E u r o p a O i l & G a s ( H o l d i n g s ) p l c A n n u a l R e p o r t a n d A c c o u n t s 2 0 1 0 exploration discovery production Europa Oil & Gas (Holdings) plc Annual Report and Accounts for the year ended 31 July 2010 Stock Code: EOG www.europaoil.com 11 The Chambers Vineyard, Abingdon OX14 3PX Tel: +44 (0)1235 553266 Fax: +44 (0)1235 467369 18569.04EUROPAOIL CVR.indd 1 18569.04 01/11/2010 Proof 4 18569.04 01/11/2010 Proof 4 01/11/2010 12:51 Europa Oil & Gas (Holdings) plc Annual Report and Accounts for the year ended 31 July 2010 About Us Europa Oil & Gas (Holdings) plc is an exploration and production company with a European focus. We have core producing oil assets in the UK, along with a wide range of exploration and appraisal projects in various stages of development in the UK, Romania, France and Western Sahara. Our Mission To build shareholder value by a combination of production and reserves growth via a geographically focussed and technically driven strategy. Contents Highlights Europa Oil & Gas At A Glance Chairman’s Statement Operational Review Financial Review Directors’ Report Statement of Directors’ Responsibilities Corporate Governance Statement Report of the Independent Auditors Consolidated Statement of Comprehensive Income Consolidated Statement of Financial Position Consolidated Statement of Changes in Equity Company Statement of Financial Position Company Statement of Changes in Equity Consolidated Statement of Cash Flows Company Statement of Cash Flows Notes to the Financial Statements Directors and Advisers For more info go to www.europaoil.com 01 02 04 06 10 12 14 15 16 17 18 19 20 21 22 23 24 47 18569.04EUROPAOIL CVR.indd 2 18569.04 01/11/2010 Proof 4 18569.04 01/11/2010 Proof 4 01/11/2010 12:51 Stock Code: EOG Highlights Regions of operation www.europaoil.com 01 s s e n i s u B r u O For more info go to page 02 Operational Highlights Financial Performance Post Reporting Date Events ª Drilled Voitinel Gas Discovery ª Revenue of £3.1 million (2009: ª On 14 October 2010 raised a further £1,452,000 net of broker commission ª On 18 October 2010 the Barchiz-1 exploration well in Romania was spudded — up to 415bcf gas-in-place on- block (Europa interest 28.75%) ª Seismic 3D dataset being used to define high impact Berenx well — up to 1.5TCF in-place (Europa interest 100%) ª Production site and reserves upgrade at West Firsby £2.9 million) ª Two fundraisings raised £2,636,000 net of broker commission ª Relinquished licence in Egypt and took write-off cost of £738,000 ª Other exploration write-downs ª Drilled Hykeham exploration totalled £270,000 well ª Acquired 200 km of new 2D seismic data in Romania in thrust belt oil play ª Crude oil sales of 64,968 barrels, a decrease of 16% on 2009 ª Impairment charge for Crosby Warren wellsite £1,012,000 18569.04EUROPAOI.indd 01 18569.04 01/11/2010 Proof 4 01/11/2010 12:50 02 Europa Oil & Gas (Holdings) plc Annual Report and Accounts for the year ended 31 July 2010 Europa Oil & Gas At A Glance Europa’s strategy is to develop a wide range of assets — from production through to high impact exploration, within the EU. Current core areas are the UK, France and Romania. Europa operates the majority of its joint ventures from its headquarters near Oxford, UK. Having acquired three seismic surveys and drilled as operator some six wells to date, the Company has an excellent safety and environmental record. “Europa’s core area assets in the UK, France and Romania have the potential to transform the Company over the next three years.” UK FRANCE ROMANIA WESTERN SAHARA 18569.04EUROPAOI.indd 02 18569.04 01/11/2010 Proof 4 01/11/2010 12:50 Stock Code: EOG www.europaoil.com 03 16 ACTIVE PROJECTS 62% UK Projects 25% ROMANIA Projects 13% FRANCE Projects s s e n i s u B r u O Europa holds a varied asset portfolio across three EU jurisdictions and in the Western Sahara. These range from oil producing assets, through exciting discoveries at the appraisal stage to exploration projects in established oil and gas plays: Country Area Licence Prospect Operator Equity Field/ UK East Midlands DL003 West Firsby DL001 Crosby Warren PL199/215 Whisby-4 PEDL150 W. Whisby PEDL180 Wressle PEDL222 PEDL181 Caister PEDL143 Holmwood Holderness Offshore UCG Humber South Offshore UCG Weald North Sea France Aquitaine Béarn des Gaves Berenx Tarbes V.d’Adour Osmets/Jacque Europa Europa BPEL Europa Europa Valhalla Europa Europa Europa Europa Europa Europa Romania Carpathians EIII-1 Brodina Voitinel Aurelian EIII-3 Cuejdiu EIII-4 Bacau EPI-3 Brates Barchiz Western Sahara Tindouf Aaiun Bir Lehlou Hagounia Aurelian Aurelian MND Europa Europa 100% 100% 65% 75% 50% 50% 50% 40% 90% 90% 100% 100% 28.75% 17.50% 19% 20% 100% 100% Status Production Production Production Exploration Exploration Exploration Exploration Exploration Exploration Exploration Exploration/Appraisal Exploration/Appraisal Exploration/Appraisal Exploration Exploration Exploration Exploration Exploration 18569.04EUROPAOI.indd 03 18569.04 01/11/2010 Proof 4 01/11/2010 12:50 04 Europa Oil & Gas (Holdings) plc Annual Report and Accounts for the year ended 31 July 2010 Chairman’s Statement Drilling operations in the UK, 2010. Dear Shareholders, In the year to 31 July 2010, the Company participated in two exploration wells. A notable success was our participation in the Voitinel discovery in Romania, where dry gas flowed at commercial rates. This discovery opens up an exciting gas play in the Carpathians where two wells on neighbouring licences achieved good sustained flow rates. The detail of this discovery is contained in the Operational Review with the operator estimating a gas in place figure of up to 415 billion cubic feet (Europa interest 28.75%) leading to appraisal drilling in 2011. In addition, 200 km of new 2D seismic has been acquired in the promising Romanian thrust belt oil play. Work continues on the very prospective Berenx area in France (Europa interest 100%) which has discovered gas accumulations. The Company acquired an existing 3D seismic volume which is being incorporated into our modelling in order to finalise resource numbers prior to securing a drilling partner. The structure, which has a 500m gas column encountered in a 1969 well, has the potential for reserves in excess of one trillion cubic feet. Turning to the UK, the year saw average daily production of 178 barrels, a decline of 16% on the previous period. Lost production, due to unscheduled well shut-ins at the producing sites, was the main reason for the decline. This is being addressed together with a major upgrade of surface facilities at West Firsby. Workovers on several wells have been undertaken and present daily production is averaging around 200 barrels. The Company’s producing assets provided a revenue stream of £3.1 million in the year. The exploration well at Hykeham in Lincolnshire is currently suspended, having encountered live oil but not having produced commercial quantities. It is thought to have suffered formation damage and the most likely forward plan is to plug and abandon the well whilst further work is undertaken on the remainder of the PEDL150 licence area. In contrast, a thorough technical review of the West Firsby field has led to an upgrade in 2P reserves of one million barrels, a 250% increase. The drilling of three development wells on the field would lead to a significant increase in production if successful. The first of these wells is planned to be drilled in late 2010 and enables the Company to maintain its production target of 500 barrels of oil per day. There has been a significant increase in activity in Continental Europe by the oil majors with regard to unconventional resources. Much of this activity has focused on gas shales and extensive prospective acreage has now been licenced. It is clear that the Early Namurian black shales are becoming an interesting focus for UK shale gas potential. The Humber basin, where Europa has a large acreage position, is an area that could hold considerable potential. During 2011 the Company will examine its commercial options in relation to this potential. Drilling operations in Romania, October 2010. 18569.04EUROPAOI.indd 04 18569.04 01/11/2010 Proof 4 01/11/2010 12:50 Stock Code: EOG www.europaoil.com 05 s s e n i s u B r u O Delivering On Our Objectives For 2011, Europa plans to move ahead on several fronts: ª Increasing production from the UK onshore through further drilling. ª Maturing the Voitinel discovery to development status by drilling up to 2 appraisal wells. ª Planning a high impact exploration/appraisal well on Berenx. ª Securing further assets through a focused new venture strategy in Europa’s core areas. The Company acquired two licences to investigate Underground Coal Gasification along the UK East coast near to our conventional assets. This exciting technology has the potential to release up to 80% of the energy contained in the coal and can be made virtually carbon neutral. Again, the Company will be examining its commercial options during 2011. Operating performance for the year has been impacted by the £1 million impairment write-down and £1 million exploration write-off. This arose from the decision to write-down the carrying value of the Crosby Warren field and write-off exploration costs incurred primarily in Egypt. At Crosby Warren, the relatively low incremental production that the CW2 well has produced since its drilling in 2007 has been a disappointment. Despite several attempts to stimulate the well it has continued to underperform and for this reason the board decided to take the write down. The venture into Egypt was a higher risk/reward play than our other investments. Though we saw some potential, ultimately lack of time, resources and influence within the Egyptian General Petroleum Corporation (EGPC) meant that Europa was unwilling to enter the second phase of the concession and we relinquished the licence. I believe that the exiting of Egypt is a positive step for Europa as it ensures a better focus on the assets in UK, France and Romania. The lower than expected production and cost of the well workovers put a strain on our cash resources and caused a degree of uncertainty over our ability to fund the 2011 work programme. It was therefore signalled in the Preliminary announcement of the 2010 results that an “Emphasis of Matter — going concern” comment may be included in the auditors’ report of this 2010 Annual Report and Accounts. Since the end of the reporting period, the Group raised a further £1.45 million through a share placing. This additional funding gives more confidence in our ability to fund the 2011 programme and removes the need for the “Emphasis of Matter” comment. The directors believe that the Group will remain a going concern for the foreseeable future. It should be noted that the 2011 appraisal drilling on Voitinel is expected to be funded from future cash flows — but that will be contingent on the increased production anticipated from the West Firsby development well. If that well is not successful then the Company would need to seek alternative funding for Voitinel which could include another issue of equity, or the trading of assets. Based on the quality of our producing reserves and contingent resources, the directors consider that the future for Europa is very positive. In April, Sir Michael Oliver retired as Chairman. Dr Erika Syba, co-founder of the Company, resigned as Operations Director with effect from the end of August 2010. I thank both of them for their contributions to the Company and wish them well in their future endeavours. Bill Adamson Chairman Voitinel-1 drilling. 18569.04EUROPAOI.indd 05 18569.04 01/11/2010 Proof 4 01/11/2010 12:50 06 Europa Oil & Gas (Holdings) plc Annual Report and Accounts for the year ended 31 July 2010 Operational Review UK The core of Europa’s portfolio in the UK is in the East Midlands, a basin with a long history of successful oil exploration and production with potential for additional reserves and vast unconventional resources. Production West Firsby and Crosby Warren (100%), Whisby—4 (65%) The Company holds interests in three producing oilfields in the East Midlands. The main operating base is at the West Firsby Field, 15 km north of Lincoln. The production is tankered by road to the refinery at Immingham in North East Lincolnshire. Current 2P reserves are 1.4 mmbo, having recently been increased due to the identification of additional Zone 1 reserves at West Firsby. This resulted from a thorough review of the seismic and well data to calculate revised oil-in-place figures and a detailed review of production history to conclude that significant oil remains in the upper Zone 1 reservoir. West Firsby produces from two wells on a jet pump system at combined rates of up to 105bopd. A programme of site improvements and production optimisation is nearing completion and a new Zone 1 production well is expected to be drilled in late 2010. At Crosby Warren, in the grounds of the Scunthorpe steelworks, the two production wells operate on traditional beam pumps or nodding donkeys, producing up to 40bopd. All producing and exploration assets are tested annually for possible impairment. In the case of Crosby Warren, the CW2 well, drilled in 2007 has continued to produce relatively small quantities of oil. This led to an overall carrying value for the site which was not supported by the expected future cash flows from existing oil production. As a result, the board took the decision to write-down the book value of the Crosby Warren site from £2,694,000 to £1,682,000, an impairment charge in the Statement of Comprehensive Income of £1,012,000. At Whisby, just to the west of Lincoln, a well drilled by Europa in early 2003 remains on steady production, currently producing around 88bopd gross (55 bopd net to Europa) on beam pump. Exploration NE Lincolnshire (PEDL 180/181 — 50%), Lincoln area (PEDL 150 — 75%), Dorking area (PEDL 143 — 40%) Europa operates a number of exploration licences in the UK, some with ‘ready-to-drill’ prospects. In NE Lincolnshire, PEDL180 and PEDL181 licences contain two prospective areas: the Wressle Prospect and the Caister Horst. The seismic database over these two areas, comprising a mixed 2D/3D vintage dataset, has been reprocessed and work is ongoing to develop drilling locations. Prospect size is in the region of 5 to 8 mmbo recoverable. Within the PEDL150 concession, the Hykeham well was drilled in the year. Despite encountering oil pay, the well has failed to flow oil to date, thought to be principally as a result of formation damage incurred during drilling. Though the likely forward plan is to plug and abandon the well, the investment has not been written off as prospectivity within the rest of the block, which includes the West Whisby feature, is believed to be good. Lessons learnt at Hykeham will be applied in the drilling of other prospects in the same reservoir interval. The PEDL222 licence (50%), situated to the north of the Whisby Field, does not contain any prospects large enough to warrant drilling. The modest investment to date has been written off and for the remainder of the licence term Europa will assume operatorship to assess resource potential. In PEDL143 in the Weald Basin, Europa and its partners continue to work to securing planning permission to drill the Holmwood-1 exploration well, south of Dorking. It is hoped permission will be granted late in 2010. 18569.04EUROPAOI.indd 06 18569.04 01/11/2010 Proof 4 01/11/2010 12:50 Stock Code: EOG www.europaoil.com 07 UK continued Unconventional Resources France s s e n i s u B r u O Underground Coal Gasification and Shale Gas Europa has been awarded two licences (90%) by the UK Coal Authority to investigate underground coal gasification of virgin coals along the eastern coast of England. These licences are situated in areas with deep coal measures with little structural complexity and a proximity to existing gas and utility infrastructure. Underground Coal Gasification (UCG) is a developing technology that recovers up to 80% of the calorific value of in situ coal by a process of controlled combustion. UCG, when combined with CO2 storage in the depleted coal seams, creates a source of energy which rivals nuclear for low emissions and has lower unit costs than conventional gas-fired power stations. With only 30% utilisation rate for the coals, the estimated potential UCG energy resource in these two licence areas is 36x1015 Joules or 6 billion barrels of oil equivalent. In addition, the Company’s large holding of over 600 km2 of the Humber Basin, has potential for significant shale gas resources from Carboniferous basinal shales. Whilst this is being evaluated, activities in shale gas exploration elsewhere in the UK Carboniferous basins are being monitored with interest. Europa holds two exclusive licences in the Aquitaine Basin, adjacent to the world-class Lacq-Meillon gas developments. Appraisal The Berenx Structure (Béarn des Gaves Permit — 100%) The main focus for Europa is the appraisal of the Berenx gas wells, where a high pressure high temperature well encountered 500m of gross gas shows and mud gas kicks in similar reservoir to the nearby 5TCF Lacq Field. In mid-2010, Europa took delivery of a reprocessed 3D seismic dataset covering the area between Berenx and Lacq. The initial mapping indicates that the Berenx wells were drilled on the western edge of a sizeable structure which could reservoir in excess of 1 trillion cubic feet of recoverable gas reserve. The proximity (20 km) to the Lacq Field creates a straightforward export route, allowing the gas to be processed in an existing facility with spare capacity. The forward programme is for detailed mapping of the structure by experienced Aquitaine geoscientists followed by securing joint venture partner(s) for the drilling of an appraisal well for 2011/2012. Field Redevelopment and associated Exploration Tarbes Val d’Adour Licence (100%) This licence contains several oil accumulations, previously produced by Elf but abandoned in 1985 in times of low oil price. Europa commissioned the French Geological Survey to map the potential field redevelopment area of Osmets and Jacque from a reprocessed 2D data set and this work is now complete. It is hoped that, with a partner, a redevelopment well can be drilled on one of these fields in 2011. UCG Licence map. 18569.04EUROPAOI.indd 07 18569.04 01/11/2010 Proof 4 01/11/2010 12:50 08 Europa Oil & Gas (Holdings) plc Annual Report and Accounts for the year ended 31 July 2010 Operational Review continued Romania Exploration The Carpathian Thrust Belt Oil Play The exploration strategy in the Romanian portfolio is moving away from the small shallow gas play in the eastern part of the licences to explore in the thrust belt oil play that is developed in the western part of all four of Europa’s Romanian licences. The US Geological Survey estimates mean undiscovered potential reserves of over 2.9 billion barrels equivalent in the play and Europa’s first well targeting this play — Barchiz — is due to be spudded in October 2010. Barchiz (20%) is situated in the Brates Licence, immediately north of and along trend from the Geamana oilfield (50mmbo reserves). It is a relatively shallow target with a depth of 1,400m and potential for up to 30mmbo gross reserves. A further highly prospective area in the same licence, underneath the existing Tazlaul Mare gas condensate field, is anticipated to be matured for drilling in 2011/12. In 2010, new seismic data acquisition was undertaken in three of Europa’s four licences and the results from this work will drive the exploration activity into 2011 and beyond. Europa holds interests in four Romanian exploration licences, with non-operated working interests varying from 17.5% to 28.75%. The work programme is moving to a phase of appraisal of a 2009 gas discovery and exploration in the oil play. Appraisal The Voitinel Discovery (EPI—1 Brodina Licence — 28.75%) The 2009 Voitinel-1 exploration well encountered gas in two sandstone intervals at around 1400m and 1650m depth. The deeper of these tested dry gas at flow rates of 3mmscfpd, but appeared to be close to a reservoir boundary, limiting the ability to maintain flow for long periods. A fracture stimulation was undertaken which increased the volume of gas accessed by the well. The Operator, Aurelian, has assessed that approximately 6bcf will be producible from each conventional vertical well in this reservoir. The Voitinel well was drilled close to the northern edge of the structural trend. However, the play extends far to the south of the well, having been proven by recent wells drilled by Romgaz at Paltinu. One well sustained gas flow rates of 5mmscfpd for one week, indicating that the reservoir in the southern part of the play could be better quality than in the discovery well. The current resource estimates for the ‘Greater Voitinel’ play, including the yet undrilled Solca structure, is that up to 290bcf is recoverable (84 bcf net) from gross gas-in-place of 415bcf. It is anticipated that two appraisal wells will be drilled in 2011. Putna monastery near Voitinel. 18569.04EUROPAOI.indd 08 18569.04 01/11/2010 Proof 4 01/11/2010 12:50 Stock Code: EOG www.europaoil.com 09 s s e n i s u B r u O Other Areas Egypt In December 2009, the Company relinquished its interest in the West Darag concession, onshore Egypt. The decision, driven by the lack of identified drill-ready prospects needed to commit to phase 2 of the concession, resulted in a write-off of the £738,000 investment in Egypt. Western Sahara (100%) Tindouf Basin and Aaiun Basin Licences Europa holds interests in Western Sahara through SADR covering almost 80,000 km2 of exciting exploration acreage. The Tindouf licence has great potential for both conventional and unconventional gas resources, being geologically similar to the prolific Algerian Palaeozoic basins. The Aaiun Basin is an Atlantic margin basin similar to that developed along the West African margin. As these licence areas remained in force majeure throughout the year, the board decided to write-down the intangible asset to nil value. Though the investment has been written down, Europa retains its 100% interest in the two blocks. Conclusion The Company’s broad asset base in the EU is a perfect platform for growth — two projects with Company-making potential will lift off in 2011 and the management intend to additionally develop a strong exploration-focused new venture strategy to take the Company to the next level. Paul Barrett Managing Director Outcrop analogue for East Midlands reservoirs. Seismic image for Voitinel play. 18569.04EUROPAOI.indd 09 18569.04 01/11/2010 Proof 4 01/11/2010 12:50 10 Europa Oil & Gas (Holdings) plc Annual Report and Accounts for the year ended 31 July 2010 Financial Review Results for the year Group revenue for the year to 31 July 2010 was £3,091,000 (2009: Taxation The total tax charge (current and deferred) for the year was £263,000 £2,936,000). (2009: £356,000). The increase in revenue arose from higher crude oil prices, the average price per barrel achieved in the year being $73.95 (2009: $62.30). Oil Profit after tax The results for 2010 show a loss after taxation of £1,962,000 (2009: produced and sold during the year amounted to 64,968 barrels or profit £20,000). 178bopd (2009: 77,743 barrels or 213bopd). West Firsby production was down by 7,748 barrels due to the June 09 fire and the need to work-over the WF6. Crosby Warren was down by 2,854 barrels as the CW2 well was Discontinued operations The anticipated sale of the remaining Ukraine asset has not completed. shut in for the full year. This well has since been worked over and is now As it is not material to the Group, the cost of maintaining the asset has back on part time production. Europa’s share of revenue from Whisby was been included in Administrative Expenses and the comparative periods down 2,173 barrels as the well followed a normal decline curve. Work is have been re-presented for consistency. now largely completed at both West Firsby and Crosby Warren sites and average daily production is currently around 200bopd. Cash flow Net cash generated from operations was £1,620,000 (2009: £1,591,000). The selling price for Europa’s UK production is contracted at a small Net cash used in investing activities was higher at £3,297,000 (2009: discount to Brent crude price. Average price achieved in the year to 31 July 2010 was $73.95 per barrel (2009: $62.30). £1,121,000) and included the Voitinel and Hykeham wells. Net cash from financing activities was higher at £2,083,000 (2009: £277,000) as a result of two share placings which raised a total of £2,653,000 of cash net of A stronger US Dollar in the year to 31 July 2010 meant that some of the broker commission. The net overdraft at the end of the year was £475,000 reduced Dollar revenue was recovered as the sales were translated to (2009: £292,000). Sterling at an average rate of $1.5584 (2009: $1.6533). The Crosby Warren field sells a very small quantity of gas to the nearby Corus steelworks. 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 Costs of exploration in Egypt were written off as the licence was risks are managed through ongoing review taking into account the relinquished. Costs of exploration in Western Sahara and in the UK operational, business and economic circumstances at that time. PEDL222 block were written down as there are no short-term prospects for drilling. In total, a charge of £1,008,000 was recorded. Furthermore, as a result of an impairment test, the book value of the Crosby Warren site was written down by £1,012,000. 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 Other cost of sales were higher due to well workovers at Crosby Warren regularly review this policy. and West Firsby. Including the exploration write-offs and impairment charge, pre tax loss matched where possible against expenditures within the business. for the 2010 year was £1,699,000 (2009: profit £376,000). However, most capital and operating expenditures are Euro and Sterling Sales revenue is generated primarily in US Dollars and these funds are denominated which results in a currency exposure. US Dollar receipts have been used to purchase Euros and Sterling. 18569.04EUROPAOI.indd 10 18569.04 01/11/2010 Proof 4 01/11/2010 12:50 Stock Code: EOG www.europaoil.com 11 Liquidity Detailed cash forecasts are prepared frequently and reviewed by management and the board. 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, The Group’s production provides a monthly inflow of cash and is the shortage or delays in the delivery of rigs and/or other equipment, labour main source of working capital and project finance. Additional cash is disputes and compliance with governmental requirements. available from a £1 million multi-currency facility and a £1 million term loan provided by Europa’s bankers. The principal interest rate risk for the Drilling may involve unprofitable efforts, not only with respect to dry Group is the interest charge arising from utilisation of this facility. wells, but also to wells which, though yielding some oil or gas, are not On 10 September 2009 the Company issued 12,500,000 shares at 14p, a well does not assure a profit on the investment or recovery of drilling, sufficiently productive to justify commercial development. Completion of raising £1,693,000 net of broker commission. On 26 April 2010 and completion and operating costs. 4 May 2010 the Company issued a further 3,892,857 and 3,250,000 shares respectively at 14p, raising in total £943,000 net of broker commission. Appropriate insurance cover is obtained annually for all of Europa’s s s e n i s u B r u O 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 2010. Phil Greenhalgh Finance Director In connection with the April and May issue of new shares, the Company granted 357,142 options at 14p to Astaire Securities plc. The shares are exercisable at any time up to 26 April 2012. On 14 October 2010, after the reporting date for these accounts, the Company issued 13,360,810 shares at 11.5p raising a further £1,452,000 net of broker commission. 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 2010 of £2,868,000 (2009: £2,868,000). 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. 18569.04EUROPAOI.indd 11 18569.04 01/11/2010 Proof 4 01/11/2010 12:50 12 Europa Oil & Gas (Holdings) plc Annual Report and Accounts for the year ended 31 July 2010 Directors’ Report The directors present their report and the audited financial statements for the year ended 31 July 2010. Results for the year and dividends The Group loss for the year after taxation was £1,962,000 (2009 profit: £20,000). The directors do not recommend the payment of a dividend Principal activities The principal activity of the Group is investment in oil and gas (2009: £nil). exploration, development and production. The Group’s assets and activities are located in the United Kingdom, France and Romania. Policy and practice on payment of suppliers The Group’s policy on payment of suppliers is to settle amounts due on a The board has considered and will continue to consider investments timely basis taking into account the credit period given. At 31 July 2010, in Europe. the Group had 65 days of purchases outstanding (2009: 47 days) and the Company had 16 days of purchases outstanding (2009: 83 days). 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 Directors and their interests On 8 April 2010, JMY Oliver resigned from the board and W Adamson and Corporate governance statement detail the risks to which the was appointed. ES Syba resigned from the board with an effective date of Group is exposed and how these risks are managed with the oversight 31 August 2010. of the board and the Audit Committee. The directors consider that the combination of production and exploration activities is a key strength of The directors’ interests in the share capital of the Company at 31 July the Group. All activities are closely managed from the head office. were: CW Ahlefeldt-Laurvig1 PA Barrett & ES Syba2 RJHM Corrie3 P Greenhalgh JMY Oliver W Adamson Number of ordinary shares Number of ordinary share options 2010 2009 2010 25,002,442 23,252,442 17,655,071 16,832,929 37,500 250,000 — 50,000 37,500 100,000 — — — — 500,000 1,875,000 — 250,000 2009 — — 500,000 1,250,000 200,000 — 1 CW Ahlefeldt-Laurvig holds shares through HSBC Global Custody Nominee (UK) Limited. 2 PA Barrett is the registered owner of 6,967,044 shares and the beneficial owner of 1,831,399 shares held in a self invested personal pension (SIPP). ES Syba is the registered owner of 7,623,732 shares and the beneficial owner of 1,232,896 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 RJHM 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. 18569.04EUROPAOI.indd 12 18569.04 01/11/2010 Proof 4 01/11/2010 12:50 Stock Code: EOG www.europaoil.com 13 Share options are exercisable: one third after 18 months, a further third The funding of the 2011 work programme and specifically the appraisal after 30 months and the balance after 42 months, from the date of grant. drilling on Voitinel is expected to be funded from future cash flows — W Adamson was granted options on 17 April 2010 which are exercisable but that will be contingent on the increased production anticipated at 14 pence per share. RJHM Corrie and P Greenhalgh were granted from the West Firsby development well. If that well is not successful then 500,000 and 1,250,000 options respectively on 8 May 2008 exercisable at the Company would need to seek alternative funding for Voitinel which 20 pence per share. P Greenhalgh was granted a further 625,000 options could include another issue of equity, bank funding or the trading of on 23 October 2009 exercisable at 16 pence per share.. assets. 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. Further details on the Group’s capital structure are included in Notes 22 and 26. Accounting policies A full list of accounting policies is set out in Note 1 to the financial In 2009, CW Ahlefeldt-Laurvig provided services as a petroleum engineer statements. on a consultancy basis at a cost of £2,000. No such services were provided in 2010. Disclosure of information to the auditors In the case of each person who was a director at the time this report was Subject to the conditions set out in the Companies Act 2006, the Company has arranged appropriate Directors’ and Officers’ insurance approved: l So far as that director was aware there was no relevant available to indemnify the directors against liability in respect of proceedings information of which the Company’s auditors were unaware. brought by third parties. Such provisions remain in force at the date of l That director had taken all necessary steps to make themselves e c n a n r e v o G r u O this report. Post reporting date events Details of post reporting date events are included in Note 26 to the financial statements. Capital structure and going concern The directors took the opportunity to raise £1,693,000 of new equity financing in September 2009, and a further £943,000 in April 2010 — both figures net of broker commission. On 14 October 2010, after the reporting date of these accounts, the directors raised a further £1,452,000 aware of any relevant audit information, and to establish that the Company’s auditors were aware of that information. Auditors A resolution to reappoint the auditors, BDO LLP will be proposed at the next Annual General Meeting. On behalf of the board 25 October 2010 net of broker commission. The directors consider that the capital P Greenhalgh structure is appropriate for the current needs of the Group. Furthermore, Finance Director after making enquiries, the directors have formed a judgement at the time of approving the financial statements that the additional capital raised on 14 October 2010 alongside the Group’s current forecast cash generation enables the Group to remain a going concern 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. 18569.04EUROPAOI.indd 13 18569.04 01/11/2010 Proof 4 01/11/2010 12:50 14 Europa Oil & Gas (Holdings) plc Annual Report and Accounts for the year ended 31 July 2010 Statement of Directors’ Responsibilities Directors’ responsibilities The directors are responsible for preparing the annual report and the The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company’s transactions and financial statements in accordance with applicable law and regulations. disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the financial statements Company law requires the directors to prepare financial statements comply with the requirements of the Companies Act 2006. They are also for each financial year. Under that law the directors have prepared the responsible for safeguarding the assets of the Company and hence for Group and have elected to prepare the Company financial statements in taking reasonable steps for the prevention and detection of fraud and accordance with International Financial Reporting Standards (IFRSs) as other irregularities. 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 Website publication The directors are responsible for ensuring the annual report and and of the profit or loss of the Group for that year. The directors are also the financial statements are made available on a website. Financial required to prepare financial statements in accordance with the rules statements are published on the Company’s website in accordance of the London Stock Exchange for companies trading securities on the with legislation in the United Kingdom governing the preparation and Alternative Investment Market. dissemination of financial statements, which may vary from legislation in other jurisdictions. The maintenance and integrity of the Company’s In preparing these financial statements, the directors are required to: website is the responsibility of the directors. The directors’ responsibility l select suitable accounting policies and then apply them consistently; l make judgements and accounting estimates that are reasonable and also extends to the ongoing integrity of the financial statements contained therein. prudent; l 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; and l prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business. 18569.04EUROPAOI.indd 14 18569.04 01/11/2010 Proof 4 01/11/2010 12:50 Stock Code: EOG www.europaoil.com 15 Corporate Governance Statement The Combined Code on Corporate Governance as issued by the Financial Reporting Council is not mandatory for companies on AIM; however, Nomination Committee The directors do not consider it appropriate to appoint a Nomination the directors support the principles and are applying the requirements Committee given the size of the Group. The need for a Nomination where they are considered appropriate to the size and nature of the Committee will be kept under regular review by the board. 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 Audit Committee The Audit Committee consists of the three non executive directors and those areas in which there is not full compliance. is chaired by RJHM Corrie who took over the role from CW Ahlefeldt- The board The board consists of three non-executive and two executive directors. The role of chairman is held by a non-executive and the role of Managing Laurvig at the end of the year. 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. Director is held by an executive director. This creates a clear distinction The Audit Committee is responsible for reviewing the annual and and division of responsibilities at the head of the Group. interim accounts, annual audit, accounting policies, internal control and compliance procedures, and decision making processes, particularly with The board is responsible to the shareholders of the Company for all regard to the management of risk. significant financial and operational issues which include strategy, reviewing and approving budgets, ensuring adequate cash resources, During the year the committee considered the need for an internal approval of capital expenditure and acquisition and divestment audit function. Given the nature and current size of the Group, it is not opportunities. Matters for consideration at formal meetings are clearly considered appropriate to have a dedicated internal audit function. laid out. A record is kept of proceedings and any decisions taken. Each director retires and stands for re-election by shareholders at Internal control The directors are responsible for the process and system of internal least once every three years. All directors are subject to election by controls and reviewing their effectiveness. The process and system of shareholders at the first opportunity following their appointment. internal controls is designed to manage, rather than eliminate, the risk of All directors have full access to management and employees, the and not absolute assurance against material misstatement or loss. Company Secretary and independent professional advice in order to execute their duties. Internal controls along with business risks were monitored during the failure to achieve business objectives and can only provide reasonable course of the year. During the year, the board held 11 meetings (2009: nine). All directors were able to attend other than RJHM Corrie on two occasions. JMY Oliver attended the seven meetings up until his resignation and W Adamson Communication with shareholders The Company provides information to shareholders about the Group’s attended the four meetings following his appointment. The board activities in the annual report and accounts and the interim report. intends to meet at least six times a year. This is complemented with information available through regulatory announcements of the London Stock Exchange and the Company’s The non-executive directors hold, either directly or through beneficial website at www.europaoil.com. Shareholders may register on the interest, ordinary shares and options. The Company believes that this website to receive news releases issued by the Group directly to their serves to align non-executives with shareholders and does not adversely email. Shareholders are encouraged to attend the Annual General affect their independence. Meeting at which directors are introduced and available for questions. e c n a n r e v o G r u O Remuneration Committee The Remuneration Committee consists of the three non-executive directors and is chaired by W Adamson. 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. 18569.04EUROPAOI.indd 15 18569.04 01/11/2010 Proof 4 01/11/2010 12:50 16 Europa Oil & Gas (Holdings) plc Annual Report and Accounts for the year ended 31 July 2010 Report of the Independent Auditors Independent auditors’ report to the members of Europa Oil & Gas (Holdings) plc We have audited the financial statements of Europa Oil & Gas (Holdings) Opinion on financial statements In our opinion: l the financial statements give a true and fair view of the state of the plc for the year ended 31 July 2010 which comprise the Consolidated Group’s and the parent Company’s affairs as at 31 July 2010 and of Statement of Comprehensive Income, the Consolidated Statement of the Group’s loss for the year then ended; Financial Position, the Consolidated Statement of Changes in Equity, l the Group financial statements have been properly prepared in the Company Statement of Financial Position, the Company Statement accordance with IFRSs as adopted by the European Union; of Changes in Equity, the Consolidated Statement of Cash Flows, the l the Group financial statements have been prepared in accordance Company Statement of Cash Flows, and the related Notes 1 to 26. The with the requirements of the Companies Act 2006; financial reporting framework that has been applied in the preparation l the parent Company financial statements have been properly of both the Group financial statements and the parent Company financial prepared in accordance with IFRSs as adopted by the European statements is applicable law and International Financial Reporting Union and as applied in accordance with the provisions of the Standards (IFRSs) as adopted by the European Union and applied in Companies Act 2006. accordance with the provisions of the Companies Act 2006. Opinion on other matters prescribed by the Companies 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 Act 2006 In our opinion the information given in the Directors’ report for the 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 auditors’ financial year for which the financial statements are prepared is consistent with the financial statements. 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 Matters on which we are required to report by exception We have nothing to report in respect of the following matters where the this report, or for the opinions we have formed. Companies Act 2006 requires us to report to you if, in our opinion: Respective responsibilities of directors and auditors As explained more fully in the Statement of directors’ responsibilities, l 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 directors are responsible for the preparation of the financial l the parent Company financial statements are not in agreement with statements and for being satisfied that they give a true and fair view. the accounting records and returns; or Our responsibility is to audit the financial statements in accordance with l certain disclosures of directors’ remuneration specified by law are not applicable law and International Standards on Auditing (UK and Ireland). made; or Those standards require us to comply with the Auditing Practices Board’s l we have not received all the information and explanations we (APB’s) Ethical Standards for Auditors. require for our audit. 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 Anne Sayers, Senior Statutory Auditor the financial statements are free from material misstatement, whether For and on behalf of BDO LLP, Statutory Auditor caused by fraud or error. This includes an assessment of: whether the London accounting policies are appropriate to the Group’s and the parent Company’s circumstances and have been consistently applied and United Kingdom 25 October 2010 adequately disclosed; the reasonableness of significant accounting estimates made by the directors; and the overall presentation of the BDO LLP is a limited liability partnership registered in England and Wales financial statements. (with registered number OC305127). 18569.04EUROPAOI.indd 16 18569.04 01/11/2010 Proof 4 01/11/2010 12:50 Stock Code: EOG Consolidated Statement of Comprehensive Income for the year ended 31 July 2010 Revenue Other cost of sales Exploration write-off Impairment of producing fields Total cost of sales Gross (loss)/profit Administrative expenses Finance income Finance expense (Loss)/profit before taxation Taxation (Loss)/profit for the year attributable to the equity shareholders of the parent Other comprehensive income Exchange gains arising on translation of foreign operations Total comprehensive (loss)/income for the period attributable to the equity shareholders of the parent (Loss)/earnings per share (eps) attributable to the equity shareholders of the parent Basic eps Diluted eps The accompanying notes form part of these financial statements. www.europaoil.com 17 Note 2 11 12 7 8 3 9 10 2010 £000 3,091 (1,836) (1,008) (1,012) (3,856) (765) (709) 37 (262) (1,699) (263) (1,962) 56 (1,906) 2009 £000 2,936 (1,694) (297) — (1,991) 945 (545) 224 (248) 376 (356) 20 373 393 Pence Pence Note per share per share 10 10 (2.60)p (2.60)p 0.03p 0.03p s l a i c n a n i F r u O 18569.04EUROPAOI.indd 17 18569.04 01/11/2010 Proof 4 01/11/2010 12:50 18 Europa Oil & Gas (Holdings) plc Annual Report and Accounts for the year ended 31 July 2010 Consolidated Statement of Financial Position as at 31 July 2010 Assets Non-current assets Intangible assets Property, plant and equipment Total non-current assets Current assets Inventories Trade and other receivables Current tax asset Cash and cash equivalents Total current assets Total assets Liabilities Current liabilities Trade and other payables Current tax liabilities Derivative 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 Merger reserve Foreign exchange reserve Retained deficit Total equity Note 2010 £000 2009 £000 11 12 14 15 16 16 17 17 18 19 20 20 20 20 20 9,751 4,504 14,255 38 587 335 4 964 7,473 5,554 13,027 15 469 — 4 488 15,219 13,515 (1,797) (2) (55) (900) (900) (588) (40) (767) (2,754) (2,295) (352) (3,240) (1,395) (4,987) (7,741) 7,478 822 7,132 2,868 408 (3,752) 7,478 (772) (2,651) (1,137) (4,560) (6,855) 6,660 626 4,692 2,868 352 (1,878) 6,660 These financial statements were approved by the board of directors and authorised for issue on 25 October 2010 and signed on its behalf by: P Greenhalgh Finance Director Company registration number 5217946 The accompanying notes form part of these financial statements. 18569.04EUROPAOI.indd 18 18569.04 01/11/2010 Proof 4 01/11/2010 12:50 Stock Code: EOG Consolidated Statement of Changes in Equity for the year ended 31 July 2010 www.europaoil.com 19 Balance at 1 August 2008 Total comprehensive income for the year Share based payment Balance at 31 July 2009 Balance at 1 August 2009 Total comprehensive income/(loss) for the year Share based payment Issue of share capital (net of issue costs) Balance at 31 July 2010 Attributable to the equity holders of the parent Share capital £000 626 — — 626 Share capital £000 626 — — 196 822 Share premium £000 4,692 — — Merger reserve £000 2,868 — — 4,692 2,868 Share premium Merger reserve £000 4,692 — — 2,440 7,132 £000 2,868 — — — 2,868 Foreign exchange reserve £000 (21) 373 — 352 Foreign exchange reserve £000 352 56 — — 408 Retained earnings £000 (1,994) 20 96 Total equity £000 6,171 393 96 (1,878) 6,660 Retained earnings £000 (1,878) (1,962) 88 — (3,752) Total equity £000 6,660 (1,906) 88 2,636 7,478 The accompanying notes form part of these financial statements. s l a i c n a n i F r u O 18569.04EUROPAOI.indd 19 18569.04 01/11/2010 Proof 4 01/11/2010 12:50 20 Europa Oil & Gas (Holdings) plc Annual Report and Accounts for the year ended 31 July 2010 Company Statement of Financial Position as at 31 July 2010 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 Derivative 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 Note 12 13 15 15 16 16 17 17 20 20 20 20 2010 £000 382 3,312 7,217 10,911 49 21 70 2009 £000 384 3,312 3,976 7,672 19 297 316 10,981 7,988 (461) — (55) (21) (537) (252) (252) (789) 10,192 822 7,132 2,868 (630) 10,192 (100) — (40) (20) (160) (272) (272) (432) 7,556 626 4,692 2,868 (630) 7,556 These financial statements were approved by the board of directors and authorised for issue on 25 October 2010 and signed on their behalf by: P Greenhalgh Finance Director Company registration number 5217946 The accompanying notes form part of these financial statements. 18569.04EUROPAOI.indd 20 18569.04 01/11/2010 Proof 4 01/11/2010 12:50 Stock Code: EOG Company Statement of Changes in Equity for the year ended 31 July 2010 Balance at 1 August 2008 Total comprehensive income for the year Share based payment Balance at 31 July 2009 Balance at 1 August 2009 Total comprehensive loss for the year Share based payment Issue of share capital (net of issue costs) Balance at 31 July 2010 The accompanying notes form part of these financial statements. Share capital £000 626 — — 626 Share capital £000 626 — — 196 822 www.europaoil.com 21 Share premium £000 4,692 — — Merger reserve £000 2,868 — — 4,692 2,868 Share premium £000 4,692 — — 2,440 7,132 Merger reserve £000 2,868 — — — Retained earnings £000 (831) 105 96 (630) Retained earnings £000 (630) (88) 88 — 2,868 (630) Total equity £000 7,355 105 96 7,556 Total equity £000 7,556 (88) 88 2,636 10,192 s l a i c n a n i F r u O 18569.04EUROPAOI.indd 21 18569.04 01/11/2010 Proof 4 01/11/2010 12:50 22 Europa Oil & Gas (Holdings) plc Annual Report and Accounts for the year ended 31 July 2010 Consolidated Statement of Cash Flows for the year ended 31 July 2010 Cash flows from operating activities (Loss)/profit after tax Adjustments for: Share based payments Depreciation Exploration write-off Impairment of property, plant and equipment Finance income Finance expense Taxation expense (Increase)/decrease in trade and other receivables (Increase)/decrease in inventories Increase in trade and other payables Cash generated from operations Income taxes paid Net cash from operating activities Cash flows from investing activities Purchase of property, plant and equipment Purchase of intangible assets Net cash used in investing activities Cash flows from financing activities Proceeds from issue of share capital (net of issue costs) Proceeds from long-term borrowings Repayment of borrowings Finance costs Net cash from financing activities Net (decrease)/increase in cash and cash equivalents Exchange gain on cash and cash equivalents Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year Cash and cash equivalents comprises: Cash Multi-currency facility Net cash and cash equivalents The accompanying notes form part of these financial statements. Note 21 12 11 12 7 8 9 17 2010 £000 (1,962) 73 498 1,008 1,012 (37) 262 263 (66) (23) 592 1,620 (597) 1,023 (222) (3,075) (3,297) 2,653 — (469) (101) 2,083 (191) 8 (292) (475) 4 (479) (475) 2009 £000 20 96 576 297 — (224) 248 356 187 1 34 1,591 (180) 1,411 (191) (930) (1,121) — 1,000 (585) (138) 277 567 160 (1,019) (292) 4 (296) (292) 18569.04EUROPAOI.indd 22 18569.04 01/11/2010 Proof 4 01/11/2010 12:50 Stock Code: EOG Company Statement of Cash Flows for the year ended 31 July 2010 Cash flows from operating activities (Loss)/profit after tax Adjustments for: Share based payments Depreciation Finance income Finance expense (Increase)/decrease in trade and other receivables Increase in trade and other payables Net cash from operating activities Cash flows from investing activities Purchase of property, plant and equipment Movement on loan to Group companies Net cash (used in)/from investing activities Cash flows from financing activities Proceeds from issue of share capital (net of issue costs) Repayment of borrowings Finance costs Net cash from/(used in) financing activities Net (decrease )/increase in cash and cash equivalents Exchange gain on cash and cash equivalents Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year The accompanying notes form part of these financial statements. www.europaoil.com 23 Note 12 2010 £000 (88) 88 18 (168) 112 (39) 360 283 (16) (3,164) (3,180) 2,653 (19) (26) 2,608 (289) 13 297 21 2009 £000 105 86 34 (320) 94 23 17 39 (12) 656 644 — (535) (79) (614) 69 97 131 297 s l a i c n a n i F r u O 18569.04EUROPAOI.indd 23 18569.04 01/11/2010 Proof 4 01/11/2010 12:51 24 Europa Oil & Gas (Holdings) plc Annual Report and Accounts for the year ended 31 July 2010 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 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 statement of financial position 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 2010. 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. The following were amendments to published standards and interpretations to existing standards effective in the year and adopted by the Group. IAS 1 IAS 23 IFRS 2 IFRS 7 IAS 27 IFRS 3 Amendment — Presentation of financial statements: a revised presentation Amendment — Borrowing costs Amendment — Share based payment: vesting conditions and cancellations Amendment — Improving Disclosures about Financial Instruments Improvements to IFRSs (2009) Amendment — Consolidated and separate financial statements Revised — Business combinations New Standards effective in the year relevant to the Group: IFRS 8 Operating Segments Effective date (periods beginning on or after) 1 Jan 2009 1 Jan 2009 1 Jan 2009 1 Jan 2009 1 Jan 2009 1 July 2009 1 July 2009 1 Jan 2009 The adoption of IFRS 8 and the amendment to IAS 1 and IFRS 7 affected the presentation and disclosure of the financial statements. The amendment to IAS 23 and IFRS 2 did not have any financial effect in the year, however the accounting policies of the Group have been updated to reflect the required amendments. The revision to IFRS 3 would affect the presentation and disclosure of future business combinations completed in the period, the accounting policies have been updated to reflect the required change. 18569.04EUROPAOI.indd 24 18569.04 01/11/2010 Proof 4 01/11/2010 12:51 Stock Code: EOG www.europaoil.com 25 1 Accounting policies (continued) Standards, interpretations and amendments to published standards effective in the year but which are not relevant to the Group: International Accounting Standards (IAS/IFRS) IFRIC 16 Hedges of a Net Investment in a Foreign Operation IFRS 1 and IAS 27 Amendments — Cost of an Investment in a subsidiary, jointly controlled entity or associate IFRS 2 IAS 32 and 1 IFRIC 15 Amendment — Vesting conditions and cancellations Amendments — Puttable financial instruments and obligations arising on liquidation Agreements for the Construction of Real Estate IFRIC 9 and IAS 39 Amendments — Embedded derivatives IAS 39 IFRIC 17 IFRIC 18 IFRS 1 Amendment — Recognition and measurement: Eligible hedged items Distributions of Non-cash assets to owners Transfers of assets from customers First-time adoption of international accounting standards Effective date (periods beginning on or after) 1 Oct 2008 1 Jan 2009 1 Jan 2009 1 Jan 2009 1 Jan 2009 30 June 2009 1 July 2009 1 July 2009 1 July 2009 1 July 2009 Standards, interpretations and amendments, which are effective for reporting periods beginning after the date of these financial statements: International Accounting Standards (IAS/IFRS) IFRS 1 IFRS 2 IAS 32 IFRIC 19* IFRS 1 IAS 24 IFRIC 14 Additional exemptions for first-time adopters Amendment — Group cash-settled share based payment transactions Improvements to IFRSs (2009) generally Amendment — Classification of rights issues Extinguishing financial liabilities with equity instruments Amendment — first-time adopters of IFRS Revised — Related party disclosures Amendment to IFRIC 14 — IAS 19 Limit on a defined benefit asset Minimum funding requirements and their interaction Improvements to IFRSs (2010)* generally IFRS 9* Financial instruments s l a i c n a n i F r u O o Effective date (periods beginning r after) on 1 Jan 2010 1 Jan 2010 1 Jan 2010 1 Feb 2010 1 Apr 2010 1 July 2010 1 Jan 2011 1 Jan 2011 1 Jan 2011 1 Jan 2013 The above standards, interpretations and amendments will not significantly affect the Group’s results or financial position. The adoption of IFRS 9 will eventually replace IAS 39 in its entirety and consequently may have a material effect on the presentation, classification, measurement and disclosures of the Group’s financial instruments. 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 2010. 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. 18569.04EUROPAOI.indd 25 18569.04 01/11/2010 Proof 4 01/11/2010 12:51 26 Europa Oil & Gas (Holdings) plc Annual Report and Accounts for the year ended 31 July 2010 Notes to the Financial Statements continued 1 Accounting policies (continued) 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 — see below. Going concern After making enquiries, the directors have formed a judgement at the time of approving the financial statements that the additional capital raised on 14 October 2010 (Note 26) alongside the Group’s current forecast cash generation enables the Group to remain a going concern 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. The funding of the 2011 work programme and specifically the appraisal drilling on Voitinel is expected to be funded from future cash flows — but that will be contingent on the increased production anticipated from the West Firsby development well. If that well is not successful then the Company would need to seek alternative funding for Voitinel which could include another issue of equity, bank funding or the trading of assets. 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. 18569.04EUROPAOI.indd 26 18569.04 01/11/2010 Proof 4 01/11/2010 12:51 www.europaoil.com 27 Stock Code: EOG 1 Accounting policies (continued) Non-current assets (continued) Depreciation — production assets All expenditure within each 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 cost pool. Changes in the estimates of commercial reserves or future field development costs are dealt with prospectively. Furniture and computers are depreciated on a 25% per annum straight-line basis. Leasehold buildings are depreciated on a 2% per annum straight-line basis. 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. Future decommissioning costs A provision for decommissioning is recognised in full at the point that the Group has an obligation to decommission an appraisal, development or producing well. A corresponding non-current asset (included within producing fields in Note 12) 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. For producing wells, the asset is subsequently depreciated as part of the capital costs of production facilities within tangible non-current assets, on a unit of production basis. Any decommissioning obligation in respect of a pre- production asset is carried forward as part of its cost and tested annually for impairment in accordance with the above policy. 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 s l a i c n a n i F r u O included within interest expense. 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. 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 reporting date. Changes in deferred tax assets or liabilities are recognised as a component of tax expense in the statement of comprehensive income, 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. 18569.04EUROPAOI.indd 27 18569.04 01/11/2010 Proof 4 01/11/2010 12:51 28 Europa Oil & Gas (Holdings) plc Annual Report and Accounts for the year ended 31 July 2010 Notes to the Financial Statements continued 1 Accounting policies (continued) 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 reporting 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 items or on translating items at rates different from those at which they were initially recorded are recognised in the Statement of comprehensive income 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 Statement of comprehensive income. The monetary assets and liabilities in the financial statements of foreign subsidiaries are translated at the rate of exchange ruling at the reporting 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 statement of comprehensive income 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, and Western Sahara, 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. Financial instruments Financial assets and liabilities are recognised on the statement of financial position when the Group becomes a party to the contractual provisions of the instrument. The Group and Company classify 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 initially at fair value plus directly attributable transaction costs, and subsequently at amortised cost using the effective interest rate method, less provision for impairment. 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 Statement of comprehensive income. Cash and cash equivalents comprise cash held by the Group, short-term bank deposits with an original maturity of three months or less and bank overdrafts. Within the consolidated statement of cash flows, cash and cash equivalents includes the overdraft drawn against the multi-currency facility described in Note 17. 18569.04EUROPAOI.indd 28 18569.04 01/11/2010 Proof 4 01/11/2010 12:51 Stock Code: EOG www.europaoil.com 29 1 Accounting policies (continued) The Group and Company classify 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 statement of financial position at fair value with changes in fair value recognised in the consolidated Statement of comprehensive income. 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 statement of financial position. 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 statement of comprehensive income over the period of the lease. All other leases are regarded as operating leases and the payments made under them are charged to the statement of comprehensive income on a straight-line basis over the lease term. Lease incentives are spread over the term of the lease. s l a i c n a n i F r u O During the current or prior year the Group did not have any finance leases. 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. 18569.04EUROPAOI.indd 29 18569.04 01/11/2010 Proof 4 01/11/2010 12:51 30 Europa Oil & Gas (Holdings) plc Annual Report and Accounts for the year ended 31 July 2010 Notes to the Financial Statements continued 1 Accounting policies (continued) 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 statement of comprehensive income 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 statement of comprehensive income 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. 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: Accounting judgements: l Discontinued operations (Note 6) l Carrying value of intangible assets (Note 11) Accounting estimates: l Carrying value of property, plant and equipment (Note 12) l Decommissioning provision (Note 19) l l Share based payments (Note 21) Financial instruments (Note 22) 18569.04EUROPAOI.indd 30 18569.04 01/11/2010 Proof 4 01/11/2010 12:51 Stock Code: EOG www.europaoil.com 31 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 operated in four principal operating segments of business being the production and exploration activity in the United Kingdom, the exploration activity in Romania, the exploration activity in France and exploration activity in North Africa. Activities are reported to Management on this basis. The reporting on these investments to Management focuses on revenue, operating costs and capital expenditure. The impact of such criteria is discussed further in the Chairman’s Statement, Operational Review and Financial Review of this annual report. Segmental statement of comprehensive income for the year ended 31 July 2010 Continuing operations Revenue Other cost of sales Exploration write-off Impairment of producing fields Cost of sales Gross profit/(loss) Administrative expenses Finance income Finance costs Loss before tax Taxation Loss for the year Segmental statement of financial position as at 31 July 2010 Total non-current assets Total current assets Total assets Total non-current liabilities Total current liabilities Total liabilities Other segment items Capital expenditure Depreciation Share based payments UK £000 Romania £000 France North Africa £000 £000 3,091 (1,836) (87) (1,012) (2,935) 156 (642) 37 (245) (694) (263) (957) UK £000 6,756 757 7,513 (4,521) (2,754) (7,275) 1,896 498 93 — — — — — — (35) — (17) (52) — (52) — — — — — — — — — — — — — — (921) — (921) (921) (32) — — (953) — (953) Romania France North Africa £000 7,191 207 7,398 (466) — (466) 987 — — £000 308 — 308 — — — 169 — — £000 — — — — — — 245 — (5) Total £000 3,091 (1,836) (1,008) (1,012) (3,856) (765) (709) 37 (262) (1,699) (263) (1,962) Total £000 14,255 964 15,219 (4,987) (2,754) (7,741) 3,297 498 88 s l a i c n a n i F r u O 18569.04EUROPAOI.indd 31 18569.04 01/11/2010 Proof 4 01/11/2010 12:51 32 Europa Oil & Gas (Holdings) plc Annual Report and Accounts for the year ended 31 July 2010 Notes to the Financial Statements continued 2 Business segment analysis (continued) Segmental statement of comprehensive income for the year ended 31 July 2009 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 Segmental statement of financial position as at 31 July 2009 Total non-current assets Total current assets Total assets Total non-current liabilities Total current liabilities Total liabilities Other segment items Capital expenditure Depreciation Share based payments UK £000 Romania £000 France North Africa £000 £000 2,936 (1,694) (297) (1,991) 945 (450) 213 (232) 476 (356) 120 UK £000 6,408 292 6,700 (4,560) (2,123) (6,683) 652 576 88 — — — — — (79) 11 (16) (84) — (84) — — — — — — — — — — — — — — — — (16) — — (16) — (16) Romania France North Africa £000 5,941 196 6,137 — (172) (172) (227) — — £000 139 — 139 — — — 91 — — £000 539 — 539 — — — 146 — 8 Total £000 2,936 (1,694) (297) (1,991) 945 (545) 224 (248) 376 (356) 20 Total £000 13,027 488 13,515 (4,560) (2,295) (6,855) 662 576 96 100% (2009: 100%) of the total revenue relates to UK based customers. Of this figure, one single customer (2009: one) commands more than 10% of the total. In Romania a 2008 creditor balance was written off in 2009 causing a reduction in intangible assets. 18569.04EUROPAOI.indd 32 18569.04 01/11/2010 Proof 4 01/11/2010 12:51 Stock Code: EOG www.europaoil.com 33 3 Profit for the year is stated after charging: Profit from continuing operations: Depreciation Staff costs including directors Exploration write-off Impairment of property, plant and equipment Fees payable to the auditor for the Company audit Fees payable to the auditor for the audit of subsidiaries Operating leases Note 5 11 12 2010 £000 498 920 1,008 1,012 5 11 36 2009 £000 576 764 297 — 25 56 36 Fees payable to the auditor were over accrued in 2009 and the 2010 figure is net of a credit in the Company of £10,000 and in the subsidiary of £24,000. The Company has taken advantage of the exemption provided under Section 408 of the Companies Act 2006 not to publish its individual statement of comprehensive income and related notes. The loss dealt with in the financial statements of the parent Company is £88,000 (2009 profit: £105,000). 4 Directors’ emoluments Directors’ salaries and fees W Adamson (from 8 April 2010) CW Ahlefeldt-Laurvig PA Barrett RJHM Corrie P Greenhalgh JMY Oliver (to 8 April 2010) ES Syba CW Ahlefeldt-Laurvig for service as petroleum engineer 2010 £000 13 18 125 18 109 12 233 528 — s l a i c n a n i F r u O 2009 £000 — 18 123 18 111 18 73 361 2 ES Syba resigned from the Company effective 31 August 2010 and included in the above is an amount of £159,000 in compensation for loss of office. As a result, ES Syba was the highest paid director in the year with total salary plus pension of £244,000 (2009: highest paid director received salary and pension of £142,000). Directors’ pensions PA Barrett P Greenhalgh ES Syba The above charge represents premiums paid to money purchase pension plans during the year. 2010 £000 19 16 11 46 2009 £000 19 16 11 46 18569.04EUROPAOI.indd 33 18569.04 01/11/2010 Proof 4 01/11/2010 12:51 34 Europa Oil & Gas (Holdings) plc Annual Report and Accounts for the year ended 31 July 2010 Notes to the Financial Statements continued 4 Directors’ emoluments (continued) Directors’ share based payments W Adamson RJHM Corrie P Greenhalgh 2010 £000 3 15 54 72 2009 £000 — 25 61 86 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 (2009: none). 5 Employee information Average number of employees including directors Management and technical Field exploration and production Figures include average of 12 staff (2009: 15) based in Ukraine terminated in 2010. Staff costs Wages and salaries Employer’s costs Pensions Share based payment Total staff costs for the Company were £729,000 (2009: £552,000). 2010 Number 2009 Number 10 13 23 2010 £000 694 87 66 73 920 13 15 28 2009 £000 524 78 66 96 764 18569.04EUROPAOI.indd 34 18569.04 01/11/2010 Proof 4 01/11/2010 12:51 Stock Code: EOG www.europaoil.com 35 6 Loss on disposal of investment and discontinued operations The anticipated sale of the remaining Ukraine asset has not completed. As it is not material to the Group, the cost of maintaining the asset has been included in Administrative expenses and the comparative period has been represented for consistency. 7 Finance income Exchange rate gains 8 Finance expense Bank interest payable Loan interest payable Interest on tax payment Unwinding of discount on decommissioning provision (Note 19) Exchange rate losses Bank charges Interest rate swap fair value charge (Note 22) 9 Taxation Current tax (credit)/charge Deferred tax charge/(credit) (Note 18) 2010 £000 37 2010 £000 85 6 4 85 52 15 15 2009 £000 224 2009 £000 88 19 — 79 16 6 40 s l a i c n a n i F r u O 262 248 2010 £000 (326) 589 263 2009 £000 406 (50) 356 UK corporation tax is calculated at 30% (2009: 30%) of the estimated assessable profit for the year. Taxation in other jurisdictions is calculated at the rates prevailing in the respective jurisdictions. (Loss)/profit on ordinary activities per the accounts Tax reconciliation (Loss)/profit on ordinary activities multiplied by the standard rate of corporation tax in the UK of 30% (2009: 30%) Losses carried forward not recognised for deferred tax Expenses not deductible for tax purposes Supplementary taxation of Ring Fence profits Adjustment re prior year Total tax charge 2010 £000 (1,699) (510) 866 2 (102) 7 263 2009 £000 376 113 68 10 175 (10) 356 18569.04EUROPAOI.indd 35 18569.04 01/11/2010 Proof 4 01/11/2010 12:51 36 Europa Oil & Gas (Holdings) plc Annual Report and Accounts for the year ended 31 July 2010 Notes to the Financial Statements continued 10 Earnings per share Basic earnings per share (EPS) has been calculated on the loss or 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. The Company’s average share price for the year to 31 July 2010 was 14.6p resulting in a dilution of 26,020 shares. 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 had no dilutive effect and there is no difference between the basic and diluted earnings per share. Additional shares were issued subsequent to the year end, these are detailed in Note 26. The calculation of the basic and diluted (loss)/earnings per share is based on the following: (Losses)/earnings (Loss)/profit after tax Weighted average number of shares for the purposes of basic eps for the purposes of diluted eps 11 Intangible assets At 1 August Additions Exploration write-off At 31 July Intangible assets comprise the Group’s pre-production expenditure on licence interests as follows: Romania Egypt France Western Sahara UK PEDL143 (Holmwood) UK PEDL150 (SW Lincoln) UK PEDL180 (NE Lincs) UK PEDL181 UK PEDL222 (Torksey area) Total 2010 £000 2009 £000 (1,962) 20 75,520,873 75,546,893 62,563,730 62,563,730 2010 £000 7,473 3,286 (1,008) 9,751 2010 £000 7,191 — 308 — 186 1,904 63 99 — 2009 £000 7,241 529 (297) 7,473 2009 £000 5,874 434 139 105 177 588 52 63 41 9,751 7,473 18569.04EUROPAOI.indd 36 18569.04 01/11/2010 Proof 4 01/11/2010 12:51 Stock Code: EOG 11 Intangible assets (continued) Exploration write-off Egypt Western Sahara UK PEDL222 UK PEDL180/181 pre licence costs UK East Irish sea block 109/5 At 31 July www.europaoil.com 37 2010 £000 738 184 55 31 — 1,008 2009 £000 — — — — 297 297 In December 2009, the Company relinquished its interest in the West Darag concession, onshore Egypt. The decision, driven by the lack of identified drill-ready prospects needed to commit to phase 2 of the concession, resulted in a write-off of the investment in Egypt. As the licence areas in Western Sahara remained in force majeure throughout the year, the board decided to write-down the intangible asset to nil value. With a lack of identified prospects in the PEDL222 concession, the board also decided to write down the investment to nil value. Within the PEDL150 concession, the Hykeham well was drilled in the year. Though the likely forward plan is to plug and abandon the well, the investment has not been written off as prospectivity within the rest of the concession area, which is considered as one cost pool, is good. 12 Property, plant and equipment Property, plant and equipment — Group Cost At 1 August 2008 Additions At 31 July 2009 Additions At 31 July 2010 Depreciation and depletion At 1 August 2008 Charge for year At 31 July 2009 Charge for year Impairment At 31 July 2010 Net book value At 31 July 2010 At 31 July 2009 At 31 July 2008 Furniture and Leasehold Producing computers building £000 £000 27 12 39 16 55 6 9 15 10 — 25 30 24 21 437 — 437 — 437 52 25 77 8 — 85 352 360 385 fields £000 7,213 122 7,335 444 7,779 1,623 542 2,165 480 1,012 3,657 4,122 5,170 5,590 Total £000 7,677 134 7,811 460 8,271 1,681 576 2,257 498 1,012 3,767 4,504 5,554 5,996 s l a i c n a n i F r u O 18569.04EUROPAOI.indd 37 18569.04 01/11/2010 Proof 4 01/11/2010 12:51 38 Europa Oil & Gas (Holdings) plc Annual Report and Accounts for the year ended 31 July 2010 Notes to the Financial Statements continued 12 Property, plant and equipment (continued) 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 interest in the Whisby W4 well. The carrying value of each producing field was tested for impairment. As a result, the board decided to write down the value of the Crosby Warren field by £1,012,000. Property, plant and equipment — Company Cost At 1 August 2008 Additions At 31 July 2009 Additions At 31 July 2010 Depreciation At 1 August 2008 Charge for the year At 31 July 2009 Charge for year At 31 July 2010 Net book value At 31 July 2010 At 31 July 2009 At 31 July 2008 Furniture and Leasehold computers building £000 £000 Total £000 27 12 39 16 55 6 9 15 10 25 30 24 21 437 — 437 — 437 52 25 77 8 85 352 360 385 464 12 476 16 492 58 34 92 18 110 382 384 406 The leasehold building was depreciated at 2% (2009: 2%). An impairment of £17,000 was recorded to reflect loss in market value of the property in 2009. No such adjustment was required for 2010. The loss in value in 2009 was assessed by an expert familiar with the local property market and was charged to administrative expenses in the Statement of comprehensive income. The property loan of £273,000 (2009: £292,000) described in Note 17 is secured against this building. 18569.04EUROPAOI.indd 38 18569.04 01/11/2010 Proof 4 01/11/2010 12:51 Stock Code: EOG 13 Investments — Company Investment in subsidiaries At 1 August Current year additions 31 July www.europaoil.com 39 2010 £000 3,312 — 3,312 2009 £000 3,303 9 3,312 The Company’s investments at the reporting date in the share capital of unlisted companies include 100% of Europa Oil & Gas Limited (this company undertakes oil and gas exploration, development and production) and 100% of Europa Oil & Gas (West Firsby) Limited (this company is non-trading). These two companies are registered in England and Wales. The results of the two 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 Resources Limited (this UK company undertakes exploration in the area of underground coal gasification); 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 net value of options over the shares of the Company issued to employees of subsidiary companies less any lapsed, unvested options. 14 Inventories — Group Oil in tanks 15 Trade and other receivables Current trade and other receivables Trade receivables Other receivables Prepayments Non-current other receivables Owed by Group undertakings 2010 £000 38 Group Company 2009 £000 164 220 85 469 2010 £000 — 18 31 49 s l a i c n a n i F r u O 2009 £000 15 2009 £000 — 2 17 19 — 7,217 3,976 2010 £000 232 276 79 587 — Group other receivables includes a VAT debtor in Romania. Loans to subsidiaries are interest free and are repayable on demand but currently have no planned repayment date. 18569.04EUROPAOI.indd 39 18569.04 01/11/2010 Proof 4 01/11/2010 12:51 40 Europa Oil & Gas (Holdings) plc Annual Report and Accounts for the year ended 31 July 2010 Notes to the Financial Statements continued 16 Trade and other payables Trade payables Other payables Accruals Interest rate swap Group Company 2010 £000 1,214 223 360 1,797 55 2009 £000 455 381 64 900 40 2010 £000 215 — 246 461 55 2009 £000 62 — 38 100 40 Group other payables includes advances received from partners on projects in UK. 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 £1 million 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 was replaced with a multi-currency facility in August 2010 which can be utilised in either Sterling or foreign currency via an overdraft. At 31 July 2010 this facility was drawn to £479,000 (2009: £297,000). On the new facility there were no guarantees outstanding (2009: £475,000). The facility is available until 31 October 2010 when both the multi-currency facility and term loan are expected to be renegotiated. The term loan is repayable in ten quarterly instalments. At 31 July 2010 it was drawn to £500,000 of which £400,000 was classified as short-term. A loan of £273,000 (2009: £292,000) secured against the Abingdon property is repayable over 13 years. Loans repayable in less than 1 year Multi-currency facility Term 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 Group Company 2010 £000 2009 £000 2010 £000 2009 £000 479 400 21 900 100 21 121 — 66 66 165 165 352 297 450 20 767 400 21 421 100 65 165 186 186 772 — — 21 21 — 21 21 — 66 66 165 165 252 — — 20 20 — 21 21 — 65 65 186 186 272 18569.04EUROPAOI.indd 40 18569.04 01/11/2010 Proof 4 01/11/2010 12:51 Stock Code: EOG www.europaoil.com 41 18 Deferred tax — Group Recognised deferred tax liability: As at 1 August Charged/(credited) to statement of comprehensive income At 31 July The Group has a net deferred tax liability of £3,240,000 (2009: £2,651,000) arising from accelerated capital allowances. Unrecognised deferred tax asset: Accelerated capital allowances Trading losses Net deferred tax asset 2010 £000 2,651 589 3,240 2010 £000 (1,298) 2,500 1,202 2009 £000 2,701 (50) 2,651 2009 £000 (1,194) 1,845 651 The Group has a net deferred tax asset of £1,202,000 (2009: £651,000), which arises mainly in relation to overseas trading losses of £11.8 million and Holding Company losses of £0.5 million, that have not been recognised in the accounts as the timing of the utilisation of the losses is considered uncertain. 19 Long-term provision — Group As at 1 August Charged to statement of comprehensive income Added to intangible non-current assets At 31 July s l a i c n a n i F r u O 2010 £000 1,137 85 173 1,395 2009 £000 1,058 79 — 1,137 The addition during the year is the decommissioning provision for the Hykeham well. 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. Hykeham is the only well where decommissioning is anticipated before 2022. 18569.04EUROPAOI.indd 41 18569.04 01/11/2010 Proof 4 01/11/2010 12:51 42 Europa Oil & Gas (Holdings) plc Annual Report and Accounts for the year ended 31 July 2010 Notes to the Financial Statements continued 20 Called up share capital Authorised 150,000,000 ordinary shares of 1p each Allotted, called up and fully paid 82,206,587 ordinary shares of 1p each (2009: 62,563,730) All the authorised and allotted shares are of the same class and rank pari passu. 2010 £000 2009 £000 1,500 1,500 822 626 On 10 September 2009 the Company issued 12,500,000 shares at 14p, raising £1,693,000 net of broker commission. On 26 April 2010 and 4 May 2010 the Company issued a further 3,892,857 and 3,250,000 shares respectively at 14p, raising in total £943,000 net of broker commission. Further shares were issued post year end as detailed in note 26. 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 2010 of £2,868,000 (2009: £2,868,000). The following describes the purpose of each reserve within owners’ equity: Reserve Share premium Merger reserve 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 Foreign exchange reserve Reserve arising on translation of foreign subsidiaries Retained earnings Cumulative net gains and losses recognised in the consolidated statement of comprehensive income. 21 Share based payments There are 3,382,142 ordinary 1p share options outstanding (2009: 3,550,000). These are held by certain members of the board, (W Adamson 250,000; RJH M Corrie 500,000; and P Greenhalgh 1,875,000), employees of the Group (400,000) and Astaire Securities plc (357,142). Of the outstanding options, the 357,142 granted to Astaire Securities plc on 26 April 2010 are exercisable at any time up to 26 April 2012. The remaining 3,025,000 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. 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 Volatility Dividend yield Risk free investment rate Option life (years) Fair value per share 11 Nov 2004 160,000 32.5p 25p 40% nil 4.80% 6.25 16.76p 1 Dec 8 May 23 Oct 17 Apr 2006 2008 2009 2010 26 Apr 2010 80,000 21.5p 25p 50% nil 4.90% 6.25 10.16p 1,750,000 785,000 250,000 357,142 21.5p 20p 50% nil 4.42% 6 10.96p 13.3p 16p 60% nil 2.74% 6 6.58p 14p 14p 70% nil 2.82% 5 7.79p 14.2p 14p 70% nil 1.28% 1.5 4.37p Volatility has been based on the Company’s share price volatility since flotation. Based on the above fair values the charge arising from employee share options was £73,000 (2009: £96,000). 18569.04EUROPAOI.indd 42 18569.04 01/11/2010 Proof 4 01/11/2010 12:51 Stock Code: EOG www.europaoil.com 43 21 Share based payments (continued) In the year 1,392,142 options were granted; 360,000 were forfeited and 1,200,000 expired. No options were exercised (2009: nil). Outstanding at the start of the year Granted Forfeited Expired Outstanding at the end of the year Exercisable at the end of the year 22 Financial instruments 2010 2010 2009 Number of Average Number of 2009 Average options exercise price options exercise price 3,550,000 1,392,142 (360,000) (1,200,000) 3,382,142 823,332 22.25p 15.13p 22.22p 25p 18.35p 21.46p 3,750,000 — — (200,000) 3,550,000 1,613,334 22.4p — — 25p 22.25p 25p 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 2010 trade receivables were £232,000 (2009: £164,000) representing one month of oil revenue (2009: 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 £344,000 (2009: £400,000). 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. The Company has in place a £1 million flexible multi-currency facility and a £1 million term loan with its bankers. The multi-currency facility can be utilised in either Sterling or foreign currency via an overdraft. The term loan is repayable in ten quarterly instalments. Included within short-term borrowings is an overdraft of £479,000 (2009: £297,000) which has been utilised under the multi-option facility. An amount of £500,000 is owed at 31 July 2010 (2009: £950,000) on the term loan. s l a i c n a n i F r u O 18569.04EUROPAOI.indd 43 18569.04 01/11/2010 Proof 4 01/11/2010 12:51 44 Europa Oil & Gas (Holdings) plc Annual Report and Accounts for the year ended 31 July 2010 Notes to the Financial Statements continued 22 Financial instruments (continued) 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. As explained in Note 1, the funding of the 2011 work programme and specifically the appraisal drilling on Voitinel is expected to be funded from future cash flows — but that will be contingent on the increased production anticipated from the West Firsby development well. If that well is not successful then the Company would need to seek alternative funding for Voitinel which could include another issue of equity, bank financing or the trading of assets. At 31 July 2010 6 months or less 6–12 months 1–2 years 2–5 years Over 5 years Total At 31 July 2009 6 months or less 6–12 months 1–2 years 2–5 years Over 5 years Total Trade and Short-term Long-term other payables borrowings borrowings £000 £000 £000 1,687 110 — — — 1,797 604 296 — — — 900 689 211 — — — 900 554 213 — — — 767 — — 121 66 165 352 — — 421 165 186 772 Trade and other payables do not normally incur interest charges. There is no difference between the fair value of the trade and other payables and their carrying amounts. Borrowings bear interest at variable rates, except for the property loan of £273,000 (2009: £292,000) which was swapped for a fixed rate of interest. Interest rate risk The Group has interest bearing liabilities as described in Note 17. The £1 million multi-currency 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-currency facility at base rate plus 3% and on the term loan at LIBOR plus 3.25%. A loan of £273,000 (2009: £292,000) 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 £55,000 (2009: £40,000) 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 statement of comprehensive income. Fair value of swap Long-term forward Sterling base rate 1% 3% 5% 2010 £000 63 37 11 2009 £000 71 40 11 The fair value of the interest rate swap has been based on an estimate provided by the Company’s bankers which meets the definition of tier 2 disclosures under the provisions of International Financial Reporting Standard 7 “Financial Instruments: Disclosures”. 18569.04EUROPAOI.indd 44 18569.04 01/11/2010 Proof 4 01/11/2010 12:51 Stock Code: EOG www.europaoil.com 45 22 Financial instruments (continued) Commodity price risk The selling price of the Group’s production of crude oil is set at a small discount to Brent prices. 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 movements 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 Average Lowest Month April 2010 Sept 2009 Foreign exchange risk Price 2010 $/bbl 83.40 73.95 66.10 PBT 2010 £000 (1,313) (1,699) (2,034) Price 2009 $/bbl 111.28 62.30 39.35 PBT 2009 £000 2,720 423 (663) 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 Average Lowest Month Oct 2009 May 2010 Rate 2010 $/£ 1.6478 1.5584 1.4459 PBT 2010 £000 (1,874) (1,699) (1,467) Rate 2009 $/£ 1.9355 1.6533 1.4331 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 Capital risk management 2010 £000 (481) 676 195 s l a i c n a n i F r u O PBT 2009 £000 (11) 423 867 2009 £000 (42) 915 873 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 31 July 2010 the Group had contractual commitments to drill two wells in Romania and to acquire seismic in the UK. We estimate that our share of costs for these wells and other exploration activities over the next year is approximately £2 million. This commitment is expected to be met from cash generated from production and borrowings referred to in Note 17. In the Western Sahara a further £3 million is committed pending a resolution of the political situation in the country. 18569.04EUROPAOI.indd 45 18569.04 01/11/2010 Proof 4 01/11/2010 12:51 46 Europa Oil & Gas (Holdings) plc Annual Report and Accounts for the year ended 31 July 2010 Notes to the Financial Statements continued 24 Operating lease commitments Europa Oil & Gas Limited pays an annual site rental for the land upon which the West Firsby and Crosby Warren oil field facilities are located. The West Firsby lease runs until September 2022 and can be determined upon giving two months notice. The annual cost is currently £17,000 and increases annually in line with the retail price index. The Crosby Warren lease runs until December 2022 and can be determined on three months notice. The annual cost is currently £20,000 and is reviewed every five years, the next review being later in 2010. 25 Related party transactions Key management are those persons having authority and responsibility for planning, controlling and directing the activities of the Group. In the opinion of the board, the Group’s and the Company’s key management are the directors of Europa Oil & Gas (Holdings) plc. Information regarding their compensation is given in Note 4. During 2009, CW Ahlefeldt-Laurvig provided services as a petroleum engineer on a consultancy basis at a total cost of £2,000. There were no such services provided in the year to 31 July 2010. During the year, the Company provided services to subsidiary companies as follows: Europa Oil & Gas Limited Europa Oil & Gas SRL Total At the end of the year the Company was owed the following amounts by subsidiaries: Europa Oil & Gas Limited Europa Oil & Gas SRL Europa Oil & Gas Resources Limited Total 26 Post reporting date events 2010 £000 906 24 930 2010 £000 5,700 1,493 24 7,217 2009 £000 677 38 715 2009 £000 2,735 1,241 — 3,976 On 14 September 2010 ES Syba provided a £90,000 loan to the Company. The loan is repayable on 15 February 2011 together with £5,000 of interest. On 14 October 2010 the Company announced the placing of 13,360,810 new shares at 11.5p, raising £1,452,000 net of fees. The total issued share capital following the placing is 95,567,397 ordinary shares of 1p each. On 18 October 2010 the Company announced the spud of the Barchiz-1 exploration well in Romania. The Barchiz-1 well, situated in the EPI-3 Brates Concession (Europa 20%), is scheduled to take approximately 30 days to drill to an estimated final total depth of 1,400 metres. 18569.04EUROPAOI.indd 46 18569.04 01/11/2010 Proof 4 01/11/2010 12:51 www.europaoil.com 47 Stock Code: EOG Directors and Advisers Company registration number 5217946 Registered office 11 The Chambers Directors Secretary Banker Solicitor Auditor Vineyard Abingdon OX14 3PX W Adamson — Non-executive Chairman CW Ahlefeldt-Laurvig — Non-executive RJHM Corrie — Non-executive PA Barrett — Managing Director P Greenhalgh — Finance 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 Nominated adviser and broker finnCap Limited 4 Coleman Street London EC2R 5TA Registrar Computershare Investor Services PLC PO Box 82 The Pavilions Bridgwater Road Bristol BS99 7NH s r e s i v d A r u O 18569.04EUROPAOI.indd 47 18569.04 01/11/2010 Proof 4 01/11/2010 12:51 48 Europa Oil & Gas (Holdings) plc Annual Report and Accounts for the year ended 31 July 2010 18569.04EUROPAOI.indd 48 18569.04 01/11/2010 Proof 4 01/11/2010 12:51 Europa Oil & Gas (Holdings) plc Annual Report and Accounts for the year ended 31 July 2010 About Us Europa Oil & Gas (Holdings) plc is an exploration and production company with a European focus. We have core producing oil assets in the UK, along with a wide range of exploration and appraisal projects in various stages of development in the UK, Romania, France and Western Sahara. Our Mission To build shareholder value by a combination of production and reserves growth via a geographically focussed and technically driven strategy. Contents Highlights Europa Oil & Gas At A Glance Chairman’s Statement Operational Review Financial Review Directors’ Report Statement of Directors’ Responsibilities Corporate Governance Statement Report of the Independent Auditors Consolidated Statement of Comprehensive Income Consolidated Statement of Financial Position Consolidated Statement of Changes in Equity Company Statement of Financial Position Company Statement of Changes in Equity Consolidated Statement of Cash Flows Company Statement of Cash Flows Notes to the Financial Statements Directors and Advisers For more info go to www.europaoil.com 01 02 04 06 10 12 14 15 16 17 18 19 20 21 22 23 24 47 18569.04EUROPAOIL CVR.indd 2 18569.04 01/11/2010 Proof 4 18569.04 01/11/2010 Proof 4 01/11/2010 12:51 E u r o p a O i l & G a s ( H o l d i n g s ) p l c A n n u a l R e p o r t a n d A c c o u n t s 2 0 1 0 exploration discovery production Europa Oil & Gas (Holdings) plc Annual Report and Accounts for the year ended 31 July 2010 Stock Code: EOG www.europaoil.com 11 The Chambers Vineyard, Abingdon OX14 3PX Tel: +44 (0)1235 553266 Fax: +44 (0)1235 467369 18569.04EUROPAOIL CVR.indd 1 18569.04 01/11/2010 Proof 4 18569.04 01/11/2010 Proof 4 01/11/2010 12:51