224047 Sound Oil R&A 2011 Cover 01/05/2012 07:48 Page iv
PLC
PLC
Sound Oil plc
Riverbridge House
Guildford Road
Leatherhead, Surrey
KT22 9AD
www.soundoil.co.uk
Annual Report 2011
224047 Sound Oil R&A 2011 Cover 01/05/2012 07:48 Page ii
Sound Oil plc
Sound Oil plc is an independent upstream
oil and gas company listed on the AIM
market of the London Stock Exchange.
Sound Oil plc’s strategy is to achieve
significant and sustainable growth in value
through an active drill programme and a
significant reshaping of its asset portfolio.
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IBC
Highlights
Chairman’s Statement
Financial Review
Technical Review
Statement of Proved and Probable Reserves
Board of Directors
Report of the Directors
Report on Directors’ Remuneration
Corporate Governance Report
Statement of Directors’ Responsibilities
Independent Auditor’s Report
Consolidated Income Statement
Consolidated Balance Sheet
Company Balance Sheet
Consolidated Statement of Changes in Equity
Company Statement of Changes in Equity
Consolidated Cash Flow Statement
Company Cash Flow Statement
Notes to the Financial Statements
Dealing Information, Financial Calendar and Addresses
Dealing Information
FT Share Price Index – Telephone 0906 8433711
SEAQ short code – SOU
Financial Calendar
Announcements
Interim – September 2012
Preliminary – May 2013
Addresses
Registered Office
Sound Oil plc, 55 Gower St, London, WC1E 6HQ
Business Address
Sound Oil plc, Riverbridge House, Guildford Road, Leatherhead, Surrey, KT22 9AD
Website
www.soundoil.co.uk
Auditors
Crowe Clark Whitehill LLP, St Bride’s House, 10 Salisbury Square, London, EC4Y 8EH
Solicitors
Ronaldsons LLP, 55 Gower St, London, WC1E 6HQ
Stockbrokers
Investec Bank Plc, 2 Gresham Street, London, EC2V 7QP
Nominated Adviser
Smith & Williamson Corporate Finance Limited, 25 Moorgate, London, EC2R 6AY
Registrars
Share Registrars Limited, Suite E, First Floor, 9 Lion and Lamb Yard, Farnham, Surrey, GU9 7LL
Perivan Financial Print 224047
224047 Sound Oil R&A 2011 pg01-15 01/05/2012 07:16 Page 1
Annual Report 2011
Highlights
(cid:129) Independently assessed portfolio of
discoveries: 17.5 Mmboe (P50) and US$
300M NPV10
(cid:129) Two successful Italian acquisitions
(cid:129)
(cid:129)
8 Key Development Projects
4 Key Exploration Projects
(cid:129) Mainly 100% owned and operated
(cid:129) Active drilling programme in Italy and
Indonesia, including the Nervesa
appraisal well which is fully funded
Italy
(cid:129)
(cid:129)
(cid:129)
2 Material appraisal wells (Nervesa, Strombone)
1 Discovery for commercial development (Casa Tiberi)
1 Field recommissioning (Rapagnano)
Indonesia
(cid:129)
2 Exploration wells
(cid:129) Strong and focused Executive Team,
including a newly appointed Chief Financial
Officer and Italy Managing Director
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Sound Oil plc
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Annual Report 2011
Chairman’s Statement
Once again the year has been very active for the
Company and we expect to maintain this momentum
during the next twelve months.
In Italy we have consolidated our Consul Oil & Gas
Limited (“Consul”) acquisition by the purchase of
Celtique Energie SpA which had been our joint partner
in three permits. The consideration of $9 million
comprised $4.4 million cash, $0.8 million settlement
of an inter-company loan (net of $0.2 million cash
held by Celtique) and 91,998,582 Sound Oil plc shares.
As a result of this deal Sound Oil plc owns 100% of
the permits containing the Nervesa and Strombone
discoveries, our core assets. We are now able to move
forward at our own pace and will be drilling the key
well at Nervesa in mid year and intend to be drilling
Strombone by year end.
The Company has acquired 3D seismic data over the
Badile prospect and an independent expert has
confirmed that it has P50 prospective resources of 185
Bscf, making it one of the largest onshore exploration
opportunities in Western Europe. Sound Oil plc has
begun to offer this ready-to-drill prospect for farmout
and already has had an encouraging amount of
interest.
During the year the Company undertook operations at
Marciano (Sound Oil plc 100%) and drilled a farm-in
well at Casa Tiberi, both of which encountered gas.
The Marciano well was disappointing and the reserves
too small for commercialisation. By mid year, the
surface facilities will be relocated from Marciano for
use at Casa Tiberi and our other permits, and the
Marciano site will then be restored. At Casa Tiberi
(Sound Oil plc 100%) two separate phases of testing
in the early part of 2012 indicated that the reserves
are small but commercial and the Company expects to
submit a production application in May 2012.
In the Citarum PSC Indonesia, where we have a 20%
interest, we have identified several drilling
opportunities based on the extensive seismic
programme shot earlier. We commenced drilling on the
attractive prospect at Cataka but unfortunately the
operator ran into mechanical problems in the upper
part of the hole and the well was abandoned. We
expect to return to drill at this location later in 2012.
Meanwhile, the rig was moved to Jatayu, another
substantial exploration prospect which is now being
drilled. The final well in the current drilling schedule is
Geulis and this third well will complete the Company's
outstanding obligations at Citarum.
In the Bangkanai PSC Kalimantan (Sound Oil plc 5%,
carried), a gas sales agreement was signed to supply
up to 20 BBtud at a price of $4.79/MMBtu from the
Kerendan Field with first production anticipated in
2013. This final agreement now allows Sound Oil plc
to book reserves for the first time. In addition there
are further contingent gas resources in the field which
could be commercialised through the local power
plant to be built by PLN, the Indonesian electricity
utility. Following an extensive refit, a rig is now
expected to be ready in June to drill the four
development wells at Kerendan. These will be followed
by two exploration obligation wells nearby.
In December 2011 Sound Oil plc issued 100 million
shares at 2p to raise £2 million together with 60
million warrants exercisable at 2p. In the second part
of the placement in February 2012, the Company
issued 262,587,803 shares at 1.523p to raise
£4 million together with 157,552,682 warrants
exercisable at 1.86p. Sound Oil plc currently has cash
reserves of £7 million and no debt. The increase in
assets and activity of the Group following the Consul
and Celtique acquisitions led to higher expenditure in
the Income Statement and the loss after tax was
£6,264,000.
The year saw some significant changes in personnel
within Sound Oil plc. Tony Heath retired as Chief
Financial Officer and joined the Board as a non
executive Director. I would like to thank him for his
considerable support over many years and for his wise
advice. The Board was further strengthened by Andrew
Hockey who joined as a non executive director.
Andrew has 30 years of experience in the oil industry
most recently with Fairfield Energy. James Parsons
joined the Company as Chief Financial Officer in
September having 17 years experience in the oil
industry principally with Shell. Luca Maddedu was
appointed Managing Director of the Company’s Italian
subsidiary in Rome following a international career
with ENI spanning 22 years and Godwin Debono, a
founder director of Consul, retired from the Company
at the end of March this year. I would like to thank
him in particular for his dedication and commitment
in building the Italian portfolio.
I wish to thank all of the Company staff and also my
Board colleagues for their enthusiasm and their
continuous efforts on behalf of the Company. Finally I
also wish to thank our shareholders for their support.
The Company can look forward to a continuous drilling
program for the next 18 months on very exciting
prospects, on important discoveries and on our
hydrocarbon developments which will bring revenue in
2013.
Yours sincerely,
Gerry Orbell
Chairman and Chief Executive
30 April 2012
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Sound Oil plc
Financial Review
Accounting standards
The Group has prepared its 2011 full year accounts
under International Financial Reporting Standards
(IFRS), as adopted by the European Union.
Income statement
Following the acquisitions of Consul Oil & Gas Limited
and Celtique Energie Spa in Italy during 2011, increased
exploration and administration costs before impairment
of the Marciano well resulted in a trading loss of
£4,253,000 compared with £1,932,000 for 2010.
Loss before/after tax was £6,264,000 compared with
£15,968,000 in 2010 which had included a loss on sale
of part of the Bangkanai licence of £14,210,000.
The 2011 trading loss of £5,353,000 is £3,421,000
higher than in 2010 principally due to £1,446,000
higher administration costs following the Italian
acquisitions (which introduced a Rome office at a
total cost of £839,000 in 2011 and £100,000 of
transaction related bonus payments in the first
quarter). Total exploration costs for the year were
£1,975,000 higher which included £1,100,000
impairment costs.
Acquisition expenses of £516,000 were incurred in
relation to the Italian acquisitions.
Due to the strength of sterling there was a foreign
exchange loss of £439,000 compared with a gain of
£211,000 in 2010.
Cash flow/financing
During 2011 £12,108,000 was raised from new equity
issue whilst some £5,078,000 was spent on the
acquisitions of new companies and £3,890,000 was
spent on exploration and appraisal. This resulted in a
net cash inflow before foreign exchange movements
of £2,638,000 (2010: outflow £6,242,000).
The Group’s cash balance was £6,286,000 (2010:
£4,484,000).
The Group continues to have no borrowings.
4
Going concern – Forward cash flow calculations show
that the Group has sufficient financial resources for
the foreseeable future. The Group’s financial
statements have been prepared on the assumption
that the Group will be able to realise its assets and
discharge its liabilities in the normal course of
business. The Group currently has no operating
revenues and during the year ended 31 December 2011
recorded a trading loss of £5,353,000 from continuing
operations. At 31 December 2011 the Group held cash
and cash equivalents of £6,286,000. The directors have
considered the Group’s cash flow forecasts for the
period to the end of April 2013. Forward cash flow
projections show that forecast expenditure (12 months
through 30 April 2013) will be less than the funds
available as at 31 December 2011 when combined
with the new equity raised in early 2012; together
with the £5,900,000 undrawn element of the Yorkville
facility. As a result, the Group has sufficient cash
resources to undertake its work program in the next
12 months.
Balance sheet
Exploration and evaluation expenditure in 2011 was
£3,809,000 (2010: £1,165,000) and principally reflects
the cost of drilling in Citarum (Indonesia) and the
Montemarciano and Fonte San Damiano licences in
Italy. Currency movement increased the balance in
sterling terms by £690,000. However the impairment of
the Marciano asset by £1,076,000 left the year end
balance at £22,725,000 (2010: £9,954,000).
The deferred tax liability and the matching goodwill
balance arising from the tax provision were both
increased by £2,051,000 due to the two Italian
acquisitions.
224047 Sound Oil R&A 2011 pg01-15 01/05/2012 07:16 Page 5
Annual Report 2011
Post balance sheet event
The Company issued a further 262,587,803 shares to
raise an additional £4,000,000 in cash on 6 February
2012. 157.6 million warrants were also issued,
exercisable at 1.86p.
Impairment – Under IFRS 6, the cost carried in the
balance sheet may be carried forward if exploration
activities have not reached a stage to allow reasonable
assessment of economically recoverable reserves. With
the exception of Marciano, which has been written
off, no impairment charge has been recorded and
accordingly an update of the estimated monetary
value shows that the value exceeds the carrying value
of our intangible evaluation and exploration assets
and goodwill. There are extensive prospective areas
remaining to be explored in both Italy and Indonesia.
Shareholders equity was reduced by the loss for the
year, offset by an increase reflecting the new equity
issued during 2011, resulting in an increase to
£29,866,000 at the end of 2011 (2010: £17,715,000).
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Sound Oil plc
Technical Review
Italian Assets
Sound Oil plc currently has interests in 17 licences in
Italy (2 production concessions, 9 permits and 6
exclusive permit applications) through its wholly-owned
Italian subsidiary company Apennine Energy Srl (Fig. 1).
The Apennine portfolio offers multiple opportunities for
production, appraisal and development of existing oil
and gas discoveries and exploration drilling. It is Sound
Oil plc’s intention over the coming 12 months to re-
establish production on one concession, drill two new
appraisal wells targeting existing discoveries and
complete testing of a newly drilled gas discovery to
demonstrate its commerciality. In addition several other
appraisal and exploration opportunities will be
considered for selective farm-out of high equity
positions.
and its associated production facilities (Fig. 3). This had
produced 116 MMscm (~4.1 Bscf) of gas prior to shut-
in in 2001 with a rate of 140,000 scfd, but with
significant water-cut. Apennine has submitted a plan
to re-establish production from the field using on-site
electricity generators to export power to the local grid.
An Environmental Impact Assessment (EIA) for the
proposed re-development has been submitted to the
Marche regional authorities and its approval is
expected in May 2012. Apennine plans to exploit the
previously abandoned Sabbie reservoir which has been
estimated by Fugro Robertson1 to contain 1.1-1.5 Bscf
of contingent resources. Operations are expected to
start soon after approval of the EIA.
Figure 1
Production
Rapagnano Concession (Apennine 100%)
The concession, located in Marche, central Italy (Fig. 2),
was awarded to Apennine in July 2011 as part of a
marginal fields development programme. It contains
the Rapagnano-1 gas discovery made by ENI in 1952
Figure 3
Fonte San Damiano Concession (Apennine 100%)
The concession is located in Basilicata, southern Italy
(Fig. 4). In June 2011 the Marciano-1 well was re-
entered to test two gas-bearing zones identified at
1283-1288 mMD and 1326-1231 mMD (Fig. 5). The
lower zone flowed a maximum of 2,180 scmd (77,000
scfd) and the upper zone a maximum of 99,800 scmd
(3.5 MMscfd). The upper zone was choked back to a
flowing rate of 36,000 scmd (1.3 MMscfd). Subsequent
well test analysis established that only a minimal
connected volume of gas was seen by the well which
could not maintain a commercial level of production.
Figure 2
6
Figure 4
224047 Sound Oil R&A 2011 pg01-15 01/05/2012 07:16 Page 7
Annual Report 2011
have been estimated by Fugro Robertson to be 20.7 Bscf.
Apennine’s strategy is to drill an appraisal well on the
structure to validate the resource estimate and establish
commercial flow rates. An application to drill the well
was submitted in November 2011 and approval is
expected to be able to spud the well in mid 2012. Long
lead items have been ordered to meet this schedule.
Figure 6
Torrente Alvo Permit (Apennine 100% interest)
The permit is located in Potenza in southern Italy
(Fig. 7). The permit area was initially explored by
Italmineraria (now ENI) and a number of wells were
drilled between 1965 and 1998. The well Strombone-
2dir found oil in Miocene carbonates at 1508-1562m
and tested 750 bopd with variable water-cut. The oil
accumulation is also partially overlain by a non-
commercial gas pool, located in Pliocene sands; neither
of these two discoveries was developed. Fugro
Robertson has estimated the P50 contingent resources
of the Strombone discovery to be 6.4 MMbo. It is
Apennine’s intention to develop the Strombone oil
discovery and to this end an application to drill an
appraisal well is in preparation. The target to drill the
well is late 2012-early 2013.
Figure 5
The well is currently suspended prior to abandonment
and removal of the surface production facilities and
electricity generators
Appraisal and Development
Carita Permit (Apennine 100%, Operator)
The permit is located in Veneto Province, northeast Italy
(Fig. 6). The permit contains the Nervesa structure that
was drilled by ENI in 1985 with two wells (Nervesa-1 and
Nervesa-1dir A) and proved gas-bearing in at least 13
sand intervals. The remaining P50 contingent resources
Figure 7
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Sound Oil plc
Technical Review
continued
Exploration
Montemarciano Permit (Apennine 75%, Operator)
The permit is located in
Marche, Ancona in
central Italy (Fig. 8).
Apennine Energy
farmed-in to the permit
in June 2011 by
committing to drill the
Casa Tiberi-1
exploration well to earn
a 75% working interest
in the licence. The well
was drilled in November
Figure 8
2011 to a TD of 715m in the Lower Pliocene Cellino sand
objective (Fig. 9). It encountered 14.9 m gross (3.9 m net)
hydrocarbon pay. Partner SARP withdrew from the
operation after logging and opted not to participate in its
completion, and so going forward Apennine holds a 100%
interest in the discovery. The well was completed with
perforation of a single zone 571-581mMD. During clean-
up flow the well tested dry gas at rates of ~26,000 scmd
(~0.92 MMscfd). The well was subsequently re-entered in
January 2012 and a flow test delivered a final rate of
37,850 scmd (~1.3 MMscfd) on 5/16" choke (Fig. 10). The
well was again temporarily suspended pending application
for a pending concession in May 2012.
Figure 9
8
Figure 10
Badile Permit (Apennine 100%)
The Badile permit is situated in the Piedmont Lombard
Basin in northern Italy (Fig. 11), where the principal
play is oil, gas and condensate in deep Triassic
dolomites and limestones. The permit is adjacent to
ENI’s Gaggiano oil field and a short distance from the
Villafortuna-Trecate and Malossa oil fields with total
proven recoverable reserves over 400 MMboe. Two
large ready-to-drill prospects have been mapped in the
permit area, Badile and Zibido, with gross P50
prospective resources2 estimated by Fugro-Robertson to
be 185 Bscf and 130 Bscf respectively. In 2011
Apennine purchased and interpreted legacy 3D seismic
data over the Badile
prospect to define an
optimum drilling
location. It is the
Company’s intention to
submit an application
to drill a first well on
the prospect. It is
expected that when
approved the drilling
of the well will be
offered for farm-out.
Figure 11
224047 Sound Oil R&A 2011 pg01-15 01/05/2012 07:16 Page 9
Annual Report 2011
Other Opportunities
The Apennine portfolio offers several other appraisal
and development opportunities for which geological
studies and seismic interpretation will be undertaken to
mature the projects for future drilling. The immediate
focus will be on the following:
Sambucheto Permit (Apennine 95% interest,
Operator)
The permit is located in Ancona and Macerata in central
Italy (Fig. 12). Six wells were drilled in the permit area
between 1971 and 1994, two of which were gas
discoveries (Saletta-1 and Montefano-1dir) that were
never developed. Montefano-1dir encountered 5m gas
pay at 1190m and Saletta-1 found two 2m gas zones at
1321m and 1368m in the same formation. Gross P50
contingent resources for Montefano have been
estimated by Fugro Robertson to be 4.0 Bscf.
Costa del Sole Permit (Apennine 100%)
The permit, located in southern onshore Sicily (Fig. 14),
was provisionally awarded to Apennine in September
2011 and full award is subject to approval of an EIA by
the Sicily regional authorities. The permit contains the
Manfria-1bis heavy oil (12.26°API) discovery. The well
flowed at a rate of 150 bopd with an average water-
cut of 20% and produced a total of 6,000 barrels of oil
during testing. P50 contingent resources have been
estimated by Fugro Robertson to be 2.4 MMbo. On
final award, Apennine’s strategy will be to evaluate the
resource potential of the Manfria discovery for
development and other prospects for drilling. A major
refinery of heavy oil is located at Gela some 10 km
from the discovery.
Figure 12
Villa Gigli Permit (Apennine 50% interest, Operator)
The permit is located in Ancona and Macerata on the
Adriatic coast in central Italy (Fig. 13). Six wells have
been drilled on the permit between 1933 and 1993.
Two discoveries were made by Agip (Musone-1dir, oil
and Moretti-1, gas), but neither was developed.
Musone-1dir tested 15°API oil from the interval 1259-
1295m in the Miocene
Scaglia limestone at up to
1170 bpd with variable
water content. Moretti-1
encountered 11m gas pay at
358-369m in the Pliocene
sands; the zone flowed at
0.7 MMscfd. Gross P50
contingent resources of the
Musone discovery have been
estimated by Fugro
Robertson to be 1.7 MMbo.
Figure 13
Figure 14
D503 BR-CS (Apennine 100%)
The permit, located in Zone B of the central Adriatic
Sea (Fig. 15), is outside the current drilling exclusion
zone. The well Dora-1 was drilled in 1972 as a gas-
condensate discovery in the Miocene Scaglia
limestones, testing 20.2 MMscfd from the interval
1361-1393m. The Dora-2
appraisal well was drilled in
1996 as a gas discovery but
the reservoir quality was
inferior to that of Dora-1,
testing only 0.6 MMscfd from
the interval 1397-1410m.
Gross P50 contingent
resources for the Dora
discovery have been
estimated by Fugro Robertson
to be 17.6 Bscf.
Figure 15
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Sound Oil plc
Technical Review
continued
Licences Subject to Appeal
The Ministry of Economic Development in Italy has
withdrawn Apennine’s assigned permits D148 DR-CS
and D150 DR-CS (both offshore Calabria) from the
application process to full permit status. This is in
compliance with the environmental decree 128/1210
enacted in June 2010 which prevents oil and gas
activity within 5 nautical miles of the Italian coast.
Apennine has appealed against the decisions.
Indonesian Assets
Sound Oil plc has non-operated interests in two
licences in Indonesia through its wholly-owned
subsidiary Mitra Energia Ltd. Operators’ plans for the
remainder of 2012 include drilling of four exploration
commitment wells, two in Java and two in Kalimantan.
In addition work will start on the development of the
Kerendan gas field in Kalimantan.
Citarum PSC (Sound Oil plc 20% interest)
At the beginning of the year drilling commenced on
the first of 3 exploration commitment wells on the
block (Fig. 16). The first well, Cataka-1, experienced
difficulties in drilling the upper section and was
abandoned following two side-track attempts The
Operator intends to undertake a detailed post-drilling
evaluation of the operation with a view of returning to
the prospect within or at the end of the current drilling
campaign.
The rig has moved to the second location, Jatayu-1,
and will then move to the third well Geulis-1. The
Jatayu and Geulis prospects have been estimated by
Fugro Robertson to contain gross P50 prospective
resources of 288 and 26 Bscf respectively.
Bangkanai PSC (Sound Oil plc 5% carried interest)
The Bangkanai Operator has made considerable
progress throughout the last year to put the
exploration and development programme onto a firm
basis and secure the PSC in force (Fig. 17). The
Operator plans now to commence development drilling
for the Kerendan gas field in Q2 2012 with a view to
establishing first gas by end of 2013. The four well
development programme will be followed by the two
exploration commitment wells. Sound Oil plc is carried
for all exploration and development costs until first
gas.
The Kerendan field, first discovered in the 1980s, will
be developed to supply gas to a local, new-build
integrated power plant. The Plan of Development (POD)
calls for the supply of 130 TBtu (133.7 Bscf) over 20
years at a maximum rate of 20.3 BBtud (~20 MMscfd).
A Gas Sales Agreement was concluded in June 2011
with PLN3 for an initial price of $4.79/MMBtu. PLN will
also build the power plant for the project.
In addition to the proved undeveloped gas reserves of
133.7 Bscf, the Kerendan field contains un-drilled
contingent resources estimated by the block Operator
to be up to 160 Bscf.
Figure 17
Figure 16
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224047 Sound Oil R&A 2011 pg01-15 01/05/2012 07:16 Page 11
Annual Report 2011
BPMigas4 have agreed with the Operator that the two
outstanding exploration commitment wells should now
commence with drilling the West Kerendan-1 well in
Q4 2012. This well will target additional potential in
the Oligocene limestone reservoir (the producing
formation in the Kerendan field) and the deeper Eocene
Tanjung sandstones. Fugro Robertson (CPR, October
2011) have estimated the gross P50 prospective
resources in all levels of the prospect to be >1900 Bscf.
The second exploration commitment well will be drilled
in the light of West Kerendan-1 drilling results and the
interpretation of a new 2D seismic survey over other
prospective areas to be acquired in early 2013.
Notes:
1 Fugro Robertson Limited is an independent petroleum consultancy
company providing resource and reserve assessments. The figures
quoted here are taken from their Competent Person’s Report,
October 2011.
2 Contingent and prospective resources, consistent with SPE (The
Society of Petroleum Engineers) guidelines, are quantified in terms
of the statistical probability to describe a given recoverable
hydrocarbon (oil or gas) volume in a subsurface structure
considering all the geological variables involved. The P50 figure
indicates a 50% chance of finding a given volume and is generally
considered as the best or most-likely estimate. Contingent
resources refer to already discovered, but not produced,
hydrocarbons and prospective resources refer to hydrocarbons yet
to be discovered.
3 PLN (PT Perusahaan Listrik Negara) is the Indonesian State
electricity company.
4 BPMigas (Badan Pelaksana Kegitan Hulu Minyak Dan Gas Bumi) is
the Indonesian Government regulatory authority for petroleum
exploration and production activities.
Abbreviations:
API:
BBtud:
Bopd:
Bscf:
Btu:
American Petroleum Institute (crude oil gravity is
expressed in ºAPI).
Billion British Thermal Units per day.
Barrels of oil per day.
Billion standard cubic feet of gas.
British Thermal Unit (~ 1,000 Btu = 1 standard cubic
ft of gas, dependent on composition).
Measured depth.
Million barrels of oil.
MD:
MMbo:
MMboe: Million barrels of oil equivalent (6,000 standard cubic
feet of gas = 1 barrel of oil).
MMBtu: Million British Thermal Units.
MMscfd: Million standard cubic feet of gas per day.
MMscm: Million standard cubic meters of gas.
Mscf:
Scfd:
Scmd:
TBtu:
Thousand standard cubic feet.
Standard cubic feet per day.
standard cubic meters of gas per day.
Trillion British Thermal Units.
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Sound Oil plc
Statement of Proved and Probable
Reserves
The Group’s proved and probable hydrocarbon reserves as at 31 December 2011 were:
As at 31 December 2010
Additions:
Kerendan field, Indonesia *
As at 31 December 2011
Oil
(MMbo)
–
0.070
0.070
Gas
(Bscf)
–
6.685
6.685
MMboe
–
1.184
1.184
* Figures are estimated as proved undeveloped reserves (1P) by Fugro Robertson Limited in a Competent Person’s Report, October 2011. Basis
to fulfil contract: 972 Btu/Scf, 350 operating days per year.
Abbreviations:
Bscf:
MMbo:
MMboe: Million barrels of oil equivalent (6,000 standard cubic feet of gas = 1 barrel of oil).
Billion standard cubic feet of gas.
Million barrels of oil.
12
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Annual Report 2011
Board of Directors
The Board of Directors of the Company is currently comprised as follows:
Tony Heath
Non-executive Director
Chairman of Audit Committee
Tony Heath has over 30 years financial and general
management experience across a variety of roles.
Qualifying as a chartered accountant in 1964, Tony
joined Burmah Oil’s motor fuels development business
in 1968. He eventually became Group Controller of
Burmah Oil and was responsible for all financial
information and control of the international oil group
covering operations in thirty-five countries. Tony
joined the board of Premier Oil plc as Group Finance
Director in 1990 and was Group Finance Director of
Sound Oil plc from 2005 to August 2010.
Andrew Hockey
Non-executive Director
Member of Audit Committee
Member of Remuneration Committee
Andrew has 30 years technical and managerial
experience in the oil and gas industry gained in the UK
and internationally with Petrofina, Triton, Monument,
Lasmo, Eni and Fairfield Energy. Andrew holds a BA in
Geology from Oxford University and an MSc in
Petroleum Geology from Imperial College.
Gerry Orbell
Chairman and Chief Executive
Gerry Orbell is a petroleum geologist with over
35 years of technical, managerial and director level
experience in the hydrocarbon and utilities sectors.
Gerry has previously held the position of executive
director of Fina Exploration Ltd, Premier Oil plc and
United Utilities plc. Gerry is currently the chairman of
Antrim Energy Inc. He is a member of the board of
Moorland Energy Ltd, and also of the compliance
company Valpak Ltd where he is also chairman of the
audit committee.
Michael Nobbs
Non-executive Director
Chairman of Remuneration Committee
Member of Audit Committee
Michael Nobbs has a 30 year track record in
investment banking, with a focus on corporate and
project finance. He was a managing director and
senior credit officer for Citigroup/Citibank and the
group finance director for Tishman International
Companies, a major global real estate development
and investment business.
Ilham Habibie
Non-executive Director
Member of Remuneration Committee
Ilham is a co-founder and shareholder of PT. ILTHABI
Rekatama, a private investment company in Indonesia,
which he joined as a President Director in 2002.
Through ILTHABI he invested in, and is director of,
various companies in the fields of energy, mining,
manufacturing and transportation. Ilham’s previous
professional background is largely with aerospace
companies (IPTN, Indonesia; Boeing, USA). He holds a
Dr.-Ing. (PhD) in Aeronautical Engineering from
Technical University of Munich, and a M.B.A. from the
University of Chicago, USA.
13
224047 Sound Oil R&A 2011 pg01-15 01/05/2012 07:16 Page 14
Sound Oil plc
Report of the Directors
Meeting to give to the directors authority for one year to
allot shares for cash as if statutory pre-emption did not
apply, although at the present time the directors do not
have plans for any issue of shares.
At the Annual General Meeting, authority will again be
sought for the directors to grant options up to 5% of the
issued share capital.
Directors
Directors of Sound Oil plc holding office during the year
were:
Ilham Habibie
Tony Heath
Andrew Hockey
Michael Nobbs
Gerry Orbell
(appointed on 5 September 2011)
(appointed on 9 May 2011)
Substantial Shareholders
At 10 April 2012 the Company had received notification
of the following interests in excess of 3% of the
Company’s issued ordinary shares:
TD Direct Investing Nominees
(Europe) Limited
Barclayshare Nominees Limited
Hsdl Nominees Limited
Pershing Nominees Limited
Investor Nominees Limited
L R Nominees Limited
James Capel (Nominees) Limited
Celtique Energie Petroleum Ltd
Notified
number of
Notified
% of
voting rights voting rights
257,695,240
203,114,056
164,156,400
150,533,343
128,893,613
116,615,523
102,222,929
91,998,582
12.30%
9.69%
7.83%
7.18%
6.15%
5.56%
4.88%
4.39%
Directors’ interests
The beneficial interests of the directors and their
immediate families in the ordinary share capital of the
company are shown below:
Name
Ilham Habibie 1
Michael Nobbs
Gerry Orbell 2
Tony Heath
Andrew Hockey
31 December
2011
Date of
this report
147,288,696 147,288,696
2,529,545
15,513,124
2,127,586
125,000
1,954,545
14,513,124
827,586
–
1 Shares registered in the name of Ilthabie SDN-BHD, a company jointly
owned by Ilham Habibie and his brother Tareq Habibie.
2 This includes 8,016,873 shares registered in the name of Sogdian and
777,000 shares registered in the name of Gerry Orbell's children.
The directors submit their report and the audited
accounts for the year ended 31 December 2011.
Results and dividends
The Group’s loss after tax for the year amounted to
£6,264,000 (2010 loss: £15,968,000). A dividend is not
proposed.
Activities
The principal activities of the Group are oil and gas
exploration, development and production. A review of
activities, prospects for the future and key performance
indicators is included in the Chairman’s Statement and
Technical Review.
Key performance indicators
The Company’s main business is the acquisition of
interests in prospective exploration acreage, the discovery
of hydrocarbons in commercial quantities and the
crystallisation of value whether through production or
disposal of reserves. The Company tracks its non-financial
performance through the accumulation of licence
interests in proven and prospective hydrocarbon producing
regions, the level of success in encountering hydrocarbons
and the development of production facilities. In parallel,
the Company tracks its financial performance through
management of expenditures within resources available,
the cost-effective exploitation of reserves and the
crystallisation of value at the optimum point.
Business risk and uncertainties
Sound Oil plc, similar to other exploration companies in
the oil and gas industry, operates in an environment
subject to inherent risks. Many of these risks are beyond
the ability of a company to control, particularly those
associated with the exploring for and developing of
economic quantities of hydrocarbons. Principal risks can
be classified into four main categories: operational,
commercial, regulatory and financial. Operational risks
include drilling complications, delays and cost over-run on
major projects, well blowouts, failure to encounter
hydrocarbons, construction risks, equipment failure and
accidents. Commercial risks include access to markets,
access to infrastructure, volatile commodity prices and
counterparty risks. Regulatory risks include governmental
regulations, licence compliance and environmental risks.
Financial risks include access to equity funding and credit.
Share capital
At the end of the year the number of shares in issue
was 1,833,199,548.
The authority given to the directors to allot shares at
the 2011 Annual General Meeting was granted for a
period of one year. A resolution will be proposed at the
Annual General Meeting to renew this authority.
A resolution will also be proposed at the Annual General
14
224047 Sound Oil R&A 2011 pg01-15 01/05/2012 07:16 Page 15
Annual Report 2011
Report of the Directors
continued
Charitable contributions
During the period the Group made no charitable
contributions.
Auditors
Crowe Clark Whitehill LLP continue as the Company’s
auditors until the next Annual General Meeting. A
resolution to reappoint them as auditors will be put to
shareholders at the forthcoming Annual General
Meeting.
Provision of information to auditors
Each of the persons who is a director at the date of
approval of this Annual Report and Financial
Statements confirms that:
(cid:129)
(cid:129)
so far as the director is aware, there is no relevant
audit information of which the Company’s auditors
are unaware; and
the director has taken all the steps that he ought to
have taken as director in order to make himself
aware of any relevant audit information and to
establish that the Company’s auditors are aware of
that information.
This confirmation is given and should be interpreted in
accordance with the provisions of s418 of the
Companies Act 2006.
By order of the Board
Stephen Ronaldson
Company Secretary
30 April 2012
Details of the remuneration and information on
indemnity provisions of all directors who served during
the period are shown in the Report on Directors’
Remuneration on page 17.
Directors’ interests in share options are shown in the
Report on Directors Remuneration on page 18.
Financial risk management objectives and policies
The Group’s principal financial instruments comprise cash
and short term deposits. The main purpose of these
financial instruments is to finance the Group’s operations.
In addition the Group has various financial liabilities in
the form of short term, non interest bearing sundry
payables. The main risks arising from the Group’s financial
instruments are interest rate risk and currency exchange
rate risk. The board reviews and agrees policies for
managing these risks. The Group’s exposure to the risk
from changes in market interest rates and changes in
currency exchange rates relates primarily to the Group’s
cash and term deposits which are subject to floating
interest rates and are held in the currency which matches
the currency of future liabilities. The Group’s exposure to
commodity price risk and credit risk is considered minimal
at this stage of the Group’s development.
Going concern
Details of going concern considerations are shown in
the Financial Review on page 4.
Suppliers and employees
The Group’s policy in respect of its suppliers is to
establish terms of payment when agreeing the terms of
business transactions. As at 31 December 2011 the
number of creditor days in relation to trade creditors
outstanding at the period end were 30 days
(2010: 17 days). The Group places considerable value on
the involvement of its employees and keeps them
informed on matters affecting them as employees and on
the various factors affecting the performance of the
Group. Applications for employment by disabled persons
are always fully considered, bearing in mind the aptitudes
of the applicant concerned. In the event of members of
staff becoming disabled, every effort is made to ensure
that their employment with the Group continues and that
appropriate training is arranged.
15
224047 Sound Oil R&A 2011 pg16-end 01/05/2012 07:50 Page 16
Sound Oil plc
Report on Directors’ Remuneration
Compliance
Remuneration structure
The remuneration of all executive directors is
The executive team’s remuneration is basic salary with
determined by the Remuneration Committee (the
possible share options and bonuses awarded
‘Committee’) and ratified by the Board. The Committee
dependent on individual and company performance.
is composed entirely of non-executive directors, and
There are no current pension arrangements, however
comprises Mr Michael Nobbs, who chairs the
following changes in UK legislation the provision of a
Committee Mr Andrew Hockey and Mr Ilham Habibie.
pension scheme is under review.
None of the executive directors of the Company is
involved in determining his own remuneration.
Base salary
The Committee consults with the executive team as
comparable companies in the oil sector and general
Base salary is reviewed each year against other
required during the year.
Remuneration approach
market data on the basis of companies in similar
industries and those of a similar size. The objective is to
ensure that the base salary provides a competitive
During the course of 2011 the Company’s remuneration
remuneration package. The base salaries of the
approach has been updated. A Comprehensive
executive team are currently positioned between the
Compensation Framework is now in place.
median and the upper quartile. While salary is reviewed
by reference to market conditions, the performance of
The Company’s remuneration policy is to provide
the Company and the performance of the individual, the
remuneration packages which ensure that directors
Committee would not regard this element of
and senior management are fairly and responsibly
remuneration as directly performance related.
rewarded for their contributions.
Bonuses
The Committee endorses the principle of mitigation of
The performance of the Company and the Executives
damages on early termination of a service contract.
over the year is taken into consideration when
assessing any annual cash bonus. Bonuses may be
It is the Committee’s current intention to continue
awarded up to a maximum of 50% and 100% of base
with the above remuneration approach for 2012 and
salary depending on the senority of the employee.
subsequent years although the Committee will keep
the matter under review. The Committee’s current
intention with regard to share options is that they
form a critical part of the long term incentive scheme
for the executive team and are awarded annually.
16
224047 Sound Oil R&A 2011 pg16-end 01/05/2012 07:50 Page 17
Annual Report 2011
Report on Directors’ Remuneration
continued
Contracts of employment
The details of the executive director contract of
employment and non-executive directors’ letters of
appointment are set out below:
(cid:129) Gerry Orbell has a contract of employment with a
notice period for termination of 12 months.
(cid:129)
(cid:129) Non-executive directors have letters of
appointment with a notice period for termination
of 2-3 months.
(cid:129)
The Company has granted an indemnity to all its
directors under which the Company will, to the
Summary of actual remuneration of directors
fullest extent permitted by applicable law and to
the extent provided by the Articles of Association,
indemnify them against all costs, charges, losses
and liabilities incurred by them in the execution of
their duties.
In the event of a change of control of the
Company, Gerry Orbell and the non-executive
directors have the option to give notice and
receive a lump sum equivalent to 12 months
salary.
2011 Salary and fees £’000’s
Salary
Bonus (i)
Total
2010
2010
2011
Performance Performance
Award
Award
Executive directors
Gerry Orbell(i)
Tony Heath
Jossy Rachmantio
Non-executive directors
Simon Davies
Michael Nobbs
Ilham Habibie
Tony Heath
Andrew Hockey
Patrick Alexander
240
–
–
–
30
30
9(3)
19(4)
–
86
–
–
–
–
–
–
–
–
60
–
–
–
–
–
–
–
–
Transaction
related
100
–
–
–
–
–
–
–
–
486
–
–
–
30
30
9
19
–
Total for all directors
(i) Bonus – A bonus of £85,937 was awarded to Gerry Orbell in February 2011 relating to 2010 performance. The Chairman/CEO's bonus
was assessed as 46% of base salary and took into consideration a number of KPI's and overall performance for the 2010 full year.
328
574
100
60
86
184
53(1)
57(1)
12(2)
27
27
–
–
17(1)
377
Following the decision to routinely consider bonuses at the end of the relevant year the directors addressed the 2011 annual bonuses in
December 2011. The Chairman/CEO's bonus was assessed at 25% of base salary (£60,000 of which £30,000 was awarded in shares) and
took into consideration a number of KPI’s and overall performance for the 2011 full year.
Transaction related – This was awarded to the Chairman/CEO in March 2011 in regard to the transformational acquisition of Consul. The
Board took into account the pivotal part undertaken by the individual, the impact of the acquisition on the asset value of the company,
the share price at the time and favourable price negotiated for the deal. Gerald Orbell was a non-executive director of Consul at the
time of acquisition and stood aside from any negotiations on behalf of Consul and did not benefit from any bonus awards made to
other Consul directors which were stated in the shareholder circular dated December 2010.
Private healthcare – During the course of the year the company instituted a private healthcare insurance scheme. The value of this
benefit was £731, which is included in the salary total.
(1) to 30/06/2010
(2) to 12/06/2010
(3) from 05/09/2011 in role as non-executive director
(4) from 09/05/2011
17
224047 Sound Oil R&A 2011 pg16-end 01/05/2012 07:50 Page 18
Sound Oil plc
Report on Directors’ Remuneration
continued
Share Options
At 31 December 2011 the Directors held options over the Ordinary Shares of the Company as follows:
Date of Grant
Exercisable Acquisition Price
per share (pence)
Dates
Options held at
Options held at
1 January 2011 31 December 2011
28.02.07
28.02.07
28.02.07
27.05.10
18.04.11
28.02.07
28.02.07
28.03.07
27.05.10
18.04.11
29.09.11
14.04.11
24.05.11
18.04.11
28.02.08 – 28.02.17
28.02.09 – 28.02.17
28.02.10 – 28.02.17
27.05.10 – 26.05.13
28.03.11 – 27.03.16
28.02.08 – 28.02.17
28.02.09 – 28.02.17
28.02.10 – 28.02.17
27.05.10 – 26.05.13
01.03.11 – 29.02.16
29.09.11 – 28.09.16
28.03.11 – 27.03.16
01.04.11 – 31.03.16
28.03.11 – 27.03.16
4.38
4.38
4.38
1.50
5.60
4.38
4.38
4.38
1.50
2.75
2.20
5.60
4.95
5.60
666,667
666,667
666,666
1,725,000
–
333,333
333,333
333,334
1,035,000
–
–
–
–
–
666,667
666,667
666,666
1,725,000
7,500,000
333,333
333,333
333,334
1,035,000
2,000,000
1,000,000
1,000,000
1,000,000
1,000,000
G. Orbell
JA Heath
I Habibie
A Hockey
M Nobbs
The market price of Sound Oil Plc share at the end of the year was 1.65 pence. The market price of the shares ranged
between 1.43 pence and 6.38 pence during the year.
18
224047 Sound Oil R&A 2011 pg16-end 01/05/2012 07:50 Page 19
Annual Report 2011
Corporate Governance Report
The Board recognises the importance of sound corporate
There is close, day-to-day involvement by the executive
governance and the guidelines set out in the
director in all of the Group’s activities. This includes
UK Corporate Governance Code (the “Code”). Companies
the comprehensive review of both management and
on the AIM market of the London Stock Exchange
technical reports, the monitoring of foreign exchange
(“AIM”) are not required to comply with the Code, and
and interest-rate fluctuations, government and fiscal-
due to its size, the Company is not in full compliance.
policy issues and cash-control procedures. In this way,
However, the Company intends to comply so far as is
the key-risk areas can be monitored effectively and
practicable and appropriate.
specialist expertise applied in a timely and productive
In accordance with the Code no director has an
manner.
employment contract of more than one year.
Any system of internal control can provide only
reasonable, and not absolute, assurance that the risk
of failure to achieve business objectives is eliminated.
The directors acknowledge that they are responsible
for the Company’s system of internal control and for
reviewing its effectiveness. The directors, having
reviewed the effectiveness of the system of internal
controls and risk management, consider that the
system of internal control operated effectively
throughout the financial year and up to the date that
the financial statements were signed.
The Company has less than twenty employees and the
directors do not believe the Company is sufficiently
complex to warrant the establishment of an internal
audit function. The directors will review this policy as
and when the Company’s circumstances warrant.
The Board has a Remuneration Committee as
described in the Report on Directors’ Remuneration. In
addition to directors’ remuneration, the Committee is
responsible for assessing directors’ performance,
planning succession for the Chairman and Chief
Executive and for new nominees to the Board.
The Board is responsible for overall strategy, acquisition
policy, major capital expenditure projects, corporate
overhead costs and significant financing matters. No
one individual has unfettered powers of decision. There
is an experienced chairman and chief-executive and
four non-executive directors.
18 board meetings were held during the year, all of
which were attended by all directors.
The Board has an Audit Committee comprising three
of the non-executive directors. The Audit Committee
receives and reviews reports from the Executive Team
and external auditors relating to the published
accounts and the system of internal financial control.
The Board has established levels of authorisation of
financial commitments and payment approval
procedures appropriate to the size of the business. The
Board receives monthly reports on income and
expenditure and on the Company’s financial position.
On the wider aspects of internal control, relating to
operational and compliance controls and risk
management as included in provision C.2.1 of the
Code, the Board, in setting the control environment,
now identifies and reviews the key areas of business
risk facing the Group.
19
224047 Sound Oil R&A 2011 pg16-end 01/05/2012 07:50 Page 20
Sound Oil plc
Statement of Directors’ Responsibilities
The directors are responsible for preparing the
(cid:129)
prepare the financial statements on the going
Directors' Report and the financial statements in
concern basis unless it is inappropriate to presume
accordance with applicable law and regulations.
that the company will continue in business.
Company law requires the directors to prepare
The directors are responsible for keeping adequate
financial statements for each financial year. Under
accounting records that are sufficient to show and
that law the directors have elected to prepare the
explain the company’s transactions and disclose with
financial statements in accordance with International
reasonable accuracy at any time the financial position
Financial Reporting Standards (IFRSs') as adopted by
of the company and enable them to ensure that the
the European Union and applicable law.
financial statements comply with the Companies Act
2006. They are also responsible for safeguarding the
Under company law the directors must not approve
assets of the company and hence for taking
the financial statements unless they are satisfied that
reasonable steps for the prevention and detection of
they give a true and fair view of the state of affairs of
fraud and other irregularities.
the company and the group and of the profit or loss of
the group for that period. In preparing these financial
They are further responsible for ensuring that the
statements, the directors are required to:
Report of the Directors and other information included
(cid:129)
select suitable accounting policies and then apply
prepared in accordance with applicable law in the
them consistently;
United Kingdom.
in the Annual Report and Financial Statements is
(cid:129) make judgments and accounting estimates that
are reasonable and prudent;
(cid:129)
state whether applicable accounting standards
have been followed, subject to any material
departures disclosed and explained in the financial
statements;
20
224047 Sound Oil R&A 2011 pg16-end 01/05/2012 07:50 Page 21
Annual Report 2011
Independent Auditor’s Report
to the members of Sound Oil plc
We have audited the financial statements of Sound Oil plc
for the year ended 31 December 2011 which comprise
Consolidated Income Statement, Consolidated and
Company Balance Sheets, Consolidated and Company
Statement of Changes in Equity, the Consolidated and
Company Cash Flow Statements and the related notes.
The financial reporting framework that has been applied in
their preparation is applicable law and International
Financial Reporting Standards (IFRSs) as adopted by the
European Union and, as regards the parent company
financial statements, as applied in accordance with the
provisions of the Companies Act 2006.
This report is made solely to the company’s members, as a
body, in accordance with Chapter 3 of Part 16 of the
Companies Act 2006. Our audit work has been undertaken
so that we might state to the company’s members those
matters we are required to state to them in an auditor’s
report and for no other purpose. To the fullest extent
permitted by law, we do not accept or assume
responsibility to anyone other than the company and the
company’s members as a body, for our audit work, for this
report, or for the opinions we have formed.
Respective responsibilities of directors and auditors
As explained more fully in the Statement of Directors’
Responsibilities, the directors are responsible for the
preparation of the financial statements and for being
satisfied that they give a true and fair view. Our
responsibility is to audit and express an opinion on the
financial statements in accordance with applicable law
and International Standards on Auditing (UK and Ireland).
Those standards require us to comply with the Auditing
Practices Board’s Ethical Standards for Auditors.
Scope of the audit of the financial statements
An audit involves obtaining evidence about the amounts
and disclosures in the financial statements sufficient to
give reasonable assurance that the financial statements
are free from material misstatement, whether caused by
fraud or error. This includes an assessment of: whether
the accounting policies are appropriate to the company’s
circumstances and have been consistently applied and
adequately disclosed; the reasonableness of significant
accounting estimates made by the directors; and the
overall presentation of the financial statements.
In addition, we read all the financial and non-financial
information in the Directors’ Report, the Chairman’s
statement, the financial and technical reviews, the
statement of proved and probable reserves, the report on
directors remuneration and the corporate governance
report to identify material inconsistencies with the audited
financial statements. If we become aware of any apparent
material misstatements or inconsistencies we consider the
implications for our report.
Opinion on financial statements
In our opinion:
(cid:129)
the financial statements give a true and fair view of
the state of the group’s and of the parent company’s
affairs as at 31 December 2011 and of the groups loss
for the year then ended;
the Group financial statements have been properly
prepared in accordance with IFRSs as adopted by the
European Union;
the parent company financial statements have been
properly prepared in accordance with IFRS as adopted
by the European Union as applied in accordance with
the provisions of the Companies Act 2006; and
the financial statements have been prepared in
accordance with the requirements of the Companies
Act 2006.
(cid:129)
(cid:129)
(cid:129)
Opinion on other matter prescribed by the Companies
Act 2006
In our opinion the information given in the Directors’ Report
for the financial year for which the financial statements are
prepared is consistent with the financial statements.
Matters on which we are required to report by
exception
We have nothing to report in respect of the following
matters where the Companies Act 2006 requires us to
report to you if, in our opinion:
(cid:129)
adequate accounting records have not been kept by the
parent company, or returns adequate for our audit have
not been received from branches not visited by us; or
the parent company financial statements are not in
agreement with the accounting records and returns; or
certain disclosures of directors’ remuneration specified
by law are not made; or
(cid:129)
(cid:129)
(cid:129) we have not received all the information and
explanations we require for our audit.
Stephen Bullock (Senior Statutory Auditor)
For and on behalf of
Crowe Clark Whitehill LLP
Statutory Auditor
St. Bride’s House
10 Salisbury Square
London EC4Y 8EH
30 April 2012
Note: The maintenance and integrity of Sound Oil plc website is
the responsibility of the directors. The work carried out by the
auditors does not involve consideration of these matters and
accordingly the auditors accept no responsibility for any changes
that may have occurred to the financial statements since they
were originally presented on the website. Legislation in the United
Kingdom governing the preparation and dissemination of financial
statements may differ from legislation in other jurisdictions.
21
224047 Sound Oil R&A 2011 pg16-end 01/05/2012 07:50 Page 22
Sound Oil plc
Consolidated Income Statement
for the year ended 31 December 2011
Notes
3
6
7
Exploration costs
Gross loss
Administrative expenses
Group trading loss
Other income/(loss)
Group operating loss from continuing operations
Finance revenue
Foreign exchange (loss)/gain
Expense incurred in acquiring subsidiaries
Loss on disposal of farmout interest
Loss before income tax
Income tax
Loss for the period attributable to the equity holders
Other comprehensive loss:
Foreign currency translation gain
Total comprehensive loss for the period
Loss for the period attributable to:
Owners of the Company
Non-controlling interest
Total comprehensive loss attributable to:
Owners of the Company
Non-controlling interest
2011
£’000’s
(2,405)
(2,405)
(2,948)
(5,353)
–
(5,353)
44
(439)
(516)
–
(6,264)
–
(6,264)
27
(6,237)
(6,259)
(5)
(6,264)
(6,232)
(5)
(6,237)
2010
£’000’s
(430)
(430)
(1,502)
(1,932)
(58)
(1,990)
21
211
–
(14,210)
(15,968)
–
(15,968)
711
(15,257)
(15,968)
–
(15,968)
(15,257)
–
(15,257)
Loss per share basic and diluted for the period attributable
to the equity holders of the parent (pence)
8
(0.39)
(2.31)
The Company has elected to take the exemption under section 408 of the Companies Act 2006 to not present the parent
Company income statement.
The result of the parent Company for the year was a loss of £3,266,000 (2010: £3,004,000).
22
224047 Sound Oil R&A 2011 pg16-end 01/05/2012 07:50 Page 23
Annual Report 2011
Consolidated Balance Sheet
as at 31 December 2011
Company number: 05344804
Notes
2011
£’000’s
2010
£’000’s
Group
Non-current assets
Property, plant and equipment
Intangible assets
Other debtors
Current assets
Other debtors
Prepayments
Current tax receivable
Cash and short term deposits
Total assets
Current liabilities
Trade and other payables
Current tax payable
Non-current liabilities
Deferred tax liabilities
Provisions
Total liabilities
Net assets
Capital and reserves attributable to
equity holders of the Company
Issued equity share capital and share premium
Foreign currency reserve
Accumulated deficit
Total equity
Approved by the Board on 30 April 2012
G Orbell
Director
J A Heath
Director
9
10
13
13
7
14
15
7
16
17
18
18
1,278
26,302
668
28,248
1,388
119
–
6,286
7,793
36,041
2,233
–
2,233
3,576
366
3,942
6,175
29,866
54,704
3,768
(28,606)
29,866
The accounting policies on pages 29 to 34 and notes on pages 34 to 62 form part of these financial statements .
12
11,479
621
12,112
2,940
65
26
4,484
7,515
19,627
284
–
284
1,525
103
1,628
1,912
17,715
36,456
3,741
(22,482)
17,715
23
224047 Sound Oil R&A 2011 pg16-end 01/05/2012 11:18 Page 24
Sound Oil plc
Company Balance Sheet
as at 31 December 2011
Company number: 05344804
Company
Non-current assets
Property, plant and equipment
Investment in subsidiaries
Other debtors
Current assets
Other debtors
Prepayments
Current tax receivable
Cash and short term deposits
Total assets
Current liabilities
Trade and other payables
Total liabilities
Net assets
Capital and reserves
Issued equity share capital and share premium
Accumulated deficit
Total equity
Approved by the Board on 30 April 2012
G Orbell
Director
J A Heath
Director
Notes
9
12
13
13
14
15
18
18
2011
£’000’s
11
41,719
7
41,737
121
37
–
5,092
5,250
46,987
285
285
46,702
54,704
(8,002)
46,702
2010
£’000’s
–
24,337
4
24,341
2,891
37
26
4,331
7,285
31,626
166
166
31,460
36,456
(4,996)
31,460
The accounting policies on pages 29 to 34 and notes on pages 34 to 62 form part of these financial statements .
24
224047 Sound Oil R&A 2011 pg16-end 01/05/2012 07:50 Page 25
Annual Report 2011
Consolidated Statement of Changes in Equity
for the year ended 31 December 2011
Group
Share
capital
£’000’s
Share Accumulated
deficit
£’000’s
premium
£’000’s
Note
Foreign
currency
reserve
£’000’s
Non
controlling
interest
£’000’s
At 1 January 2011
692
35,764
(22,482)
3,741
Total loss for the year
Total comprehensive gain/(loss)
Total comprehensive income/(loss)
Issue of share capital
Share issue costs
Share based payments
Acquisition of non-controlling
interests with a change in control
Acquisitions of non-controlling
interests without a change in control
23
–
–
–
1,141
–
–
–
–
–
–
–
18,104
(997)
–
–
–
(6,259)
–
(6,259)
–
–
260
–
(125)
–
27
27
–
–
–
–
–
At 31 December 2011
1,833
52,871
(28,606)
3,768
–
(5)
–
(5)
–
–
–
94
(89)
–
Share
capital
£’000’s
Share Accumulated
deficit
£’000’s
premium
£’000’s
Note
Foreign
currency
reserve
£’000’s
Non
controlling
interest
£’000’s
At 1 January 2010
Total loss for the year
Total comprehensive gain
Total comprehensive income/(loss)
Share based payments
23
692
35,764
(6,530)
3,030
–
–
–
–
–
–
–
–
(15,968)
–
(15,968)
16
–
711
711
–
At 31 December 2010
692
35,764
(22,482)
3,741
–
–
–
–
–
–
Total
equity
£’000’s
17,715
(6,264)
27
(6,237)
19,245
(997)
260
94
(214)
29,866
Total
equity
£’000’s
32,956
(15,968)
711
(15,257)
16
17,715
25
224047 Sound Oil R&A 2011 pg16-end 01/05/2012 07:50 Page 26
Sound Oil plc
Company Statement of Changes in Equity
for the year ended 31 December 2011
Company
At 1 January 2011
Total loss for the year
Other comprehensive income/(loss)
Total comprehensive income/(loss)
Issue of share capital
Share issue costs
Share based payments
At 31 December 2011
At 1 January 2010
Total loss for the year
Other comprehensive income/(loss)
Total comprehensive income/(loss)
Share based payments
At 31 December 2010
Share
capital
£’000’s
Share Accumulated
deficit
£’000’s
premium
£’000’s
Note
692
35,764
–
–
–
1,141
–
–
–
–
–
18,104
(997)
–
1,833
52,871
(4,996)
(3,266)
–
(3,266)
–
–
260
(8,002)
Share
capital
£’000’s
Share Accumulated
deficit
£’000’s
premium
£’000’s
692
35,764
–
–
–
–
–
–
–
–
692
35,764
(2,008)
(3,004)
–
(3,004)
16
(4,996)
23
Note
23
Total
equity
£’000’s
31,460
(3,266)
–
(3,266)
19,245
(997)
260
46,702
Total
equity
£’000’s
34,448
(3,004)
–
(3,004)
16
31,460
26
224047 Sound Oil R&A 2011 pg16-end 01/05/2012 07:50 Page 27
Annual Report 2011
Consolidated Cash Flow Statement
for the year ended 31 December 2011
Notes
6
9
Cash flow from operating activities
Cash flow from operations
Interest received
Net cash flow used in operating activities
Cash flow from investing activities
Capital expenditure and disposals
Exploration expenditure
Payment in escrow – acquisition of subsidiaries
Expense in acquiring subsidiaries
Acquisition of subsidiaries
Net cash flow used in investing activities
Proceeds from equity issue
Net cash flow from financing activities
Net increase/(decrease) in cash and cash equivalents
Net foreign exchange difference
Cash and cash equivalents at 1 January
Cash and cash equivalents at 31 December
14
Notes to cash flow
Cash flow from operations reconciliation
Profit/(loss) after tax
Finance revenue
Loss on disposal of farmout interest
Payroll bonuses paid in shares
Share options granted and taken up immediately
Expense in acquiring subsidiaries
Cash taken over on acquisition of subsidiaries
Exploration expenditure written off
Income tax charge (credit)
Increase/(decrease) in accruals and short term creditors
Depreciation
Share based payments charge
Increase/(decrease) in long term provisions
(Increase)/decrease in long term debtors
Increase in short term debtors
Cash flow from operations
Notes
6
3
23
2011
£’000’s
(3,009)
44
(2,965)
(31)
(3,809)
2,413
(366)
(4,712)
(6,505)
12,108
12,108
2,638
(836)
4,484
6,286
2011
£’000’s
(6,264)
(44)
–
98
36
516
170
1,236
–
1,668
11
260
261
(12)
(945)
(3,009)
2010
£’000’s
(2,683)
21
(2,662)
(2)
(1,165)
(2,413)
–
–
(3,580)
–
–
(6,242)
104
10,622
4,484
2010
£’000’s
(15,968)
(21)
14,210
–
–
–
–
3
–
(775)
15
16
(5)
194
(352)
(2,683)
27
224047 Sound Oil R&A 2011 pg16-end 01/05/2012 07:50 Page 28
Sound Oil plc
Company Cash Flow Statement
for the year ended 31 December 2011
2011
£’000’s
(1,458)
44
(1,414)
(11)
2,413
(1,464)
(965)
(366)
(9,097)
(9,490)
12,108
12,108
1,204
(443)
4,331
5,092
2011
£’000’s
(3,266)
–
(43)
516
98
36
224
260
720
(3)
(1,458)
2010
£’000’s
(1,803)
21
(1,782)
–
(2,413)
–
–
–
(1,538)
(3,951)
–
–
(5,733)
210
9,854
4,331
2010
£’000’s
(3,004)
2,030
(21)
–
–
–
(224)
16
(600)
–
(1,803)
Notes
6
9
Cash flow from operating activities
Cash flow from operations
Interest received
Net cash flow used in operating activities
Cash flow from investing activities
Capital expenditure and disposals
Payment in escrow – acquisition of subsidiaries
Acquisition of subsidiaries
Purchase of Euro loan
Cost of acquiring subsidiaries
Investment in subsidiary undertakings
Net cash flow used in investing activities
Cash flow from financing activities
Proceeds from equity issue
Net cash flow from financing activities
Net increase/(decrease) in cash and cash equivalents
Net foreign exchange differences
Cash and cash equivalents at 1 January
Cash and cash equivalents at 31 December
14
Notes to cash flow
Cash flow from operations reconciliation
Profit/(loss) after tax
Increase in provisions against investments
Finance revenue
Cost of acquiring subsidiaries
Payroll bonuses paid in shares
Share options granted and taken up immediately
Increase/(decrease) in accruals and short term creditors
Share based payments
Decrease/(increase) in short term debtors
Decrease/(increase) in other non current assets
Cash flow from operations
Notes
23
28
224047 Sound Oil R&A 2011 pg16-end 01/05/2012 07:50 Page 29
Annual Report 2011
Notes to the Financial Statements
1
Accounting policies
Sound Oil plc is a public limited company registered and
domiciled in England and Wales under the Companies Act
2006.
(a) Basis of preparation
The financial statements of the Group and its parent have
been prepared in accordance with:
plan, management believe that the Group will remain a going
concern for the next 12 months from the date of the
authorisation of the financial statements on the basis of
forecast expenditure (12 months through 30 April 2013) will
be less than the funds available as at 31 December 2011
together with the £4.0 million raised in February 2012 from
share placings and the £5.8 million undrawn element of the
Yorkville facility. Management will also continue to pursue
farm-out and financing strategies to reduce/fund Sound’s
(1) International Financial Reporting Standards (IFRS) as
future obligations.
adopted by the European Union (IFRSs, as adopted by the
European Union), IFRIC Interpretations and:
(2) those parts of the Companies Act 2006 applicable to
companies reporting under IFRS.
The consolidated financial statements have been prepared
under the historical cost convention, except to the extent
that the following policies require fair value adjustments.
Use of estimates and key sources of estimation
uncertainty
The preparation of financial statements in conformity with
IFRS requires management to make estimates and
assumptions that affect the reported amounts of assets and
liabilities as well as the disclosure of contingent assets and
liabilities at the balance sheet date and the reported
amounts of revenues and expenses during the reporting
The Group and its parent company’s financial statements are
period. Actual outcomes could differ from those estimates.
presented in sterling (£) and all values are rounded to the
nearest thousand (£’000) except when otherwise indicated.
The key sources of estimation uncertainty that has a
significant risk of causing material adjustment to the
The principal accounting policies set out below have been
carrying amounts of assets and liabilities within the next
consistently applied to all financial reporting periods
financial year are the impairment of intangible exploration
presented in these consolidated financial statements and
and evaluation (E&E), investments and goodwill and the
by all Group entities, unless otherwise stated. All amounts
estimation of share based payment costs.
classified as current are expected to be settled/recovered in
less than 12 months unless otherwise stated in the notes
to these financial statements.
The Group determines whether E&E assets are impaired in
cost pools when facts and circumstances suggest that the
carrying amount of a cost pool may exceed its recoverable
The Group and its parent company’s financial statements
amount. As recoverable amounts are determined based
for the year ended 31 December 2011 were authorised for
upon risked potential, or where relevant, discovered oil and
issue by the board of directors on 27 April 2012.
gas reserves, this involves estimations and the selection of
The financial position of the Group, its cash flows and
available debt facilities are described in the Financial Review
above. As at 31 December 2011 the Group had £6.3 million of
available cash. After the balance sheet date but before the
a suitable discount rate. The capitalisation and any write
off of E&E assets necessarily involve certain judgements
with regard to whether the asset will ultimately prove to
be recoverable.
date of approval of these financial statements, the Group
In determining the treatment of E&E assets and
raised a further £4.0 million from equity fundraisings. The
investments the directors are required to make estimates
Directors are required to consider the availability of resources
and assumptions as to future events and circumstances.
to meet the Group and Company’s liabilities for the
There are uncertainties inherent in making such
foreseeable future. As described above, the current business
assumptions, especially with regard to oil and gas reserves
environment is challenging and access to new equity and
and the life of, and title to, an asset; recovery rates;
debt remains challenging. Based on current management
production costs; commodity prices and exchange rates.
29
224047 Sound Oil R&A 2011 pg16-end 01/05/2012 07:50 Page 30
Sound Oil plc
Notes to the Financial Statements
continued
Assumptions that are valid at the time of estimation may
The Group uses the purchase method of accounting for
change significantly as new information becomes
the acquisition of subsidiaries. The cost of an acquisition
available and changes in these assumptions may alter the
is measured as the fair value of the assets given, equity
economic status of an E&E asset and result in resources
instruments issued and liabilities incurred or assumed at
or reserves being restated. The estimation of recoverable
the date of exchange, plus costs directly attributable to
amounts, based on risked potential and the application of
the acquisition.
value in use calculations, are dependent upon finance
being available to fund the development of the E&E
assets.
Goodwill is tested annually and at other times when
impairment indications exist. When value in use
calculations are undertaken, management estimates the
expected future cash-flows from the asset and chooses a
suitable discount rate in order to calculate the present
value of those cash-flows. In undertaking these value in
use calculations, management is required to make use of
estimates and assumptions similar to those described in
Joint ventures
The Group conducts oil and gas exploration and
production activities jointly with other venturers who
each have direct ownership in and jointly control the
assets of the ventures. These are classified as jointly
controlled assets and consequently, these financial
statements reflect only the Group’s proportionate interest
in such activities.
Associates
Entities, other than subsidiary undertakings or joint
the treatment of E&E assets above. Further details are
arrangements, in which the Group has a participating
given in note 10.
The estimation of share-based payment costs requires the
selection of an appropriate valuation model, consideration
as to the inputs necessary for the valuation model chosen
and the estimation of the number of awards that will
ultimately vest, inputs for which arise from judgements
relating to the continuing participation of key employees
(see note 23).
(b) Basis of consolidation
The Group financial statements consolidate the Income
Statements and Balance Sheets of the Company and its
subsidiary undertakings. Joint venture undertakings are
accounted for using the proportionate consolidation
method from the date that significant influence or joint
control (respectively) commences until the date this
ceases. Associates are accounted for using the equity
method.
Investments in subsidiaries
Subsidiaries are all entities over which the Group has the
power to govern the financial and operating policies.
Such power, generally but not exclusively, accompanies a
interest and over whose operating and financial policies
the Group exercises a significant influence are treated as
associates. In the Group’s financial statements associates
are accounted for using the equity method.
Separate financial statements
Investments in subsidiaries, joint ventures and associates
are recorded at cost, subject to impairment testing in the
Group’s financial statements.
Foreign currency translation
(c)
The functional currency of the Company is pound sterling.
The functional currency of the Indonesian subsidiaries is
US$. The functional currency of the Italian subsidiaries is
the Euro.
Transactions in foreign currencies are initially recorded in
the functional currency by applying the spot exchange
rate ruling at the date of the transaction. Monetary
assets and liabilities denominated in foreign currencies
are retranslated at the functional currency rate of
exchange ruling at the balance sheet date. All differences
are taken to the income statement.
shareholding of more than one half of the voting rights.
The assets and liabilities of foreign operations are
Subsidiaries are fully consolidated from the date on which
translated into sterling at the rate of exchange ruling at
control is transferred to the Group, until the date that
the balance sheet date. Income and expenses are
control ceases.
30
translated at weighted average exchange rates for the
224047 Sound Oil R&A 2011 pg16-end 01/05/2012 07:50 Page 31
Annual Report 2011
year. The resulting exchange differences are taken directly
(or otherwise) of commercial reserves has been
to a separate component of equity. On disposal of a
determined subject to certain limitations including review
foreign entity, the deferred cumulative amount recognised
for indications of impairment. If commercial reserves have
in equity relating to that particular foreign operation is
been discovered and development has been approved, the
recognised in the income statement.
carrying value, after any impairment loss, of the relevant
(d) Oil and gas assets
The Group’s capitalised oil and gas costs principally relate to
properties that are in the exploration and evaluation stage.
As allowed under IFRS 6 the Group has continued to
apply its existing accounting policy to exploration and
evaluation activity, subject to the specific requirements of
the standard.
The Group will continue to monitor the application of
these policies in the light of expected future guidance on
accounting for oil and gas activities.
The Group applies the successful efforts method of
accounting for E&E costs.
Exploration and evaluation assets
Under the successful efforts method of accounting, all
E&E assets is then reclassified as development and
production assets. If, however, commercial reserves have
not been found, the capitalised costs are charged to
expense after conclusion of appraisal activities.
Development and production assets
Development and production assets are accumulated
generally on a field-by-field basis and represent the cost
of developing the commercial reserves discovered and
bringing them into production, together with the E&E
expenditures incurred in finding commercial reserves
transferred from intangible E&E assets as outlined in the
accounting policy above.
The cost of development and production assets also
includes the cost of acquisitions and purchases of such
assets, directly attributable overheads, finance costs
capitalised, and the cost of recognising provisions for
licence acquisition, exploration and appraisal costs are
future restoration and decommissioning.
initially capitalised in well, field or specific exploration
cost centres as appropriate, pending determination.
Expenditure incurred during the various exploration and
appraisal phases is then written off unless commercial
reserves have been established or the determination
process has not been completed.
The useful lives of the assets are considered to be finite.
Exploration and evaluation costs
Costs are initially capitalised as E&E assets. Payments to
acquire the legal right to explore, costs of technical
services and studies, seismic acquisition, exploratory
drilling and testing are capitalised as exploration and
evaluation assets.
Treatment of exploration and evaluation expenditure
at the end of appraisal activities
Intangible E&E assets relating to each exploration
licence/prospect are carried forward, until the existence
Impairment of development and production assets
An impairment test is performed whenever events and
circumstances arising during the development or
production phase indicate that the carrying value of a
development or production asset may exceed its
recoverable amount.
The carrying value is compared against the expected
recoverable amount of the asset, generally by reference to
the present value of the future net cash flows expected
to be derived from production of commercial reserves. The
cash generating unit applied for impairment test purposes
is generally the field, except that a number of field
interests may be grouped as a single income generating
unit where the cash flows of each field are inter-
dependent.
31
224047 Sound Oil R&A 2011 pg16-end 01/05/2012 07:50 Page 32
Sound Oil plc
Notes to the Financial Statements
continued
Acquisitions, asset purchases and disposals
Acquisitions of oil and gas properties are accounted for
under the purchase method where the transaction meets
the definition of a business combination or joint venture.
Transactions involving the purchase of an individual field
interest, or a group of field interests, that do not qualify
as a business combination are treated as asset purchases,
irrespective of whether the specific transactions involve
the transfer of the field interests directly, or the transfer
of an incorporated entity. Accordingly, no goodwill arises,
and the consideration is allocated to the assets and
liabilities purchased on an appropriate basis.
(e) Expenses recognition
Expenses are recognised on the accruals basis unless
otherwise stated.
(f)
Property, plant and equipment
Fixtures, fittings and equipment are recorded at cost as
tangible assets.
The straight-line method of depreciation is used to
depreciate the cost of these assets over their estimated
useful lives, which is estimated to be four years.
(g) Goodwill
Goodwill on acquisition is initially measured at cost being
the excess of the cost of the business combination over
the acquirer’s interest in the net fair value of the
identifiable assets, liabilities and contingent liabilities.
Following initial recognition, goodwill is measured at its
original value, less any accumulated impairment losses
subsequently incurred.
Goodwill is not amortised. Goodwill is reviewed for
impairment annually, or more frequently if events or
changes in circumstances indicate the carrying value may
be impaired. Impairment is determined by assessing the
recoverable amount of the cash-generating unit to which
the goodwill relates. Where the recoverable amount of
the cash-generating unit or group of cash generating
units is less than the carrying amount, an impairment loss
is recognised.
32
Income tax
(h)
Current tax
The current tax expense is based on the taxable results
for the year, using tax rates enacted or substantively
enacted at the Balance Sheet date, including any
adjustments in respect of prior years.
Amounts are charged or credited to the Income
Statement or equity as appropriate.
Deferred tax
Deferred tax is provided using the Balance Sheet liability
method, on temporary differences arising between the tax
bases of assets and liabilities and their carrying amounts
in the consolidated financial statements. Deferred tax
assets are recognised to the extent that it is probable
that future taxable results will be available against which
the temporary differences can be utilised. The amount of
deferred tax provided is based on the expected manner of
realisation or settlement of the carrying amount of assets
and liabilities.
Temporary differences arising from investments in
subsidiaries give rise to deferred tax in the Company
Balance Sheet only to the extent that it is probable that
the temporary difference will reverse in the foreseeable
future or the Company does not control the timing of the
reversal of that difference.
Deferred tax is provided on un-remitted earnings of
subsidiaries to the extent that the temporary difference
created is expected to reverse in the foreseeable future.
Deferred tax is recognised in the Income Statement
except when it relates to items recognised directly in the
Statement of Changes in Equity in which case it is
credited or charged directly to Retained Earnings through
the Statement of Changes in Equity.
(i)
Cash and cash equivalents
Cash and cash equivalents include cash in hand and
deposits held at call with banks.
Financial instruments
(j)
Financial assets and financial liabilities are recognised on
the Group’s Balance Sheet when the Group becomes a
party to the contractual provisions of the instrument.
Trade and other receivables are initially measured at fair
value and are subsequently reassessed at the end of each
224047 Sound Oil R&A 2011 pg16-end 01/05/2012 07:50 Page 33
Annual Report 2011
accounting period. Cash and cash equivalents comprise
cash on hand and demand deposits, and other short-term
highly liquid investments that are readily convertible to a
known amount of cash and are subject to an insignificant
risk of changes in value. Financial liabilities and equity
instruments issued by the Group are classified according
to 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. The accounting
policies adopted for specific financial liabilities and equity
instruments are set out below. Trade payables are initially
measured at fair value and are subsequently measured at
amortised cost, using the effective interest rate method.
Equity instruments issued by the Company are recorded
at the proceeds received, net of direct issue costs. Shares
issued are held at their fair value.
(k) Share based payments
The Group issues equity-settled share-based payments to
certain employees. The fair value of each option at the
date of the grant is estimated using the Black Scholes
option-pricing model based upon the option price, the
share price at the date of issue, volatility and the life of
the option. The estimated fair value of the option is
amortised to expense over the options’ vesting period
with a corresponding increase to equity. No expense is
recognised for awards that do not ultimately vest, except
for awards where vesting is conditional upon a market
condition, which are treated as vesting irrespective of
whether or not the market condition is satisfied, provided
that all other performance and/or service conditions are
satisfied.
(l)
Standards, interpretations and
amendments to published standards
that are not yet effective and have
not been early adopted by the
Group
The following standards, amendments to standards and
interpretations have been identified as those which may
impact the group in the period of initial application. They
have not been applied in preparing this financial report.
(cid:129)
IFRS 7 Amendments to Financial Instruments
Disclosures for accounting periods beginning on or
(cid:129)
IFRS 1 Amendments Severe Hyperinflation and
Removal of Fixed Dates for First-Time Adopters
for accounting periods beginning on or after
1st July 2011
(cid:129)
IAS 12 Amendments to Deferred tax: Recovery of
Underlying Assets for accounting periods beginning
on or after 1st January 2012
(cid:129)
IAS 1 Amendment – Presentation of items of other
comprehensive income for accounting periods
beginning on or after 1st July 2012
(cid:129)
IAS 19 Amendment – Employee Benefits for
accounting periods beginning on or after
1st January 2013
(cid:129)
IAS 27 Separate Financial Statements for
accounting periods beginning on or after
1st January 2013
(cid:129)
IAS 28 Investments in Associates and Joint
Ventures for accounting periods beginning on or
after 1st January 2013
(cid:129)
IFRS 10 Consolidated Financial Statements for
accounting periods beginning on or after
1st January 2013
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
IFRS 11 Joint Arrangements for accounting periods
beginning on or after 1st January 2013
IFRS 12 Disclosure of Interests in Other Entities
for accounting periods beginning on or after
1st January 2013
IFRS 13 Fair Value Measurement for accounting
periods beginning on or after 1st January 2013
IFRS 9 Financial Instruments for accounting
periods beginning on or after 1st January 2013
IFRIC 20: Stripping Costs in the Production Phase
of a Surface Mine for accounting periods
beginning on or after 1st January 2013
The directors do not anticipate that the adoption of these
standards and interpretations will have a material impact
on the financial statements in the year of initial
after 1st July 2011
application.
33
224047 Sound Oil R&A 2011 pg16-end 01/05/2012 07:50 Page 34
Sound Oil plc
Notes to the Financial Statements
continued
Accounting policies – continued
1
(m) Earnings per share
Earnings per share are calculated using the weighted average number of ordinary shares outstanding during the period per
IAS 33. Diluted earnings per share are calculated based on the weighted average number of ordinary shares outstanding
during the period plus the weighted average number of shares that would be issued on the conversion of all potentially
dilutive shares to ordinary shares. It is assumed that any proceeds obtained on the exercise of any options and warrants
would be used to purchase ordinary shares at the average price during the period. Where the impact of converted shares
would be anti-dilutive, these are excluded from the calculation of diluted earnings.
(n) Provisions
Provisions are recognised when the Group has a present legal or constructive obligation as a result of past events, it is
probable that an outflow of resources embodying economic benefits will be required to settle the obligation, and a reliable
estimate of the amount of the obligation can be made.
2
Segment information
The Group’s categorises its operations into two business segments based on exploration & appraisal and development &
production.
The Group’s exploration & appraisal activities are carried out in two geographic areas being;
In Indonesia under a Production Sharing Contracts (“PSC”), Citarum, and in Italy under various licences and permits.
The development & production activities are based in Indonesia under the Bangkanai PSC.
The Group’s reportable segments are based on internal reports about components of the Group which are regularly reviewed
and used by the board of directors, being the Chief Operating Decision Maker ("CODM"), for strategic decision making and
resource allocation, in order to allocate resources to the segment and to assess its performance.
To date the Group has no development activity which has resulted in production and no turnover and have therefore not
provided information on revenue, products or services.
Details regarding each of the operations of each reportable segment is included in the following tables.
34
224047 Sound Oil R&A 2011 pg16-end 01/05/2012 07:50 Page 35
Annual Report 2011
2
Segment information – continued
The segment results for the year ended 31 December 2011 are as follows:
Corporate
2011
£'000's
Development &
production
2011
£'000's
Exploration &
appraisal
2011
£'000's
Sales and other operating revenues
Other income/(loss)
Exploration costs
Impairment of exploration and evaluation assets
Administration expenses
Operating loss segment result
Interest receivable
Finance costs
Costs of acquiring subsidiaries
Loss on Farmout disposals
–
–
(936)
–
(2,948)
(3,884)
44
(439)
(516)
–
–
–
–
–
–
–
–
–
–
–
–
–
(233)
(1,236)
–
(1,469)
–
–
–
–
Total
2011
£'000's
–
–
(1,168)
(1,237)
(2,948)
(5,353)
44
(439)
(516)
–
Loss for the year before taxation
(4,795)
–
(1,469)
(6,264)
The segments assets and liabilities at 31 December 2011 are as follows:
Capital expenditure
Other assets
Total liabilities
Corporate
2011
£'000's
32
8,461
(6,175)
Development &
production
2011
£'000's
Exploration &
appraisal
2011
£'000's
1,246
–
–
26,302
–
–
The segment results for the year ended 31 December 2010 are as follows:
Sales and other operating revenues
Other income/(loss)
Exploration costs
Impairment of exploration and evaluation assets
Administration expenses
Operating loss segment result
Interest receivable
Finance revenue
Costs of acquiring subsidiaries
Loss on Farmout disposals
Loss for the year before taxation
Corporate
2010
£'000's
–
(58)
(426)
–
(1,502)
(1,986)
21
211
–
–
(1,754)
Development &
production
2010
£'000's
Exploration &
appraisal
2010
£'000's
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(4)
–
(4)
–
–
–
(14,210)
Total
2011
£'000's
27,580
8,461
(6,175)
Total
2010
£'000's
–
(58)
(426)
(4)
(1,502)
(1,990)
21
211
–
(14,210)
(14,214)
(15,968)
35
224047 Sound Oil R&A 2011 pg16-end 01/05/2012 07:50 Page 36
Sound Oil plc
Notes to the Financial Statements
continued
2
Segment information – continued
The segments assets and liabilities at 31 December 2010 are as follows:
Capital expenditure
Other assets
Total liabilities
Corporate
2010
£'000's
12
8,136
(1,912)
Development &
production
2010
£'000's
Exploration &
appraisal
2010
£'000's
–
–
–
11,479
–
–
The geographical split of non–current assets is as follows:
U.K.
2011
£'000's
–
11
–
–
11
U.K.
2010
£'000's
–
–
–
–
–
Indonesia
2011
£'000's
1,246
6
1,526
9,450
12,228
Indonesia
2010
£'000's
–
12
1,525
9,954
11,491
2011
£’000’s
95
15
2,137
1,101
Notes
4
9
5
10
Development and production assets
Fixtures, fittings & office equipment
Goodwill
Exploration and evaluation assets
Total
Development and production assets
Fixtures, fittings & office equipment
Goodwill
Exploration and evaluation assets
Total
3 Operating loss
Operating loss is stated after charging:
Auditors’ remuneration
Depreciation
Employee costs
Impairment charge
36
Total
2010
£'000's
11,491
8,136
(1,912)
Italy
2011
£'000's
–
15
2,051
13,275
15,341
Italy
2010
£'000's
–
–
–
–
–
2010
£’000’s
89
15
1,009
3
224047 Sound Oil R&A 2011 pg16-end 01/05/2012 07:50 Page 37
4
Auditors’ remuneration
Fees payable to the company’s auditor for the audit of the
company’s annual accounts
Fees payable to the company’s auditor and its associates for
other services:
– The audit of the company’s subsidiaries pursuant
to legislation
– Other services pursuant to legislation
– Tax services
5
Employee costs
Staff costs, including executive directors
Share based payments
Wages and salaries
Social security costs
Total
Notes
23
3
Number of employees (including executive directors) at the end of the year
Technical and operations
Management and administration
Total
Details of the directors’ emoluments are shown in the Report of Directors Remuneration on page 16.
6
Finance revenue
Interest on cash at bank and short–term deposits
Total
2011
£’000’s
44
44
Annual Report 2011
2011
£’000’s
2010
£’000’s
74
8
–
13
2011
£’000’s
260
1,696
181
2,137
6
10
16
66
18
–
5
2010
£’000’s
16
883
110
1,009
4
10
14
2010
£’000’s
21
21
37
224047 Sound Oil R&A 2011 pg16-end 01/05/2012 07:50 Page 38
Sound Oil plc
Notes to the Financial Statements
continued
2011
£’000’s
Group
2010
£’000’s
Group
–
–
–
–
–
–
–
2011
£’000’s
Group
(6,264)
1,660
–
(866)
(794)
–
2011
£’000’s
Group
–
–
–
–
–
–
–
–
–
2010
£’000’s
Group
(15,968)
4,471
(3,979)
(273)
(219)
–
2010
£’000’s
Group
26
–
7
Taxation
(a) Analysis of the tax charge for the year:
Current tax
United Kingdom corporation tax (charge)/credit
Adjustment to tax expense in respect of prior years
Overseas tax
Total current tax (charge)/credit
Deferred tax
Deferred tax income arising in the current year
Total deferred tax
Total tax (charge)/credit
(b) Reconciliation of tax charge:
(Loss)/profit before tax
Tax (charge)/credit at UK corporation tax rate of 26.5% (2010: 28%)
Effects of:
Expenses not deductible for tax purposes
Temporary differences not recognised
Differences in overseas tax rates
Total tax (charge)/credit
(c) Tax account:
Current tax receivable
Current tax payable
38
224047 Sound Oil R&A 2011 pg16-end 01/05/2012 07:50 Page 39
Annual Report 2011
8
Profit/loss per share
The calculation of basic profit/(loss) per Ordinary Share is based on the profit/(loss) after tax and on the weighted average
number of Ordinary Shares in issue during the period. Basic profit/(loss) per share is calculated as follows:
Loss after tax
Weighted average shares in issue
Loss per share (basic)
2011
£’000’s
(6,264)
2011
million
1,600
2011
Pence
(0.39)
2010
£’000’s
(15,968)
2010
million
692
2010
Pence
(2.31)
Diluted loss per share has not been disclosed as inclusion of unexercised options would be anti–dilutive.
After the balance sheet date, the Company has issued additional shares, details of which are included in note 25, which
will not significantly impact on the weighted average number of shares in issue in future periods.
39
224047 Sound Oil R&A 2011 pg16-end 01/05/2012 07:50 Page 40
Sound Oil plc
Notes to the Financial Statements
continued
9
Property plant and equipment
Group
Development
and
production
assets
£'000's
Fixtures
fittings and
office
equipment
£'000's
Note
Cost
At 1 January 2011
Exchange adjustments
Acquisitions
Additions
Transfers (1)
Disposals
At 31 December 2011
Depreciation
At 1 January 2011
Exchange adjustments
Acquisitions
Charge for the year
Disposals
At 31 December 2011
–
–
–
–
1,246
–
1,246
–
–
–
–
–
–
3
Net book amount at 31 December 2011
1,246
(1) Transfers represent the reclass of assets from Intangible assets (note 10)
139
(1)
35
31
–
–
204
127
(1)
31
15
–
172
32
Total
£'000's
139
(1)
35
31
1,246
–
1,450
127
(1)
31
15
–
172
1,278
40
224047 Sound Oil R&A 2011 pg16-end 01/05/2012 07:50 Page 41
Annual Report 2011
9
Property plant and equipment – continued
Cost
At 1 January 2010
Exchange adjustments
Additions
Disposals
At 31 December 2010
Depreciation
At 1 January 2010
Exchange adjustments
Charge for the year
Disposals
At 31 December 2010
Net book amount at 31 December 2010
Development
and
production
assets
£'000's
Fixtures
fittings and
office
equipment
£'000's
Note
–
–
–
–
–
–
–
–
–
–
–
204
5
2
(72)
139
172
12
15
(72)
127
12
3
Total
£'000's
204
5
2
(72)
139
172
12
15
(72)
127
12
During the 2011 period the accumulated cost of the Group’s investment in the Kerendan field of £1,246,000 was
reclassified from exploration and evaluation assets to development and production assets following the signature of a gas
sales agreement for the field.
The Company has no development and production assets.
41
224047 Sound Oil R&A 2011 pg16-end 01/05/2012 07:50 Page 42
Sound Oil plc
Notes to the Financial Statements
continued
9
Property plant and equipment – continued
Company
Fixtures,
fittings and
office
equipment
£’000’s
9
11
20
9
–
9
11
Fixtures,
fittings and
office
equipment
£’000’s
9
9
9
–
9
–
Total
£’000’s
9
11
20
9
–
9
11
Total
£’000’s
9
9
9
–
9
–
Cost
At 1 January 2011
Additions
At 31 December 2011
Depreciation
At 1 January 2011
Charge for the year
At 31 December 2011
Net book amount at 31 December 2011
Cost
At 1 January 2010
At 31 December 2010
Depreciation
At 1 January 2010
Charge for the year
At 31 December 2010
Net book amount at 31 December 2010
42
224047 Sound Oil R&A 2011 pg16-end 01/05/2012 07:50 Page 43
Annual Report 2011
10 Intangible assets
Cost
At 1 January 2011
Exchange adjustments
Acquisitions
Additions
Transfers (1)
Disposals
At 31 December 2011
Impairment
At 1 January 2011
Exchange adjustments
Additions
At 31 December 2011
Exploration
and
evaluation
assets
£'000's
12,982
(50)
11,361
3,809
(1,246)
–
26,856
3,028
3
1,100
4,131
Goodwill
£'000's
1,525
1
2,051
–
–
–
3,577
–
–
–
–
Total
£'000's
14,507
(49)
13,412
3,809
(1,246)
–
30,433
3,028
3
1,100
4,131
Net book amount at 31 December 2011
3,577
22,725
26,302
Cost
At 1 January 2010
Exchange adjustments
Acquisitions
Additions
Transfers
Disposals
At 31 December 2010
Impairment
At 1 January 2010
Exchange adjustments
Additions
At 31 December 2010
Exploration
and
evaluation
assets
£'000's
25,123
745
–
1,165
–
(14,051)
12,982
2,938
87
3
3,028
Goodwill
£'000's
4,797
390
–
–
–
(3,662)
1,525
–
–
–
–
Total
£'000's
29,920
1,135
–
1,165
–
(17,713)
14,507
2,938
87
3
3,028
Net book amount at 31 December 2010
1,525
9,954
11,479
(1) Transfers represent the reclass of assets to PP&E (note 9)
43
224047 Sound Oil R&A 2011 pg16-end 01/05/2012 07:50 Page 44
Sound Oil plc
Notes to the Financial Statements
continued
10 Intangible assets - continued
Group
Goodwill arises on acquisitions accounted for at fair value and consists largely of the synergies expected from combining
acquired operations with those of the Group.
The Company has no goodwill.
Exploration and evaluation assets
Exploration and evaluation assets represent the capitalised cost of payments to acquire the legal right to explore, costs of
technical services and studies, seismic acquisition, exploratory drilling and testing.
During the period the accumulated carrying amount of the Group’s investment in the Kerendan field of £1,246,000 was
reclassified from exploration and evaluation assets to tangible fixed assets following the signature of a gas sales
agreement for the field.
The Company has no exploration and evaluation assets.
Impairment
Intangible assets are allocated to the cash generating unit (‘CGU’) identified according to business segment. In assessing
whether impairment indications exist in relation to intangible assets the directors have regard to the results of the Group’s
exploration and evaluation programme and to the most recent review and valuation of the Group’s assets prepared
independently by its geoscience advisers in competent persons’ reports (‘CPRs’).
CPRs were last prepared for Italy in October 2011 and for Indonesia in September 2011. The values attributed to the
Group’s assets in the most recent CPRs are very significantly in excess of the carrying amounts of the CGUs, including
goodwill. The directors do not therefore consider that any impairment indications exist in relation to the CGUs. However,
during the year impairment losses of £1.1 million (2010: £3,000) were recognised in relation to exploration and evaluation
assets specifically in relation to the Marciano well. Impairment losses are included under “Exploration Costs” in the
Consolidated Income Statement.
The valuation calculations included in the CPRs are entirely dependent on the availability of finance to fund capital
expenditure on the development of exploration and evaluation assets. Should such finance not be available the carrying
amounts of the Group’s exploration and evaluation assets are likely to be impaired to their market value in a distressed sale.
The methodology to arrive at the values attributed to the Group’s assets in the CPRs was as follows:
(cid:129)
(cid:129)
Net Present Value (‘NPV’) calculations were prepared for proven contingent resources, including all the Italian
licences and the Kerendan Field
Estimated Monetary Value (‘EMV’) calculations were prepared for prospective resources, including the Bangkanai
and Citarum PSCs. EMV includes an assessment of risk for the geological uncertainties of undrilled prospects as
indicated in the CPRs on the Group’s assets.
Estimates of the NPV of any project are always subject to many factors and wide margins of error. NPV calculations have
been prepared over the period of the PSC/expected production profile and duration of the sales contract. The principal
assumptions on which the NPV calculations are based are as follows:
The Indonesian CPR is based on the assumptions as defined in the plan of development for the Kerendan gas field
and a gas price of $4.79/MMBtu, derived from the gas sales agreement for the Kerendan field
The Italian CPR is based on an oil price of $109/bbl in 2012 with the Brent future curve for 5 years then $80/bbl
real, whilst the gas price forecast assumes 80% of the Brent price on an energy equivalent basis
A discount rate of 10% has been used (2010:10%) which the directors believe to be standard industry practice and
approximate to the Group’s weighted average cost of capital
The NPV calculations are most sensitive to the assumptions for production and operating expenditure.
(cid:129)
(cid:129)
(cid:129)
(cid:129)
44
224047 Sound Oil R&A 2011 pg16-end 01/05/2012 07:50 Page 45
Annual Report 2011
10 Intangible assets - continued
The impairment losses relate to costs of drilling on wells now considered to be non-commercial are detailed in the table
below:
Indonesia
Italy
11 Acquisitions
2011
£’000’s
24
1,076
2010
£’000’s
3
–
Acquisition of Consul Oil and Gas Ltd (“Consul”)
On 4 January 2011, the Group completed the acquisition of 96% of the issued share capital of Consul, an unquoted
company with interests in Italy, for a total consideration of £4.64 million and made an offer to acquire the remaining 4%.
The consideration was satisfied by the payment in cash of approximately US$2.19 million (£1.41 million) and the issue of
269,127,983 ordinary shares to the vendors at 1.2p each. In addition the Company purchased an existing loan from RAB to
Consul of €1.15 million.
On 29 March 2011 the Company acquired a further 2% of the issued share capital of Consul, satisfied by the payment in
cash of US$46,667 and the issue of 5,555,555 ordinary shares at 1.2p each.
On 22 August 2011, the remaining 2% of shares in Consul were acquired under compulsory purchase powers, satisfied by
the payment in cash of US$46,667 and the issue of 5,555,555 ordinary shares at 1.2p each.
The fair value of the ordinary shares issued as part of the consideration paid was measured using the closing market price
of the Company’s ordinary shares on the acquisition date.
The fair value of 96% of the assets of Consul is as follows:
Intangible exploration & evaluation costs
Tangible fixed assets
Current debtors
Non-current debtors
Cash
Current creditors
Non-current creditors
Deferred tax liabilities
Net assets
Book value
£'000's
3,303
4
244
28
42
(432)
(944)
–
2,245
Adjustments
and/or
revaluation
£'000's
2,391
–
–
–
–
–
–
(658)
1,733
Fair value
to the
Company
£'000's
5,694
4
244
28
42
(432)
(944)
(658)
3,978
The directors consider that goodwill of £658,000 will arise on the acquisition, consisting largely of the synergies expected
from combining the operations of the Group and Consul.
45
224047 Sound Oil R&A 2011 pg16-end 01/05/2012 07:50 Page 46
Sound Oil plc
Notes to the Financial Statements
continued
11 Acquisitions (continued)
Cash flow effect of acquisitions
On 4 January 2011, the Group obtained control of the Consul Oil & Gas group by acquiring 96% of its issued share capital.
The values of assets acquired and liabilities assumed, relating to that 96%, were as follows:
£'000's
3,303
4
244
28
42
(321)
(111)
(935)
(9)
2,245
(42)
2,203
£'000's
4,636
(3,230)
1,406
983
2,389
Exploration and evaluation assets
Property, plant and equipment
Long term receivables
Accounts receivable
Cash
Accounts payable
Accruals
Long term creditors - Euro loan
Long term provisions
less: cash acquired in the Consul group
The cash consideration paid to obtain control was:
Total paid to Vendors
less: share element therein
plus: amount to settle Euroloan (in full)
Total cash consideration made
46
224047 Sound Oil R&A 2011 pg16-end 01/05/2012 07:50 Page 47
Annual Report 2011
11 Acquisitions (continued)
Acquisition of Celtique Energie SpA (“Celtique”)
On 18 November 2011, the Group completed the acquisition of the issued share capital and voting rights of Celtique, an
unquoted company with interests in Italy, for a total consideration of £5,669 million. The consideration was satisfied by
the payment in cash of approximately £3,236 million and the issue of 91,998,582 ordinary shares to the vendors at an
average price of 2.71p each.
The fair value of 100% of the assets of Celtique is as follows:
Intangible exploration & evaluation costs
Current debtors
Cash
Current creditors
Intercompany payable
Deferred tax liabilities
Net assets
Book value
IFRS
£'000's
365
125
128
(13)
(452)
–
153
Adjustments
and/or
revaluation
£'000's
5,065
–
–
–
–
(1,393)
3,672
Fair value
to the
Company
£'000's
5,430
125
128
(13)
(452)
(1,393)
3,825
The directors consider that goodwill of £1,393,000 will arise on the acquisition, consisting largely of the synergies expected
from combining the operations of the Group and Celtique.
Cash flow effect of acquisitions
On 18 November 2011, the Group obtained control of Celtique by acquiring 100% of its issued share capital. The fair
values of assets acquired and liabilities assumed, relating to that 100%, were as follows:
Exploration and evaluation assets
Long term receivables
Cash
Accounts payable
less: cash acquired in Celtique
The cash consideration to obtain control was:
Total paid to vendors
less: share element therein
Total cash consideration made
£'000's
365
125
128
(13)
605
(128)
477
£'000's
5,669
(2,432)
3,236
Impact on acquiree of amount paid in the statement of comprehensive income
The values included in the consolidated income statement since 4th January 2011 contributed by Consul was a £10,000 gain
and contributed by Apennine Energy Group was a loss of £2.92 million. Had Apennine Oil & Gas SpA (previously known as
Celtique) been consolidated from 1st January 2011 the consolidated income statement would have included a loss of
£2.92 million.
47
224047 Sound Oil R&A 2011 pg16-end 01/05/2012 07:50 Page 48
Sound Oil plc
Notes to the Financial Statements
continued
12 Investment in subsidiaries
Company
At 1 January
Advances to Group Companies
Write off on disposals
Euro loan to Group Companies
Acquisition of subsidiaries
At 31 December
2011
£’000’s
24,337
11,590
–
965
4,827
41,719
2010
£’000’s
24,833
1,534
(2,030)
–
–
24,337
The subsidiary undertakings of the Company at 31 December 2011 which are all 100% owned by the Company are:
Name
Incorporated
Principal activity
Sound Oil International Limited
Sound Oil Asia Limited*
Mitra Energia Limited*
Mitra Energia Citarum Limited*
Mitra Energia Bangkanai Limited*
Consul Oil & Gas Limited
Apennine Energy SrL*
Apennine Oil and Gas SpA*
(formerly known as Celtique Energie SpA)
British Virgin Islands
British Virgin Islands
Mauritius
Mauritius
Mauritius
UK
Italy
Italy
Holding company
Holding company
Holding and services company
Exploration company
Exploration company
Holding Company
Exploration company
Exploration company
*The investments in Mitra Energia Limited, Mitra Energia Citarum Limited, Mitra Energia Bangkanai Limited. Sound Oil Asia
Limited, Apennine Energy SrL and Apennine Oil and Gas SpA, held indirectly via Sound Oil International Limited and Consul
Oil & Gas Limited through non-current, non-interest bearing loans from Sound Oil plc. Given that Sound Oil plc has no
intention to call on the loans in the foreseeable future, the loans are treated as “permanent as equity”. As a result, Sound
Oil plc has classified these loans as investments which represent the carrying value of the investment in the Mitra and
Consul group of companies.
48
224047 Sound Oil R&A 2011 pg16-end 01/05/2012 07:50 Page 49
Annual Report 2011
13 Other debtors
Group
Indonesian VAT
Italian VAT
UK VAT
Deferred expenditure
Other receivables
Total
Currency analysis
US Dollar
Euro
GBP Sterling
Total
Company
UK VAT recoverable
Deferred expenditure
Other receivables
Total
Currency analysis
US Dollar
GBP Sterling
Total
2011
2010
Current
£’000’s
Non-current
£’000’s
Current
£’000’s
Non-current
£’000’s
–
763
57
–
568
1,388
613
–
–
–
55
668
–
–
29
2,861
50
2,940
591
–
–
–
30
621
2011
2010
Current
£’000’s
Non-current
£’000’s
Current
£’000’s
Non-current
£’000’s
228
1,039
121
1,388
661
–
7
668
26
–
2,914
2,940
617
–
4
621
2011
2010
Current
£’000’s
Non-current
£’000’s
Current
£’000’s
Non-current
£’000’s
57
–
64
121
–
–
7
7
29
2,861
1
2,891
–
–
4
4
2011
2010
Current
£’000’s
Non-current
£’000’s
Current
£’000’s
Non-current
£’000’s
–
121
121
–
7
7
–
2,891
2,891
–
4
4
49
Indonesian VAT is recoverable on commencement of production and forms part of the overall asset impairment test.
Other current receivables are due within thirty days and non-current receivables are due within one to two years.
224047 Sound Oil R&A 2011 pg16-end 01/05/2012 07:50 Page 50
Sound Oil plc
Notes to the Financial Statements
continued
2011
£’000’s
1,230
5,056
6,286
1,119
4,016
1,151
2011
£’000’s
36
5,056
5,092
638
3,303
1,151
2010
£’000’s
870
3,614
4,484
3,773
–
711
2010
£’000’s
717
3,614
4,331
3,620
–
711
14 Cash and cash equivalents
Group
Cash at bank and in hand
Cash equivalents:
Short term deposits
Carrying amount at 31 December
being
in US Dollars
in Euros
in Sterling
Company
Cash at bank and in hand
Cash equivalents:
Short term deposits
Carrying amount at 31 December
being
in US Dollars
in Euros
in Sterling
50
224047 Sound Oil R&A 2011 pg16-end 01/05/2012 07:50 Page 51
Annual Report 2011
15 Trade and other payables
Group
Trade payable
Payroll taxes and social security
Accruals
Other payables
Total
Currency analysis
US Dollar
Euro
GBP Sterling
Total
Company
Trade payables
Payroll taxes and social security
Accruals
Total
Currency analysis
US Dollar
GBP Sterling
Total
All current liabilities are due within thirty days and are carried at amortised cost.
2011
Current
£’000’s
1,761
50
128
294
2,233
2011
Current
£’000’s
270
1,902
285
2,457
2011
Current
£’000’s
148
9
128
285
2011
Current
£’000’s
–
285
285
2010
Current
£’000’s
60
32
154
38
284
2010
Current
£’000’s
118
–
166
284
2010
Current
£’000’s
34
20
112
166
2010
Current
£’000’s
–
166
166
51
224047 Sound Oil R&A 2011 pg16-end 01/05/2012 07:50 Page 52
Sound Oil plc
Notes to the Financial Statements
continued
16 Deferred tax assets and liabilities
1 January
Acquisitions
Released on disposals
Unrealised foreign exchange (decrease)/increase
31 December
2011
£’000’s
1,525
2,051
–
–
3,576
2010
£’000’s
4,797
–
(3,662)
249
1,525
The deferred tax liability arose on the tax difference between the carrying value of the exploration and evaluation assets
and the tax value of those assets.
Unrecognised deferred tax assets
Deferred tax assets have not been recognised in respect of the following items:
Tax losses
2011
£’000’s
1,637
2010
£’000’s
772
Deferred tax assets have not been recognised in respect of the losses due to uncertainty of utilisation of these losses.
17 Provisions
At 1 January 2011
Provisions made during the year
Provisions used during the year
Unrealised foreign exchange increase
At 31 December 2011
Non-current
Current
Employee
post
employment
benefits
£’000’s
103
37
–
1
141
141
–
141
Abandonment
£’000’s
Total
£’000’s
–
225
–
–
225
–
225
225
103
262
–
1
366
142
224
366
Employee post employment benefits
The Group’s Indonesian subsidiary provides employee post employment benefits in accordance with Indonesian law. This
provision is measured using a projected unit credit method. The liability for long service and annual leave is recognised in
the provision for employee benefits and measured as the present value of expected future payments to be made in respect
of services provided by employees up to the reporting date. Consideration is given to expected future wage and salary
levels, experience of employee departures, and periods of service. Expected future payments are discounted using market
yields at the reporting date on national government bonds with terms to maturity and currencies that match, as closely as
possible, the estimated future cash outflows.
52
224047 Sound Oil R&A 2011 pg16-end 01/05/2012 07:50 Page 53
Annual Report 2011
Abandonment
The provision amount of £225,000 (€268,000) relates to abandonment of the Marciano Well which was classified as non
commercial. The costs are likely to be incurred during 2012.
There are no provisions in the parent Company.
18 Capital and reserves
Group
Ordinary shares – 0.1p
Issued
Company
Ordinary shares – 0.1p
Issued
Number of
shares
1,833,199,548
Number of
shares
1,833,199,548
2011
£’000s
1,833
2011
£’000s
1,833
Number of
shares
692,427,348
Number of
shares
692,427,348
Share option schemes
Options to subscribe for the Company’s shares were granted to certain executives in 2010 and 2011 (note 23).
Reserves
Group
At 1 January 2011
(Loss) for the year
Foreign currency translation
Shares issued
Acquisitions of non-controlling
interests without a
change in control
Share based payments
At 31 December 2011
At 1 January 2010
(Loss) for the year
Foreign currency translation
Share based payments
At 31 December 2010
Foreign
currency
reserve
£’000’s
3,741
–
27
–
–
–
3,768
3,030
–
711
–
3,741
Share
capital
£’000’s
692
–
–
1,141
–
–
Share
premium
£’000’s
35,764
–
-
17,107
Accumulated
deficit
£’000’s
(22,482)
(6,259)
–
–
–
–
(125)
260
1,833
52,871
(28,606)
29,866
692
–
–
–
692
35,764
–
–
–
35,764
(6,530)
(15,968)
–
16
(22,482)
32,956
(15,968)
711
16
17,715
53
2010
£’000s
692
2010
£’000s
692
Total
£’000’s
17,715
(6,259)
27
18,248
(125)
260
224047 Sound Oil R&A 2011 pg16-end 01/05/2012 07:50 Page 54
Sound Oil plc
Notes to the Financial Statements
continued
18 Capital and reserves - continued
The foreign currency reserve represents accumulated exchange differences relating to the translation of net assets of the
Group’s foreign operations from their functional currency to the Group’s presentational currency which are recognised
directly in other comprehensive income and accumulated in the foreign currency reserve.
Company
At 1 January 2011
(Loss) for the year
Shares issued
Share based payments
At 31 December 2011
At 1 January 2010
(Loss) for the year
Share based payments
At 31 December 2010
Share
capital
£’000’s
692
–
1,141
–
1,833
692
–
–
692
Share
premium
£’000’s
Accumulated
deficit
£’000’s
35,764
–
17,107
–
52,871
35,764
–
–
35,764
(4,996)
(3,266)
–
260
(8,002)
(2,008)
(3,004)
16
(4,996)
Total
£’000’s
31,460
(3,266)
18,248
260
46,702
34,448
(3,004)
16
31,460
Share issues
On 4 January 2011, the Company placed 311,251,000 new ordinary shares at 1.2p per share, raising approximately £3,735
million and entered into a £10 million SEDA equity placing facility which can be drawn down at the discretion of the
Company.
On 4 January 2011, the Company issued 269,127,983 new ordinary shares at 1.2p per share, equating to £3,230 million in
part consideration to acquire 96% of the Consul Oil & Gas Group.
On 11 January 2011, the Company issued 12,500,000 new ordinary shares at 1.2p per share, equating to £0.150 million as
compensation to past employees following acquisition of the Consul Oil & Gas Group.
On 17 January 2011, the Company placed 230,000,000 new ordinary shares at 1.4p per share, raising approximately £3,220
million.
On 28 February 2011, the Company drew down £1.0 million of the SEDA equity placing facility by way of issuing 38,800,485
new ordinary shares at an average of 2.557p per share.
On 29 March 2011, the Company issued 5,555,555 new ordinary shares at 1.2p per share, equating to £0.067 million in part
consideration to acquire a further 2% of the Consul Oil & Gas Group.
On 18 April 2011, the Company drew down £2.8 million of the SEDA equity placing facility by way of issuing 54,337,384
new ordinary shares at an average of 5.153p per share.
On 21 April 2011, the Company issued 2,390,000 new ordinary shares at 1.5p per share to cover the exercise of share options
issued to various Indonesian employees. These were evaluated at £0.036 million, and options were immediately exercised.
54
224047 Sound Oil R&A 2011 pg16-end 01/05/2012 07:50 Page 55
Annual Report 2011
18 Capital and reserves - continued
On 22 August 2011, the Company issued 5,555,555 new ordinary shares at 1.2p per share, equating to £0.067 million in
part consideration to acquire the final 2% of the Consul Oil & Gas Group.
On 9 November 2011, the Company issued 91,998,582 new ordinary shares at an average of 2.71p per share, equating to
£2,493 million in part consideration of the purchase price of Celtique Energie SpA.
On 17 November 2011, the Company drew down a further £0.35 million of the SEDA equity placing facility by way of
issuing 13,461,538 new ordinary shares at 2.6p per share.
On 9 December 2011, the Company placed 100,000,000 new ordinary shares at 2p per share and 60,000,000 associated
warrants exerciseable at 2p, raising £2 million, with funds managed by Astin Capital Management Limited.
On 30 December 2011, the Company granted options on 5,794,118 new ordinary shares at an average of 1.69p per share to
various senior employees. These were evaluated at £0.098 million, and were described as immediately tradeable.
The proceeds of the various placings and drawdowns will be used to fund the enlarged group’s combined work programme
and ongoing costs.
19 Related party disclosures
For the year ended 31 December 2011
The financial statements include the financial statements of Sound Oil plc (the parent) and the subsidiaries listed in the
following table:
Name
Sound Oil International Limited
Sound Oil Asia Limited
Consul Oil and Gas Limited
Apennine Energy SrL
Apennine Oil & Gas SpA
formerly Celtique Energie SpA
Mitra Energia Limited
Mitra Energia Bangkanai Limited
Mitra Energia Citarum Limited
Country of incorporation
% equity interest
2011
2010
British Virgin Islands
British Virgin Islands
UK
Italy
Italy
Mauritius
Mauritius
Mauritius
100
100
100
100
100
100
100
100
100
100
0
0
0
100
100
100
The Group has investments in joint venture undertakings which operate the Bangkanai PSC (5% working interest) and the
Citarum PSC (20% working interest) in Indonesia and in two development licences (95% in Sambucheto and 50% in Villa
Gigli) and three exploration licences (95% in Monteluro and 50% in Convento and Posta Del Giudice) in Italy.
55
224047 Sound Oil R&A 2011 pg16-end 01/05/2012 07:50 Page 56
Sound Oil plc
Notes to the Financial Statements
continued
19 Related party disclosures - continued
Terms and conditions of transactions with related parties
There were no sales or purchases to or from related parties (2010: none). There have been no guarantees provided or
received for any related party receivables or payables. For the year ended 31 December 2011, the Group has not recorded
any impairment of receivables relating to amounts owed by related parties (2010: none). This assessment is undertaken
each financial year through examining the financial position of the related party and the market in which it operates.
There were no transactions with other related parties, directors’ loans and other directors’ interests.
Key Management
There are three key management personnel other than directors of the Company (three in 2010). Details of the
remuneration of the Directors are set out in the Report of Directors’ Remuneration (page 16).
The tables below sets out details of the emoluments of the Group's key management personnel including directors.
Salaries & employee benefits
Share based payments
Total
Note
23
2011
£’000’s
1,062
260
1,322
2010
£’000’s
598
16
614
Directors’ interest in employee share options
Share options held by the executive member of the Board of Directors have the following expiry dates and exercise prices:
Issue
date
2007
2007
2007
2010
2011
Expiry Exercise price
pence
date
2018
2019
2020
2013
2016
4.38
4.38
4.38
1.50
5.60
Number
2011
–
–
–
–
7,500,000
Number
2010
–
–
–
1,725,000
–
Key management’s interest in employee share options
Issue
date
Expiry Exercise price
pence
date
2012
2018
2019
2020
2013
2013
2016
2016
2016
4.75
4.38
4.38
4.38
1.50
1.50
2.75
2.18
2.75
2006
2007
2007
2007
2010
2010
2011
2011
2011
56
Number
2011
Number
2010
-
–
–
–
–
–
5,800,000
3,300,000
1,820,000
-
–
–
–
1,035,000
1,035,000
–
–
–
Number
2007
666,666
666,666
666,666
–
–
Number
2007
–
416,667
416,667
416,667
–
–
–
–
–
Number
2006
–
–
–
–
–
Number
2006
500,000
–
–
–
–
–
–
–
–
224047 Sound Oil R&A 2011 pg16-end 01/05/2012 07:50 Page 57
Annual Report 2011
20 Financial instruments risk management objectives and policies
A financial instrument is defined as any contract that gives rise to a financial asset of one equity and a financial liability
or equity instrument of another entity. The Group's financial instruments comprise of trade payables, receivables, cash and
short term deposits. The Group has no borrowings. The main purpose of the financial instruments is to finance the Group's
operations. The fair value of the financial instruments is their carrying value, with the carrying value amounts included in
the Group Balance Sheet with further analysis in note 13 (Other debtors) note 14 (Cash and cash equivalents) and note 15
(Trade and other payables).
The main risks arising from the Group's financial instruments are interest rate risk and foreign currency risk. The Board of
directors reviews and agrees policies for managing each of these risks which are summarised below:
Interest rate risk
The Group’s exposure to the risk of changes in market interest rate risks relates primarily to the Group’s deposit accounts
and short term debt instruments.
The Group’s policy is to manage this exposure by investing in short term low risk bank deposits.
Interest rate risk table
The following table demonstrates the sensitivity to a reasonably possible change in interest rates, with all other variables
held constant, of the Group’s profit before tax. There is no impact on the Group’s equity.
Increase/
(decrease)
(%)
Effect on profit
before tax
£’000’s
2011
Sterling
US Dollar
Euro
Sterling
US Dollar
Euro
2010
Sterling
US Dollar
Sterling
US Dollar
10
10
10
(10)
(10)
(10)
10
10
(10)
(10)
2
–
–
(2)
–
–
1
1
(1)
(1)
57
224047 Sound Oil R&A 2011 pg16-end 01/05/2012 07:50 Page 58
Sound Oil
Notes to the Financial Statements
continued
20 Financial instruments risk management objectives and policies -
continued
Capital management
The Group's objective when managing capital is to safeguard the Group's ability to continue as a going concern in order to
provide return for shareholders, benefit for other stakeholders and to maintain optimal capital structure and to reduce the
cost of capital.
Management considers as part of its capital, the financial sources of funding from shareholders and third parties.
In order to ensure an appropriate return for shareholder capital invested in the Group, management thoroughly evaluates
all material projects and potential acquisitions and has them approved by the Board of Directors where applicable.
The Group monitors capital on a short and medium term view. During 2011 the Group's strategy was to operate with no
borrowings and to raise capital funding through the issuing of new shares. Management continue to review this policy. The
table below illustrates the changes in capital during the year.
Borrowings
Cash and cash equivalents
Net cash excluding borrowings
Total capital excluding reserves:
Equity share capital
Equity share premium
Notes
14
18
2011
£’000’s
–
6,286
6,286
1,833
52,871
2010
£’000’s
–
4,484
4,484
692
35,764
Shareholders equity
29,866
17,715
58
224047 Sound Oil R&A 2011 pg16-end 01/05/2012 07:50 Page 59
Annual Report 2011
21 Foreign currency risk
As a result of the bulk of the Group’s operations being denominated in Euros and US Dollars, the Group’s balance sheet can
be impacted by movements in these exchange rates against GBP. Such movements will result in book gains or losses which
are unrealised and will be offset if the currencies involved move in the opposite direction. The sterling cost of the assets
being acquired with the Euro or US dollar deposits rises or falls pro rata to the currency movements, so the purchasing
power of the respective currency remains the same.
The following table demonstrates the sensitivity to a reasonably possible change in the US dollar or euro exchange rates,
with all other variables held constant, of the Group’s profit or loss before tax.
2011
2010
Increase/
(decrease) in
Euro rate
Effect on profit or
loss before tax
£’000’s
Increase/
(decrease) in
US dollar rate
Effect on profit or
loss before tax
£’000’s
5%
(5%)
(692)
763
No exposure to Euro
5%
(5%)
5%
(5%)
(30)
34
(315)
350
Credit risk
The Group currently has no sales or customers. The maximum credit exposure at the reporting date of each category of
financial assets above is the carrying value as detailed in the relevant notes. The Group’s management considers that the
financial assets that are not impaired for each of the reporting dates are of good credit quality. The credit risk is
considered negligible because the counterparties are financial institutions with high credit ratings.
Liquidity risk
The Group and Company have significant liquid assets and are not materially exposed to liquidity risk. All financial
liabilities are expected to mature within one year.
59
224047 Sound Oil R&A 2011 pg16-end 01/05/2012 07:50 Page 60
Sound Oil
Notes to the Financial Statements
continued
22 Financial instruments
Interest rate risk and currency risk profiles
The interest rate risk profile and the currency risk profile of the financial assets of the Group as at 31 December were:
Currency
2011
Cash and short term deposits
GBP Sterling
Euro
US$
Total
2010
Cash and short term deposits
GBP Sterling
US$
Total
Floating rate
£’000’s
Interest-free
£’000’s
Total Weighted average
interest rate
£’000’s
1,151
3,303
602
5,056
711
2,903
3,614
–
713
517
1,230
–
870
870
1,151
4,016
1,119
6,286
711
3,773
4,484
0.53%
0.89%
0.15%
0.53%
0.15%
US$ cash balances have been converted at the exchange rate on 31 December 2011 of US$1.5456/£1.00
(2010: US$1.5471/£1.00)
Euro cash balances have been converted at the exchange rate on 31 December 2011 of Euro 1.1936/£1.00. There were no
holdings of Euro in 2010.
The floating rate cash and short-term deposits comprise of cash held in interest bearing accounts and deposits placed on
the money markets for periods ranging from overnight to three months.
Financial instruments exposed to interest rate risk represent floating rate cash assets maturing within 3 months amount to
£5,056,000 (2010: £3,614,000).
Cash on which no interest is received is £1,230,000 (2010: £870,000) and relates to balances available to meet immediate
operating payments and was therefore only held for short periods interest-free.
60
224047 Sound Oil R&A 2011 pg16-end 01/05/2012 07:50 Page 61
Annual Report 2011
23 Share based payments
The Group has a Long Term Incentive Plan under which share options have been granted to the executive team.
The expense recognised for employee services received in the Consolidated Income Statement is as follows:
Group
Expense arising from equity settled share options
Company
Expense arising from equity settled share options
2011
£’000’s
260
2011
£’000’s
260
2010
£’000’s
16
2010
£’000’s
16
The fair value of equity-settled share options granted is estimated at the date of grant using a Black Scholes model, taking
into account the terms and conditions upon which the options were granted.
2011
Total
2010
Granted
Period (years)
Price (pence)
9,500,000
1,000,000
13,260,000
1,000,000
3,300,000
28,060,000
7,220,000
5
5
5
5
5
3
5.60
4.95
2.75
2.20
2.175
1.50
The expected life of the options is based on the maximum option period and is not necessarily indicative of exercise
patterns that may occur. The expected volatility reflects the assumption that historical volatility is indicative of future
trends, which may not necessarily be the actual outcome.
No other features of options grant were incorporated into the measurement of fair value.
Share Options outstanding at the start of the year
Share options granted
Share options forfeited
Share options expired
Share options exercised
Share options outstanding at the end of the year
2011
14,070,000
28,060,000
–
(2,100,000)
(2,390,000)
37,640,000
2010
6,850,000
7,220,000
–
–
–
14,070,000
61
224047 Sound Oil R&A 2011 pg16-end 01/05/2012 07:50 Page 62
Sound Oil
Notes to the Financial Statements
continued
24 Commitments and guarantees
At 31 December 2011 the Group had capital commitments of £1,889,000 (2010: £1,820,000). These relate to the Citarum
PSC obligations in Indonesia. The Company had no capital commitments in 2011 (2010: None).
The Company has granted RAB Octane (Master) Fund Limited (“RAB”) the option to put to the Company the entire
issued and allotted share capital, namely two ordinary shares, of Sound Oil Bangladesh Limited at any time up to
17 May 2086. If the put option is exercised, the maximum price payable by the Company will be 2,195,222
Ordinary Shares of the Company or, with the consent of both the Company and RAB, US$300,000 in cash.
25 Post balance sheet events
Share issues
On 6 February 2012, the Company placed 262,587,803 new ordinary shares at 1.5233p per share, raising approximately
£4 million, and issued 157,552,682 three year warrants.
The proceeds of the above share issues will be used to fund the enlarged group’s combined work programme and
ongoing costs.
62
224047 Sound Oil R&A 2011 Cover 01/05/2012 07:48 Page ii
Sound Oil plc
Sound Oil plc is an independent upstream
oil and gas company listed on the AIM
market of the London Stock Exchange.
Sound Oil plc’s strategy is to achieve
significant and sustainable growth in value
through an active drill programme and a
significant reshaping of its asset portfolio.
1
3
4
6
12
13
14
16
19
20
21
22
23
24
25
26
27
28
29
IBC
Highlights
Chairman’s Statement
Financial Review
Technical Review
Statement of Proved and Probable Reserves
Board of Directors
Report of the Directors
Report on Directors’ Remuneration
Corporate Governance Report
Statement of Directors’ Responsibilities
Independent Auditor’s Report
Consolidated Income Statement
Consolidated Balance Sheet
Company Balance Sheet
Consolidated Statement of Changes in Equity
Company Statement of Changes in Equity
Consolidated Cash Flow Statement
Company Cash Flow Statement
Notes to the Financial Statements
Dealing Information, Financial Calendar and Addresses
Dealing Information
FT Share Price Index – Telephone 0906 8433711
SEAQ short code – SOU
Financial Calendar
Announcements
Interim – September 2012
Preliminary – May 2013
Addresses
Registered Office
Sound Oil plc, 55 Gower St, London, WC1E 6HQ
Business Address
Sound Oil plc, Riverbridge House, Guildford Road, Leatherhead, Surrey, KT22 9AD
Website
www.soundoil.co.uk
Auditors
Crowe Clark Whitehill LLP, St Bride’s House, 10 Salisbury Square, London, EC4Y 8EH
Solicitors
Ronaldsons LLP, 55 Gower St, London, WC1E 6HQ
Stockbrokers
Investec Bank Plc, 2 Gresham Street, London, EC2V 7QP
Nominated Adviser
Smith & Williamson Corporate Finance Limited, 25 Moorgate, London, EC2R 6AY
Registrars
Share Registrars Limited, Suite E, First Floor, 9 Lion and Lamb Yard, Farnham, Surrey, GU9 7LL
Perivan Financial Print 224047
224047 Sound Oil R&A 2011 Cover 01/05/2012 07:48 Page iv
PLC
PLC
Sound Oil plc
Riverbridge House
Guildford Road
Leatherhead, Surrey
KT22 9AD
www.soundoil.co.uk
Annual Report 2011