value of options issued.
Presentation currency reserve
Differences arising on change of presentation and functional currency to $.
Retained earnings
Cumulative net gains and losses recognised in the consolidated income statement.
The notes on pages 24 to 38 form an integral part of these financial statements.
Borders & Southern Annual Report 2008
19
Company Balance Sheet
for the year ended 31 December 2008
Assets
Non-current assets
Property, plant and equipment
Investments
Current assets
Trade and other receivables
Other financial assets
Cash and cash equivalents
Total assets
Liabilities
Current liabilities
Trade and other payables
Total net assets
Capital and reserves
Called up share capital
Share premium reserve
Other reserves
Retained earnings
Foreign currency reserve
Total equity
10
12
13
14
15
16
Note
$
$
2008
$
14,929
2
14,931
36,388,685
9,950,668
9,522,035
23,549,349
–
39,064,938
55,861,388
55,876,319
(187,583)
55,688,736
3,867,741
57,906,686
209,409
(6,276,415)
(18,685)
55,688,736
2007
$
7,749
2
7,751
62,614,287
62,622,038
(2,298,257)
60,323,781
3,867,741
57,906,686
108,032
(1,562,643)
3,965
60,323,781
The financial statements were approved by the board of directors and authorised for issue on 28 May 2009.
HOWARD KEVIN OBEE
Director
PETER WILLIAM FLEMING
Director
The notes on pages 24 to 38 form an integral part of these financial statements.
20
Borders & Southern Annual Report 2008
Company Statement of Changes in Equity
for the year ended 31 December 2008
Share
capital
$
Share
Foreign
premium
Other
currency
reserve
reserves
reserve
$
$
Balance at 1 January 2007 brought forward
2,541,173
21,018,756
30,209
Loss for the year and total recognised income
–
–
and expense for the year
Issue of share capital
1,326,568
36,887,930
Recognition of share based payments
Foreign exchange on change in presentation
–
–
–
–
currency
–
–
77,823
–
3,965
Retained
earnings
$
Total
$
(1,266,983)
22,323,155
(295,660)
(295,660)
–
–
–
38,214,498
77,823
3,965
$
–
–
–
–
Balance at 31 December 2007
3,867,741
57,906,686
108,032
3,965
(1,562,643)
60,323,781
Loss for the year and total recognised income
and expense for the year
Recognition of share based payments
Foreign exchange on change in functional
currency
–
–
–
–
–
–
–
101,377
–
–
–
(22,650)
(4,713,772)
(4,713,772)
–
–
101,377
(22,650)
Balance at 31 December 2008
3,867,741
57,906,686
209,409
(18,685)
(6,276,415)
55,688,736
The following describes the nature and purpose of each reserve within owners’ equity:
Reserve
Share capital
Description and purpose
This represents the nominal value of shares issued.
Share premium reserve
Amount subscribed for share capital in excess of nominal value.
Other reserves
Fair value of options issued.
Foreign currency reserve
Differences arising on change of presentation and functional currency to $.
Retained earnings
Cumulative net gains and losses recognised in the income statement.
The notes on pages 24 to 38 form an integral part of these financial statements.
Borders & Southern Annual Report 2008
21
Consolidated Cash Flow Statement
for the year ended 31 December 2008
Cash flow from operating activities
Loss before tax
Adjustments for:
Depreciation
Exploration and evaluation expenditure transferred
to income statement
Share-based payment
Finance income
Finance expense
Foreign exchange differences
Cash flows from operating activities before changes
in working capital
Decrease/(increase) in trade and other receivables
(Decrease)/increase in trade and other payables
Net cash (outflow)/inflow from operating activities
Cash flows used in investing activities
Interest received
Purchase of other financial assets
Purchase of intangible assets
Purchase of property, plant and equipment
Net cash used in investing activities
Cash flows from financing activities
$
2008
$
$
2007
$
(4,727,901)
(335,700)
9,850
–
101,377
(986,177)
4,426,533
(20,116)
(1,196,434)
65,881
(2,114,973)
(3,245,526)
16,074
5,054
77,823
(1,379,691)
–
–
(1,616,440)
(7,576)
2,178,754
554,738
981,912
(9,950,668)
(12,885,058)
(17,030)
1,343,856
–
(19,902,084)
(3,543)
(21,870,844)
(18,561,771)
Proceeds from issue of shares and share options (net of issue costs)
–
38,214,498
Net cash from financing activities
Net (decrease)/increase in cash and cash equivalents
Cash and cash equivalents at the beginning of the year
Exchange (loss)/gain on cash and cash equivalents
Cash and cash equivalents at the end of the year
Group and company
Cash available on demand
Cash on deposit
Total
–
(25,116,370)
39,064,938
(4,426,533)
9,522,035
2008
$
584,285
8,937,750
9,522,035
38,214,498
20,207,463
18,847,347
10,128
–
39,064,938
2007
$
741,614
38,323,324
39,064,938
Cash and cash equivalents consist of cash at bank on demand and balances on deposit with an original maturity of three months or less.
The notes on pages 24 to 38 form an integral part of these financial statements.
22
Borders & Southern Annual Report 2008
Company Cash Flow Statement
for the year ended 31 December 2008
Cash flow from operating activities
Loss before tax
Adjustments for:
Depreciation
Share-based payment
Finance income
Finance expense
Foreign exchange differences
Cash flows from operating activities before changes
in working capital
(Increase) in trade and other receivables
(Decrease)/increase in trade and other payables
Decrease in intangibles
Net cash (outflow) from operating activities
Cash flows used in investing activities
Interest received
Purchase of other financial assets
Purchase of intangible assets
Net cash used in investing activities
Cash flows from financing activities
$
2008
$
(4,713,772)
9,850
–
101,377
(986,177)
4,426,533
(22,651)
(1,184,840)
(12,835,069)
(2,110,676)
–
(16,130,585)
$
2007
$
(295,660)
16,074
77,823
(1,379,691)
–
–
(1,581,454)
(23,196,643)
2,177,223
3,253,717
(19,347,157)
981,913
(9,950,668)
(17,030)
1,343,856
–
(3,543)
(8,985,785)
1,340,313
Proceeds from issue of shares and share options (net of issue costs)
–
38,214,498
Net cash from financing activities
Net (decrease)/increase in cash and cash equivalents
Cash and cash equivalents at the beginning of the year
Exchange (loss)/gain on cash and cash equivalents
Cash and cash equivalents at the end of the year
–
(25,116,370)
39,064,938
(4,426,533)
9,522,035
38,214,498
20,207,654
18,847,347
9,937
39,064,938
The notes on pages 24 to 38 form an integral part of these financial statements.
Borders & Southern Annual Report 2008
23
Notes to the Financial Statements
Notes to the Financial Statements
for the Year Ended 31 December 2008
for the Year Ended 31 December 2008
1 ACCOuNtINg POLICIES
Basis of preparation
The principal accounting policies adopted in the preparation of the financial statements are set out below and have been consistently applied
to all years presented.
These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRSs and IFRIC
interpretations) issued by the International Accounting Standards Board (IASB) as adopted by the European Union and with those parts of the
Companies Act 1985 applicable to companies preparing their accounts under IFRS. The parent company financial statements have also been
prepared in accordance with International Financial Reporting Standards.
Effective 1 July 2008, the Company’s functional currency changed from Pounds sterling (‘£’) to the US dollar (‘$’). This change was made as,
due to the $ being the currency that mainly influences significant transactions and balances, the directors considered the $ to most faithfully
represent the economic effects of the underlying transactions, events and conditions in the Company. Concurrent with this change in
functional currency, the Group adopted the $ as its presentation currency and consequently the financial information for the year ended 31
December 2007 has been re-presented in $.
In accordance with International Accounting Standards, this change in functional currency has been accounted for prospectively by translating
all items using the $:£ exchange spot rate on that date, being $1.9902:£1. In the parent company accounts the resulting translated amounts
for non monetary items at this date have been treated as their historic cost.
For the purposes of changing the Group’s presentation currency, the comparatives for the year ended 31 December 2007 were translated for
the balance sheet using $:£ exchange spot rate on that date, being $1.9906:£1, for the income statement using the average $:£ exchange rate
during the year being $2.0015:£1, and for the opening the balances as at 1 January 2007 using the $:£ spot rate on that date being $1.9728:£1.
Resulting exchange differences have been taken to the Foreign currency reserve.
New and revised Standards effective for 31 December 2008 year ends but are not currently relevant to the group
Amendments
IAS39 & IFRS7- Amendment - Reclassification of Financial Instruments (effective from 1 July 2008).
IAS39 & IFRS7 – Reclassification of financial assets: effective date and transition (effective from 1 July 2008).
Interpretations
IFRIC 11 – (IFRS 2) Group and treasury share transactions (effective from 1 March 2007).
IFRIC 14 – IAS 19 - The limit on a defined benefit asset, minimum funding requirements and their interaction (effective for accounting periods
commencing on or after 1 January 2008).
New and revised Standards issued but not effective for 31 December 2008 year ends
New Standards
IFRS 8 – Operating segments (effective for accounting periods commencing on or after 1 January 2009). The group will apply this standard in
the accounting period commencing 1 January 2009.
Amendments
IAS 1 – Presentation of financial statements: a revised presentation (effective for accounting periods commencing on or after 1 January 2009).
The group will apply this standard in the accounting period commencing 1 January 2009.
IAS 23 – Borrowing costs (effective for accounting periods commencing on or after 1 January 2009). This is not considered relevant to the
group’s operations.
IFRS 2 – Share based payment: vesting conditions and cancellations (effective for accounting periods commencing on or after 1 January 2009).
The group will apply this amendment in the accounting period commencing 1 January 2009.
IAS 27 – Consolidated and separate financial statements (effective for accounting periods commencing on or after 1 July 2009). The group will
apply this amendment in the accounting period commencing 1 January 2010.
24
Borders & Southern Annual Report 2008
IAS32 & IAS1 – Puttable financial instrument and obligations arising on liquidation (effective for accounting periods commencing on or after
1 January 2009). This is not considered relevant to the group’s operations.
IFRS1 & IAS27 – Cost of an investment in a subsidiary, jointly-controlled entity or associate (effective for accounting periods commencing on
or after 1 January 2009). The group will apply this amendment in the accounting period commencing 1 January 2009.
IAS39 – Financial Instruments: recognition and measurement: eligible hedged Items (effective for accounting periods commencing on or after
1 July 2009). This is not considered relevant to the group’s operations.
IFRS7 – Improving disclosures about financial Instruments (effective for accounting periods commencing on or after 1 January 2009). The
group will apply this amendment in the accounting period commencing 1 January 2009.
IFRIC 9 & IAS39 – Embedded derivatives (effective for accounting periods ending on or after 30 June 2009). This is not considered relevant to
the group’s operations.
Improvements to IFRSs (2009) – effective for accounting periods commencing on or after 1 January 2009. The group will apply this
amendment in the accounting period commencing 1 January 2009.
Improvements to IFRSs (2010) – generally effective for accounting periods commencing on or after 1 January 2010. The group will generally
apply this amendment in the accounting period commencing 1 January 2010.
Revisions
IFRS 3 – Business combinations (effective for accounting periods commencing on or after 1 July 2009). This is not considered relevant to the
group’s operations.
IFRS 1 – First time adoption of IFRS (effective for accounting periods commencing on or after 1 January 2009). This is not considered relevant
to the group’s operations.
Interpretations
IFRIC 13 – Customer loyalty programmes (effective for accounting periods commencing on or after 1 July 2008). This is not considered
relevant to the group’s operations.
IFRIC 15 – Agreements for the construction of real estate (effective for accounting periods commencing on or after 1 January 2009). This is not
considered relevant to the group’s operations.
IFRIC 16 – Hedges of a net investment in a foreign operation (effective for accounting periods commencing on or after 1 October 2008). This is
not considered relevant to the group’s operations.
IFRIC 17 – Distributions of non-cash assets to owners (effective for accounting periods commencing on or after 1 July 2009). This is not
considered relevant to the group’s operations.
IFRIC 18 – Transfers of assets from customers (effective for accounting periods commencing on or after 1 July 2009). This is not considered
relevant to the group’s operations.
Basis of consolidation
Where the company has the power, either directly or indirectly, to govern the financial and operating policies of another entity or business
so as to obtain benefits from its activities, it is classified as a subsidiary. The consolidated financial statements present the results of
the company and its subsidiaries (“the group”) as if they formed a single entity. Intercompany transactions and balances between group
companies are therefore eliminated in full.
Profit/(loss) for the financial year
The company has taken advantage of the exemption allowed under section 230 of the Companies Act 1985 and has not presented its own
income statement in these financial statements. The group loss for the year includes a loss after tax of $4,713,772 (2007 - $295,660) which is
dealt with in the financial statements of the parent company.
the company’s investments in subsidiaries
In the parent company’s accounts subsidiaries are carried at cost less amounts provided for impairment.
Borders & Southern Annual Report 2008
25
Notes to the Financial Statements
for the Year Ended 31 December 2008 (continued)
Income
At the end of the year the group had not commenced commercial production from its exploration sites and therefore has no revenue in the year.
Finance income
Finance income is measured and recognised using the effective rate of interest. The income consists of interest on cash deposits.
Segment reporting
A business segment is a distinguishable component of an enterprise that is engaged in providing an individual product or service or a group of
related products or services and that is subject to risks and returns that are different from those of other business segments. The group has
only one business segment, which is the exploration for oil and gas, and is its primary reporting segment.
A geographical segment is a distinguishable component of an enterprise that is engaged in providing products or services within a particular
economic environment and that is subject to risks and returns that are different from those of components operating in other economic
environments. The group’s geographical segments are the United Kingdom, the Falkland Islands and other areas Worldwide, and make up the
group’s secondary reporting segment.
Property, plant and equipment
Office equipment is initially recorded at cost. Depreciation is provided on office equipment so as to write off the cost, less any estimated
residual value, over their expected useful economic life as follows:
Office equipment
33 1/3%
Assets are depreciated from the date of acquisition, and on a straight line basis.
Exploration and evaluation expenditure
As permitted under IFRS 6, the group has accounted for exploration and evaluation expenditure using the full cost method, whereby all costs
associated with oil exploration are capitalised as intangible assets on a project-by-project basis, pending determination of feasibility of the
project. Costs incurred include appropriate technical and administrative expenses but not general overheads. If an exploration project is
successful, the related expenditures will be transferred to tangible assets and amortised over the estimated life of the commercial reserves.
Where a licence is relinquished, a project is abandoned, or is considered to be of no further value to the group the related costs are written off.
All capitalised costs are reviewed annually against the underlying value of oil and gas reserves, unless the expenditure relates to an area where
it is too early to make a decision about the value of the assets.
Impairment
Exploration assets are reviewed regularly for indication of impairment, if any, where circumstances indicate that the carrying value may not be
recoverable. If an indication of impairment exists, the asset is tested for impairment in accordance with IAS36- Impairment of Assets.
The carrying value is compared against the expected recoverable amount, generally by reference to the present value of future net cash
flows expected to be generated from the production of commercial reserves. The cash generating unit (“CGU”) applied for impairment
testing is usually the individual field, except that a number of fields may be grouped together to form a single CGU where the cash flows are
interdependent.
Any impairment loss arising from the review is charged to the income statement whenever the carrying amount of the asset exceeds its
recoverable amount.
Provisions
A provision is recognised in the balance sheet when the group has a present legal or constructive obligation as a result of a past event, and it is
probable that an outflow of economic benefits will be required to settle the obligation.
Foreign currencies
Transactions in foreign currencies are translated into US dollars at the exchange rate ruling at the date of the transaction. Monetary assets and
liabilities denominated in foreign currencies are translated into US dollars at the closing rates at the balance sheet date and the exchange differences
are included in the income statement. The functional and presentational currency of the parent and all group companies is US dollars.
26
Borders & Southern Annual Report 2008
Operating leases
Rentals payable under operating leases are charged in the profit and loss account on a straight line basis over the lease term.
Share based payments
The fair value of employee share option plans is calculated using the Black-Scholes-Merton pricing model. In accordance with IFRS 2 ‘Share-
based Payments’ the resulting cost is charged to the income statement over the vesting period of the options. The amount of charge is
adjusted each year to reflect expected and actual levels of options vesting.
Where equity settled share options are awarded to employees, the fair value of the options at the date of grant is charged to the income
statement over the vesting period. Non-market vesting conditions are taken into account by adjusting the number of equity instruments
expected to vest at each balance sheet date so that, ultimately, the cumulative amount recognised over the vesting period is based on the
number of options that eventually vest. Market vesting conditions are factored into the fair value of the options granted. As long as all other
vesting conditions are satisfied, a charge is made irrespective of whether the market vesting conditions are satisfied. The cumulative expense
is not adjusted for failure to achieve a market vesting condition.
Where the terms and conditions of options are modified before they vest, the increase in the fair value of the options, measured immediately
before and after the modification, is also charged to the consolidated income statement over the remaining vesting period.
Financial instruments
Financial instruments are initially recorded at fair value. Subsequent measurement depends on the designation of the instrument, as follows:-
Trade and other receivables are initially recognised at fair value and subsequently at amortised cost using the effective rate of interest, net
of allowances for impairment.
Trade and other payables are initially recognised at fair value and subsequently at amortised cost using the effective rate of interest.
The group does not hold or issue derivative financial instruments for trading purposes.
Financial instruments issued by group companies are treated as equity only to the extent that they do not meet the definition of a financial
liability. The group’s and company’s ordinary shares are all classified as equity instruments.
Cash and cash equivalents consist of cash at bank on demand and balances on deposit with an original maturity of three months or less.
Assets available for sale comprise of government treasury stock. They are carried at fair value with changes in fair value recognised directly
in the available for sale reserve. Where there is a significant or prolonged decline in the fair value of an available for sale financial asset, the
full amount of the impairment, including any amount previously charged to equity, is recognised in the income statement.
taxes
The major components of income tax on the profit or loss include current and deferred tax.
Current tax is based upon the profit or loss for the year adjusted for items that are non-assessable or disallowed and is calculated using tax
rates that have been enacted, or substantively enacted, by the balance sheet date.
Income tax is charged or credited to the income statement, except where the tax relates to items credited or charged directly to equity, in
which case the tax is also dealt within equity.
Deferred tax assets and liabilities are recognised where the carrying amount of an asset or liability in the balance sheet differs to its tax base.
Recognition of deferred tax assets is restricted to those instances where it is probable that taxable profit will be available against which the
difference can be utilised.
The amount of the asset or liability is determined using tax rates that have been enacted or substantively enacted by the balance sheet date
and are expected to apply when deferred tax liabilities and assets are settled or recovered.
Borders & Southern Annual Report 2008
27
Notes to the Financial Statements
for the Year Ended 31 December 2008 (continued)
Critical accounting estimates and judgements and key sources of estimation uncertainty
The preparation of the financial statements requires management to make estimates and assumptions that affect the reported amounts of
revenues, expenses, assets and liabilities, and the disclosure of contingent liabilities at the date of the financial statements. If in the future
such estimates and assumptions, which are based on management’s best judgement at the date of the financial statements, deviate from
the actual circumstances, the original estimates and assumptions with be modified as appropriate in the year in which the circumstances
change. Where necessary, the comparatives have been reclassified or extended from the previously reported results to take into accounts
presentational changes.
Management has made the following judgements which have the most significant effects on the amounts recognised in the financial
statements:
Recoverability of exploration and evaluation costs
The group uses the full cost method of accounting, whereby exploration and evaluation costs are capitalised as intangible assets if the
associated project is commercially viable, and reviewed for impairment. This requires judgement assessments as to (a) the likely future
commerciality of the asset, and (b) future revenues and costs relating to the project in order to determine the recoverable value of the asset.
The key sources of estimation uncertainty at the balance sheet date, which have significant risk of causing a material adjustment to the
carrying amounts of assets and liabilities within the next financial year, are as follows:
Share options
The group’s share based payments were recognised at fair value, as in the prior period, using a 65% (2007: 50%) volatility rate. This is set out
in greater detail in note 7.
2 ExPENSES By NAtuRE
Staff costs (note 5)
Share-based payment-equity settled
Exploration and evaluation expenditure
Services provided by the auditors:
Audit fee
Other services:
Auditing of the accounts of the associate of the company under legislation
Other taxation services
Exchange differences
Depreciation of office equipment
Operating lease expenses-property
Sundry items
Total administrative expenses
3 LOSS PER SHARE
2008
$
431,120
101,377
–
–
31,517
–
58,257
21,627
9,850
256,834
376,962
2007
$
441,254
77,823
237,338
–
32,024
8,006
–
263,191
16,074
227,262
412,420
1,287,544
1,715,392
The calculation of the basic loss per share is based on the loss attributable to ordinary shareholders divided by the weighted average number
of shares in issue during the year. The loss for the financial year for the group was $4,727,900 (2007 - $335,701) and the weighted average
number of shares in issue for the year was 194,344,170 (2007 - 144,351,668).
Potentially Dilutive Share Options
Due to the loss in the year for 2008 and 2007, the effect of the share options in issue is anti-dilutive and therefore diluted earnings per share
has not been calculated.
At 31 December 2008 there were options over 1,000,000 shares outstanding which are potentially dilutive (2007 - 700,000). These options
are described in Note 7. For the majority of the options their exercise price is greater than the weighted average share price during the year and
it would not be advantageous of the holders to exercise these, therefore these options do not have a diluted effect.
28
Borders & Southern Annual Report 2008
4 SEgmENt ANALySIS
For the purpose of segmental information the operations of the group consist of one class of business, the exploration for hydrocarbon liquids
and gas.
During the year the group’s exploration and evaluation activities took place outside the UK, substantially in the Falkland Islands. These costs
are capitalised, where appropriate, in accordance with the accounting policies as set out in note 1 above.
The operating profit/(loss) of the group is analysed as follows:
United Kingdom
Falkland Islands
Worldwide (excluding UK and Falkland Islands)
Total assets are analysed as follows:
United Kingdom
Falkland Islands
2008
$
2007
$
1,287,544
(1,478,054)
–
–
(60,660)
(176,678)
1,287,544
(1,715,392)
Group
2008
$
19,739,420
36,040,860
55,780,280
2007
$
39,386,087
23,155,802
62,541,889
Company
2008
$
2007
$
55,876,319
62,622,038
–
–
55,876,319
62,622,038
Capital expenditure for the group during the year of $12,885,058 (2007 - $19,902,084) relates solely to the Falkland Islands. Depreciation
expense for the group during the year of $9,850 (2007: $16,074) relates solely to the United Kingdom.
5 StAFF COStS
Company and group:
Staff costs (including directors) comprise:
Wages and salaries
Employers national insurance contribution
Share based payment-equity settled
2008
$
385,581
45,539
101,377
532,497
2007
$
394,733
46,521
77,823
519,077
The average number of employees (including directors) employed during the year by the company was 6 (2007 - 6) and for the group was 6
(2007 - 6). All employees and directors of the group and the company were involved in management.
In 2008 the group granted to staff of Borders and Southern Petroleum Plc, for nil consideration, share options with a total fair value of
$208,635 (2007 - $45,164), of which $27,532 (2007 - $7,466) has been expensed during the year. In addition $73,845 (2007 - $70,357) has
been expensed during the year in respect of share options granted in prior years.
Borders & Southern Annual Report 2008
29
Notes to the Financial Statements
for the Year Ended 31 December 2008 (continued)
6 DIRECtORS’ EmOLumENtS
The directors’ emoluments for the period are as follows:
Directors’ fees
Share based payments – equity settled
2008
$
215,358
12,165
227,523
2007
$
220,434
14,071
234,505
The fees and share-based payments made to each director are disclosed in the Remuneration Committee Report.
In 2006, the group granted to two directors of Borders and Southern Petroleum Plc, for nil consideration, 50,000 share options each, with a
total fair value of $42,214. Of this amount $12,165 (2007 - $14,071) has been expensed during the year.
The directors are the key management personnel.
7 SHARE-BASED PAymENt
On 18 July 2008, the group granted 300,000 share options to an employee of Borders and Southern Petroleum Plc, for nil consideration. The
options will be cancelled if the employee leaves the company.
Outstanding at the beginning of the year
Granted during the year
Outstanding at the end of the year
31 December
2008 Weighted
average exercise
price
42p
70p
31 December
2008 Number
700,000
300,000
1,000,000
31 December
2007 Weighted
average exercise
price
48p
26p
31 December
2007 Number
500,000
200,000
700,000
The exercise price of the options outstanding at the year end ranged between 26p and 70p and their weighted average contractual life was
4 years.
The following information is relevant in the determination of the fair value of the options granted during the year under the equity-settled
share based remuneration scheme operated by the company.
30
Borders & Southern Annual Report 2008
Equity-settled scheme
Option pricing model used
Weighted average share price at grant date
Exercise price
Weighted average contractual life (days)
Expected volatility
Expected dividend growth rate
Risk-free interest rate
Share-based remuneration expense for the year in respect of the
equity-settled scheme for options granted during the year.
Share-based remuneration expense for the year in respect of the
equity-settled scheme for options granted during 2006.
Share-based remuneration expense for the year in respect of the
equity-settled scheme for options granted during 2007.
Total share-based remuneration expense for the year
8 FINANCE INCOmE AND ExPENSE
Finance income
Bank interest receivable
Treasury stock interest
Finance expense
Finance expense
Exchange loss on cash and other financial assets
31 December 2008
31 December 2007
Black-Scholes
Black-Scholes
70p
70p
1,460
65%
0%
1.5%
$27,532
$13,016
$60,829
26p
26p
1,460
50%
0%
4.10%
$7,466
$70,357
–
$101,377
$77,823
2008
$
951,024
35,153
986,177
2008
$
4,426,533
2007
$
1,379,691
–
1,379,691
2007
$
–
The foreign exchange loss arises on the treasury stock and cash balances held in £ due to the devaluation of the £ against the $ during the
second half of the year.
Borders & Southern Annual Report 2008
31
Notes to the Financial Statements
for the Year Ended 31 December 2008 (continued)
9 tAx ExPENSE
Current tax expense
UK corporation tax on loss for the year
2008
$
–
2007
$
–
Factors affecting current period tax charge
The reasons for the difference between the actual tax charge for the year and the standard rate of corporation tax in the UK applied to profits
for the year are as follows:
Loss before and after taxation
Standard rate corporation tax charge of 28.5% (2007: 30%)
Expenses not deductible for tax purposes
Depreciation in (deficit)/excess of capital allowances
Unutilised tax losses carried forward
Total current tax for the year
2008
$
(4,727,900)
(1,347,452)
134,289
(2,988)
1,216,151
–
2007
$
(335,701)
(100,710)
28,103
3,218
69,389
–
The rate of UK corporation tax changed from 30% to 28% with effect from 1 April 2008. The average rate applicable for the period is
therefore 28.5% (2007: 30%).
Factors that may affect future tax charges
The group has a deferred tax asset of $1,205,527 (2007 - $489,794) in respect of unrelieved tax losses of $4,305,453 at 31 December 2008
(2007 - $1,632,647), and a deferred tax asset of $nil in respect of accelerated capital allowances (2007- $3,305). The rate of tax used in the
calculation of the deferred tax assets is 28% (2007-30%). The deferred tax asset has not been recognised in the financial statements as the
economic benefit is uncertain.
32
Borders & Southern Annual Report 2008
10 PROPERty, PLANt AND EquIPmENt
Group and company
Cost
As at 1 January 2007
Additions
As at 31 December 2007
Depreciation
As at 1 January 2007
Charge for the year
As at 31 December 2007
Net book value
As at 31 December 2007
As at 31 December 2006
Cost
As at 1 January 2008
Additions
As at 31 December 2008
Depreciation
As at 1 January 2008
Charge for the year
As at 31 December 2008
Net book value
As at 31 December 2008
Office
equipment
$
48,891
3,543
52,434
28,611
16,074
44,685
7,749
20,280
$
52,434
17,030
69,464
44,685
9,850
54,535
14,929
Borders & Southern Annual Report 2008
33
Notes to the Financial Statements
for the Year Ended 31 December 2008 (continued)
11
INtANgIBLE ASSEtS
Group
Cost
As at 1 January 2007
Additions
Disposal to income statement
As at 31 December 2007
Net book value
As at 31 December 2007
As at 31 December 2006
Group
Cost
As at 1 January 2008
Additions
As at 31 December 2008
Net book value
As at 31 December 2008
12
INvEStmENtS IN SuBSIDIARy
Company
Cost
As at 1 January 2008 and 31 December 2008
Net book value
As at 31 December 2007 and 31 December 2008
Exploration
and
evaluation
costs
$
3,258,772
19,902,084
(5,054)
23,155,802
23,155,802
3,258,771
Exploration
and
evaluation
costs
$
23,155,802
12,885,058
36,040,860
36,040,860
2008
2007
$
2
2
$
2
2
The company owns the one ordinary £1 subscriber share, being 100% of the issued share capital, in Borders and Southern Falkland Islands
Limited. The company was registered in England and its principal activity is oil and gas exploration.
34
Borders & Southern Annual Report 2008
13 tRADE AND OtHER RECEIvABLES
Amounts owed by group undertakings
Other receivables
Prepayments and accrued income
Group
Company
2008
$
–
66,492
185,296
251,788
2007
$
–
114,543
198,857
313,400
2008
$
2007
$
36,136,897
23,235,949
66,492
185,296
114,543
198,857
36,388,685
23,549,349
All amounts shown under receivables fall due for payment within one year.
14 OtHER FINANCIAL ASSEtS
Available for sale investments
Group
Company
2008
$
9,950,668
2007
$
–
2008
$
9,950,668
2007
$
–
Available for sale investments consist of UK Treasury Stock denominated in £.
15 tRADE AND OtHER PAyABLES
Trade payables
Other taxes and social security costs
Other payables
Accruals and deferred income
16 SHARE CAPItAL
Authorised
750,000,000 ordinary shares of 1 pence each
Allotted, called up and fully paid
194,344,170 ordinary shares of 1 pence each
Group
Company
2008
$
124,649
12,281
11,831
46,009
194,770
2007
$
2,213,884
16,092
2,092
77,673
2,309,741
2008
$
124,649
12,281
11,831
38,822
187,583
2007
$
2,213,884
16,092
2,092
66,189
2,298,257
2008
$
2007
$
14,926,125
14,926,125
3,867,741
3,867,741
Borders & Southern Annual Report 2008
35
Notes to the Financial Statements
for the Year Ended 31 December 2008 (continued)
17 RELAtED PARty tRANSACtIONS
Company
During the year Borders & Southern Petroleum Plc paid expenses of $11,359,028 (2007 - $19,935,351) on behalf of Borders & Southern
Falkland Islands Limited. At the year end $36,136,897 (2007 - $23,235,949) was due from the subsidiary.
There have been no transactions with directors during the year. The remuneration paid to each director is disclosed in the Remuneration
Committee Report.
18 OPERAtINg LEASES
As at 31 December 2008 the future aggregate minimum lease payments under non-cancellable operating leases are as follows:
Land and Buildings
2008
$
2007
$
202,723
125,468
Within one year
19 CONtINgENt LIABILItIES
The group and company had no contingent liabilities at 31 December 2008.
20 CAPItAL COmmItmENtS
The group and company had no capital commitments at 31 December 2008
21 FINANCIAL INStRumENtS
The main risks arising from the group’s operations are interest rate risk and foreign currency translation risk. The group monitors risk on a
regular basis and takes appropriate measures to ensure risks are managed in a controlled manner.
a) Interest rate risk
The group’s financial assets and liabilities accrue interest at prevailing floating rates in the United Kingdom or at pre-arranged fixed rates, as
described further below. The group does not currently use derivative instruments to manage its interest rate risk.
At 31 December 2008 the company held cash at bank and in deposits under its control of $9,522,035 (2007 - $39,064,938), in addition to UK
Treasury stock of $9,950,668, which matures in March 2009. These form the majority of the group's working capital. Of the cash at bank and
in deposit, $584,285 (2007 - $741,614) relates to deposits placed with banking institutions that are available on demand which carry interest
at prevailing United Kingdom deposit floating rates. The balance represents restricted deposits of $8,937,750 (2007 - $38,323,324) with
weighted average fixed interest rate of 1.7% for three months.
b) Foreign currency translation risk
The operational currency of the oil and gas exploration and evaluation activities of the group is US $, services and treasury function is UK £.
Balances are held in £ sterling and US $ are purchased when required and used to meet exploration and evaluation needs.
36
Borders & Southern Annual Report 2008
The interest rate risk and foreign currency profile of financial assets and liabilities of the group and the company are as follows:
Current financial assets
Held in UK £:
Trade and other receivables
Other financial assets
Cash and cash equivalents
Total current financial assets held in UK £
Held in US $:
Cash and cash equivalents
Total financial assets
Current financial assets
Held in UK £:
Trade and other receivables
Other financial assest
Cash and cash equivalents
Total current financial assets held in UK £
Held in US $:
Trade and other receivables
Cash and cash equivalents
Total financial assets
Group
Group
Assets
available for
sale
2008
$
–
9,950,668
–
9,950,668
Loans and
receivables
2008
$
66,492
–
1,668,280
1,734,772
–
9,950,668
7,853,755
9,588,527
Assets
available for
sale
2007
$
–
–
–
–
–
–
Company
Company
Assets
available for
sale
2008
$
–
9,950,668
–
9,950,668
–
–
9,950,668
Loans and
receivables
2008
$
66,492
–
1,668,280
1,734,772
36,136,897
7,853,755
45,725,424
Assets
available for
sale
2007
$
–
–
–
–
–
–
–
Loans and
receivables
2007
$
114,543
–
17,848,167
17,962,710
–
17,962,710
Loans and
receivables
2007
$
23,350,492
–
17,848,167
41,198,659
–
–
41,198,659
Following on from the change in the Company’s functional currency, the amount owed by group undertaking was re-denominated into a
US$ balance.
Borders & Southern Annual Report 2008
37
Notes to the Financial Statements
for the Year Ended 31 December 2008 (continued)
Foreign currency translation risk:
If there was a 10% change in the year end exchange rate there would be a movement in the US$ equivalent of financial assets held in UK£ of
$1,167,718 for the group and $3,789,745 for the company (2007 - $1,796,271 for the group and $4,119,866 for the company).
Current financial liabilities
Held in UK£:
Trade and other payables
Held in US $:
Trade and other payables
Total financial liabilities
Foreign currency translation risk:
Group
Company
Financial
liabilities
Financial
liabilities
Financial
liabilities
Financial
liabilities
measured at
measured at
measured at
measured at
amortised cost
amortised cost
amortised cost
amortised cost
2008
$
2007
$
2008
$
2007
$
103,242
371,269
96,053
359,785
79,247
182,489
1,922,380
2,293,649
79,247
175,300
1,922,380
2,282,165
If there was a 10% change in the year end exchange rate there would be a movement in the US$ equivalent of financial liabilities held in UK£
of $10,324 for the group and $9,605 for the company (2007 - $37,127 for the group and $35,979 for the company).
c) Credit risk
The group has no customers so formal credit procedures are in the process of being established. Credit risk on cash balances is managed by
only banking with reputable financial institutions with a high credit rating. The only significant concentration of credit risk is cash held at bank
and the maximum credit risk exposure for the group and company is detailed in the table below:
Cash and cash equivalents
Maximum credit risk exposure
Fair values
2008
2007
Carrying
Value
$
9,522,035
9,522,035
Maximum
exposure
$
9,522,035
9,522,035
Carrying
Value
$
39,064,938
39,064,938
Maximum
exposure
$
39,064,938
39,064,938
The fair values of the group’s financial assets and liabilities at 31 December 2008 and at 31 December 2007 are materially equivalent to their
carrying value as disclosed in the balance sheet and related notes.
Capital
The objective of the directors is to maximise shareholder return and minimise risk by keeping a reasonable balance between debt and equity.
To date the group has minimised risk by being purely equity financed. The group considers its capital to comprise its ordinary share capital,
share premium, accumulated retained earnings and other reserves.
38
Borders & Southern Annual Report 2008
Corporate Directory
Directors
Registrars
David Harry Williamson Dobson
Stephen James Douglas Posford
Howard Kevin Obee
Christopher Nigel Hurst-Brown
Peter William Fleming
Capita Registrars
Northern House
Woodsome Park
Fenay Bridge
Huddersfield
HD8 0LA
Secretary
William John Walton Slack
Bankers
Lloyds TSB Bank plc
19-21 The Quadrant
Richmond
Surrey
PW9 1BP
Independent Auditors
BDO Stoy Hayward LLP
Chartered Accountants &
Registered Auditors
55 Baker Street
London
W1U 7EU
Investor Relations
Tavistock Communications Limited
131 Finsbury Pavement
London
EC2A 1NT
Registered office
3 Copthall Avenue
London
EC2R 7BH
Business address
33 St James’s Square
London
SW1Y 4JS
Nominated Advisor
And Joint Broker
Panmure Gordon & Co
Moorgate Hall
155 Moorgate
London
EC2M 6XB
Joint Broker
Ocean Equities Limited
3 Copthall Avenue
London
EC2R 7BH
Solicitors to the company
as to English Law
Denton Wilde Spate
1 Fleet Place
London
EC4M 7WS
Borders & Southern Annual Report 2008
39
borders&southern
petroleum plc
33 St James’s Square
London SW1Y 4JS
United Kingdom
Telephone: +44 (0)20 7661 9348
Fax: +44 (0)20 7661 8055
info@bordersandsouthern.com
www.bordersandsouthern.com