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