ANNUAL REPORT
201 2
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
substantial and sustainable growth in value
through an active drill programme and a
signifi cant reshaping of its asset portfolio.
Sound Oil plc
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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
IBC
Dealing Information, Financial Calendar and Addresses
Annual Report 2012
Highlights
EXCITING EXPLORATION
UPSIDE CONFIRMED AT
BADILE (PO VALLEY, ITALY)
US$400m NPV10
175 Bscf (P50) prospect with further
upside potential
100% working interest
THREE OTHER GAME
CHANGING PROJECTS
SPANNING 2013 TO 2015
Nervesa (100%) – US$57m NPV10
Laura (100%) – US$86m NPV10
Zibido (100%) – US$265m NPV10
HIGH UPSIDE ITALIAN
PORTFOLIO ( 18 LICEN CES WITH
ONE PENDING APPLICATION)
STRONG RECENT PROG RESS
First production and revenue from
Rapagnano achieved on 15 May 2013
17.5 MMboe (P 5 0) discoveries with
NPV10 of US$300m
96 MMboe (P 5 0) exploration portfolio
Nervesa rig arrived on site in
anticipation of appraisal drilling
REORGANISED BOARD AND
EXECUTIVE TEAM
EUROPEAN AND
MEDITERRANEAN STRATEGY
FOCUSED ON OPERATED
AND ACCRETIVE GROWTH
3
Sound Oil plc
Chairman’s Statement
It is a pleasure and a
privilege to be writing this
introduction to the Sound
Oil plc 2012 annual report
as your new Chairman
following the retirement
of Dr Gerry Orbell as
Chairman and Chief
Executive last October.
On behalf of the Board
and shareholders, I would
like to thank Gerry for his
contribution to Sound Oil and wish him well for the future.
Last year Sound Oil embarked upon an exciting journey,
which commenced with the divestment of our non-operated
Indonesian assets. This has resulted in the re-focusing of the
Company’s strategy toward the European and Mediterranean
region and has recently seen fi rst gas from Rapagnano,
giving Sound Oil its fi rst revenue since its IPO in 2005.
On the organisational side, the year has also been one of
signifi cant positive change for the Company with renewed
focus on its cost structure, its portfolio of assets and the
search for other opportunities in its chosen geography.
From a corporate point of view I am very pleased to report
that the new Executive Team under CEO James Parsons
is driving the business of the Company forward with
energy and is focused on meeting our immediate goals and
implementing our plan for growth.
In all of our activities our prime concern is the health and
safety of our employees, contractors and stakeholders and
the protection of the environment in which we operate. This
approach has resulted in all our 2011 and 2012 activities
having been executed without a lost time incident.
2012
The sale of the Company’s Indonesian portfolio for a
mixture of cash and deferred consideration has been
transformational in reducing our cost exposure. This major
strategic move was initiated when it became clear that
the operator of the Citarum Production Sharing Contract
(“Citarum PSC”) was experiencing serious diffi culties
in drilling two commitment wells, making substantial
unpredictable cost overruns likely, which would have put
unacceptable pressure on the Company’s cash resources
without delivering positive subsurface results. The
divestment was achieved in two phases. On the 18th
4
October, the Company announced the sale of its 20%
working interest in the Citarum PSC to the operator Pan
Orient Energy (Citarum) PTE Limited in return for the
waiving of $2.4m (£1.5m) of the Company’s immediate
cash obligation and a possible further consideration of $5m
(£3.1m) and $16m (£10m) in cash, contingent on revenues
from the fi rst two discoveries on the PSC. The second
transaction followed on 12th December when the Company
sold its subsidiary Mitra Energia Bangkanai Ltd (“MEB”) to
Salamander Energy Plc. MEB’s only asset was a 5% carried
interest in the Bangkanai Production Sharing Contract
(“Bangkanai PSC”) containing the Kerendan gas fi eld. The
total consideration of up to $7.1m (£4.4m) was structured
as $4.5m (£2.8m) cash payable immediately, $1.1m (£0.7m)
cash payable on the later of fi rst gas from Kerendan or the
signature of a new gas sales agreement for the currently
unsold Kerendan gas and up to $1.5m (£0.9m) cash payable
as a royalty from revenues on any future discovery on the
Bangkanai PSC. Our cost exposure was further reduced
through the closure of our Indonesian offi ce.
In the middle of the year, with a view to funding the
ongoing cash requirements on the Indonesian assets, the
Company announced a private placement with Manxdale
Holdings Limited in combination with an open offer to
existing shareholders. The placement, which involved the
Company issuing 774,341,464 new ordinary shares, raised
a gross consideration of £5.63m in instalments over seven
months to February 2013 at an average Volume Weighted
Average Price of 8.073p per share (adjusted for the January
2013 share consolidation). At the end of the drawdown
period the open offer was made in the fi rst quarter of 2013,
raising a further approximately £50,000.
Later in 2012, two asset- specifi c funding arrangements
were put in place to support the maturing of our Italian
portfolio. The fi rst of these, in August, involved the Milan-
based engineering company CSTI Srl (“CSTI”) funding part
of the development cost of the Rapagnano gas fi eld. The
second, in October 2012, also involved CSTI, this time
in funding part of the Nervesa appraisal well cost. These
arrangements have signifi cantly reduced the Company’s
cash exposure whilst leaving us in full operational control
and owning the major proportion of the value of the assets.
In addition, on 4th January 2013, the Company executed
a ten for one share consolidation. The consolidation is
expected to assist in reducing the volatility in our share price
and to enable a more consistent valuation of the Company.
2013
As a result of these transactions the Company is now
focused fi rmly on growth fi rstly through developing its
exciting Italian assets, including the Nervesa and Laura
discoveries and the Badile and Zibido exploration prospects,
and secondly by seeking to grow both the size and diversity
of the portfolio, and thus our value per share, by acquiring
companies and assets in the Mediterranean region that
meet our strict criteria for operated and accretive growth.
To support the Chief Executive, we are actively seeking
to expand the Executive Team with the addition of an
experienced Business Development Offi cer and a Chief
Financial Offi cer. Under the excellent leadership of Luca
Madeddu, our Managing Director in Italy, we have relocated
our Italian offi ce to Milan to improve our access to the
Italian market for skilled oil and gas industry professionals
and oilfi eld services. Luca has already succeeded in putting
a local core team in place all of whom have fi rst-hand
experience of operating in the Italian oil and gas industry.
In short, the Company is now well positioned with a clear
growth strategy, strong fi nancial and operational discipline,
some £6.9m cash in the bank and an attractive Italian
portfolio with game-changing potential across which we
control our own destiny.
As I write, 2013 already promises to be a signifi cant year
for the Company, having reached the strategic milestone
of delivering fi rst gas at the Rapagnano Field so earning
the Company’s fi rst revenue since our listing in 2005. The
Company is about to begin drilling our fi rst appraisal well
on the Nervesa gas discovery. Assuming a successful
appraisal well, we will prepare for a second appraisal
well and commence development planning to move this
fl agship project into production as soon as possible. We
are also pressing ahead with plans to appraise Laura, a
signifi cant offshore discovery, and with our exciting onshore
exploration prospects Badile and Zibido, we are preparing
for an ambitious drilling programme in 2014.
In closing, I would like to thank the Board and all the
Company’s staff for their hard work , commitment and
enthusiasm throughout 2012 and to thank our shareholders
for their continued support .
Andrew Hockey
Chairman
29 May 2013
Annual Report 2012
5
Sound Oil plc
Financial Review
Accounting Standards
Cash fl ow/fi nancing
The Group has prepared its 2012 full year accounts under
International Financial Reporting Standards (IFRS), as
adopted by the European Union.
During 2012, £6,804,000 net cash proceeds were raised
from new equity and £3,913,000 was spent on exploration
and development costs.
Income Statement
Following the disp osal of the Group’s interests in Indonesia,
impairments of £1 , 453,000 in Italy resulted in a loss before
tax of continuing operations of £4, 80 4,000 compared with
£5,551,000 in 2011.
This resulted in a net cash infl ow before foreign exchange
movements of £1, 0 10,000 (2011: infl ow £2,638,000).
The Group’s year end cash balance was £6,909,000 (2011:
£6,286,000). At 22 April 2013, Sound Oil had a cash balance
of £6 ,900,000.
The signifi cant impairment related primarily to the
Montemarciano well which was tested and found to have
smaller than originally envisaged commercial qua ntities of
gas.
Administrative expenses incurred as part of continuing
operations during the year were £ 3,176,000, an increase
from £2,259,000 in 2011. In the year, Sound Oil incurred
signifi cant one-off expenditures relating to the exit
from Indonesia and the departure of Gerry Orbell. 2013
administrative expenditures are expected to reduce to close
to 2011 levels.
The loss for the period from discontinued operations of
£ 8,934,000 consisted primarily of write-downs relating to
the disposal of the Group’s interest in the Citarum PSC
in Indonesia, partially offset by the recognition of foreign
exchange gains on Sound Oil’s Indonesian investments
which had previously been carried in the foreign exchange
reserve.
The loss on disposal on discontinued operations arose
primarily as no value has been recognised in the fi nancial
statements in respect of contingent cash consideration of
up to $18 ,600,000 in aggregate which may be receivable by
the Group in the event of fi rst gas from the Kerendan fi eld
and/or future discoveries.
The Group continues to have no long term borrowings.
Going concern – Forward cash fl ow calculations show
that the Group has suffi cient fi nancial resources for the
foreseeable future.
The Group’s fi nancial 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 revenues from the Rapagnano gas
fi eld, onshore Italy, which part funds the cost of the Italian
offi ce. The directors have considered the Group’s cash fl ow
forecasts for the period to the end of June 2014. Forward
cash fl ow projections show that forecast commitments will
be less than the funds available as at 31 December 2012.
As a result, the Group has suffi cient cash resources to
undertake its work programme over the next twelve
months.
6
Annual Report 2012
Balance Sheet
Exploration and evaluation expenditure in 2012 was
£4,247,000 of which £1,289,000 was in Italy with the
balance being incurred in Indonesia prior to the disposal of
the Company’s interests in Citarum.
Gross disposals of £15,970,000 were incurred during the
year as the Group disposed of its interests in the Citarum
and Bangkanai PSCs in Indonesia. Of this, £3,055,000 had
been impaired in previous years.
The carrying value of the Rapagnano and Montemarciano
developments were reviewed for transfer to development
assets in 2012. The review resulted in a write-down of
£1,453,000. Abandonment provisions against both these
licences and also Marciano were also reviewed with an
increase of £341,000 being booked against the three
licences.
In 2011, £1,246,000 of Bangkanai expenditure was
transferred to development expenditure from exploration
and evaluation. This balance was written off in 2012
following the disposal of the Group’s interest in the
Bangkanai PSC.
Goodwill of £1,52 5,000 and related deferred tax liabilities
were also written off during the year following the
Indonesian disposals.
Shareholders’ equity was reduced by the loss for the year,
offset by an increase refl ecting the new equity issued
during 2012, resulting in a decrease to £ 21,51 4,000 (2011:
£29,866,000).
7
Sound Oil plc
Technical Review
Sound Oil currently has interests in 18 licences in Italy:
2 production concessions, 8 permits and 8 exclusive permit
Fig 1
applications. In addition one concession application is
pending on an existing permit. The Company’s interests are
held through its wholly-owned Italian subsidiary companies
Apennine Energy SpA and Apennine Oil & Gas SpA (Fig. 1).
Fig 2
Production
Rapagnano Concession ( Sound Oil 100%)
The concession, located in Marche Region, central Italy
(Fig. 2), was awarded in July
2011 as part of a marginal
fi elds development programme
subject to Environmental Impact
Assessment. It contains the
Rapagnano-1 gas discovery
made by ENI in 1952 and
its associated production
facilities. The re -development
plan included re-establishing
production from a lower shut-in
8
reservoir zone and the re-vamping of surface facilities. In
May 2012 the Company submitted a fi eld re-development
programme to UNMIG1 and an associated EIA to the
Marche regional authorities. The concession was fi nally
awarded in November 2012 and a gas sales agreement was
signed with the local provider STECA.
Fig 3
In January 2013 the
Company successfully
re-entered the well using
coiled tubing, isolated
the upper perforated
interval (1,418-1,430 m, A2
reservoir) and re-opened
the lower perforated
interval (1,652.5-1,658.5
m, Sabbie reservoir). The
Sabbie reservoir was
tested for two three-
hour drawdown periods
(Fig. 3). The fi rst period on
1/8” choke established a
commercial stabilized rate of 9,500 Scmd (0.34 MMscfd)
with a fl owing well head pressure of 79.2 Bar (1148 psi).
No water was produced during the test. The second period
on 3/16” choke confi rmed an increased stabilized rate
of 13,600 Scmd (0.48 MMscfd) with a fl owing well head
pressure of 44.5 Bar (645 psi). The gas was also confi rmed
as dry, with no trace of water from the reservoir. All the
rate and pressure data obtained from the fl ow periods
were consistent with the Company’s reservoir model for
production of 1.3 Bscf from the fi eld over thirteen years.
Fig 4
In June 2012
Sound Oil
entered into a
contract with local
oilfi eld services
company CSTI
for part-funding
of approximately
50% of the project
capital expenditure
to include
the facilities
Annual Report 2012
re-vamping, construction and production commissioning
(Fig 4). Work on the surface engineering was started
immediately after conclusion of the well operations and fi rst
gas was delivered on 15 May 2013 .
San Lorenzo Concession (Montemarciano Permit,
Sound Oil 100%)
The permit is located in Marche Region, central Italy
(Fig. 5). Sound Oil 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.
Fig 5
The well was drilled in
November 2011 to a target
depth (“TD”) of 715 m in the
Lower Pliocene Cellino sand
objective. 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 the perforation of a single
zone 571-581 m measured depth (“MD”). During clean-
up fl ow 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 fl ow test delivered a fi nal rate of
37,850 Scmd (~1.3 MMscfd) on 5/16” choke. A further re-
entry of the well was undertaken in March 2012 in order to
conduct a commercial rate test. The well fl owed as planned
at a stabilized rate of 8,000 Scmd (0.28 MMscfd) on 8/64”
choke with a fl owing tubing head pressure of 54 bar.
Following this successful test program an application for
a production concession was submitted in May 2012 to
UNMIG together with an associated EIA to the Marche
regional authorities. Final approvals are expected in 2013.
The development is a candidate for possible re-use of
redundant Marciano production facilities.
Appraisal and Development
Nervesa Field, Carita Permit ( Sound Oil 100%)
The permit is located in Veneto Region, northeast Italy (Fig.6).
The permit contains the Nervesa gas discovery that was
drilled by ENI in 1985 with two wells (Nervesa-1 and Nervesa-
1dir A) proven gas-bearing in several Miocene sand intervals.
One interval, designated Level 9a, was tested in the Nervesa-
1dir A well over the interval 1,822-1,827 mMD and fl owed
after acidifi cation at a rate of 97,100 Scmd (~3.3 MMscfd)
on ¼” choke. This reservoir zone was put into production
and produced 18.2 MMscm (~0.6 Bscf) during 1989-1990.
Remaining P50 contingent resources2 for the fi eld have been
estimated by Fugro-Robertson3 to be 20.7 Bscf.
Fig 6
In May 2012 the Company
submitted an application
to drill an appraisal well on
the fi eld to UNMIG and in
July 2012 submitted an EIA
to the Treviso provincial
authorities, revised for the
use of a new generation
hydraulic rig with reduced
environmental footprint (Fig.
7). The EIA was approved in
November 201 2. Subsequently
fi nal approvals from the Veneto regional authorities and
UNMIG were received in March 2013. The well, designated
Sant’Andrea-1, is expected to spud in June 2013.
Fig 7
Sant’Andrea-1, will target the
crest of the structure in a
location approximately 1 km
north of the original discovery
wells. In this position the well
will also encounter additional
higher reservoir objectives
which are prospective for
P50 resources of 9.5 Bscf.
Dependent on results the
Company will plan to drill
additional appraisal wells and/
or fi le an application for a production concession.
9
Sound Oil plc
Technical Review (continued)
D150 DR-CS ( Sound Oil 100%)
The permit is located in the Gulf of Taranto, offshore
southern Italy (Fig. 8). It contains the Laura gas discovery,
with P50 contingent resources estimated by Fugro
Robertson of 30 Bscf. The fi eld was discovered in 1980 by
ENI/Agip and is located in 197 m water depth approximately
4 km from the shore. The permit award for this project is
pending and expected in 2013.
Fig 8
Sound Oil’s strategy is to
drill an appraisal well on
the discovery. In order to
reduce potential drilling,
development and operational
costs the Company intends
to drill the discovery from an
onshore location with a long
reach deviated well similar
to the Wytch Farm oil fi eld
development in the English
Channel, UK. The company
has commenced feasibility
studies for this strategy and intends to apply to drill the well
immediately on award of the permit, expected in 2Q 2013,
in order to drill in 2014.
Other Projects
An application to drill an appraisal well on the Strombone oil
discovery (Torrente Alvo Permit) was submitted to UNMIG
and the Basilicata regional authorities in June 2012.
Exploration
Fig 9
Badile Permit ( Sound Oil 100%)
The Badile permit is situated
in Lombardy Region, northern
Italy (Fig. 8). The principal
play is gas, condensate and
oil, in deep Triassic dolomites
and limestones. The permit
is adjacent to the Gaggiano
oil fi eld, 30 km southeast
from the Villafortuna-Trecate
oil and gas fi elds (estimated
reserves 275 MMboe) and 40
km southwest of the Malossa
gas fi eld (cumulative production 177 Bscf with associated
light condensate).
10
Two large prospects have been identifi ed in the permit area,
Badile and Zibido. Badile, structurally similar to Malossa, has
P50 prospective resources2 estimated by ERC-Equipoise4
to be 175 Bscf in the main Upper Triassic reservoir. In 2011
Apennine purchased and interpreted legacy 3D seismic
data over the Badile prospect to defi ne an optimum
drilling location. It is the Company’s intention to submit an
application to drill a fi rst well on the prospect in 2Q 2013
with a target to drill the well in 2014. Zibido, structurally
similar to Gaggiano, has P50 prospective resources2
estimated by Fugro Robertson3 to be 130 Bscf (or 16 MMbo
oil case) in the deeper Middle Triassic reservoir. Additional
3D seismic data will be purchased over the Zibido prospect
with the aim to defi ne a suitable drilling location and submit
a further drilling application by year-end.
Notes:
1 UNMIG (Uffi cio Nazionale Minerario per gli Idrocarburi e le Georisorse)
the responsible body for petroleum exploration and production activities
in Italy, a division of the Ministry of Economic Development Department
of Energy.
2 Contingent and prospective resources, consistent with SPE (The
Society of Petroleum Engineers) guidelines, are quantifi ed 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 fi gure indicates a 50% chance
of fi nding 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 Fugro-Robertson Limited is an independent petroleum consultancy
company providing resource and reserve assessments. The fi gures
quoted here are taken from their Competent Person’s Reports of July
2010 and October 2011.
4 ERC-Equipoise Limited is an independent petroleum consultancy
company providing resource and reserve assessments. The fi gures
quoted here are taken from their interpretation report of December
2011.
Abbreviations:
Bopd:
Bscf:
MMbo:
MMboe:
Barrels of oil per day.
Billion standard cubic feet of gas.
Million barrels of oil.
Million barrels of oil equivalent (6,000 standard cubic feet of
gas = 1 barrel of oil).
MMscfd: Million standard cubic feet of gas per day
MMscm: Million standard cubic meters of gas.
Thousand standard cubic feet of gas.
Mscf:
Standard cubic feet of gas per day.
Scfd:
Standard cubic meters of gas per day.
Scmd:
Annual Report 2012
Statement of Proved and Probable Reserves
The Group’s prove d and probable hydrocarbon reserves as at 31 December 201 2 were:
As at 31 December 2011
Additions:
Rapagnano Field, Italy
Disposals:
Kerendan fi eld, Indonesia
As at 31 December 2012
Abbreviations:
Bscf: Billion standard cubic feet of gas.
MMbo: Million barrels of oil.
Oil
(MMbo)
0.070
–
(0.070)
–
Gas
(Bscf)
6.685
1.3
(6.685)
1.3
MMboe
1.184
0.217
(1.184)
0.217
MMboe: Million barrels of oil equivalent (6,000 standard cubic feet of gas = 1 barrel of oil).
11
Sound Oil plc
Board of Directors
Andrew Hockey, Chairman
Chairman of Exploration and Production Technical Committee
Chairman of Health , Safety and Environment Committee
Andrew has 30 years technical and managerial experience in the oil and gas industry gained in the UK and
internationally with Petrofi na, Triton, Monument, Lasmo, Eni and Fairfi eld Energy. Andrew holds a BA in
Geology from Oxford University and an MSc in Petroleum Geology from Imperial College.
James Parsons, Chief Executive
James Parsons has 20 years’ experience in the fi elds of strategy, management, fi nance and corporate
development in the energy industry. James Parsons was appointed Chief Executive Offi cer in October 2012.
James started his career with the Royal Dutch Shell group in 1994 and spent 12 years with Shell working in
Brazil, the Dominican Republic, Scandinavia, Holland and London. Leading up to 2006 (when he left Shell to
join Inter Pipeline Fund), James held various positions in Shell’s exploration and production business, latterly
as Vice President, Finance, of New Business. James joined Sound Oil initially as Chief Financial Offi cer in
2011 from the European division of Inter Pipeline Fund, a Toronto-listed resources business, where he held
the position of Finance and Corporate Development Director of Inter Pipeline Europe. James is a qualifi ed
accountant and has a BA Honours in Business Economics
Michael Nobbs, Non-Executive Director
Chairman of Remuneration and Nominations Committee
Member of Audit Committee
Michael Nobbs has acted as a professional Independent Public Company Director across the Oil / Gas and
Alternative Energy sectors for the past 10 years. Michael is a founding Director of Sound Oil and has 35 years’
experience in investment banking, with a specifi c focus on project fi nance and mergers and acquisitions. He was
managing director and senior credit offi cer for Citigroup and the group fi nance director for Tishman International
Companies, and has held positions in London, New York and Los Angeles. Present and recent Companies served
include Caspian Energy, Ithaca Energy, GTL Resources, Plasco Energy, Mart Resources and Illinois River Energy.
Michael serves on a variety of Board Committees, including Audit, Nominations, Remuneration, Investment and
Special Situations, and has experience across AIM , TSX and TVX listed Companies. In addition, Michael provides
fi nancial advisory services to private equity funds. He is a graduate of Trinity College, USA.
Tony Heath, Non-Executive Director
Chairman of Audit Committee
Member of Remuneration and Nominations Committee
Tony Heath has over 30 years fi nancial and general management experience in the oil and gas industry across
a variety of roles, specialising in oil and gas exploration. 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 fi nancial information and control of the international oil group covering
operations in thirty-fi ve 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.
12
Report of the Directors
The directors submit their report and the audited accounts
for the year ended 31 December 201 2.
Results and dividends
The Group’s loss after tax for the year amounted to
£13, 738,000 (2011 loss: £6,264,000). 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-
fi nancial 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 fi nancial 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 classifi ed into four
main categories: operational, commercial, regulatory and
fi nancial. 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.
Annual Report 2012
Share capital
At the end of the year the number of shares in issue was
2,870,128,815.
The authority given to the directors to allot shares at the
2012 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 Meeting to give to
the directors authority for one year to allot shares for cash
as if statutory pre-emption rights 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 10% of the
issued share capital.
Directors
Directors of Sound Oil plc holding offi ce during the year
were:
lham Habibie (resigned 12 December 2012)
Tony Heath
Andrew Hockey
Michael Nobbs
Gerry Orbell (resigned 10 October 2012)
James Parsons (appointed 10 October 2012)
Substantial Shareholders
At 30 April 2013 the Company had received notifi cation of
the following interests in excess of 3% of the Company’s
issued ordinary shares:
Notifi ed
number of
voting rights
Notifi ed
% of
voting rights
HSDL Nominees Limited
54,187,280
18.84%
TD Direct Investing Nominees
(Europe) Limited
Barclayshare Nominees Limited
Investor Nominees Limited
L R Nominees Limited
HSBC Client Holdings Nominee
(UK) Limited
BBHISL Nominees Limited
45,690,499
38,146,202
20,377,358
17,473,814
16,614,397
8,650,000
15.89%
13.26%
7.08%
6.08%
5.78%
3.01%
13
Sound Oil plc
Report of the Directors (continued)
Directors’ interests
The benefi cial interests of the directors and their immediate
families in the ordinary share capital of the company are
shown below:
Name
Michael Nobbs
Tony Heath
James Parsons
And rew Hockey
31 December
201 2
Date of
this report
252,954
212,758
199,537
12,500
252,954
212,758
199,537
12,500
creditor days in relation to trade creditors outstanding at
the period end were 30 days (2011: 30 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.
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 1 7.
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 confi rms
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 confi rmation is given and should be interpreted in
accordance with the provisions of s418 of the Companies
Act 2006.
Directors’ interests in share options are shown in the
Report on Directors Remuneration on page 1 8.
Financial risk management objectives and policies
The Group’s principal fi nancial instruments comprise
cash and short term deposits. The main purpose of these
fi nancial instruments is to fi nance the Group’s operations. In
addition the Group has various fi nancial liabilities in the form
of short term, non interest bearing sundry payables. The
main risks arising from the Group’s fi nancial 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 fl oating 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 6.
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 2012 the number of
14
Annual Report 2012
Health and Safety
The Board of Sound Oil plc considers the health and safety of its employees, contractors and all stakeholders to be paramount
and is determined to protect the environment in which it works. In 2011 Sound Oil convened a Board Committee dedicated to
ensuring the application of our HSE policies across the company. This Committee has continued to work through 2012. The
table below sets out our operational HSE performance for 201 1 and 2012, showing us continuing to execute our operations
without a Lost Time Incident occurring. We are pleased with this performance and look forward to maintaining these
standards through 2013.
2012
Lost time
Incidents*
Operations Type
Site Construction
Drilling
Well Testing
Facilities Construction
Production Operations
Totals
Operations
(Hours)
–
–
133
24
–
157
(Number)
–
–
–
–
–
–
Operations
(Hours)
(Hours)
–
–
–
–
–
–
179
599
356
–
–
1,1 34
2011
Lost time
Incidents*
(Number)
(Hours)
–
–
–
–
–
–
–
–
–
–
–
–
* Lost Time Incident: any work related injury or illness which prevents that person from doing any work the day after the accident (as defi ned by the
International Association of Oil and Gas Producers Glossary of HSE Terms,1999)
Exploration and Production Technical Committee
During 2012 a board level Exploration and Production Technical Committee (“EPTC”) was created to provide subsurface,
technical, and operational oversight of and support to the Company’s executive as Sound Oil moves its existing asset base
from exploration, appraisal and development to fi rst production as an active operator. The EPTC is also routinely involved in
the technical, geological and operational screening of growth opportunities.
The CEO attends all EPTC meetings along with other Executive Team members who are invited from time to time depending
on the requirement for specialist input. The EPTC has formal monthly meetings which are minuted and has access to an
annual budget for use in securing relevant professional assistance.
The CEO makes recommendations to the Board on all relevant matters through the EPTC which is headed by the Chairman of
the Board, and may include up to two further appropriately qualifi ed Board level members or consultant professionals.
By order of the Board
Stephen Ronaldson
Company Secretary
29 May 2013
15
Sound Oil plc
Report on Directors Remuneration
Compliance
The remuneration of all executive directors and the Executive
Team is determined by the Remuneration and Nominations
Committee (the ‘Committee’) and ratifi ed by the Board.
The Committee is composed entirely of non-executive
directors, and comprises Mr Michael Nobbs, who chairs
the Committee, and Tony Heath. None of the executive
directors of the Company is involved in determining his own
remuneration.
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 remuneration package. The base
salaries of the executive team are currently positioned
between the median and the upper quartile. While salary
is reviewed by reference to market conditions, the
performance of the Company and the performance of the
individual, the Committee would not regard this element of
remuneration as directly performance related.
Bonuses
The performance of the Company and the Executives
over the year is taken into consideration when assessing
any annual cash bonus. Both Corporate and Individual key
performance indicators (KPIs) are set at the beginning of
each year’s budget process. Bonuses may be awarded up
to a maximum of 50% and 100% of base salary depending
on the seniority of the employee and following a review of
corporate and individual performance against the KPIs.
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)
(cid:129)
(cid:129)
(cid:129)
James Parsons has a contract of employment with a
notice period for termination of 6 months.
Non-executive directors have letters of appointment
with a notice period for termination of 2-3 months.
The Company has granted an indemnity to all its
directors under which the Company will, to the 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,
James Parsons and each of the non-executive
directors has the option to give notice and receive a
lump sum equivalent to 12 months salary.
The Committee has the authority to seek independent
advice as required.
The Committee consults with the executive team as
required during the year.
Remuneration approach
A Comprehensive Compensation Framework was put in
place in 2011.
The Company’s remuneration policy is to provide
remuneration packages which ensure that directors and
senior management are fairly and responsibly rewarded for
their contributions.
The Committee endorses the principle of mitigation of
damages on early termination of a service contract.
It is the Committee’s current intention to continue with the
above remuneration approach for 201 3 and 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 maybe
awarded annually.
Remuneration structure
The executive team’s remuneration is basic salary with
possible share options and bonuses awarded dependent
on individual and company performance. A contributory
pension scheme, compliant with UK legislation, was
established in 2012 for UK employees.
Base salary
Base salary is reviewed each year against other comparable
companies in the oil sector and general market data on
16
Summary of actual remuneration of directors
2011
2012 Contract ual
Performance Performance Severance
Payment
Award
Award
Salary
Executive directors
James Parsons (ii)
Gerry Orbell (i)
Non-executive Directors and Chairman
Andrew Hockey (iii)
Michael Nobbs
Tony Heath
Ilham Habibie (iv)
Total for all directors
52
20 0
40
31
31
29
383
–
75
–
–
–
–
75
–
–
–
–
–
–
–
–
221
–
–
–
–
221
Annual Report 2012
Total
2011
52
496
40
31
31
29
679
–
486
19
30
9
30
574
(i) Left the Company on 11 October 2012.
(ii) From 1 0 October 2012 in role as Chief Executive Offi cer (annual salary as Chief Executive Offi cer is £225,000 with a 4% pension contribution).
(iii) Non-executive director from 1 January 2012 to 10 October 2012 and Chairman from 11 October 2012 (annual salary as Chairman is £ 50,000) plus a
further £20,000 as Chairman of Exploration and Production Technical Committee.
(iv) Left the Company on 12 December 2012.
17
Sound Oil plc
Report on Directors Remuneration (continued)
Share Options
At 31 December 2012 the Directors held options over the Ordinary Shares of the Company as follows:
Date of Grant
Exercisable Acquisition price Options held at
Options held at
Dates per share (pence) 1 January 2012 31 December 2012
J. Parsons
5.09.2011
05.09.2012-04.09.2016
5.09.2011
05.09.2013-04.09.2016
5.09.2011
05.09.2014-04.09.2016
1.03.2012
01.03.2013-28.02.2018
1.03.2012
01.03.2014-28.02.2018
1.03.2012
01.03.2015-28.02.2018
2 6.10.2012
26.10.2012-25.10.2016
2 6.10.2012
26.10.2013-25.10.2016
2 6.10.2012
26.10.2014-25.10.2016
J A.Heath
28.02.2007
28.02.2008-28.02.2017
28.02.2007
28.02.2009-28.02.2017
28.02.2007
28.02.2010-28.02.2017
27.05.2010
27.05.2010-26.05.2013
18.04.2011
01.03.2011-29.02.2016
29.09.2011
29.09.2011-28.09.2016
A.Hockey
24.05.2011
01.04.2011-31.03.2016
26.10.2012
26.10.2012-25.10.2016
26.10.2012
26.10.2013-25.10.2016
26.10.2012
26.10.2014-25.10.2016
M.Nobbs
18.04.2011
28.03.2011-27.03.2016
21. 75
21. 75
21. 75
25. 00
2 5.0 0
25. 00
16.50
16.50
16.50
43. 75
43. 75
43. 75
15. 00
27. 50
22. 00
49. 50
16. 50
16. 50
16. 50
56. 00
1 10,0 00
1 10,0 00
1 10,0 00
–
–
–
–
–
–
33 ,333
33 ,333
33 ,334
1 03,5 00
2 00,0 00
1 00,0 00
1 00,0 00
–
–
–
1 00,0 00
1 10,0 00
1 10,0 00
1 10,0 00
1 50,0 00
1 50,0 00
1 50,0 00
333,333
333,333
333,33 4
33,333
33,333
33,334
1 03,5 00
2 00,0 00
1 00,0 00
1 00,0 00
1 00,0 00
1 00,0 00
1 00,0 00
1 00,0 00
The granting of share options under the Long Term Incentive Plan (LTIP) is designed to align Executive remuneration with
the long-term interest of shareholders. Only Key Personnel, whom the Group wishes to retain over the long term, are invited
to join the LTIP. The exercise price of any share options awarded is always set at signifi cantly above the then current market
price in order to ensure that management are only rewarded for strong increases in total shareholder value over an extended
period of time. The current option coverage is relatively limited (some 1.7% of issued share capital). Over the long term the
Board wish to move towards the 10% approved cap.
18
Corporate Governance Report
The Board recognises the importance of sound corporate
governance and the guidelines set out in the UK Corporate
Governance Code (the “Code”). Companies on the AIM
market of the London Stock Exchange (“AIM”) are not
required to comply with the Code, and due to its size, the
Company is not in full compliance. However, the Company
intends to comply so far as is practicable and appropriate.
In accordance with the Code no director has an
employment contract of more than one year.
The Board is responsible for overall strategy, acquisition
policy, major capital expenditure projects, corporate
overhead costs and signifi cant fi nancing matters. No one
individual has unfettered powers of decision. The roles of
Chairman and Chief Executive Offi cer were split during the
year in accordance with best practice. Consequently, the
Group now has a Chairman, a Chief Executive Offi cer and
two non-Executive directors.
1 5 board meetings were held during the year, all of which
were attended by all directors.
The Board has an Audit Committee comprising t wo of
the non-executive directors. Its role is to monitor the
integrity of the Company’s fi nancial statements and other
formal announcements relating to the Company’s fi nancial
performance. Its role includes reviewing:
(cid:129)
(cid:129)
(cid:129)
the effectiveness of the risk management and internal
control systems including the result of reviews of
the system and management’s response to review
fi ndings.
the appropriateness of the Company’s relationship
with the external auditors and the objectivity of the
audit process.
the enforcement of the Company’s code of conduct
and the adequacy and security of the whistleblowing
procedure.
T he Committee met twice during 2012.
Annual Report 2012
The Board has established levels of authorisation of
fi nancial 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 fi nancial 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 identifi es and reviews
the key areas of business risk facing the Group.
There is close, day-to-day involvement by the executive
director in all of the Group’s activities. This includes the
comprehensive review of both management and technical
reports, the monitoring of foreign exchange and interest-
rate fl uctuations, government and fi scal-policy issues and
cash-control procedures. In this way, the key-risk areas can
be monitored effectively and specialist expertise applied in
a timely and productive manner.
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 fi nancial year and up to
the date that the fi nancial statements were signed.
The Company has less than twenty employees and the
directors do not believe the Company is suffi ciently
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.
19
Sound Oil plc
Statement of Directors’ Responsibilities
The directors are responsible for preparing the Directors’
Report and the fi nancial statements in accordance with
applicable law and regulations.
Company law requires the directors to prepare fi nancial
statements for each fi nancial year. Under that law the
directors have elected to prepare the fi nancial statements in
accordance with International Financial Reporting Standards
(IFRSs’) as adopted by the European Union and applicable
law.
Under company law the directors must not approve the
fi nancial statements unless they are satisfi ed that they give
a true and fair view of the state of affairs of the company
and the group and of the profi t or loss of the group for that
period. In preparing these fi nancial statements, the directors
are required to:
(cid:129)
(cid:129)
select suitable accounting policies and then apply
them consistently;
make judgments and accounting estimates that are
reasonable and prudent;
(cid:129)
(cid:129)
state whether applicable accounting standards
have been followed, subject to any material
departures disclosed and explained in the fi nancial
statements;
prepare the fi nancial statements on the going
concern basis unless it is inappropriate to presume
that the company will continue in business.
The directors are responsible for keeping adequate
accounting records that are suffi cient to show and explain
the company’s transactions and disclose with reasonable
accuracy at any time the fi nancial position of the company
and enable them to ensure that the fi nancial statements
comply with the Companies Act 2006. They are also
responsible for safeguarding the assets of the company and
hence for taking reasonable steps for the prevention and
detection of fraud and other irregularities.
They are further responsible for ensuring that the Report of
the Directors and other information included in the Annual
Report and Financial Statements is prepared in accordance
with applicable law in the United Kingdom.
20
Independent Auditor’s Report
to the members of Sound Oil plc
We have audited the fi nancial statements of Sound Oil plc
for the year ended 31 December 201 2 which comprise
Consolidated Income Statement, Consolidated and
Company Balance Sheets, Consolidated and Company
Statements of Changes in Equity, the Consolidated and
Company Cash Flow Statements and the related notes.
The fi nancial 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 fi nancial
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 fi nancial statements and for
being satisfi ed that they give a true and fair view. Our
responsibility is to audit and express an opinion on the
fi nancial 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 fi nancial statements
An audit involves obtaining evidence about the amounts
and disclosures in the fi nancial statements suffi cient to
give reasonable assurance that the fi nancial 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 signifi cant
accounting estimates made by the directors; and the overall
presentation of the fi nancial statements.
In addition, we read all the fi nancial and non-fi nancial
information in the Directors’ Report, the Chairman’s
statement, the fi nancial 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
fi nancial statements. If we become aware of any apparent
material misstatements or inconsistencies we consider the
implications for our report.
Annual Report 2012
Opinion on fi nancial statements
In our opinion:
(cid:129)
the fi nancial 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 201 2 and of the Group’s
loss for the year then ended;
the Group fi nancial statements have been properly
prepared in accordance with IFRSs as adopted by the
European Union;
the parent company fi nancial 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 fi nancial 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 fi nancial year for which the fi nancial statements are
prepared is consistent with the fi nancial 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 fi nancial statements are not in
agreement with the accounting records and returns; or
certain disclosures of directors’ remuneration
specifi ed by law are not made; or
we have not received all the information and
explanations we require for our audit.
(cid:129)
(cid:129)
(cid:129)
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
29 May 201 3
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 fi nancial statements since they were originally presented on the
website. Legislation in the United Kingdom governing the preparation and dissemination
of fi nancial statements may differ from legislation in other jurisdictions.
21
Sound Oil plc
Consolidated Income Statement
for the year ended 31 December 2012
Exploration and development costs
Gross loss
Administrative expenses
Group trading loss from continuing operations
Finance revenue
Foreign exchange (loss)/gain
Expense incurred in acquiring subsidiaries
External interest costs
Loss before income tax
Income tax
Loss for the period attributable to continuing operations
Loss on disposal from discontinued operations
Loss for the period attributable to owners of the parent
Other comprehensive income:
Foreign currency translation gain
Total comprehensive income for the year
Attributable to:
Owners of the company
Loss per share (basic) from continuing operations
Loss per share (basic) from discontinued operations
Notes
3
6
7
8
Notes
9
9
2012
£’000 s
(1,455)
(1,455)
(3,176)
(4,631)
11
(174)
–
(1 0)
(4,804)
–
(4,804)
( 8,934)
(13,738)
427
( 13,311)
( 13,311)
2012
Pence
(0.20)
(0. 37)
2011
£’000 s
restated
(2,381)
(2,381)
(2,259)
(4,640)
44
(439)
(516)
–
(5,551)
–
(5,551)
(713)
(6,264)
27
(6,237)
(6,23 7)
2011
Pence
(0.35)
(0.04)
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 £ 28, 647,000 (2011: £3,266,000).
22
Annual Report 2012
Consolidated Balance Sheet
as at 31 December 2012
Group
Non-current assets
Property, plant and equipment
Intangible assets
Other debtors
Current assets
Other debtors
Prepayments
Cash and short term deposits
Total assets
Current liabilities
Trade and other payables
Loans repayable in under one year
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
Accumulated defi cit
F oreign currency reserve
Total equity
Approved by the Board on 29 May 2013
J Parsons
Director
A H ockey
Director
Notes
10
1 1
1 3
1 3
1 4
1 5
1 6
1 7
1 8
2012
£’000 s
853
14,546
–
15,399
2,774
38
6,909
9,721
25,120
719
82
801
2,125
680
2,805
3,606
21,514
63,083
( 42,273)
704
21,514
The accounting policies on pages 30 to 35 and notes on pages 35 to 60 form part of these fi nancial statements .
2011
£’000 s
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
(28,606)
3,768
29,866
23
Sound Oil plc
Company Balance Sheet
as at 31 December 2012
Company number: 05344804
Company
Non-current assets
Property, plant and equipment
Investments in subsidiaries
Other debtors
Current assets
Other debtors
Prepayments
Cash and short term deposits
Total assets
Current liabilities
Trade and other payables
Net assets
Capital and reserves attributable to
equity holders of the company
Issued equity share capital and share premium
Accumulated defi cit
Total equity
Approved by the Board on 29 May 2013
J Parsons
Director
A H ockey
Director
Notes
10
1 2
13
1 3
1 4
1 5
1 8
2012
£’000 s
7
22,880
–
22,887
1,698
38
2,141
3,877
26,764
259
26,505
63, 083
( 36, 578 )
26,505
2011
£’000 s
11
41,719
7
41,737
121
37
5,092
5,250
46,987
285
46,702
54,704
(8,002)
46,702
The accounting policies on pages 30 to 35 and notes on pages 35 to 60 form part of these fi nancial statements .
24
Annual Report 2012
Consolidated Statement of Changes in Equity
for the year ended 31 December 2012
Group
Share
capital
£’000 s
Share Accumulated
defi cit
£’000 s
premium
£’000 s
Notes
Foreign
currency
reserve
£’000 s
Total
equity
£’000 s
At 1 January 2012
1,833
52,871
(28,606)
3,768
29,866
Total loss for the period excluding exchange gain
recycled to the income statement
Transfer from foreign currency reserve on disposal
Other comprehensive gain/(loss)
Total comprehensive income/(loss)
Issue of share capital
Transaction costs
Share based payments
At 31 December 2012
–
–
–
–
–
–
–
1,037
–
–
–
8,589
(1,24 7)
–
2 3
( 17,229)
3,491
–
(13,738)
–
–
71
–
(3,491)
427
(3,064)
–
–
–
( 17,229)
–
427
(16,802)
9,626
(1,24 7)
71
2,870
60,21 3
(42,273)
704
21,51 4
Share
capital
£’000 s
Share Accumulated
defi cit
£’000 s
premium
£’000 s
Note
Foreign
currency
reserve
£’000 s
Non
controlling
interest
£’000 s
At 1 January 2011
Total loss for the year
Other 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
692
35,764
(22,482)
3,741
–
–
–
1,141
–
–
–
–
–
–
–
18,104
(997)
–
–
–
(6,259)
–
(6,259)
–
–
260
–
(125)
–
27
27
–
–
–
–
–
2 3
Total
equity
£’000 s
17,715
(6,264)
27
(6,237)
19,245
(997)
260
–
(5)
–
(5)
–
–
–
94
94
(89)
(214)
At 31 December 2011
1,833
52,871
(28,606)
3,768
–
29,866
25
Sound Oil plc
Company Statement of Changes in Equity
for the year ended 31 December 2012
Company
At 1 January 2012
(Loss) for the year
Shares issued
Share based payments
At 31 December 2012
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
Share
capital
£’000 s
Share Accumulated
defi cit
£’000 s
premium
£’000 s
Total
equity
£’000 s
Notes
1,833
52,871
(8,002)
46,702
–
1,037
–
–
7,34 2
–
(28,64 7)
–
71
(28,64 7)
8,37 9
71
2 3
2,870
60,21 3
(36,57 8)
26,505
Share
capital
£’000 s
Share Accumulated
defi cit
£’000 s
premium
£’000 s
Total
equity
£’000 s
Notes
692
35,764
(4,996)
31,460
–
–
–
1,141
–
–
–
–
–
18,104
(997)
–
(3,266)
–
(3,266)
–
–
260
(3,266)
–
(3,266)
19,245
(997)
260
1,833
52,871
(8,002)
46,702
2 3
26
Annual Report 2012
Consolidated Cash Flow Statement
for the year ended 31 December 2012
Cash fl ow from operating activities
Cash fl ow from operations
Interest received
Net cash fl ow used in operating activities
Cash fl ow from investing activities
Capital expenditure and disposals
Exploration expenditure
Payment in escrow – acquisition of subsidiaries
Expense in acquiring subsidiaries
Acquisition of subsidiaries
Net cash infl ow on disposal of subsidiary
Net cash fl ow used in investing activities
Net proceeds from equity issues
Net cash fl ow from fi nancing activities
Notes
6
10
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
1 4
2012
£’000 s
( 4,327)
11
( 4,316)
(80)
(3,913)
–
–
–
2,515
( 1,478)
6,804
6,804
1,010
(387)
6,286
6,909
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
27
Sound Oil plc
Notes to cash fl ow
Cash fl ow from operations reconciliation
Profi t/(loss) after tax
Finance revenue
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
Increase/(decrease) in accruals and short term creditors
Depreciation
Share based payments charge
Increase in short term debtors
Reduction in long term debtors
Reduction in trade and other payables
Decrease in long term provisions
Profi t on disposal of subsidiaries
Cash fl ow from operations
Cash fl ow from discontinued operations
Cashfl ow from investing activities
Cashfl ow from operating activities
Total cash outfl ow from discontinued operations
Notes
6
3
2 3
2012
£’000 s
(13, 738)
(11)
–
–
–
–
13,538
–
24
71
393
668
(1,432)
(20)
(3,820)
(4,327)
2012
£’000 s
(2,184)
(805)
(2,989)
2011
£’000 s
(6,264)
(44)
98
36
516
170
1,236
1,668
11
260
(945)
(12)
–
261
–
(3,009)
2011
£’000 s
(1,248)
(551)
(1,799)
28
Company Cash Flow Statement
for the year ended 31 December 2012
Cash fl ow from operating activities
Cash fl ow from operations
Interest received
Net cash fl ow used in operating 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
Advances made to subsidiary undertakings
Net cash fl ow used in investing activities
Cash fl ow from fi nancing activities
Proceeds from equity issues
Net cash fl ow from fi nancing activities
Notes
6
10
Net increase/(decrease) in cash and cash equivalents
Cash and cash equivalents at 1 January
Net foreign exchange differences
Cash and cash equivalents at 31 December
1 4
Notes to cash fl ow
Cash fl ow from operations reconciliation
Profi t/(loss) after tax
Finance revenue
Cost of acquiring subsidiaries
Payroll bonuses paid in shares
Share options granted and taken up immediately
Share based payments
Intercompany loans written off (including realised
exchange gain on disposals)
(Decrease)/ increase in accruals and short term creditors
Decrease/(increase) in other non-current assets
Decrease/(increase) in short term debtors
Depreciation
Cash fl ow from operations
Notes
2 3
Annual Report 2012
2012
£’000 s
(2,453)
11
(2,442)
(2)
–
–
–
–
–
(7,317)
(7,319)
6,804
6,804
(2,95 7)
5,092
6
2,141
2012
£’000 s
(28, 646)
(11)
–
–
–
71
26,156
(26)
(3)
–
6
(2,453)
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
4,331
(443)
5,092
2011
£’000 s
(3,266)
(43)
516
98
36
260
–
224
(3)
720
–
(1,458)
29
Sound Oil plc
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 fi nancial statements of the Group and its parent have
been prepared in accordance with:
(1) International Financial Reporting Standards (IFRS) as
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 fi nancial statements have been prepared
under the historical cost convention, except to the extent
that the following policies require fair value adjustments.
The Group and its parent company’s fi nancial statements
are presented in sterling (£) and all values are rounded
to the nearest thousand (£’000) except when otherwise
indicated.
The principal accounting policies set out below have
been consistently applied to all fi nancial reporting periods
presented in these consolidated fi nancial statements and
by all Group entities, unless otherwise stated. All amounts
classifi ed as current are expected to be settled/recovered in
less than 12 months unless otherwise stated in the notes to
these fi nancial statements.
The Group and its parent company’s fi nancial statements
for the year ended 31 December 201 2 were authorised for
issue by the board of directors on 2 9 May 2013.
The fi nancial position of the Group, its cash fl ows and
available debt facilities are described in the Financial Review
above. As at 31 December 201 2 the Group had £6. 9 million
of available cash. Based on the current management plan,
management believe that the Group will remain a going
concern for the next 12 months from the date of the
authorisation of the fi nancial statements on the basis that
forecast expenditure (12 months through 30 May 201 4) will
be less than the funds available as at 31 December 201 2
Use of estimates and key sources of estimation uncertainty
The preparation of fi nancial 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
period. Actual outcomes could differ from those estimates.
The key sources of estimation uncertainty that ha ve a
signifi cant risk of causing material adjustment to the
carrying amounts of assets and liabilities within the next
fi nancial year are the impairment of intangible exploration
and evaluation (E&E), investments and goodwill and the
estimation of share based payment costs.
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
amount. As recoverable amounts are determined based
upon risked potential, or where relevant, discovered oil and
gas reserves, this involves estimations and the selection
of 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.
In determining the treatment of E&E assets and
investments the directors are required to make estimates
and assumptions as to future events and circumstances.
There are uncertainties inherent in making such
assumptions, especially with regard to oil and gas reserves
and the life of, and title to, an asset; recovery rates;
production costs; commodity prices and exchange rates.
Assumptions that are valid at the time of estimation may
change signifi cantly as new information becomes available
and changes in these assumptions may alter the economic
status of an E&E asset and result in resources or reserves
being restated. The estimation of recoverable amounts,
based on risked potential and the application of value in use
calculations, are dependent upon fi nance 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
30
Annual Report 2012
are undertaken, management estimates the expected
future cash-fl ows from the asset and chooses a suitable
discount rate in order to calculate the present value of those
cash-fl ows. In undertaking these value in use calculations,
management is required to make use of estimates and
assumptions similar to those described in the treatment of
E&E assets above. Further details are given in note 1 1.
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 1 9).
(b) Basis of consolidation
The Group fi nancial 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 signifi cant infl uence 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 fi nancial and operating policies.
Such power, generally but not exclusively, accompanies
a shareholding of more than one half of the voting rights.
Subsidiaries are fully consolidated from the date on which
control is transferred to the Group, until the date that
control ceases.
The Group uses the purchase method of accounting for
the acquisition of subsidiaries. The cost of an acquisition
is measured as the fair value of the assets given, equity
instruments issued and liabilities incurred or assumed
at the date of exchange, plus costs directly attributable
to the acquisition.
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 classifi ed as jointly controlled assets and
consequently, these fi nancial statements refl ect only the
Group’s proportionate interest in such activities.
Associates
Entities, other than subsidiary undertakings or joint
arrangements, in which the Group has a participating
interest and over whose operating and fi nancial policies
the Group exercises a signifi cant infl uence are treated as
associates. In the Group’s fi nancial statements associates
are accounted for using the equity method.
Separate fi nancial statements
Investments in subsidiaries, joint ventures and associates
are recorded at cost, subject to impairment testing in
the Group’s fi nancial statements.
(c) Foreign currency translation
The functional currency of the Company is pound sterling.
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.
The assets and liabilities of foreign operations are translated
into sterling at the rate of exchange ruling at the balance
sheet date. Income and expenses are translated at
weighted average exchange rates for the year. The resulting
exchange differences are taken directly to a separate
component of equity. On disposal of a foreign entity, the
deferred cumulative amount recognised in equity relating
to that particular foreign operation is recognised in the
income statement.
(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 specifi c requirements of the
standard.
31
Sound Oil plc
Notes to the Financial Statements (continued)
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
licence acquisition, exploration and appraisal costs are
initially capitalised in well, fi eld or specifi c 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 fi nite.
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 (or
otherwise) of commercial reserves has been determined
subject to certain limitations including review for
indications of impairment. If commercial reserves have
been discovered and development has been approved,
the carrying value, after any impairment loss, of the
relevant E&E assets is then reclassifi ed 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 fi eld-by-fi eld basis and represent the cost
of developing the commercial reserves discovered and
bringing them into production, together with the E&E
expenditures incurred in fi nding 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, fi nance costs
capitalised, and the cost of recognising provisions for future
restoration and decommissioning.
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 with the expected
recoverable amount of the asset, generally by reference to
the present value of the future net cash fl ows expected to
be derived from production of commercial reserves. The
cash generating unit applied for impairment test purposes
is generally the fi eld, except that a number of fi eld interests
may be grouped as a single income generating unit where
the cash fl ows of each fi eld are inter-dependent.
Acquisitions, asset purchases and disposals
Acquisitions of oil and gas properties are accounted for
under the purchase method where the transaction meets
the defi nition of a business combination or joint venture.
Transactions involving the purchase of an individual fi eld
interest, or a group of fi eld interests, that do not qualify as
a business combination are treated as asset purchases,
irrespective of whether the specifi c transactions involve
the transfer of the fi eld 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, fi ttings and equipment are recorded at cost as
tangible assets.
32
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 identifi able
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.
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 fi nancial 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.
Annual Report 2012
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.
(j)
Financial instruments
Financial assets and fi nancial 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 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 insignifi cant risk of changes in
value. Financial liabilities and equity instruments issued by
the Group are classifi ed according to the substance of the
contractual arrangements entered into and the defi nitions
of a fi nancial 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 specifi c
fi nancial 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.
33
Sound Oil plc
Notes to the Financial Statements (continued)
•
•
•
•
•
•
•
•
•
IAS 27 Separate Financial Statements for accounting
periods beginning on or after 1 January 2013
IAS 28 Investments in Associates and Joint Ventures
for accounting periods beginning on or after 1 January
2013
IFRS 10 Consolidated Financial Statements for
accounting periods beginning on or after 1 January 2013
IFRS 11 Joint Arrangements for accounting periods
beginning on or after 1 January 2013
IFRS 12 Disclosure of Interests in Other Entities
for accounting periods beginning on or after
1 January 2013
IFRS 13 Fair Value Measurement for accounting
periods beginning on or after 1 January 2013
IFRS 9 (not yet adopted by the EU) Financial
Instruments for accounting periods beginning on or
after 1 January 2013
IFRIC 20: Stripping Costs in the Production Phase of a
Surface Mine for accounting periods beginning on or
after 1 January 2013
IFRS 1 Amendments – Government loans for
accounting periods beginning on or after 1 January 2013
The directors do not anticipate that the adoption of these
standards and interpretations will have a material impact on
the fi nancial statements in the year of initial application.
(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 satisfi ed, provided that all other performance and/or
service conditions are satisfi ed.
(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 identifi ed as those which may
impact the Group in the period of initial application. They
have not been applied in preparing this fi nancial report.
IAS 12 Amendments to Deferred tax: Recovery of
Underlying Assets for accounting periods beginning
on or after 1 January 2012
IAS 1 Amendment – Presentation of items of other
comprehensive income for accounting periods
beginning on or after 1 July 2012
IAS 19 Amendment – Employee Benefi ts for
accounting periods beginning on or after 1 January 2013
•
•
•
34
(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 outfl ow of resources embodying
economic benefi ts will be required to settle the obligation,
and a reliable estimate of the amount of the obligation can
be made.
Annual Report 2012
2 Segment information
The Group categorises its operations into two business
segments based on exploration and appraisal and
development and production.
In the year ended 31 December 2012 the Group’s
exploration and appraisal activities were carried out in two
geographic areas being;
In Indonesia under Production Sharing Contracts (“PSC”),
Citarum, and in Italy under various licences and permits.
The development and production activities were based in
Indonesia under the Bangkanai PSC.
The Group’s activities in Indonesia were discontinued in the
year . All continuing activities are carried out in the UK and
Italy.
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.
35
Sound Oil plc
Notes to the Financial Statements (continued)
2 Segment information (continued)
The segment results for the year ended 31 December 2012 are as follows:
Development
and
Production
2012
£’000s
–
–
–
(1,45 5)
–
Corporate
2012
£’000s
–
–
–
–
( 3, 176)
Total
2012
£’000s
–
–
–
(1,45 5)
( 3, 176)
(3, 176)
(1,45 5)
( 4,631)
11
(10)
(174)
–
–
–
–
–
11
(10)
(174)
3,820
( 3,349 )
(1,45 5)
( 4,804)
Development
and
Production
2012
£’000s
764
–
–
Corporate
2012
£’000s
88
9,721
(3,606)
Exploration
and
Appraisal
2012
£’000s
14,546
–
–
UK
£’000s
–
7
–
–
7
Total
2012
£’000s
15,39 8
9,721
(3,606)
Italy
£’000s
76 5
81
2,126
12,420
15,39 2
Sales and other operating revenue
Other income/(loss)
Exploration costs
Impairment of exploration and evaluation assets
Administration expenses
Operating loss segment result
Interest receivable
Interest payable
Finance costs
Gain on disposal of subsidiary
Loss for the year before taxation
The segment assets and liabilities at 31 December 2012 are as follows:
Capital expenditure
Other assets
Total liabilities
The geographical split of non-current assets is as follows:
Development and production assets
Fixtures, fi ttings and offi ce equipment
Goodwill
Exploration and evaluation assets
Total
36
Annual Report 2012
2 Segment information (continued)
The segment results for the year ended 31 December 2011 were 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 costs
Costs of acquiring subsidiaries
Loss for the year before taxation
Development
and
Production
2011
£’000s
–
–
–
–
–
Corporate
2011
£’000s
–
–
(936)
–
(2, 259)
Exploration
and
Appraisal
2011
£’000s
–
–
(2 09)
(1,236)
–
Total
2011
Restated
£’000s
–
–
(1,1 45)
(1,23 6)
(2, 259)
( 3,195)
44
(439)
(516)
(4, 106)
–
–
–
–
–
(1,4 45)
( 4,640)
–
–
–
44
(439)
(516)
(1,4 45)
( 5,551)
The segment assets and liabilities at 31 December 2011 were as follows:
Capital expenditure
Other assets
Total liabilities
3 Operating loss
Operating loss is stated after charging:
Auditors’s remuneration
Depreciation
Employee costs
Impairment charge
Development
and
Production
2011
£’000s
Corporate
2011
£’000s
Exploration
and
Appraisal
2011
£’000s
32
8,461
(6,175)
1,246
–
–
26,302
–
–
Notes
4
10
5
11
2012
£’000s
9 8
24
2,357
1,453
Total
2011
£’000s
27,580
8,461
(6,175)
2011
£’000s
95
15
2,137
1,101
37
Sound Oil plc
Notes to the Financial Statements (continued)
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
– Tax services
5
Employee costs
Staff costs, including executive directors
Share based payments
Wages and salaries
Social security costs
Employee benefi ts
Total
Number of employees (including executive directors) at the end of the year
Technical and operations
Management and administration
Total
2012
£’000s
73
6
19
98
2011
£’000s
74
8
13
95
Notes
2012
£’000s
2011
£’000s
2 3
3
71
2,015
265
6
2,357
2012
4
12
16
260
1,696
181
–
2,137
2011
6
10
16
All members of the Group Board and the Group Executive team are included as part of “Management and Administration”.
6
Finance revenue
Interest on cash at bank and short–term deposits
Total
2012
£’000s
11
11
2011
£’000s
44
44
38
Annual Report 2012
2012
£’000s
Group
2011
£’000s
Group
–
–
–
–
–
–
–
2012
£’000s
Group
(13, 738)
3, 366
( 7,019)
3,65 3
–
2012
£’000s
Group
–
–
–
–
–
–
–
–
–
2011
£’000s
Group
(6,264)
1,660
(866)
(794)
–
2011
£’000s
Group
–
–
Taxation
7
(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)/profi t before tax
Tax (charge)/credit at UK corporation tax of 24.5% (2011: 26.5%)
Temporary differences not recognised
Differences in overseas tax rates
Total tax (charge)/credit
(c) Tax account:
Current tax receivable
Current tax payable
8. Discontinued activities
On 18 October 2012 the Company announced the sale of its 20% working interest in the Citarum PSC to Pan Orient Energy
(Citarum) PTE for cash consideration of $16 million, contingent on revenues from the fi rst two discoveries on the PSC. On
12 December 2012 the Company sold its subsidiary, Mitra Energia Bangkanai Ltd (‘MEB’) to Salamander Energy Plc for cash
consideration of $4.5 million payable immediately but subject to deduction of local taxes and further cash consideration of up to
$2.6 million contingent on fi rst gas from the Kerenden gas fi eld and/or future discoveries subject to regulatory approval. The only
asset of MEB was a 5% carried interest in the Bangkanai PSC containing the Kerendan gas fi eld. As a consequence of the disposals
the offi ce in Indonesia was closed.
39
Sound Oil plc
Notes to the Financial Statements (continued)
8. Discontinued activities (continued)
Both of the above transactions have been classifi ed and accounted for as disposals in the year and presented as discontinued
activities in the fi nancial statements. The comparative income statement has been re-presented to include those operations
classifi ed as discontinued in the current year as follows:
Exploration and development costs
Administration expenses
Gain on disposal of subsidiary
Loss on disposal of intangible assets
Cumulative exchange gain reclassifi ed from foreign currency reserve to income statement
Loss from discontinued operations
2012
£’000s
–
671
(329)
12,083
(3,491)
8,934
2011
£’000s
24
689
–
–
–
713
In arriving at the net loss on disposal of the Citarum and Bangkanai assets no value has been attributed to contingent cash
consideration of up to £12.2 million ($18.6 million) receivable by the Group in the event of revenues from future discoveries in the
Citarum and Bangkanai PSC’s and fi rst gas from Kerendan. In the opinion of the directors the likelihood of realisation of economic
benefi t from the contingent consideration is not suffi ciently assured to recognise the amounts as assets in the fi nancial statements.
Cash fl ows from discontinued activities are set out on page 28.
Earnings per share
9
The calculation of basic profi t/(loss) per Ordinary Share is based on the profi t/(loss) after tax and on the weighted average
number of Ordinary Shares in issue during the period. Basic profi t/(loss) per share is calculated as follows:
Loss after tax from continuing operations
Weighted average shares in issue
Loss per share (basic) from continuing operations
Loss after tax from discontinued operations
Loss per share (basic) from discontinued operations
2012
£’000s
(4, 804)
2012
million
2,424
2012
Pence
(0. 20)
2012
£’000s
( 8,934)
2012
Pence
( 0.37)
2011
£’000s
(5,551)
2011
million
1,600
2011
Pence
(0.35)
2011
£’000s
(713)
2011
Pence
(0.04)
Diluted loss per share has not been disclosed as inclusion of unexercised options (see note 23) would be anti-dilutive.
In accordance with IA S33, calculations of earnings per share have been adjusted retrospectively to refl ect the Share
Consolidation approved in general meeting on 4 January 2013.
40
Annual Report 2012
10 Property, Plant and Equipment
Group
Cost
At 1 January 2012
Exchange adjustments
Additions
Decommissioning provisions
Transfers
Disposals
As at 31 December 2012
Depreciation
At 1 January 2012
Exchange adjustments
Transfers
Charge for the year
Disposals
As at 31 December 2012
Development
and
production
assets
Fixtures,
fi ttings
and offi ce
equipment
Note
£’000s
£’000s
1,246
–
–
341
1,87 7
(1,246)
2,2 18
–
–
1,45 3
–
–
1,45 3
204
(5)
80
–
–
(88)
191
172
(5)
–
24
(88)
103
3
Total
£’000s
1,450
(5)
80
341
1,87 7
(1,334)
2,4 09
172
(5)
1,45 3
24
(88)
1,55 6
Net book amount at 31 December 2012
76 5
88
85 3
41
Sound Oil plc
Notes to the Financial Statements (continued)
10 Property, Plant and Equipment (continued)
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
Development
and
production
assets
Fixtures,
fi ttings
and offi ce
equipment
Notes
£’000s
£’000s
–
–
–
–
1,246
–
1,246
–
–
–
–
–
–
139
(1)
35
31
–
–
204
127
(1)
31
15
–
172
3
Total
£’000s
139
(1)
35
31
1,246
–
1,450
127
(1)
31
15
–
172
Net book amount at 31 December 2011
1,246
32
1,278
(1) Transfers represent the reclassifi cation of assets from intangible assets (note 1 1)
During the 2011 period the accumulated cost of the Group’s investment in the Kerendan fi eld of £1,246,000 was reclassifi ed
from exploration and evaluation assets to development and production assets following the signature of a gas sales
agreement for the fi eld. This investment was disposed of in 2012 .
During 2012, the Group’s net investment in the Rampagnano license was reclassifi ed from exploration and evaluation to
production assets.
The Company has no development and production assets.
42
10 Property, Plant and Equipment (continued)
Company
Cost
At 1 January 2012
Additions
As at 31 December 2012
Depreciation
At 1 January 2012
Charge for the year
As at 31 December 2012
Net book amount at 31 December 2012
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
Annual Report 2012
Fixtures,
fi ttings and
offi ce
equipment
£’000s
20
2
22
9
6
15
7
Fixtures,
fi ttings and
offi ce
equipment
£’000s
9
11
20
9
–
9
11
Total
£’000s
20
2
22
9
6
15
7
Total
£’000s
9
11
20
9
–
9
11
43
Sound Oil plc
Notes to the Financial Statements (continued)
1 1 Intangible Assets
Cost
At 1 January 2012
Exchange adjustments
Additions
Transfers(1)
Disposals
At 31 December 2012
Impairment
At 1 January 2012
Additions
Transfers
Disposals
At 31 December 2012
Exploration
and
evaluation
assets
Goodwill
£’000s
£’000s
3,577
7 4
–
–
(1,525)
26,856
240
4,247
(1,87 9)
( 15,970)
Total
£’000s
30,433
31 4
4,247
(1,87 9)
( 17,495)
2,126
13,49 4
15,62 0
–
–
–
–
–
(4,131)
(1,45 5)
1,45 5
3,055
(4,131)
( 1,45 5)
1,45 5
3,055
(1,076)
(1,076)
Net book amount at 31 December 2012
2,126
12,420
14,546
Cost
At 1 January 2011
Exchange adjustments
Acquisitions
Additions
Transfers (1)
At 31 December 2011
Impairment
At 1 January 2011
Exchange adjustments
Additions
At 31 December 2011
Exploration
and
evaluation
assets
Goodwill
£’000s
£’000s
1,525
1
2,051
–
–
3,577
–
–
–
–
12,982
(50)
11,361
3,809
(1,246)
26,856
3,028
3
1,100
4,131
Total
£’000s
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
(1) Transfers represent the reclassifi cation of assets to PP&E (note 10)
44
Annual Report 2012
Intangible Assets (continued)
1 1
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
Intangible assets are allocated to the cash generating unit (“CGU”) identifi ed 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’ report (“CPRs”).
CPRs were last prepared for Italy in October 2011. The values attributed to the Group’s assets in the most recent CPRs are
very signifi cantly in excess of the carrying amounts of the Italian CGU, including goodwill. The Board of Directors believe the
data held in the CPRs is still relevant and up to date and remains valid for use in the annual impairment review. Consequently,
the directors do not therefore consider that any impairment indications exist in relation to the remaining Italian CGU.
In the year, the Group disposed of its Indonesian interests in the Citarum and Bangkanai PSCs. This resulted in a disposal of
£1.5m of goodwill on the acquisition of its Indonesian interests and a write-down of their respective carrying values.
The valuation calculations included in the CPRs are entirely dependent on the availability of fi nance to fund capital expenditure
on the development of exploration and evaluation assets. Should fi nance 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:
•
Net present value (“NPV”) calculations were prepared for proven contingent resources, including all the Italian licences.
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 expected production profi le and duration of sales contracts. The principal assumptions
on which the NPV calculations are based are as follows:-
•
•
The Italian CPR is based on an oil price of $109/bbl as per 2012 with the Brent forward curve for fi ve 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% (2011: 10%) has been used which the directors believe to be standard industry practice and
approximate to the Groups’ weighted average cost of capital.
•
The NPV calculations are most sensitive to the assumptions for production and operating expenditure.
45
Sound Oil plc
Notes to the Financial Statements (continued)
Intangible Assets (continued)
1 1
In 201 2, the impairment costs related to the costs of drilling on wells now considered to have smaller than originally
envisaged commercial quantities of gas.
Indonesia
Italy
Total
Investment in Subsidiaries
1 2
Company
At 1 January
Advances to group companies
Write-off on disposals (net of foreign exchange gains on disposals)
Euro loan to group companies
Acquisition of subsidiaries
At 31 December
2012
£’000s
–
1,453
1,453
2012
£’000s
41,719
7,317
(26,156)
–
–
22,880
2011
£’000s
24
1,076
1,100
2011
£’000s
24,337
11,590
–
965
4,827
41,719
The subsidiary companies of the Company at 31 December 2012 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*
Consul Oil and Gas Limited
Apennine Energy SpA
Apennine Oil and Gas SpA
(formerly known as Celtique Energy SpA)
British Virgin Islands
British Virgin Islands
Mauritius
Mauritius
UK
Italy
Italy
Holding Company
Holding Company
Holding and services company
Exploration company
Holding Company
Exploration company
Exploration company
* The investments in Mitra Energia Limited, Mitra Energia Citarum Limited are held indirectly via Sound Oil International
Limited. The investments in Apennine Energy SpA and Apennine Oil and Gas SpA are held indirectly via Consul Oil and Gas
Limited. Consul Oil and Gas Limited is directly funded through non-current, non-interest bearing loans from Sound Oil Plc.
Given that Sound Oil Plc has no intention to call the loans in the foreseeable future, the loans are treated as “permanent
as equity”. As a result, Sound Oil Plc has classifi ed these loans as investments which represent the carrying value of the
investment in the Mitra and Consul group of companies.
46
1 3 Other Debtors
Gro up
Indonesian VAT
Italian VAT
UK VAT
Other receivables
Currency analysis
US Dollar
Euro
GBP Sterling
Total
Company
UK VAT recoverable
Other receivables
Total
Currency analysis
GBP Sterling
Total
Annual Report 2012
2012
2011
Current
£’000s
–
963
19
1,792
2,774
Non
Current
£’000s
–
–
–
–
–
Current
£’000s
–
763
57
568
1,388
2012
2011
Current
£’000s
21
1,054
1,699
2,774
Non
Current
£’000s
–
–
–
–
Current
£’000s
228
1,039
121
1,388
2012
2011
Current
£’000s
1 8
1,680
1,69 8
Non
Current
£’000s
–
–
–
Current
£’000s
57
64
121
2012
2011
Current
£’000s
1,69 8
1,69 8
Non
Current
£’000s
–
–
Current
£’000s
121
121
Non
Current
£’000s
613
–
–
55
668
Non
Current
£’000s
661
–
7
668
Non
Current
£’000s
–
7
7
Non
Current
£’000s
7
7
47
Sound Oil plc
Notes to the Financial Statements (continued)
1 4 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
in Indonesian Rupiah
Total
Company
Cash at bank and in hand
Cash equivalents:
Short term deposits
Carrying amount at 31 December
being
in US Dollar
in Euros
in Sterling
Total
48
2012
£’000s
5,418
1,491
6,909
2,664
2,762
1,480
3
6,909
2012
£’000s
650
1,491
2,141
100
561
1,480
2,141
2011
£’000s
1,230
5,056
6,286
1,119
4,016
1,151
–
6,286
2011
£’000s
36
5,056
5,092
638
3,303
1,151
5,092
1 5 Trade and other payables
Group
Trade payable
Payroll taxes and social security
Accruals
Other payables
Total
Currency Analysis
US Dollar
Euro
Sterling
Total
Company
Trade payables
Payroll taxes and social security
Accruals
Total
Currency Analysis
US Dollar
Sterling
Total
Annual Report 2012
2012
Current
£’000s
461
121
137
–
719
2012
Current
£’000s
101
393
225
719
2012
Current
£’000s
120
28
111
259
2012
Current
£’000s
34
225
259
2011
Current
£’000s
1,761
50
128
294
2,233
2011
Current
£’000s
270
1, 678
285
2, 233
2011
Current
£’000s
148
9
128
285
2011
Current
£’000s
–
285
285
49
Sound Oil plc
Notes to the Financial Statements (continued)
1 6 Deferred tax assets and liabilities
1 January
Acquisitions
Released on disposal
Unrealised foreign exchange (decrease)/increase
31 December
2012
£’000s
3,576
–
(1,52 5)
7 4
2,125
2011
£’000s
1,525
2,051
–
–
3,576
£1,52 5k of goodwill and its related deferred tax on the acquisition of Mitra Energia Limited was dispos ed of as part of the sale
of Mitra Energia Bangkanai Limited to Salamander Energy on 31st December 2012.
Deferred tax assets have not been recognised in respect of the losses due to the uncertainty of utilisation of these losses.
1 7 Provisions
Employee
post
employment Abandon-
At 1 January 2012
Additions in 2012
Released during the year
Unrealised foreign exchange increase
As at 31 December 2012
Current
Non-current
Total
benefi ts
£’000s
141
–
(141)
–
–
–
–
–
Other
ment provisions
£’000s
£’000s
225
341
–
(7)
559
43 7
12 2
559
–
121
–
–
121
121
–
121
Total
£’000s
366
462
(141)
(7)
680
55 8
12 2
680
Employee post employment benefi ts
The Group’s Indonesian subsidiary provided employee post employment benefi ts in accordance with Indonesian law.
By 31st December 2012, the Indonesian subsidiary no longer had any employees and the Group believes it has satisfi ed all
legal requirements with regards to post employment benefi ts in Indonesia and therefore the provision was released in 2012.
Abandonment
The provision of £55 9,0 00 relates to the following licences:-
Rapagnano
Montemarciano
Marciano
£’000s
12 2
19 4
24 3
Abandonments costs relating to Marciano and Montemarciano are likely to be incurred during 2013 and 2014.
There are no provisions in the parent Company.
50
Annual Report 2012
1 8 Capital and Reserves
Group
Ordinary shares - 0.1p
2,870,128,815
2,870
1,833,199,548
Number of shares
2012 Number of shares
£’000s
Company
Number of shares
2012 Number of shares
£’000s
Ordinary shares - 0.1p
2,870,128,815
2,870
1,833,199,548
Share option schemes
Options to subscribe for the Company’s shares were granted to certain executives in 2011 and 2012 (note 1 9).
Group
Share
capital
£’000s
Share Accumulated
defi cit
£’000s
premium
£’000s
Foreign
currency
reserve
£’000s
At 1 January 2012
1,833
52,871
(28,606)
3,768
2011
£’000s
1,833
2011
£’000s
1,833
Total
equity
£’000s
29,866
Total loss for the period excluding
foreign e xchange recycled to the income statement
Foreign exchange recycled from
foreign currency reserve on disposal
Other comprehensive income
Issue of share capital
Transaction costs
Share based payments
At 31 December 2012
–
–
( 17,229)
–
( 17,229)
–
–
1,037
–
–
2,870
–
–
8,589
(1,24 7)
–
3,491
–
–
–
71
(3,491)
427
–
–
–
–
427
9,626
(1,24 7)
71
60,21 3
(42,273)
704
21,51 4
51
Sound Oil plc
Notes to the Financial Statements (continued)
1 8 Capital and Reserves (continued)
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
Share
capital
£’000s
3,741
–
27
–
–
–
Share Accumulated
defi cit
£’000s
premium
£’000s
Foreign
currency
reserve
£’000s
(22,482)
(6,259)
–
–
35,764
–
-
17,107
–
–
(125)
260
Total
equity
£’000s
17,715
(6,259)
27
18,248
(125)
260
692
–
–
1,141
–
–
At 31 December 2011
3,768
1,833
52,871
(28,606)
29,866
The foreign currency reserve refl ects 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 2012
( Loss) for the year
Shares issued
Share based payments
At 31 December 2012
Share
capital
£’000s
Share Accumulated
defi cit
£’000s
premium
£’000s
1,833
–
1,037
–
2,870
52,871
(8,002)
–
7,34 2
–
( 28,64 7)
–
71
Total
equity
£’000s
46,702
( 28,64 7)
8,37 9
71
60,21 3
(36,57 8)
26,505
Share Issues
On 6 February 2012, the Company placed 262,587,803 new ordinary shares at 1.5233p per share, raising £4 million and issued
157,552,682 three year warrants.
On 16 July 2012, the Company placed 774,341,464 new shares in a placement through Astin Capital Management in
consideration for redeemable subscription notes and the cancellation of 217 million exis ting war rants.
The subscription notes were redeemable in seven equal tranches for cash consideration at the end of seven separate trading
periods, commencing July 2012 and terminating in February 2013.
By the end of December 2012, fi ve of the seven tranches had been redeemed for net consideration of £2.8m with a
further £1.6m due from Astin upon redemption of the remaining tranches. The fi nal £1.6m due was received in January and
Fe bruary 2013.
The proceeds of the various placings and drawdowns will be used to fund the Group’s work programme and ongoing costs.
52
Annual Report 2012
1 9 Related party disclosures
The fi nancial statements include the fi nancial statements of Sound Oil Plc (the parent) and the subsidiaries listed in the
following table:
Name
Country of Incorporation
% equity interest
2012
2011
Sound Oil International Limited
Sound Oil Asia Limited
Consul Oil and Gas Limited
Apennine Energy SpA
Apennine Oil and Gas SpA
Mitra Energia Limited
Mitra Energia Citarum
Mitra Energia Bangkanai
British Virgin Islands
British Virgin Islands
UK
Italy
Italy
Mauritius
Mauritius
Mauritius
100
100
100
100
100
100
100
–
100
100
100
100
100
100
100
100
In 2012 the Group disposed of its investments in the joint ventures which operate the Bangkanai PSC (5% carried interest) and
the Citarum PSC (20% working interest).
During 2012, the Group changed the legal status of Apennine Energy SrL to Apennine Energy SpA.
Terms and conditions of transactions with related parties
There were no sales or purchases to or from related parties (2011: none). There have been no guarantees provided or
received for any related party receivables or payables. For the year ended 31 December 2012, the Group has not recorded
any impairment of receivables relating to amounts owed by related parties (2011: none). This assessment is undertaken each
fi nancial year through examining the fi nancial 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 currently two key management personnel other than directors of the Company (2011: three). Details of the
remuneration of the Directors are set out in the Report of Directors’ Remuneration.
The tables below sets out details of the emoluments of the Group’s key management personnel including directors:
Salaries and employee benefi ts
Share based payments
Total
2012
£’000s
1,373
71
1,444
2011
£’000s
1,062
260
1,322
Salaries and employee benefi ts increased in 2012 due to Gerry Orbell’s one-off termination payment of £221,000 and also a full
year’s salary cost for the Italian Managing Director who was appointed 2 January 2012.
53
Sound Oil plc
Notes to the Financial Statements (continued)
1 9 Related party disclosures (continued)
Directors’ interest in employee share options
Share options held by the Chairman of the Board of Directors have the following expiry dates and exercise prices:
Issue
Date
Exercise price
Number
Expiry
Date
Number
2012
2011
2012
2016
2016
4 9.5
1 6.5
–
3 00 ,000
Number
2011
1 00 ,000
–
Share options held by the executive member of the Board of Directors have the following expiry dates and exercise prices:
Issue
Date
2011
2012
2012
Expiry
Date
2016
2018
2016
Exercise price
Number
2 1.75
2 5.0
1 6.5
Key management’s interest in employee share options
Issue
Date
2010
2011
2012
2012
Expiry
Date
2013
2016
2017
2018
Exercise price
Number
1 5.0
2 7.5
1 6.5
2 5.0
Number
2012
–
–
3 30, 000
9 00 ,000
Number
2012
–
4 50 ,000
1 ,000,000
Number
2011
–
5 80, 000
–
–
Number
2011
3 30 ,000
–
–
Number
2010
1 03,5 00
–
–
–
54
Annual Report 2012
20 Financial Instruments risk management objectives and policies
A fi nancial instrument is defi ned as any contract that gives rise to a fi nancial asset of one equity and a fi nancial liability or equity
instrument of another entity. The Group’s fi nancial instruments comprise trade payables, receivables, cash and short term
deposits. The Group has no long term borrowings. The main purpose of the fi nancial instruments is to fi nance the Group’s
operations. The fair value of the fi nancial instruments is their carrying value, with the carrying value amounts included in the
Group Balance Sheet with further analysis in note 1 3 (other debtors), note 1 4 (cash and cash equivalents) and note 1 5 (trade
and other payables).
The main risks arising from the Group’s fi nancial 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 rates 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
Increase/
(decrease)
%
Effect on profi t
before tax
£’000s
2012
Sterling
US Dollar
Euro
Sterling
US Dollar
Euro
2011
Sterling
US Dollar
Euro
Sterling
US Dollar
Euro
10
10
10
(10)
(10)
(10)
10
10
10
(10)
(10)
(10)
1
–
–
(1)
–
–
2
–
–
(2)
–
–
55
Sound Oil plc
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, benefi t for other stakeholders and to maintain optimal capital structure and to reduce the cost
of capital.
Management considers as part of its capital, the fi nancial 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 2012 the Group’s strategy was to operate with minimal
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.
2012
£’000s
( 82 )
6,909
6,827
2,870
60,21 3
21,514
2011
£’000s
–
6,286
6,286
1,833
52,871
29,866
Borrowings
Cash and cash equivalents
Net cash excluding borrowings
Total capital excluding reserves:
Equity Share capital
Equity share premium
Shareholders equity
56
Annual Report 2012
2 1 Foreign Currency Risk
As a result of the bulk of the Group’s operations being denominated in Euros, the Group’s balance sheet can be impacted by
movements in these exchange rates against Sterling. 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.
As the Group also holds signifi cant US Dollar assets at the end of the year, 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 profi t
or loss before tax.
Increase/
(decrease) in
Euro rate
Effect on profi t or
loss before tax
£’000s
Increase/
(decrease) in
US Dollar rate
Effect on profi t or
loss before tax
£’000s
5%
(5%)
5%
(5%)
(456)
480
(692)
763
5%
(5%)
5%
(5%)
(136)
143
(30)
34
2012
2011
Credit risk
The Group currently has no sales or customers. The maximum credit exposure at the reporting date of each category of
fi nancial assets above is the carrying value as detailed in the relevant notes. The Group’s management considers that the
fi nancial assets are not past due or impaired for each of the reporting dates and are of good credit quality. The credit risk is
considered negligible because the counterparties are fi nancial institutions with high credit ratings.
Liquidity Risk
The Group and Company have signifi cant liquid assets and are not materially exposed to liquidity risk. All fi nancial liabilities are
expected to mature within one year.
57
Sound Oil plc
Notes to the Financial Statements (continued)
2 2 Financial Instruments
2012
Cash and short term deposits
GBP Sterling
Euro
US$
Indonesian Rupiah
Total
2011
Cash and short term deposits
GBP Sterling
Euro
US$
Total
Floating
Rate
£’000s
Interest-
free
£’000s
Weighted
average
Total interest rate
%
£’000s
1,45 1
2,76 2
42
3
4,25 8
1,151
3,303
602
5,056
29
–
2,622
–
2,651
–
713
517
1,230
1,48 0
2,76 2
2,66 4
3
6,90 9
1,151
4,016
1,119
6,286
0.45%
0.10%
0.00%
0.00%
0.53%
0.89%
0.15%
US$ cash balances have been converted at the exchange rate of US$1.5825/£1.00 (2011: US$1.5456/£1.00).
Euro cash balances have been converted at the exchange rate of €1.2347/£1.00 (2011: €1.1936/£1.00).
The fl oating rate cash and short-term deposits comprise cash held in interest bearing deposit accounts.
Cash on which no interest is received is and relates to balances available to meet immediate operating payments and was
therefore only held for short periods interest free. The value of US $ accounts which paid no interest was impacted by the
receipt of $4.1m from Salamander Energy on 31st December following completion of the sale of the Group’s interests in Mitra
Energia Bangkanai Limited.
58
Annual Report 2012
2 3 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
2012
£’000s
71
2012
£’000s
71
2011
£’000s
260
2011
£’000s
260
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.
Granted Period (years)
Price (pence)
2012
Total
2011
Total
1,3 0 0,000
3 30,0 00
1 00 ,000
1,3 50 ,000
3 ,08 0,000
9 5 0,000
1 00 ,000
1,326,000
1 00,000
3 3 0,000
2,8 06, 000
4
5
5
6
5
5
5
5
5
1 6.5
1 6.5
2 5.0
2 5.0
5 6.0
4 9.5
2 7.5
2 2.0
2 1.75
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 refl ects 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 expired
Share options exercised
Share options outstanding at the end of the year
2012
3,7 64 ,000
3,0 80, 000
(6 74,6 66 )
–
6,1 69 ,33 4
2011
1,4 07 ,000
2,8 06 ,000
(2 10 ,000)
(2 39 ,000)
3,7 64 ,000
If all equity share options were exercisable immediately, new ordinary shares equal to approximately 1.7% of the Group’s
existing ordinary share capital base would be created.
59
Sound Oil plc
Notes to the Financial Statements (continued)
2 4 Commitment and guarantees
At 31 December 2012, the Group had no commitments other than for decommissioning (note 17) and no capital commitments
(2011: £1,889,000).
In December 2012, the Italian Ministry for Economic Develop ment requested that the Group supply it with a € 500,000 bank
guarantee to cover any potential decommissioning liabilities relating to the Rapagnano licence. The guarantee was requested
pending approval of a share capitalisation increase in Apennine Energy SpA ( €6m) from the Group.
The re-capitalisation was approved and completed. A request was made to the Italian Ministry for Economic Development to
return the bank guarantee in May 2013. Sound Oil expects the bank guarantee to be returned shortly.
2 5 Post balance sheet events
Share consolidation
On 12 December 2012, the Group announced its intention to execute a ten for one share consolidation subject to shareholder
approval with the main aim being the reduction of share volatility inherent in penny stocks.
Shareholder approval was obtained at a General Meeting on 4 January 2013. Consequently, 287,012,882 new consolidated
ordinary shares were admitted to trading on the AIM market.
Open Offer
The redemption of the private placement was completed in February 2013 at which time the Group announced an Open Offer
to existing shareholders.
Up to 12,386,968 new ordinary shares were offered at a price of 8.073p per share. The offer was not underwritten.
A company Circular was issued on 6 March 2013 defi ning the terms of the announcement. The Company announced the
results on 22 March 2013 which confi rmed 605,662 Open Offer Share acceptances had been received. Following the issue of
the these shares, the Company has 287,618,544 Ordinary Shares in issue.
Subsidiary Sale
On 16 February 2013, the Group executed the sale of its 100% subsidiary, Mitra Energia Ltd, to Ilham Habibie, a former
non-Executive Director of the Group, for $1.
Mitra Energia Limited is the holding company of Mitra Energia Bangkanai Ltd which was sold to Salamander Energy in 2012.
Mitra Energia Limited had no assets on disposal.
60
Annual Report 2012
Sound Oil plc
Perivan Financial Print 228511
Annual Report 2012
Dealing Information
FT Share Price Index – Telephone 0906 8433711
SEAQ short code – SOU
Financial Calendar
Announcements
Interim – September 201 3
Preliminary – May 201 4
Addresses
Registered Offi ce
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
Peel Hunt, Moor House, 120 London Wall, London, EC2Y 5ET
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
www.soundoil.co.uk
Sound Oil plc
Riverbridge House, Guildford Road, Leatherhead, Surrey KT22 9AD