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PetroNeft Resources plc
Annual Report and Accounts 2005
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PetroNeft Resources plc Annual Report and Financial Accounts 2005
Table of Contents
Highlights of 2005/2006
Corporate Information
Directors
Chairman's Statement
Overview of Operations
Financial Report
Report of Directors
Independent Auditors’ Report to the
Shareholders of PetroNeft Resources plc
Statement of Accounting Policies
Consolidated Income Statement
Consolidated Balance Sheet
Group Statement of Changes in Equity
Company Balance Sheet
Cash Flow Statement
Notes on and forming part of the
Financial Statements
Notice of Annual General Meeting
Form of Proxy
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37
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This report contains Forward-Looking Statements, identified by such
words as “believe”, “could”, “estimate”, “intend”, “may” and
“will”. Forward-Looking Statements are based upon current
expectations and are subject to change, risks and uncertainties.
Shareholders in the United States should be aware that the ordinary
shares have not been and will not be registered under the United
States Securities Act 1933 as amended.
PetroNeft Resources plc Annual Report and Financial Accounts 2005
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l Acquisition of Licence 61 for US $5.5 million
l Two known oil fields and over 20 prospects and leads
l Reprocessing and reinterpretation of all previous seismic
and well log data
l Acquisition and interpretation of 500 line kms of new seismic data
l Ryder Scott establish 2P reserves at 33.5 million barrels
l P3 reserves estimated at 290 million barrels with
exploration upside
l All drilling and seismic contracts in place for 2006/2007
winter season
l US$23.5 million raised in private placing and IPO
l Admission to AIM and IEX Market completed September 2006
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PetroNeft Resources plc Annual Report and Financial Accounts 2005
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DIRECTORS
G. DAVID GOLDER
DENNIS FRANCIS
DAVID SANDERS
DESMOND BURKE
VAKHA SOBRALIEV
THOMAS HICKEY
REGISTERED OFFICE
c/o O'Donnell Sweeney
One Earlsfort Centre
Earlsfort Terrace
Dublin 2
SECRETARY
David Sanders
NOMINATED ADVISOR
IEX ADVISOR AND BROKER
Davy
49, Dawson Street,
Dublin 2
AUDITORS
LHM Casey McGrath
Chartered Certified Accountants
6 Northbrook Road
Dublin 6
Ireland
P.R. CONSULTANTS
College Hill Associates Ltd.
78 Cannon Street,
London. EC4
BUSINESS ADDRESS
Modeshill
Mullinahone
Co. Tipperary
BANKERS
JP Morgan Chase Bank
9709 Bellaire Boulevard
Houston, Texas 77036
USA
AIB Bank
1/3 Lower Baggot Street
Dublin 2
Ireland
SOLICITORS
O'Donnell Sweeney
One Earlsfort Centre
Earlsfort Terrace
Dublin 2
Ireland
REGISTERED NUMBER
408101
DATE OF INCORPORATION
15 September 2005
Website: www.petroneft.com
AIM/IEX : PTR/P8ET
PetroNeft Resources plc Annual Report and Financial Accounts 2005
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G. DAVID GOLDER
Non-Executive Chairman
DENNIS FRANCIS
Chief Executive Officer
US; Petroleum & Natural Gas
Engineer
US; Geophysical
Engineer and Geologist
34 years’ industry experience in oil
and gas industry with Marathon Oil
Company and others. Former
Senior Vice President, Marathon
Oil Company. Former Executive
Vice President –Upstream, Sakhalin
Energy Investment Company.
30 years with Marathon Oil
Company. Headed Marathon’s
Business Development Activities in
Russia from 1989. Director
Sakhalin Energy Investment
Company. World wide experience
as senior oil executive.
DAVID SANDERS
Executive Director, Company
Secretary and General Legal
Counsel
US; Lawyer, Engineer
30 years’ industry experience. 15
years with Marathon Oil Company.
In Russia was involved in, Sakhalin
II, Priobskoye, KMOC projects.
DESMOND BURKE
Executive Director of Planning and
Investor Relations
Irish; Geologist
THOMAS HICKEY
Non-Executive Director
VAKHA A. SOBRALIEV
Non-Executive Director
Irish; Accountant and Business
Executive
Russian; Mining Engineer
and Economics
30 years’ minerals industry
experience and 20 years
experience in international equity
markets.
Chief Financial Officer and Director
of Tullow Oil plc. Formerly of ABN
AMRO Corporate Finance (Ireland)
Limited .
30 years’ experience in West
Siberian Petroleum Industry
General Director Tomskburneftegaz,
LLC -Drilling & Support Services
Company in Tomsk Region
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PetroNeft Resources plc Annual Report and Financial Accounts 2005
Chairman’s
Statement
Dear Shareholder,
In the beginning, Dennis Francis, now Chief Executive Officer of
the company, became aware that Licence 61 in the Tomsk Oblast
It is with great pleasure that I
of the Russian Federation was available for acquisition. Based
write to you on the occasion
on his extensive experience in Russia, he was of the opinion that
of the publication of the first
this was one of the best packages of known Oil Fields and
Annual Report and Accounts
prospects to become available in the West Siberian Oil and Gas
of
your
company and
Basin in a long time. The Licence area was extensive at 4,991
cordially invite you to attend
sq. kms, setting up the potential for a “Core Area”, with long
the
first Annual General
term production and an extensive exploration base for future
Meeting of the company at the Herbert Park Hotel in Dublin on 10th
discoveries. Mr. Francis, Mr. David Sanders, now General
November 2006, beginning at 11:00 a.m..
Counsel and Secretary of the company, and Mr. Desmond Burke,
now Director of Planning and Investor Relations, set out on a fast
It has been 18 months since the concept of PetroNeft Resources
track effort to acquire the asset.
plc was developed and started to become a reality. Now that
the company is fully structured and funded, has a clearly defined
Through their wide ranging connections in Ireland, the United
path to production from the two proven Oil Fields, has an
States and Russia, they were able to negotiate the acquisition of
exploration schedule to expand the reserve base, and will
the Russian Company, Stimul-T, and raise the finances to ensure
achieve Admission to the London AIM and Dublin IEX Markets, I
acquisition of the Licence into that company. Mr. Francis then set
think it is worthwhile to revisit the journey to date.
about the recruitment of a top class Russian management team
and was extremely fortunate to secure the services of Alexey
I do this in recognition of the major objectives achieved over such
Balyasnikov, Alexander Frenovsky and Nikolai Karpuzov, all
a short period of time. I do it also in order to thank all of the
highly experienced Russian oil experts.
Directors, management, staff, advisors, consultants and investors,
on three continents, who have made this possible. The bases for
PetroNeft has achieved much during this period. This would not
the success of any company are excellent projects, outstanding
have been possible without the determination and dedication of
staff, and the ability to finance the projects to fruition. These are
the executive management, as well as the valued advice and
now in place and we can look forward to an exciting future as
support of the non-executive directors.
we develop the company’s assets.
PetroNeft Resources plc Annual Report and Financial Accounts 2005
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The extensive work completed since acquisition of the Licence is
PetroNeft’s access to both debt and equity capital, as it continues
described in the Review of Operations section of this Report.
to develop its business.
Bringing all of the previous work on the Licence together into a
cohesive and comprehensive package, followed by the acquisition
The first year of the company’s existence has been an exciting time.
and integration of new seismic data, has defined a clear program
The next 12 months promises to be equally exciting. By July of 2007
of work into the future. This program is designed to achieve both
it is hoped that the company will be able to take the decision to
early production and the expansion of recoverable reserves through
begin field and infrastructure development, leading to production in
exploration. All programs to date have been completed within
2008. Taking an exploration asset like Licence 61 to start of
budget and on schedule.
production is not an easy task and requires a lot of expertise, hard
The work program for the winter season of 2006/2007 will
begin at about the time of the Annual General Meeting. A new
work and team effort to do well. The company is fortunate to have
assembled an experienced management team that has successfully
been though this process many times, both inside and outside of
seismic survey will commence, mainly on the southern sector of
Russia.
the Licence, as will rig construction to allow the drilling of the
delineation well on the Lineynoye Oil Field, beginning in January
2007. A second well on the Tungolskoye Oil Field is planned to
commence in February 2007, and a third well, on the high
potential West Lineynoye Prospect, should begin in May/June
2007. A full Production Feasibility Study has also commenced
and will be completed in July 2007, when a decision to sanction
The drilling of the West Lineynoye Prospect also gives the company
a relatively low risk opportunity to triple its proved and probable
reserve base from 33.5 million barrels to about 100 million barrels
of oil. The amount of leverage that this one well could have on the
company’s reserve base is rare for the industry and further illustrates
the exciting year ahead for PetroNeft.
the development project will be made.
I look forward to meeting you all at the Annual General Meeting
and to the next year of progress for your company.
As a private company, prior to the placing of shares (Placing)
and Admission to the London AIM and Dublin IEX markets,
Sincerely,
PetroNeft raised a total of US$8 million. The IPO will raised an
additional US$15.5 million, which will put the company on a
sound financial footing and provide funding for the next year of
operations. It will transform the company into one that has a
strong
Institutional shareholder base which will
improve
G. David Golder
Chairman
20th September 2006
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PetroNeft Resources plc Annual Report and Financial Accounts 2005
Overview of
Operations
GENERAL
PetroNeft Resources plc, through its wholly owned Russian
Licence 61 was issued by the Russian Subsoil Agency on 4 May
subsidiary Stimul-T, holds 100% interest in Licence 61 in the
2005 and is valid until 15 April 2030. The term of the licence
Tomsk Oblast in Western Siberia. Licence 61 covers an area of
may be extended based upon continued production under an
4,991 sq. kms, equivalent in size to about 24 UK North Sea
approved development plan.
blocks, over the prolific West Siberian Oil and Gas Basin. The
Licence contains
two proven oil
fields, Lineynoye and
Tungolskoye, that were discovered by a State Exploration
Enterprise in the early 1970s. The Company views the Licence
Independent US petroleum consultants Ryder Scott have
estimated, on the basis of 14 previously drilled wells and
extensive seismic data, that the licence contains oil reserves as
as a “Core Area”, with oil production potential over a long
shown on Table 1:
period of time from both proven Oil Fields and other identified
exploration prospects.
Table 1
Lineynoye and Tungolskoye Oil Fields;
Proved (P1) + Probable (P2)
Possible (P3)
Total (P1+P2+P3)
Twenty Prospects and Five Potential Prospects (Leads);
Possible (P3)
Exploration Resources (P4)
Total (P1+P2+P3+P4)
33.5 million barrels
37.1 million barrels
70.6 million barrels
253 million barrels
100 million barrels
424 million barrels
The terms Proved, Probable, and Possible reserves (as well as
other such terms) in this report conform to the definition approved
by the Society of Petroleum Engineers (SPE) and the World
Petroleum Congress (WPC). The probable reserves included
herein conform to definitions of probable reserves approved by
the SPE/WPC using the deterministic methodology and the
possible reserves included herein confirm to definitions of possible
reserves approved by SPE/WPC using probabilistic methodology.
PetroNeft Resources plc Annual Report and Financial Accounts 2005
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Turnkey Drilling Contracts are in place to drill three wells
the delineation wells are available they will be incorporated
starting in the 2006/2007 winter season, with “rig-up”
in the Feasibility Study to establish an initial Development
operations commencing in November 2006. Two of these
Plan for the existing fields.
wells will be on proven Oil Fields, Lineynoye and
Tungolskoye, to clarify reservoir parameters and flow rates.
PetroNeft has also contracted to acquire 500 line kms of new
This data is required to finalise a Development Plan for the
CDP-2D seismic, during the 2006/2007 winter season. This,
two fields.
together with all previous data on the Licence, can provide a
consistent basis for continued exploration, development and
The third well will be drilled on the high impact/low risk
production within the Licence area. This data will also fulfil
West Lineynoye Prospect with potential for an additional 67
the Licence obligation to acquire 1,000 line kms of seismic
million barrels of oil. It should be noted that the Lineynoye
data in the first three years of the Licence.
No. 5 well tested oil from 2.3 metres of net pay just above
the oil water contact on the eastern end of this prospect in
The company plans to actively develop its business through
1974. A successful well here could triple the reserve base
the acquisition of new Licences and Projects, primarily within
of the Company over the next year.
the Russian Federation.
A Feasibility Study is currently underway which will identify
ways to optimise the field development plan as well as the
export infrastructure for the Licence area. Once the results of
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PetroNeft Resources plc Annual Report and Financial Accounts 2005
West Siberian Oil & Gas Basin Discovered Reserves
144 billion bbls of oil
1,300 TCF gas
Urengoy Gas Field
350 TCF
original reserves
West Siberian Oil and Gas Basin
Regional Location Map
Barents
Sea
West Siberian Oil & Gas Basin
Timan
Pechora
A
B
East Siberia Basin
Volga Ural
Turgay
North Caspian Basin
0
1,000
Kilometers
Figure 1
Samotlor Oil Field 27 Billion Bbls origional reserves
Licence 61 (Ryder Scott Evaluation)
Proved and Probable reserves
33.5 million bbls
Possible reserves
290.0 million bbls
Exploration resources
100.0 million bbls
Gas Pipeline
Gas Pipeline
Oil Pipeline
Oil Pipeline
Oil Fields
Oil Fields
Gas Fields
Gas Fields
Licence 61
Licence 61
After – USGS
WEST SIBERIAN OIL AND GAS BASIN (FIGURES 1 AND 2)
The West Siberian Oil and Gas Basin lies at the heart of the
The largest gas field in the basin is the Urgenoy Field, with
Russian oil and gas industry. The basin covers an area
estimated total recovery of 350 trillion cubic feet of gas. Total
approximately four times the size of France, produces two thirds
discovered reserves in the basin are estimated at 144 billion
of Russia’s oil, more than 85% of its gas, and is home to almost
barrels of oil and 1,300 trillion cubic feet of gas. The larger Oil
all of the major Russian upstream operators. Major western oil
Fields were discovered toward the centre of the basin where a
companies are also active in the region as are a number of
stacked series of reservoirs occur. In general, the northern part of
successful smaller western companies, including Imperial Energy
the basin is gas rich, while the southern portion is oil rich.
Corporation and Swedish based Western Siberian Resources.
The economies of scale afforded by massive discoveries enabled
The initial gas discovery in the Basin, the Berezovo Field, was
a rapid pace of development, and production increased from
made in 1953 and brought into production in 1963. The first
600,000 barrels of oil per day in 1970 to 7.3 million barrels of
major oil discovery in the basin, the Samotlor field, was made in
oil per day in 1985. However, the fall in oil prices at the end of
1961, and brought to production in 1964. The latter is now one
the 1980s and the collapse of the USSR heralded a significant
of the largest Oil Fields in the world, containing an estimated
decline in West Siberian production to 3.9 million barrels a day
original recoverable reserve of 27 billion barrels of oil.
PetroNeft Resources plc Annual Report and Financial Accounts 2005
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in 1995. Although declines continued, privatisation led to a
Western Siberia suffers extremely cold winters (down to -40°C),
renewed
focus on exploration and adoption of modern
although temperatures rise to around 30°C in the summer months.
technology. Production has continued to rise from the 2.3 million
The area is low lying and this, combined with the weather,
barrels of oil per day, produced in 2000. Current oil production
presents considerable operational challenges to the oil industry, in
is estimated at 5.75 million barrels of oil per day.
particular the transportation of heavy equipment.
The continued discovery of very large fields led to an exploration
For this reason, most of the exploration and development work is
strategy involving widely spaced seismic lines and drilling
patterns, which effectively overlooked the potential for smaller
discoveries. As a consequence, the smaller discovered oil fields,
that have now assumed economic significance, were not
developed and a large number of established structures were not
drilled. This has led to the current significant opportunity, which
PetroNeft was uniquely positioned to take advantage of.
carried out during the 7 to 8 month long winter season when the
ground is frozen and winter roads can be established.
Figure 2
PetroNeft Resources plc Annual Report and Financial Accounts 2005
12
Figure 3
Licence 61 - Oil Fields and Prospects Map
Oil Fields / Prospects / Potential Prospects
19
17
10
Oil Fields
Prospects
Potential
Prospects
(Leads)
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.
17.
18.
19.
20.
21.
22.
Lineynoye Oil Field
Tungolskoye Oil Field
West Lineynoye
Lineynoye South & Lower
Korchegskaya & Upper Korchegskaya
Korchegskaya West
Korchegskaya North
Varyakhskaya
Varyakhskaya North & Upper
Emtorskaya Crown (1 of 3)
Sigayevskaya
Sigayevskaya East
Kulikovskaya Group (2 of 6)
Kusinskiy Group (1 of 3)
Tuganskaya Group (1 of 4)
Kirillovskaya (1 of 4)
Sibkrayevskaya Crown (1 of 2)
Tungolskoye East
Emtorskaya North
Sibkrayevskaya East
Sobachya
North Balkinskaya
3
4
6
11
12
13
9
8
18
1
7
2
5
14
15
23
16
22
23. West Balkinskaya
0 12 kms
20
21
North
Sea
Block
LEGEND
Oil Field
Prospect ready for drilling
Prospect identified
Potential Prospect
Wells
Base Bazhenov
Seismic Horizon
< 2160m depth
> 2600m depth
Licence 61 (Figure 3)
History of Exploration on the Licence
Licence 61 is located in the southeastern sector of the West
Since the late 1960s, when active exploration began on the
Siberian Oil and Gas Basin. The main oil reservoir horizons in
area, a total of 2,650 line kms of seismic data has been
the area are Upper Jurassic sandstones, immediately underlying
accumulated. PetroNeft has acquired all of this data and has
the Bazhenov Shale, which acts as an oil source rock and a seal
reprocessed and reinterpreted it using modern technology. In
for the underlying reservoirs (Figure 2). Individual sandstone
addition, a total of 14 wells have been drilled on the Licence. The
layers vary from 2 to over 10 meters in thickness. The gross
logs from these wells have been digitised and reinterpreted,
reservoir sandstone varies in thickness from 8 to 20 meters.
giving excellent geological control, particularly in the northern
Because the Base of the Bazhenov Shale is an excellent regional
part of the Licence.
seismic reflector, the oil bearing structures can be mapped with
Since acquiring the Licence the company has, in the winter
a high degree of accuracy, making the location of even smaller
season 2005/2006, acquired a further 515 line kms of CDP-2D
prospects relatively simple, once there is sufficiently dense
seismic in the northern part of the Licence. This program was
coverage of high quality seismic data. PetroNeft’s approach has
designed largely as “fill-in” on the older seismic data, in order to
been to ensure that this is the case and that the enormous amount
obtain better definition of the oil bearing structures, enabling
of exploration data, both seismic and well drilling accumulated
optimisation of well locations. The strategy has worked very well,
on the Licence area since the late 1960s, is formatted in the most
as can be seen in Figures 4 and 5, and has also resulted in the
efficient way for the orderly exploration and development of the
upgrading of P1, P2 and P3 reserves by Ryder Scott (Table 2).
known Oil Fields and prospects. With this in place the
exploration becomes a relatively straight forward and low tech
This process will continue during the 2006/2007 winter season
play in a prolific oil producing area.
when a further 500 line kms of CDP-2D seismic will be acquired,
mainly in the southern part of the Licence (Figure 6).
PetroNeft Resources plc Annual Report and Financial Accounts 2005
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O B J E C T I V E S A N D W O R K P R O G R A M F O R 2 0 0 6 / 2 0 0 7
T H E C O M P A N Y H A S T W O K E Y O B J E C T I V E S F O R L I C E N C E 6 1 :
l To develop two proven oil fields to production in the near term.
l To determine the full upside reserve potential of the Licence and expand
production from these reserves.
Toward Production
l Two delineation wells on Lineynoye and Tungolskoye Oil Fields to establish
reservoir parameters for production
l Feasibility Study on production to be completed in July 2007
Toward Reserve Expansion
l One high value exploration well to be drilled on West Lineynoye Prospect with
upside potential for additional 2P of 66.6 million barrels.
l 500 line km seismic survey to define further drilling prospects
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PetroNeft Resources plc Annual Report and Financial Accounts 2005
TOWARD PRODUCTION
The two proven oil fields on Licence 61 are
Lineynoye and Tungolskoye (Figures 4 and 5).
Ryder Scott estimates the reserves at 33.5 million
barrels in the Proved and Probable (P1&P2)
categories and 37 million barrels in the Possible
(P3) category. Both of these fields were drilled
and tested in the early 1970s, producing flow
rates of about 300 barrels of oil per day. The
indicated net pay thickness in the Lineynoye No.
1 discovery well was 15.4 meters in three
separate sandstones, and the Tungolskoye No. 1
well showed net pay at 12.9 meters in four
sandstone units. The quality of the oil was 38º to
40º API.
During the 2006/2007 winter season, two
delineation wells are to be drilled, one on each
field, to confirm the reservoir properties and to
establish
production
parameters.
The
approximate location of the wells is shown on
Figures 4 and 5. Mobilisation has already
commenced and primary “Rig-up” activities are
planned to commence in November 2006, with
drilling expected to commence in January 2007
on Lineynoye and February on Tungolskoye.
Both wells will be drilled to basement with total
depths of about 2,750 metres and 3,100 metres,
respectively.
Lineynoye Oil Field & West Lineynoye Prospect
Structure Map on Base Bazhenov Horizon
Contour Interval 10 metres
West Lineynoye Prospect
Exploration Well Location
Kilometers
0
1
2
3
4
5
Lineynoye No. 5 Well
Tested Oil
2.3 m net pay
owc at -2,417 m
L-7
Lineynoye No. 1 Well
264 bopd, 38º API
15.4 m net pay
L-6
Lineynoye Oil Field Reserve Summary
Proved and Probable
Possible
Total P1+P2+P3
P1+P2
P3
million bbls
15.61
6.55
22.16
~ 25% of OOIP (1)
~ 10% of OOIP (2)
million barrels
Delineation Well Location
Lineynoye Oil Field
West Lineynoye Prospect Reserve Summary
Possible
P3
66.57
million barrels (3)
2D Seismic 2005/2006
(1) OOIP = Original Oil in Place
(2) Incremental Field Possibles due to future technology, infill drilling, oil price, etc.
(3) Recovery ~ 25% of OOIP
Figure 4
Lineynoye Oil Field Reserve Summary million bbls
Proved and Probable P1+P2
Possible
P3
Total P1+P2+P3
15.61
6.55
22.16
~ 25% of OOIP (1)
~ 10% of OOIP (2)
million barrels
West Lineynoye Prospect Reserve Summary
Possible
P3
66.57
million barrels (3)
(1) OOIP = Original Oil in Place
(3) Recovery ~ 25% of OOIP
(2) Incremental Field Possibles due to future technology, infill drilling, oil price, etc.
Kilometers
0
1
2
3
4
5
2D Seismic 2005/2006
PetroNeft Resources plc Annual Report and Financial Accounts 2005
15
The West Lobe of the Tungolskoye
Oil Field will be further defined by
the 2006/2007 seismic survey for
possible drilling during the winter
season of 2007/2008. (Figure 5)
Tungolskoye Oil Field
Structure Map on Base Bazhenov Horizon
Contour Interval 10 meters
Tungolskoye Oil Field
West Lobe
Tungolskoye No. 1 Well 332 bopd,
40º API 12.9m net pay owc -2,426
T-4
Delineation Well Location
Tungolskoye Reserve Summary
Proved and Probable
Possible w/o West Lobe
Possible West Lobe
Total P1+P2+P3
P1+P2
P3
P3
million bbls
17.92
7.44
23.10
48.46
~ 25% of OOIP (1)
~ 10% of OOIP (2)
~ 25% of OOIP
million barrels
(1) OOIP = Original Oil in Place
(2) Incremental Field Possibles due to future technology, infill drilling, oil price, etc.
2D Seismic 2005/2006
Kilometers
0
1
2
3
4
5
Figure 5
The company has contracted the preparation of a Feasibility
determine the most economic means to bring the Lineynoye and
Study for the development of the Licenced Area. The scope for
Tungolskoye oil fields and other prospects into production. The
this study includes full field reservoir modelling to identify ways
company intends to finalise a development plan for the Lineynoye
to optimise the recovery plan for the Lineynoye and Tungolskoye
and Tungolskoye fields by summer 2007.
fields, as well as proposing production facilities and export
pipeline designs for the entire Licenced Area. In addition, the
company is continuing to evaluate infrastructure arrangements
with third parties and alternative pipeline options to help to
The earliest date for first production is the summer of 2008.
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PetroNeft Resources plc Annual Report and Financial Accounts 2005
Toward Reserve Expansion and Reclassification
Table 2 shows the Reserve Movement through the various classification categories since the Licence was acquired by the company. All
of the work to date, including the reprocessing and reinterpretation of the vintage seismic, the previously drilled wells and the seismic
acquired in 2005/2006, has contributed to the expansion of reserves in the Proved/Probable and Possible categories.
On the exploration front, the program for the 2006/2007 includes the drilling of one high potential well on the West Lineynoye
Prospect (Figure 4). The upside potential of this well is the movement of 66.7 million barrels of oil to the P1/P2 category from the P3
category..
Drilling is planned to commence on this well in May/June 2007 and results are expected in July 2007.
Seismic Equipment stored on License 61 for summer 2006
PetroNeft Resources plc Annual Report and Financial Accounts 2005
17
Directors and Management at Lineynoye No. 6 well site which is under construction.
In addition, 500 line kms of CDP-2D seismic data will be
2006/2007 promises to be an exciting year for the company
acquired, mainly on the southern part of the Licence (Figure 6).
with drilling results expected on a regular basis.
The objective of this survey is to better define the structural
characteristics of known Prospects and Potential Prospects.
As mentioned above, the West Lobe of the Tungolskoye Oil Field will
be further defined by this survey for possible drilling during the winter
season of 2007/2008 programme. (Figure 5)
Figure 6
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PetroNeft Resources plc Annual Report and Financial Accounts 2005
Schedule for 2006/ 2007 winter season
Toward Production
l November 2006
Rig up construction commences for Lineynoye No. 6 well
l
January 2007
Drilling of Lineynoye No. 6 well to commence
l February 2007
Drilling of Tungolskoye No. 4 well to commence
l March 2007
Results of Lineynoye well tests
l April 2007
Results of Tungolskoye well tests
l
July 2007
Decision to sanction the development project
Toward Reserve Expansion
l October 2006
Commencement of 500 line km seismic survey
l April/May 2007 Commencement of West Lineynoye exploration well with upside
potential of 66.6 million barrels of oil
PetroNeft Resources plc Annual Report and Financial Accounts 2005
19
PetroNeft Resources plc
Financial Report
20
PetroNeft Resources plc Annual Report and Financial Accounts 2005
Report of
Directors
The Directors present their report and the financial statements for
FUTURE DEVELOPMENTS
the period ended 31 December 2005.
The main asset of the company is a 100% interest in a 4,991sq
PRINCIPAL ACTIVITY
km oil and gas Licence in the Tomsk Oblast, held through wholly
owned subsidiary, Stimul-T. The Licence contains two previously
The principal activities of the group are that of hydrocarbon
drilled and tested oil fields, Tungolskoye and Linenoye, which
exploration and appraisal. The group was established to
Petroneft has targeted for rapid development. It also estimated
acquire and develop, directly or indirectly, oil and gas
that substantial further reserves could be contained in a number
exploration, development and production interests in Russia.
of defined exploration prospects on the Licence.
RESULTS AND DIVIDENDS
A major seismic survey was completed in early 2006 with the
The loss for the period after providing for depreciation and
objective of defining drilling locations on the two established oil
taxation amounted to US$ 260,414 .
fields and for an additional high value exploration well on a
The Directors do not recommend payment of a final dividend.
further prospect. These wells will commence in the 2006/2007
DIRECTORS
winter season, with the objective of establishing a rapid
development plan for oil production on the Licence. Two drilling
In accordance with the Articles of Association, all of the Directors
rigs have been contracted to carry out this work.
retire at the first AGM of the company and being eligible offer
themselves for re-election.
D I R E C T O R S A N D T H E I R I N T E R E S T S
The Directors and secretary who held office during the period had no interest, other than those shown below, in the shares of the company.
Ordinary shares
Directors
G. David Golder
Dennis Francis
David Sanders
Desmond Burke
Vakha Alvievich Sobraliev
Thomas Hickey
Gerard Ryan
David O'Beirne
Secretary
David Sanders
As at
Position
Non-Executive Chairman
Chief Executive
Executive Director
Executive Director
Non-Executive Director
Non-Executive Director
Appointed 15 September 2005
Appointed 15 September 2005
Date of Appointment/Resignation
Appointed 17 November 2005
Appointed 20 October 2005
Appointed 20 October 2005
Appointed 20 October 2005
Appointed 21 November 2005
Appointed 21 November 2005
Resigned 20 October 2005.
Resigned 20 October 2005.
31 December 2005
2,409,050
19,754,210
4,047,205
4,967,204
14,743,386
250,000
1
124,001
Appointed 20 October 2005
4,047,205
In the period to 30 June 2006 Vakha Alvievich Sobraliev was allotted 7,371,258 shares in the company. Following this allotment his
interest was 22,114,544 Ordinary Shares. In May 2006 Thomas Hickey acquired a further 70,000 shares bringing his total
shareholding to 320,000 Ordinary Shares.
PetroNeft Resources plc Annual Report and Financial Accounts 2005
21
As part of the Placing in September 2006, the Directors will
subscribe for shares as shown in column 1 below and their
current resultant holdings will be as shown in column 2. This
subscrption will be at the IPO placing price.
DIRECTORS' RESPONSIBILITIES
The Directors are responsible for preparing the Director's Report
and Financial Statements. The Directors have chosen to prepare
accounts for the group in accordance with International Financial
Reporting Standards (IFRS).
in accordance with
International Accounting Standard 1 requires that financial
statements present fairly for each year the Group's financial
position, financial performance and cash flows. This requires the
faithful representation of the effects of transactions, other events
and conditions
the definitions and
recognition criteria for assets, liabilities, income and expenses set
out
International Accounting Standards Board's
'Framework for the preparation and presentation of Financial
Statements'. In virtually all circumstances, a fair presentation will
be achieved by compliance with all the applicable International
Financial Reporting Standards.
the
in
Directors are also required to:
l properly select and apply accounting policies;
l present information, including accounting policies, in a
manner that provides relevant, reliable, comparable and
understandable information;
l provide additional disclosures when compliance with the
specific requirements in International Financial Reporting
Standards is insufficient to enable users to understand the
impact of particular transactions, other events and conditions
on the entity's financial position and financial performance;
and
l prepare the financial statements on the going concern basis
unless it is inappropriate to presume that the Group will
continue in business.
Directors
Shares to be purchased
Post IPO Subscription
Percentage of
David Golder
Dennis Francis
David Sanders
Des Burke
Tom Hickey
Vakha Sobraliev
at IPO
535,408
535,407
133,400
337,000
265,000
535,408
Share Holdings
2,944,458
20,289,617
4,180,605
5,304,204
585,000
22,650,052
Issued Share Capital
1.67%
11.49%
2.37%
3.00%
0.33%
12.82%
31.68%
SHARE OPTIONS
In addition to the above the Company granted Share Options to
the Directors on the 20th September 2006 as follows;
Directors
David Golder
Dennis Francis
David Sanders
Des Burke
Tom Hickey
Vakha Sobraliev
Number of Options
440,000
880,000
880,000
660,000
440,000
440,000
SIGNIFICANT SHAREHOLDERS
So far as the Directors are aware, the names of the persons other
than the Directors who, directly or indirectly, are interested in 3
per cent or more of the Existing Issued Share Capital and the
expected Enlarged Issued Share Capital post IPO are, as follows:
Shareholder
Ordinary Shares
Pre IPO Placing
Percentage of
Ordinary Shares
Pre IPO Placing
Expected Ordinary Shares
Post IPO Placing
Expected Percentage
of Ordinary Shares
Post IPO Placing
RAB Octane
Fund Limited
22,523,303
16.7%
36,439,232
20.63%
Davycrest
Nominees Limited 15,152,045
11.2%
27,524,929
15.58%
22
PetroNeft Resources plc Annual Report and Financial Accounts 2005
The Directors are responsible for keeping proper accounting
AUDIT COMMITTEE:
records which disclose with reasonable accuracy at any time the
This Committee comprises three non-executive Directors. The
financial position of the company and to enable them to ensure
external auditors have the opportunity to meet with members of
that the financial statements comply with the Companies Acts
the Audit Committee without executive management present at
1963 to 2005 and all regulations to be construed as one with
least once a year. The duties of the Committee include the review
those acts. They are also responsible for safeguarding the assets
of the accounting principles, policies and practices adopted in
of the company and hence for taking reasonable steps for the
preparing the financial statements, external compliance matters
prevention and detection of fraud and other irregularities.
and the review of the Company financial results.
CORPORATE GOVERNANCE
NOMINATIONS COMMITTEE:
The Directors are committed to maintaining the highest standards
Given the current size of the group a Nominations Committee is
of corporate governance commensurate with the size, stage of
not considered necessary. The Board reserves to itself the process
development and financial status of the Company.
by which a new Director is appointed.
BOARD:
REMUNERATION COMMITTEE:
The Company currently has six Directors, comprising three
This Committee comprises three non-executive Directors. This
executive Directors and three non-executive Directors. The Board
Committee determines the contract terms, remuneration and other
met formally on 8 occasions during 2005. An agenda and
benefits of the executive Directors, Chairman and non-executive
supporting documentation was circulated in advance of each
Directors.
meeting. All the Directors bring independent judgement to bear
on issues affecting the Group and all have full and timely access
COMMUNICATIONS:
to information necessary to enable them to discharge their duties.
The Company maintains regular contact with shareholders through
The Directors have a wide and varying array of experiences in
publications such as the annual and half-year report and via press
the industry. Non-executive Directors are not appointed for
releases and the Company’s website, www.petroneft.com. The
specific terms. Each non-executive Director comes up for re-
Directors are responsive to shareholder enquiries throughout the
election every 3 years and each new Director is subject to
year. The Board regards the Annual General Meeting as a
election at the next Annual General Meeting following the date
particularly important opportunity for shareholders, Directors and
of appointment.
management to meet and exchange views.
The following committees deal with the specific aspects of the
Group affairs:
PetroNeft Resources plc Annual Report and Financial Accounts 2005
23
INTERNAL CONTROL
BOOKS OF ACCOUNT
The Directors have overall responsibility for the Company’s
The measures taken by the Directors to ensure compliance with
system of internal control and have delegated responsibility for
the requirements of Section 202, Companies Act 1990,
the implementation of this system to executive management. This
regarding proper books of account are the implementation of
system includes financial controls that enable the Board to meet
necessary policies and procedures for recording transactions, the
its responsibilities for the integrity and accuracy of the
employment of competent accounting personnel with appropriate
Company’s accounting records.
expertise and the provision of adequate resources to the financial
function. The books of account of the company are maintained at
The Company’s system of internal financial control provides
Modeshill, Mullinahone, Co. Tipperary.
reasonable, though not absolute assurance that assets are
safeguarded, transactions authorised and recorded properly and
AUDITORS
that material errors or irregularities are either prevented or
detected within a timely period. Having made appropriate
enquiries the Directors consider that the system of internal
financial, operational and compliance controls and
risk
The auditors, LHM Casey McGrath, have indicated their
willingness to continue in office in accordance with the provisions
of Section 160(2) of the Companies Act, 1963.
management operated effectively during the period covered by
On behalf of the board
the financial statements and up to the date on which the financial
statements were signed.
The internal control system includes the following key features,
which have been designed to provide internal financial control
Dennis Francis
Director
Desmond Burke
Director
Date: 20 September 2006
Date: 20 September 2006
appropriate to the Company’s businesses:
l Budgets are prepared for approval by the Board.
l Expenditure and income are compared to previously
approved budgets.
l A detailed investment approval process which requires Board
approval of all major capital projects and regular review of
the physical performance and expenditure on these projects.
24
PetroNeft Resources plc Annual Report and Financial Accounts 2005
Independent Auditors’
Report
INDEPENDENT AUDITORS’ REPORT TO THE SHAREHOLDERS OF
statements give a true and fair view, in accordance with
PETRONEFT RESOURCES plc
International Financial Reporting Standards and are properly
prepared in accordance with the Companies Acts. We also
We have audited the financial statements of PetroNeft Resources
report to you whether in our opinion: proper books of account
plc for the period ended 31 December 2005 on pages 28 to 36.
have been kept by the company; whether, at the balance sheet
These financial statements have been prepared under the
date, there exists a financial situation requiring the convening of
accounting policies set out on page 26.
an extraordinary general meeting of the company; and whether
the information given in the Directors' Report is consistent with the
This report is made solely to the company's members as a body
financial statements. In addition, we state whether we have
in accordance with the requirements of the Companies Acts
obtained all the information and explanations necessary for the
1963 to 2005. Our audit work has been undertaken so that we
purposes of our audit and whether the Financial statements are
might state to the company's members those matters that we are
in agreement with the books of account.
required to state to them in the audit report and for no other
purpose. To the fullest extent permitted by law, we do not accept
We report to the shareholders if, in our opinion, any information
or assume responsibility to anyone other than the company or the
specified by
law regarding Directors' remuneration and
company's members as a body for our audit work, for this report,
Directors' transactions is not given and, where practicable,
or for the opinions we have formed.
include such information in our report.
RESPECTIVE RESPONSIBILITIES OF DIRECTORS AND AUDITORS
We read the Directors' Report and consider the implications for
As described on page 5 the company's Directors are responsible
our report if we become aware of any apparent mis-statement
for the preparation of financial statements in accordance with
within it.
applicable law and International Financial Reporting Standards.
BASIS OF OPINION
Our responsibility is to audit the financial statements in
We conducted our audit in accordance with International
accordance with relevant legal and regulatory requirements and
Standards on Auditing (UK and Ireland) issued by the Auditing
International Standards on Auditing (UK and Ireland).
Practices Board. An audit includes examination, on a test basis,
of evidence relevant to the amounts and disclosures in the
We report to you our opinion as to whether the financial
financial statements. It also includes an assessment of the
PetroNeft Resources plc Annual Report and Financial Accounts 2005
25
significant estimates and judgements made by the Directors in the
Companies Acts 1963 to 2005 and all regulations to be
preparation of the financial statements, and whether the
construed as one with those acts.
accounting policies are appropriate
to
the company's
circumstances, consistently applied and adequately disclosed.
We have obtained all the information and explanations we
We planned and performed our audit so as to obtain all the
proper books of account have been kept by the company. The
information and explanations which we considered necessary in
financial statements are in agreement with the books of account.
order to provide us with sufficient evidence to give reasonable
assurance that the financial statements are free from material mis-
In our opinion the information given in the Directors' report is
consider necessary for the purposes of our audit. In our opinion
statement, whether caused by fraud or other irregularity or error.
consistent with the financial statements.
In forming our opinion we also evaluated the overall adequacy
of the presentation of information in the financial statements.
The net assets of the company, as stated in the Balance Sheet on
INTANGIBLE ASSETS
capital and, in our opinion, on that basis there did not exist at
In forming our opinion, we have considered the adequacy of the
31 December 2005 a financial situation which under Section
disclosures made in Note 7 to the financial statements in relation
40(1) of the Companies (Amendment) Act 1983 may require the
to the Directors’ assessment of the carrying value of the Group’s
convening of an extraordinary meeting of the company.
page 29, are more than half of the amount of its called up share
intangible assets, amounting to $6,093,657. Our opinion is not
qualified in this respect.
OPINION
In our opinion the financial statements:
l give a true and fair view, in accordance with International
Financial Reporting Standards, of the state of the company's
affairs as at 31 December 2005 and of its loss and cash
flows for the period then ended; and
l have been properly prepared in accordance with the
LHM Casey McGrath
Chartered Certified Accountants
Registered Auditors
6 Northbrook Road
Dublin 6
Ireland
Date: 20 September 2006
26
PetroNeft Resources plc Annual Report and Financial Accounts 2005
Statement of Accounting
Policies
The following accounting policies have been applied consistently
TANGIBLE FIXED ASSETS AND DEPRECIATION
in dealing with items which are considered material in relation to
Tangible fixed assets are stated at cost or valuation, less
the company's financial statements.
accumulated depreciation. Depreciation is provided at rates
calculated to write off the cost less residual value of each asset
ACCOUNTING CONVENTION
over its expected useful life, as follows:
The financial statements are prepared in accordance with
International Financial Reporting Standards under the historic
Land and buildings
- Straight Line over 30 years
cost convention.
Office equipment
- 20% Straight line
In accordance with the provisions of Section 3(2) of the
TAXATION
Companies (Amendment) Act 1986 the Profit and Loss of the
Income tax expense represents the sum of the tax currently
Company is not presented separately.
payable and deferred tax.
DEVELOPMENT COSTS
The tax currently payable is based on taxable profits for the year.
The Company adopts the successful efforts method of accounting
Taxable profits differ from profit as reported in the income
for exploration and appraisal costs. All licence acquisition,
statement because it excludes items of income or expense that
exploration and evaluation costs are initially capitalised in cost
are taxable or deductible in other years and it further excludes
centres by well, field or exploration area, as appropriate.
items that are never taxable or deductible. The Company's
Directly attributable administration costs and interest payable are
liability for current tax is calculated using tax rates that have been
capitalised insofar as they relate to specific exploration and
enacted or substantively enacted by the balance sheet date.
development activities. Pre-licence costs are expensed in the
period in which they are incurred.
Deferred taxation is recognised in respect of all timing
These costs are then written off unless commercial reserves have
sheet date where transactions have occurred at that date that will
been established or the determination process has not been
result in an obligation to pay more, or a right to pay less or to
completed and there are no indications of impairment.
receive more, taxation.
differences that have originated but not reversed at the balance
PetroNeft Resources plc Annual Report and Financial Accounts 2005
27
Deferred taxation is measured on an undiscounted basis at the
impairment loss. If such indication exists, the recoverable amount
taxation rates that are anticipated to apply in the periods in
of the asset is estimated in order to determine the extent of the
which the timing differences reverse, based on taxation rates and
impairment loss (if any). Where it is not possible to estimate the
legislation which are enacted or substantively enacted at the
recoverable amount of an individual asset, the Group estimates
balance sheet date.
the recoverable amount of the cash-generating unit to which the
FOREIGN CURRENCIES
asset belongs.
Monetary assets and liabilities denominated in foreign currencies
CONSOLIDATED ACCOUNTS
are translated into US Dollars at contract rates where the amounts
The Company Financial Statements consolidate the results of the
payable or receivable are covered by forward contracts. Other
Company and its wholly owned subsidiary Stimul-T from the date
monetary assets and liabilities are translated into US Dollars at
of acquisition under the acquisition method.
rates of exchange ruling at the balance sheet date. Exchange
gains and losses are dealt with in the profit and loss account.
IMPAIRMENT OF TANGIBLE AND INTANGIBLE ASSETS
EXCLUDING GOODWILL
At each balance sheet date, the Company reviews the carrying
amounts of its tangible and intangible assets to determine
whether there is any indication that those assets have suffered an
28
PetroNeft Resources plc Annual Report and Financial Accounts 2005
CONSOLIDATED INCOME STATEMENT
for the period ended 31 December 2005
Administrative expenses
Operating loss
Interest payable
and similar charges
Retained loss for the period
Loss per share:
Basic
Diluted
Notes
1
2
2005
US$
(241,331)
(241,331)
(19,083)
(260,414)
.29c
.29c
There are no recognised gains or losses other than those disclosed above and there have been no discontinued activities or acquisitions
in the current or preceding periods.
On behalf of the board
Dennis Francis
Director
Desmond Burke
Director
Date: 20 September 2006
Date: 20 September 2006
PetroNeft Resources plc Annual Report and Financial Accounts 2005
29
CONSOLIDATED BALANCE SHEET
as at 31 December 2005
2005
US$
169,937
6,093,657
6,263,594
451,323
256,208
707,531
6,971,125
1,052,260
4,861,880
(260,414)
5,653,726
1,317,399
1,317,399
6,971,125
Notes
6
7
9
10
13
14
14
16
11
Non-Current Assets
Property, plant and equipment
Other intangible assets
Current Assets
Trade and other receivables
Cash and cash equivalents
Total Assets
Equity and Liabilities
Capital and Reserves
Called up share capital
Share premium account
Profit and loss account
Equity attributable to equity holders of the parent
Current Liabilities
Trade and other payables
Total Liabilities
Total Equity and Liabilities
On behalf of the board
Dennis Francis
Director
Desmond Burke
Director
Date: 20 September 2006
Date: 20 September 2006
30
PetroNeft Resources plc Annual Report and Financial Accounts 2005
GROUP STATEMENT OF CHANGES IN EQUITY
as at 31 December 2005
Loss for the period
Dividends
Net proceeds of equity share issue
2005
Group
US$
(260,414)
-
(260,414)
5,914,140
5,653,726
PetroNeft Resources plc Annual Report and Financial Accounts 2005
31
COMPANY BALANCE SHEET
as at 31 December 2005
Non-Current Assets
Property, plant and equipment
Other intangible assets
Current Assets
Trade and other receivables
Cash and cash equivalents
Total Assets
Equity and Liabilities
Capital and Reserves
Called up share capital
Share premium account
Profit and loss account
Equity Shareholders' Funds
Current Liabilities
Trade and other payables
Total Liabilities
Total Equity and Liabilities
Notes
6
7
9
10
13
14
15
16
11
2005
US$
4,446
411,851
416,297
6,367,313
12,478
6,379,791
6,796,088
1,052,260
4,861,880
220,238
5,693,902
1,102,186
1,102,186
6,796,088
32
PetroNeft Resources plc Annual Report and Financial Accounts 2005
CASH FLOW STATEMENT
for the period ended 31 December 2005
Net loss before interest and income tax
Adjustments for:
Depreciation for - Property, plant and equipment
Operating profit before working capital changes
Increase in trade receivables
Increase in trade payables
Cash generated from operations
Interest paid
Net cash flow from operating activities
Investing activities
Purchase of property, plant and equipment
Purchase of other intangible assets
Net cash used in investing activities
Cash flows from financing activities
Proceeds from issue of share capital
Net cash received from financing activities
Net increase in cash and cash equivalents
Cash and Cash equivalents at the beginning of the period
Cash and cash equivalents at the end of the period
Notes
20
10
2005
US$
(241,331)
910
(240,421)
(451,323)
1,317,399
625,655
(19,083)
606,572
(170,847)
(6,093,657)
(6,264,504)
5,914,140
5,914,140
256,208
-
256,208
NOTES ON AND FORMING PART OF THE FINANCIAL STATEMENTS
for the period ended 31 December 2005
PetroNeft Resources plc Annual Report and Financial Accounts 2005
33
1.
Operating loss
Operating loss is stated after charging:
Depreciation of tangible assets
Auditors' remuneration
2005
US$
910
22,000
Earnings
Net loss attributable to equity shareholders
Effect of dilutive potential ordinary shares
2005
US$
(260,414)
-
Diluted net loss attributable to equity shareholders
(260,414)
Number of Shares
Basic weighted average number of shares
Dilutive potential ordinary shares
90,098,470
-
Dilutive weighted average number of shares
90,098,470
Fees totalling US$6,000 in respect of non-audit services
associated with share issues have been set against share
premium.
2.
Finance costs
On loans and overdrafts
2005
US$
19,083
19,083
3.
Employees
Number of employees
The average monthly numbers of employees
(including the directors) during the period was:
2005
Number
Loss per share:
Basic
Diluted
5. Income Tax Expense
5
5
Current year taxation
Corporation Tax (12.5%)
.29c
.29c
2005
US$
-
The tax assessed for the period is lower than the standard rate of
corporation tax of 12.5%.
The differences are explained below:
Loss on Ordinary Activities before Tax
(260,414)
Loss on Ordinary Activities multiplied
by the standard rate of corporation tax of 12.5%
Effects of:
Depreciation in excess of Capital Allowances
for the year
Losses available for carry forward
Tax charge for the year
(32,552)
-
32,552
-
Employment costs (Including directors)
Wages and salaries
3.1.
Directors' emoluments
2005
US$
88,230
88,230
2005
US$
Remuneration and other emoluments
54,674
4.
Earnings per Ordinary Share
Basic earnings per ordinary share amounts are
calculated by dividing net loss for the period attributable
to ordinary equity holders of the parent by the weighted
average number of shares outstanding during the period.
Diluted earnings per ordinary share amounts are
calculated by dividing net loss for the period attributable
to ordinary equity holders of the parent by the weighted
average number of ordinary shares outstanding during
the period plus the weighted average number of ordinary
shares that would be issued if employee and other share
options were converted into ordinary shares.
34
PetroNeft Resources plc Annual Report and Financial Accounts 2005
NOTES ON AND FORMING PART OF THE FINANCIAL STATEMENTS
6.Tangible assets
Group
for the period ended 31 December 2005
7. Other intangible assets
Fixtures &
fittings
Land and
buildings
freehold
Total
Group
Cost
Additions
Acquired on acquisition
of a subsidiary
US$
US$
US$
4,599
-
4,599
6,748
159,500 166,248
Cost
Additions
Acquired on Acquisition
of a subsidiary
Development
Costs
US$
Total
US$
516,348
516,348
5,577,309
5,577,309
At 31 December 2005
11,347
159,500 170,847
At 31 December 2005
6,093,657
6,093,657
Net book values
At 31 December 2005
6,093,657
6,093,657
378
378
532
910
532
910
Company
Depreciation
Charge for the period
At 31 December 2005
Net book values
At 31 December 2005
Company
Cost
Additions
10,969
158,968 169,937
Fixtures &
fittings
Land and
buildings
freehold
Total
US$
US$
US$
4,599
At 31 December 2005
4,599
Depreciation
Charge for the period
At 31 December 2005
153
153
Net book values
At 31 December 2005
4,446
-
-
-
-
-
4,599
4,599
153
153
4,446
Cost
At 15 September 2005
Additions
Disposals
Development
Costs
US$
-
411,851
-
Total
US$
-
411,851
-
At 31 December 2005
411,851
411,851
Net book values
At 31 December 2005
411,851
411,851
The amounts for Development costs represent active exploration
projects. These amounts will be written off to the Income
Statement as exploration costs unless commercial reserves are
established or the determination process is not completed and
there is no indications of impairment. The outcome of ongoing
exploration, and therefore whether the the carrying value of
Development assets will be ultimately be recovered, is inherently
uncertain.
8.
Subsidiaries
Details of the Company's Subsidiaries at 31 December 2005 are as follows:
Country of
Name of
Subsidiary
Proportion of
registration
or incorporation
Proportion of
Ownership
Interest
Voting
power held
Principal
Activity
Stimul-T
Russian Federation
100%
100%
Oil and Gas exploration
NOTES ON AND FORMING PART OF THE FINANCIAL STATEMENTS
for the period ended 31 December 2005
PetroNeft Resources plc Annual Report and Financial Accounts 2005
35
9. Other financial assets
12. Acquisition of subsidiary
Trade and other receivables:
2005
Group
US$
2005
Company
US$
Amounts owed by group undertakings
Other debtors
Prepayments and accrued income
-
57,713
393,610
6,309,600
57,713
-
451,323
6,367,313
The directors consider that the carrying amount of trade and
other receivables approximates their fair value.
10. Cash and Cash Equivalents
Acquiree's
Fair value
Carrying amount Adjustment
Fair value
US$
US$
US$
Net Assets acquired:
Property, plant and equipment
166,248
-
166,248
Development costs
5,464,104
113,205
5,577,309
Trade and other receivables
437,781
Bank and cash balances
150,995
Trade and other payables
(6,332,333)
-
-
-
437,781
150,995
(6,332,333)
(113,205)
113,205
2005
Group
US$
2005
Company
US$
Total consideration, satisfied by cash
Net cash inflow arising on acquisition:
Cash consideration paid
Cash at Bank and in Hand
256,208
12,478
256,208
12,478
Cash and cash equivalents acquired
11. Trade and other payables
2005
Group
US$
Trade creditors
17,758
Other taxes and social welfare costs 64,679
930,000
Directors' accounts
2,776
Other creditors
302,186
Accruals and deferred income
2005
Company
US$
-
-
800,000
-
302,186
1,317,399
1,102,186
13. Share capital - Group and Company
Authorised
300,000,000 Ordinary shares of €0.01 each
Allotted, called up and fully paid equity
90,098,478 Ordinary shares of €0.01 each
-
Nil
-
150,995
150,995
2005
US$
3,503,700
3,503,700
1,052,260
1,052,260
The Directors consider that the carrying amount of trade
payables approximates their fair value.
14. Equity Reserves
Trade creditors and accruals principally comprise amounts
outstanding for trade purchases and ongoing costs.
Share
Profit
premium and loss
account
account
US$
US$
Total
US$
Premium on issue of shares 4,861,880
Retained loss for the period
- (260,414)
- 4,861,880
(260,414)
At 31 December 2005
4,861,880 (260,414) 4,601,466
The issue costs of the share placing of US$ 289,294 have been written
off against the share premium account.
36
PetroNeft Resources plc Annual Report and Financial Accounts 2005
NOTES ON AND FORMING PART OF THE FINANCIAL STATEMENTS
15.
Profit of holding company
19.
Events after the Balance Sheet Date
for the period ended 31 December 2005
As permitted by Section 3(2) of
the Companies
(Amendment) Act 1986 the parent company's profit and
loss account has not been included in these financial
statements. The parent company's loss after tax, including
dividends receivable and before dividends payable,
was US$ 220,238.
16.
Reconciliation of movements in shareholders' funds
2005
Group
US$
2005
Company
US$
Loss for the period
(260,414)
Net proceeds of equity share issue 5,914,140
(220,238)
5,914,140
Net addition to shareholders' funds 5,653,726
5,693,902
On 1 February 2006 the Company completed a private
placement that raised US$8 million through the issue of
45, 046,606 new ordinary shares. The new ordinary
shares were allotted and funds received in three tranches,
and was completed by 30 June 2006, following which,
the Company had 135,145,084 shares in issue. In
addition, the Company issued warrants over ordinary
shares to the value of US$1 million.
In February 2006 Stimul-T entered into a contract with
Nizhnevartovskservis ("the Contractor") for the drilling of
3 wells. The contract is a "Turnkey" contract under which
the Contractor assumes substantially all liabilities in
relation to the health and safety, environmental and other
risks associated with the drilling operation. The total
value of the contract is approximately US$9.25 million.
5,653,726
5,693,902
20. Gross Cash Flows
17.
Capital commitments
Details of capital commitments at the
accounting date are as follows:
Contracted for but not provided in
the financial statements
2005
US$
Returns on investments and servicing of finance
Interest paid
Capital expenditure
Payments to acquire intangible assets
Payments to acquire tangible assets
2,000,000
Authorised by the directors but not yet contracted for
-
The above commitment relates to a contract entered into on 3 August
2005 for Seismic analysis due to be completed in early 2006.
Financing
Issue of ordinary share capital
18.
Related party transactions
2005
US$
(2,840)
(2,840)
(6,093,657)
(170,847)
(6,264,504)
5,914,140
5,914,140
21.
Going concern
the
financial statements are prepared under
The
assumption that the Group is a going concern on the
basis that the Directors are satisfied that further funding,
primarily through share placings, will be available to
bring its projects to production.
22.
Approval of financial statements
The financial statements were approved by the board on
20 September 2006
Stimul-T
Transactions between PetroNeft Resources plc and its
subsidiary
on
consolidation and are not disclosed in this note. Details
of transactions between the group and other related
parties are disclosed below.
have been
eliminated
Dennis Francis is a Director and significant shareholder
of PetroNeft Resources plc. During the period, Dennis
Francis advanced the group amounts totalling US$
930,000. Interest of US$ 16,243 was paid on this
amount. At the period ended 31 December 2005,
PetroNeft Resources plc owed Dennis Francis an amount
of US$ 930,000.
In February 2006 Stimul-T entered into a contract with
Nizhnevartovskservis ("the Contractor") for the drilling of
3 wells. The contract is a "Turnkey" contract under which
the Contractor assumes substantially all liabilities in
relation to the health and safety, environmental and other
risks associated with drilling operation. The total value of
the contract is approximately US$ 9.25 million. Vakha
Alvievich Sobraliev, a Director and
significant
shareholder of PetroNeft Resources plc, is the principal of
Nizhnevartovskservis.
PetroNeft Resources plc Annual Report and Financial Accounts 2005
37
Notice of Annual
General Meeting
Notice is hereby given that the Annual General Meeting of
Association of the Company.
PetroNeft Resources plc will be held at the Herbert Park Hotel,
8.
To reappoint LHM Casey McGrath, chartered Certified
Ballsbridge, Dublin 4 at 11.00 am on Friday 10th November
Accountants as Auditors and to authorise the Directors
2006, for the purposes of considering and, if thought fit,
to fix the remuneration of the Auditors.
passing, the following Resolutions of which Resolutions numbered
1,2,3,4,6,7 and 8 will be proposed as Ordinary Resolutions and
SPECIAL BUSINESS
Resolution numbered 9 will be proposed as a Special Resolution.
9.
That the Directors be and are hereby empowered
ORDINARY BUSINESS
1.
To receive, consider and adopt the accounts for the
year ended 31st December 2005 together with the
Directors’ and Auditors’ reports thereon.
2.
To re-elect Mr. Golder as a Director, who retires in
accordance with Article 86 of
the Articles of
Association of the Company.
3.
To re-elect Mr. Francis as a Director, who retires in
accordance with Article 86 of
the Articles of
Association of the Company.
4.
To re-elect Mr Sanders as a Director, who retires in
accordance with Article 86 of
the Articles of
Association of the Company.
5.
To re-elect Mr Burke as a Director, who retires in
accordance with Article 86 of
the Articles of
Association of the Company.
6.
To re-elect Mr Hickey as a Director, who retires in
accordance with Article 86 of
the Articles of
Association of the Company.
7.
To re-elect Mr Sobraliev as a Director, who retires in
accordance with Article 86 of
the Articles of
pursuant to Sections 23 and 24 (1) of the Companies
(Amendment) Act, 1983 to allot equity securities (within
the meaning of the said Section 23) for cash pursuant
to the authority conferred by Article 5(a) of the Articles
of Association of the Company as if the said Section 23
does not apply to any such allotment provided that this
power shall be limited to the allotment of equity
securities;
a)
in connection with the exercise of any options or warrants
to subscribe granted by the Company;
b)
(including, without limitation any shares purchased by the
Company pursuant to the provisions of the 1990 Act and
held as Treasury Shares) in connection with any offer of
securities, open for a period fixed by the Directors, by
way of rights, open offer or otherwise in favour of
ordinary shareholders and/or any persons having a right
to subscribe for or convert securities into ordinary shares
in the capital of the Company (including, without
limitation, any person entitled to options under any of the
38
PetroNeft Resources plc Annual Report and Financial Accounts 2005
Company’s share option schemes or any other person
Agreement as if the power conferred hereby had not expired.
entitled to participate in any of the Company’s profit
sharing schemes for the time being) and subject to such
exclusions or other arrangements as the Directors may
deem necessary or expedient in relation to legal or
David E. Sanders
practical problems under the laws of, or the requirements
Secretary
of any recognised body or stock exchange in, any
for and on behalf of the Board.
C/O O’Donnell Sweeney
One Earlsfort Centre
Earlsfort Terrace
Dublin 2
16th October 2006
territory; and
c)
up to an aggregate nominal value equal to the nominal
value of 10% from time to time which authority shall
expire on the earlier of the date of the next annual
general meeting of the Company held after the date of
passing of this Resolution and at the close of business on
10th February 2008 , save that the Company may
before such expiry make an offer or agreement which
would or might require equity securities to be allotted
after such expiry and the Directors may allot equity
securities in pursuance of such Offer or
PetroNeft Resources plc Annual Report and Financial Accounts 2005
39
ANNUAL GENERAL MEETING 2006 -
FORM OF PROXY
Name
Address
Shareholder reference number
I/we appoint the following person (proxy) to vote on my/our
behalf at the Annual General Meeting of the Company to be
held at 11.00 am on 10th November 2006 at Herbert Park
Hotel, Ballsbridge, Dublin 4.
(Please indicate your choice in one box only)
The Chairman of the meeting o
Please leave this box blank if
you wish to select someone
other than the Chairman.
Or
The following person:
Insert ‘X’ in the space provided to indicate how you wish your vote be cast. For
more details about each resolution please see the Notice of Annual General
meeting on pages 38 and 39 of the Annual Report 2005
Resolution
For Against
1.
To receive, consider and adopt the
o
o
accounts for the year ended 31st
December 2005 together with the
Directors’ and Auditors’ reports
thereon.
2.
To re-elect Mr. Golder as a Director
3. To re-elect Mr. Francis as a Director
4. To re-elect Mr. Sanders as a Director
5. To re-elect Mr. Burke as a Director
6. To re-elect Mr. Hickey as a Director
7. To re-elect Mr. Sobraliev as a
Director
8. To reappoint LHM Casey McGrath,
as Auditors and to authorise the
Directors to fix the remuneration of
the Auditors.
9. By way of Special Resolution, to
authorise the directors to allot equity
securities pursuant to Sections 23
and 24 (!) of the Companies
(Amendment) Act, 1983.
o
o
o
o
o
o
o
o
o
o
o
o
o
o
o
o
Please leave this box blank if you have selected the Chairman.
Do not insert your own name(s).
Signature
To attend and vote on my/our behalf at the annual general
meeting of Petroneft Resources plc to be held at 11.00 am
on 10th November 2006 at Herbert Park Hotel, Ballsbridge,
Dublin 4 and at any adjournment of the meeting. I/we
would like my/our proxy to vote on the resolutions proposed
at the meeting as indicated on this form. Unless otherwise
instructed, the proxy may vote as he or she sees fit or abstain
in relation to any business of the meeting.
Date
Any one joint Shareholder may sign
Please Return this form and post in the
Business Envelope provided.
Notes
1. A member entitled to attend and vote is entitled to appoint a proxy (who need not be a member of the Company) to attend, speak and vote instead of him.
2.
Forms of proxy, to be valid must be lodged with the Company’s Registrars, Computershare Investor Services (Ireland) Limited, Heron House, Corrig Road, Sandyford Industrial estate, Dublin
18, no later than 48 hours before the time appointed for the meeting. If the appointer is a corporation, this Form of Proxy must be under its common seal or under the hand of an officer or
attorney duly authorised. In the case of joint holders, the vote of the senior who tenders a vote, whether in person or by proxy, will be accepted to the exclusion of the vote of the other
registered holder(s) and for this purpose, seniority shall be determined by the order in which names stand in the register of members.
3. Completion and return of the Form of Proxy will not preclude ordinary shareholders from attending and voting at the meeting should they wish to do so.
4.
Pursuant to Regulation 14 of the Companies Act 1990 (Uncertificated Securities) Regulations 1996, only those shareholders on the Register of Shareholders at 11.00 am 08th November
2006 shall be entitled to attend and vote at the meeting in respect of the number of shares registered in their names at that time. If the meeting is adjourned by more than 48 hours, then to
be so entitled, shareholders must be entered on the Company’s Register of Shareholders at the time which is 48 hours before the time appointed for holding the adjourned meeting or, if the
Company gives notice of the adjourned meeting, at the time specified in that notice.
This form, which is personalised, may only be used in respect of the shareholder of whom details are shown above. Any alteration to such details, or attempt to use the form in respect of any
other shareholder, may render the Form invalid.
5.
Please retain this section of the form to gain admittance to the meeting
A D M I S S I O N C A R D
PetroNeft Resources plc Annual General Meeting
11.00 am on Friday 10th November 2006
Shareholder’s Signature--------------------------------------------------------------------------------------------------------------------------------------
Signature of Proxy --------------------------------------------------------------------------------------------------------------------------------------------------------
Location of the Annual
General Meeting:
Herbert Park Hotel,
Ballsbridge,
Dublin 4
"
40
PetroNeft Resources plc Annual Report and Financial Accounts 2005