Wag! Group Co Annual Report 2000

← All annual reports

FY2000 Annual Report · Wag! Group Co

Loading PDF…

CONTENTS

CHAIRMAN’S STATEMENT

OPERATIONS REVIEW

REPORT OF THE DIRECTORS

STATEMENT OF DIRECTORS’ RESPONSIBILITIES

REPORT OF THE AUDITORS

STATEMENT OF ACCOUNTING POLICIES

CONSOLIDATED PROFIT AND LOSS ACCOUNT

CONSOLIDATED AND COMPANY BALANCE SHEET

CONSOLIDATED CASH FLOW STATEMENT

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

NOTICE OF MEETING

FORM OF PROXY

PAGE

DIRECTOR’S AND OTHER INFORMATION

Inside Back Cover

L
E
R
T
E
P

0
0
0
2

E
R

N
A

CHAIRMAN’S STATEMENT

The desert is cold at 5.30am, cold but very beautiful. Exiting Iraq involves a ten-
hour drive across the Western Desert from Baghdad to Amman.The sun rises as
you leave a modern but run down city of 4 million people and drive into a scene
reminiscent of biblical times; poor people leaving ramshackle homes to tend herds
of sheep.You drive along a modern six-lane highway.The highway, like much of the
infrastructure in Iraq, was built with the petro dollars, which enriched the country
in the 1970s. Subsequently, war followed by UN sanctions, impoverished the
people.The population of Iraq suffer and die and their national infrastructure
crumbles while much of the worlds oil lies below ground. In the truck, as the
hours go by and you watch the harsh arid desert stretch to infinity, you cannot but
question the failure of diplomacy which results in poverty and deprivation for 20
million people while the rest of the world suffers from the effects of scarce oil.

When relations between Iraq and the wider international community are
normalised, as they must be, Petrel will be in Iraq ready to cooperate and
participate in the rejuvenation and development of a major world energy source.
We had to demonstrate to the Iraqi authorities that we were serious in our
intentions.We did this by chartering a small private plane, filling it with medicines
and flying from Dublin to Baghdad.We were the first private plane in ten years to
land in Baghdad. It took tenacity to succeed.We were frustrated at every stop but
we persisted.

Petrel finished the period under review as a well traded AIM-listed company
focused on Iraq. During the year we moved to AIM from the OFEX trading facility,
added over 500 new shareholders, disposed of non-core assets and brought our
Iraqi projects closer to fruition.

In Iraq, we are pursuing three distinct opportunities.We are negotiating the
acquisition of an exploration block covering 10,000 square kms in the Western
Desert between Baghdad and Amman in Jordan. Petrel has submitted a tender for
an oil field development and refurbishment project to bring into production two
existing oil fields in the South of Iraq.We have established a trading house to work
within the “Oil for Food” programme being operated by the UN.

Significant and substantial activity has taken place on all three projects but in
particular on the oil exploration project.

Most of Iraq is unexplored, yet despite this the country holds in excess of 115
billion barrels of oil reserves.These reserves are located in the fertile valley
between the Tigris and Euphrates rivers but substantial exploration opportunities
exist throughout Iraq.The authorities put nine exploration blocks up for offer in
1998. Since that time Petrel has worked to develop and present a project to
explore one of the blocks. Available seismic data was examined and extensive
discussions undertaken with experts of the oil ministry in Baghdad. Once an
acceptable technical and geological proposal was agreed commercial terms were

L
E
R
T
E
P

0
0
0
2

E
R

N
A

CHAIRMAN’S STATEMENT (Continued)

negotiated.The proposal involves significant seismic reinterpretation, new seismic
and drilling commitments. I believe that our proposal is at a final stage and awaits
approval and ratification by the various authorities. Until we finalise any
agreements I can say little about the exploration acreage. Suffice it to say that the
structures already identified on the block are large.

Our second project is in oil development. In August 2000, Petrel resubmitted a
detailed feasibility study to develop a 200,000-barrel a day oil field on the site of
two former oil producers. Since then our consultants have been in negotiation
with the authorities on the detail and the verification of the tender. Part of the
tender involves a joint venture with a major international engineering firm.
The final thrust of our activities is as a trading house.Twenty years of deprivation
means that Iraq has many needs. Iraqi imports are regulated by the UN under the
"Oil for Food" programme.The way in which bureaucrats have interpreted the UN
rules means that many basic items are in short supply. Healthcare is one area
where the medicines and equipment being used are years out of date.The oil
industry is an area of substantial opportunity for supplies and spare parts. Petrel
has created a team to exploit trading opportunities.

IRAQ, OIL AND SANCTIONS
Iraq is certain to be a key hydrocarbon region in the coming decades. Largely
unexplored, the country has 115 billion barrels of oil in reserve. Daily production,
currently 3 million barrels, can grow to 10 million barrels at a production cost of
less than $1 a barrel.The world needs Iraqi oil. Current world oil output is
expected to decline over time while demand will grow. Stresses and strains are
already appearing with brown outs in California and shortages in Brazil. Capacity
can be increased, but often at great cost in such places as offshore Angola and the
deepwater of the Atlantic. Alternatives such as non-fossil fuels are very expensive
while the nuclear option is currently not fashionable.What of demand? As the
world grows in wealth the demand for energy grows even faster.Who will tell
billions of people around the world that they cannot have cars, refrigerators,TVs
and the internet? Middle East hydrocarbons principally Iraqi, are the pivotal source
of supply to meet new needs.

But what is happening? Instead of increasing; Iraqi output is declining.The reason is
simple. UN sanctions have made it impossible to import parts and other essential
equipment to maintain output. Restrictions on the investment of capital and
technology have effectively halted new field development.

I have concentrated above on the importance of Iraq to the world economy and
on the deleterious economic effects of UN sanctions but I must also comment on
the humanitarian aspects of the current UN policy. UN sanctions are causing
genuine suffering to the ordinary people. I am sure that the members of the UN
council do not intend this but it is happening.

L
E
R
T
E
P

0
0
0
2

E
R

N
A

CHAIRMAN’S STATEMENT (Continued)

Bureaucrats in the UN in New York are interpreting the rules in such ways as to
delay or prevent the importation of products such as medicines and plastic piping
used to provide clean water. I welcome the current dialogue on the role of
sanctions and hope that solutions acceptable to all parties are close.

FINANCE
A highlight of the year was our admission to the AIM exchange in London in
August 2000.The impact was immediate with over 500 new shareholders acquiring
shares. Petrel is a comparatively liquid share for a company of its size, regularly
trading in excess of 100,000 shares a day through four market makers.

During the period under review we raised almost £1 million in cash by disposing
of our Ugandan assets for £500,000 and by having a small private placing prior to
listing on AIM.The funds are being used to advance our Iraqi projects.

FUTURE
I believe that we are well placed to participate in the development of one of the
world’s greatest sources of oil. It is clear that a workable solution must be found
to enable Iraq to develop its oil resources. Petrel is one of the few Western
companies active in the country.We expect Petrel to be an active participant in
the expansion of the industry.

John J.Teeling
Chairman

June 25, 2001

L
E
R
T
E
P

0
0
0
2

E
R

N
A

OPERATIONS REVIEW

Iraq offers oil independents the opportunity of a lifetime.

We aim to be part of the development of Iraq’s hydrocarbon reserves, in accordance with
applicable laws, in the interests of our shareholders, Iraq and world energy consumers.

Petrel is in negotiations with the Iraqi Ministry of Oil on three main business
opportunities:

An exploration and development contract in the western desert;

Oil field developments close to existing infrastructure in the south of Iraq;

Oil export contracts and energy industry procurement contracts.

In the course of our work we have been shown commercially sensitive information by the
Ministry of Oil and our partners.We are bound by confidentiality requirements not to
reveal information that is not already in the public domain.These restrictions are identical
to those applying to all applicants.

Accordingly this Operations Review cannot give details of the progress we have made on
working up prospects in the western desert or specific proposals to increase production at
existing oil fields.Any breach would be detrimental to the interests of Petrel shareholders.

We can, however, speak generally of the oil opportunity in Iraq and the general geological
and other characteristics of the western desert.

ENERGY INDUSTRY BACKGROUND
The world oil industry is mature.There are few opportunities for spectacular returns.
Increasingly explorers target smallish or complex oil structures in well-understood areas
like the Gulf of Mexico or the North Sea.There are virgin opportunities in gas and heavy
oil but these are capital intensive and long term. Infrastructural economics drive equity
returns down.

Only Iraq offers vast upside with low geological risk and a reasonable timeframe: on almost
any commercial measure Iraq ranks one or two worldwide. Finding and production costs
each average around a dollar a barrel, the best available.The historic hit rate is the highest
worldwide, at over 70% given current oil prices.

And Iraq is largely unexplored. Only the Tigris and Euphrates river valleys have been
reasonably investigated though there remain many untested plays. About 40 major fields
are shut in.

Oil field development agreements on shut-in fields close to infrastructure in the south of
Iraq offer the best opportunity in the energy world today.The reservoirs are near ideal.
Much of the crude is light, for which there’s strong demand.You can negotiate a good
return, with negligible geological risk.

Petrel believes that it is possible to conduct early exploration work under the UN rules
and national laws currently applicable.We expect to see a steady unravelling of the
embargo both for humanitarian reasons and because western economies require the early
development of Iraqi oil.The embargo is now counter-productive.

L
E
R
T
E
P

0
0
0
2

E
R

N
A

OPERATIONS REVIEW (Continued)

Exploration
Of over 530 identified oil plays, fewer than half have been investigated. Large areas of the
country remain unexplored.We think there are excellent exploration opportunities in the
north west, though these are not open to international investors.

Wide stretches of the western desert are open. Nine blocks of roughly one million
hectares each are on offer (see map).

OIL & GAS FIELDS OF IRAQ

L
E
R
T
E
P

0
0
0
2

E
R

N
A

OPERATIONS REVIEW (Continued)

Index Table of Oil & Gas Fields of Iraq
(See Location Map)

Chia Surkh

1.
5. Qaiyarah
Sadid
9.
Adaiyah
13.
Ratawi
17.
21.
Gusair
25. Makhul
29.
Tuba
33. Demir Dagh
37. Dujaila
41.
45. West Qurna
49. Halfayah
Raffan
53.
57.
Rafidain
61. Majnoon
65.
69.
73.
77.
81. Diwan

Judaida
Ahdab
Amara
Jabal Kand

Rumaila N & S

Naft Khaneh
2.
Khanuqah
6.
Qalian
10.
Ain Zalah
14.
Bai Hassan
18.
Atshan
22.
Ibrahim
26.
Samawa
30.
Qara Chauq
34.
Kifl
38.
42.
Siba
46. West Luhais
50.
54.
58.
62.
66.
70.
74.
78.
82.

Nasiriya
Khabbaz
Subba
Noor
Taq Taq
Badra
Huwaiza
Nahrawan
Akkas

3.
7.

Kirkuk
Chemchemal

Khashm Al Ahmar

4.
8. Najmah

11. Qasab
Zubair
15.
Jambur
19.
Alan
23.
Falluja
27.
31.
Gilabat
35. Hamrin
39.
43.
47.
51.
55.
59.
63. Dhufriya
67. Nau Doman
71. Qamar
Kumait
75.
79. Merjan
83.

Rachi
Buzurgan
Sufaiyah
Balad
Jaria Pika
East Baghdad

Jabal Fauqi

Jawan
Bin ‘Umar (Nahr Umr)
Butmah
Sarjoon (Sasan)
Injana
Pulkhana
Luhais
Anfal (Kor Mor)
Abu Ghirab

12.
16.
20.
24.
28.
32.
36.
40.
44.
48. Gharraf
52.
56.
60.
64.
68. Mansuriyah
Tel Ghazal
72.
Rifaee
76.
80. West Kifl
84.

Tikrit
Jraishan
Abu Khema
Saddam

Safwan (S. Zubair)

Generally Petrel prefers the easterly blocks, as closest to existing discoveries and pipelines.
There’s also evidence that plays become more gas prone as you approach Jordan.There is
a discovery and additional identified plays on block 8 where the Indian state oil company
ONGC has just signed an exploration and production agreement.The contract appears to
be a hybrid services contract allowing a specified return.While it is not a conventional
Production Sharing Agreement, most oil companies covet such concessions.

Many expect more state-owned oil companies from friendly Asian states to sign further
such agreements soon. It’s likely that at least one Russian company will succeed.We hope
that Petrel will be awarded an exploration and development licence and believe that we
are as advanced in our negotiations as any western company.The French majors are in a
strong position though their primary interest, as with the Chinese and Russians, is in oil
field development.

Economics
For reasons of confidentiality we cannot provide economic specifics.The terms are fair by
world standards.The basic model is a contractor’s arrangement whereby the international
oil company provides skills and capital, recovering its money with an Internal Rate of
Return. It is similar to the Iranian model, though much improved and more pro-business.
Companies are unlikely to negotiate a deal giving title to reserves; this will cause problems
for majors who want reserves on their balance sheets. More entrepreneurial groups are
able to explain economic value to financial markets. Petrel is interested in creating
shareholder wealth rather than accounting treatment. Potential returns are attractive given
the reasonable probability of finding large structures. Concessionaires may also receive a
substantial bonus for outstanding performance and a proportion of the oil discovered as
guaranteed uplifts for an extended period following payout and transfer of operatorship.

L
E
R
T
E
P

0
0
0
2

E
R

N
A

OPERATIONS REVIEW (Continued)

Geology
Petrel has mapped possible structures on the block we have applied for including one very
large structure (with potential for 500 million barrels recoverable) for which there is
surface expression.

We believe that there are excellent Paleozoic and Mesozoic plays in the western desert.
Towards the south seismic suggests that the Paleozoic is deep and probably thin by Middle
Eastern standards, but this does not seem problematic elsewhere.The prospectivity has
steadily improved as Petrel accesses and studies new information.

Logistics
The terrain is straightforward for development, with extensive infrastructure such as roads
and pipelines either already in place or planned.The area under study is solid limestone,
without shifting sands.There are 7,000 to 8,000 metres of sediments from ancient times
but in recent times sediment has moved through the area rather than been deposited.
Flora and fauna are limited to brush and small creatures.There is little permanent human
habitation.The entire block, with the possible exception of some wadis (dry river beds) in
the south west is accessible by four wheel drive vehicles.This is not a Sahara or jungle type
challenge for explorers or developers.

Unlike many emerging countries there is no appreciable security problem. Local people are
mostly bedouins, with a tradition of hospitality.We are not budgeting any security expense
other than that standard in traditional onshore areas.

Working with the Ministry of Oil is straightforward. Almost everyone you negotiate with is
western trained, often from top schools like Imperial College, London. Everyone is fluent in
English, which is their first technical language, and often French.The Iraqis are highly
sophisticated, gracious hosts, and technically driven. Senior managers and negotiators are
engineers by training and take a personal interest in geological modelling.

We have negotiated contracts all over the world but have not found negotiators as
sophisticated as those in Iraq. In many countries governments have unrealistic expectations
of the equity premium required by international financial markets. Not so in Baghdad.The
Ministry of Oil is pro-business, with extraordinary commitment given the difficulties under
which they now operate.

Nonetheless, every government has multiple decision-making layers, so progress is often
slower than in the private sector.We are pushing ahead with our work programme in the
hope of finalising a contract shortly.

Iraqi Western Desert Technical Overview
The Western Desert covers almost one third of national territory. It stretches from south
of Khlaisia block in the northwest to the Kuwaiti and Saudi borders in the south.

Geologically, the Western Desert lies in the under-explored Paleozoic Basin of North
Arabia, along with the other parts of the desert in Jordan, Saudi Arabia and Syria.The
eastern part of Western Desert lies in the flanks of the Arabian Platform of the
Mesopotamian Basin, which also covers Central and Southern Iraq.

L
E
R
T
E
P

0
0
0
2

E
R

N
A

OPERATIONS REVIEW (Continued)

Proven Paleozoic petroleum systems and plays with rich source rocks are found in the
Paleozoic Basin of North Arabia, which include the producing Risha gas field in Jordan, the
recent Akkas oil, gas and condensate discovery in Western Iraq, and the Kahf gas and
condensate discovery in Northern Saudi Arabia. In addition there are other wells
petroleum shows in the basin.The Western Desert of Iraq also includes proven Mesozoic
systems and plays in number of deep wells drilled in Western Iraq. Preliminary geological
reserve potential of the Paleozoic part of the Western Desert in Iraq in an area of 2,000
square km between Akkas and Khlaisia wells is around 16 billion barrels oil.

The Western Desert is surrounded by existing strategic pipeline along the Euphrates River
in western and southern Iraq. Crude oil and liquified gas could be exported from southern
ports, and even (international relations permitting) currently shut-in outlets in Saudi Arabia
and Kuwait.With the planning of the new Iraq to Jordan and Iraq to Syria pipelines,
hydrocarbons could reach markets throughout the Middle East, and ultimately further
afield.

The Western Desert is accessible by world class highway (comparable to Autobahn or
Interstate) from the Jordanian border to Baghdad, and via several access roads across the
desert.There are many roads from western and southern Iraqi cities to Kuwait and Saudi
Arabia crossing the desert.

The entire area is accessible by standard four wheel drive and off-road equipment.

L
E
R
T
E
P

0
0
0
2

E
R

N
A

REPORT OF THE DIRECTORS

The directors present their annual report and the audited financial statements for the year ended December 31,
2000.

REVIEW OF ACTIVITIES AND FUTURE DEVELOPMENTS
The company is engaged in oil and gas exploration.

Further details of the group’s activities and future developments are given in the Chairman’s Statement.

RESULTS FOR THE YEAR
The consolidated profit for the year after taxation was IR£38,367 (1999 : loss IR£105,101).

The directors do not recommend that a dividend be declared for the year ended December 31, 2000.

DIRECTORS
The current directors are set out on inside back cover.

On 3 July 2000,T. Buckingham resigned as a director and G. Delbes was appointed a director.

DIRECTORS’ AND SECRETARY’S INTERESTS IN SHARES
The directors and secretary at December 31, 2000 held the following beneficial interest in the shares of the
company:

J.Teeling
D. Horgan
H.Wilson
G. Delbes
J. Finn (Secretary)

December 31, 2000
ordinary shares
of IR1p

December 31, 2000
options –
ordinary shares
of IR1p

January 1, 2000
ordinary shares
of IR1p

2,100,000
1,100,000
—
—
100,000

2,200,000
2,200,000
100,000
100,000
770,000

2,100,000
1,100,000
—
—
100,000

January 1, 2000
options –
ordinary shares
of IR1p

2,050,000
2,050,000
—
—
620,000

SUBSTANTIAL SHAREHOLDING
The share register records that the following shareholders held 3% or more of the issued share capital as at 31 May
2001.

Courtfield Industries Limited
Direct Nominees Limited
Scoti Company Limited C06150
Dave Naylor
BNY Gil Client Account (Nominees) Limited
RBSTB Nominees Limited

Number of Ordinary Shares

3,250,000
2,800,000
2,340,000
1,300,000
1,960,000
1,540,000

8.34
7.18
6.00
3.33
5.03
3.95

REPORT OF THE DIRECTORS (Continued)

HEALTH AND SAFETY
The well-being of employees is safeguarded through strict adherence to health and safety standards and compliance
with the requirements of the Safety, Health and Welfare at Work Act, 1989.

EURO
The directors are considering the implications of the introduction of the euro.Whilst it is not possible to quantify
the effect, at present the directors do not consider the cost will be significant to the company.

GOING CONCERN
The directors, having made the necessary enquiries, have a reasonable expectation that the Group has adequate
resources to continue in operational existence for the foreseeable future.The directors therefore propose the
continued preparation of the financial statements on a going concern basis.

SUBSIDIARY
Details of the company’s subsidiary are set out in Note 7 to the financial statements.

AUDITORS
Deloitte & Touche, Chartered Accountants, will continue in office as auditors in accordance with Section 160(2) of
the Companies Act 1963.

Signed on behalf of the Board:

John Teeling

David Horgan

June 25, 2001

}

Directors

STATEMENT OF DIRECTORS’ RESPONSIBILITIES

Irish company law requires the directors to prepare financial statements for each financial year which give a true and
fair view of the state of affairs of the company and of the profit or loss of the company for that period. In preparing
those financial statements, the directors are required to

•

select suitable accounting policies and then apply them consistently;

make judgements and estimates that are reasonable and prudent;

prepare the financial statements on the going concern basis unless it is inappropriate to presume that the
company will continue in business.

The directors are responsible for keeping proper books of account which disclose with reasonable accuracy at any
time the financial position of the company and to enable them to ensure that the financial statements are prepared in
accordance with accounting standards generally accepted in Ireland and comply with Irish statute comprising the
Companies Acts, 1963 to 1999 and the European Communities (Companies : Group Accounts) Regulations 1992.
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.

REPORT OF THE AUDITORS TO THE MEMBERS OF PETREL
RESOURCES PLC

We have audited the financial statements on pages 15 to 25 which have been prepared under the accounting policies
set out on page 15.

Respective responsibilities of directors and auditors
As described on page 12, the company’s directors are responsible for the preparation of financial statements which
are required to be prepared in accordance with applicable Irish law and accounting standards. Our responsibilities, as
independent auditors, are established in Ireland by statute, the Auditing Practices Board and by our profession’s
ethical guidance.

We report to you our opinion as to whether the financial statements give a true and fair view and are properly
prepared in accordance with Irish statute comprising the Companies Acts, 1963 to 1999 and the European
Communities (Companies: Group Accounts) Regulations, 1992.We also report to you whether in our opinion:
Proper books of account have been kept by the company; whether, at the balance sheet date, there exists a financial
situation requiring the convening of an extraordinary general meeting of the company; and whether the information
given in the directors’ report is consistent with the financial statements. In addition, we state whether we have
obtained all the information and explanations necessary for the purposes of our audit and whether the company’s
balance sheet is in agreement with the books of account.

We also report to you if, in our opinion, any information specified by law regarding directors’ remuneration and
directors’ transactions is not given and, where practicable, include such information in our report.

Basis of audit opinion
We conducted our audit in accordance with auditing standards issued by the Auditing Practices Board and generally
accepted in Ireland. An audit includes examination, on a test basis, of evidence relevant to the amounts and
disclosures in the financial statements. It also includes an assessment of the significant estimates and judgements
made by the directors in the preparation of the financial statements and of whether the accounting policies are
appropriate to the circumstances of the company and the group, consistently applied and adequately disclosed.

We planned and performed our audit so as to obtain all the information and explanations which we considered
necessary in order to provide us with sufficient evidence to give reasonable assurance that the financial statements are
free from material misstatement, whether caused by fraud or other irregularity or error. In forming our opinion we also
evaluated the overall adequacy of the presentation of information in the financial statements.

Intangible fixed assets
In forming our opinion we have considered the adequacy of the disclosures made in the financial statements
concerning the valuation of intangible fixed assets.The realisation of the intangible fixed assets of IR£396,426 included
in the consolidated and company balance sheets is dependent on the successful development of economic reserves.
We draw attention to further details given in Note 6. Our opinion is not qualified in this respect.

Opinion
In our opinion the financial statements give a true and fair view of the state of affairs of the company and the group
as at December 31, 2000 and of the profit of the group for the year then ended and have been properly prepared in
accordance with the Companies Acts, 1963 to 1999 and the European Communities (Companies: Group Accounts)
Regulations, 1992.

REPORT OF THE AUDITORS TO THE MEMBERS OF PETREL
RESOURCES PLC (Continued)

We have obtained all the information and explanations we consider necessary for the purposes of our audit. In our
opinion proper books of account have been kept by the company.The company’s balance sheet is in agreement with
the books of account.
In our opinion the information given in the directors’ report on pages 10 and 11 is consistent with the financial
statements.

The net assets of the company, as stated in the balance sheet on page 17 are more than half of the amount of its
called-up share capital and, in our opinion, on that basis there did not exist at December 31, 2000 a financial situation
which, under Section 40(1) of the Companies (Amendment) Act, 1983, would require the convening of an
extraordinary general meeting of the company.

Deloitte & Touche
Chartered Accountants and Registered Auditors
Deloitte & Touche
Earlsfort Terrace
Dublin 2

June 25, 2001

STATEMENT OF ACCOUNTING POLICIES

The significant accounting policies adopted by the company are as follows:

BASIS OF PREPARATION
The financial statements are prepared in accordance with the historical cost convention and the relevant Statements
of Recognised Practice for the oil and gas industry and other applicable accounting standards generally accepted in
Ireland and Irish statute comprising the Companies Acts, 1963 to 1999

CONSOLIDATION POLICY
The consolidated financial statements include the financial statements of the parent company and its subsidiary made
up to the end of the financial year.

DEFERRED DEVELOPMENT EXPENDITURE
Mineral exploration costs are capitalised until the results of the projects, which are based in geographic areas, are
known. Mineral exploration costs include an allocation of administration and salary costs as determined by
management. If the project is successful, then the related exploration costs are written off over the life of the
estimated ore reserve on a unit of production basis.Where a project is terminated, the related exploration costs are
written off immediately.

TANGIBLE FIXED ASSETS
Depreciation is provided to write-off the cost less the estimated residual value of tangible assets by equal instalments
over their useful economic lives as follows:

Office Equipment

5 years

FOREIGN CURRENCY
Monetary assets and liabilities denominated in foreign currencies are translated into Irish pounds at the rate of
exchange prevailing at the balance sheet date.Transactions in foreign currencies are recorded at the rate of exchange
prevailing at the date of the transactions.

CONSOLIDATED PROFIT AND LOSS ACCOUNT
FOR THE YEAR ENDED DECEMBER 31, 2000

ADMINISTRATIVE EXPENSES
– Cost of admission to A.I.M.

– Other

EXCEPTIONAL ITEM
Gain on disposal of asset

PROFIT/(LOSS) ON ORDINARY ACTIVITIES
BEFORE INTEREST

Interest income

PROFIT/(LOSS) FOR THE YEAR BEFORE
TAXATION

Taxation

PROFIT/(LOSS) FOR THE YEAR AFTER
TAXATION

Profit and loss account : opening – (deficit)

Profit and loss account : closing – (deficit)

Profit /(loss) per share – basic

Profit/(loss) per share – fully diluted

Notes

2000
IR£

(107,186)

1999
IR£

—

(155,718)
––––––––
(262,904)

(107,290)
–––––––
(107,290)

294,177
–––––––

—
–––––––

31,273

(107,290)

8,868
–––––––

2,707
–––––––

40,141
(1,774)
–––––––

(104,583)
(518)
–––––––

38,367

(105,101)

(1,094,903)
–––––––––

(989,802)
–––––––

(1,056,536)
–––––––––
–––––––––

(1,094,903)
––––––––
––––––––

0.10p

(0.30p)

0.09p
–––––––
–––––––

(0.27p)
–––––––
–––––––

2
3

All gains and losses are dealt with through the profit and loss account. Results derive from continuing operations.

The financial statements were approved by the Board of Directors on 25 June 2001 and signed on its behalf by:

John Teeling

David Horgan

}

Directors

BALANCE SHEETS AS AT DECEMBER 31, 2000

FIXED ASSETS

Tangible assets
Intangible assets
Financial assets

CURRENT ASSETS

Debtors
Cash at bank

CREDITORS: (Amounts falling
due within one year)

NET CURRENT ASSETS

TOTAL ASSETS LESS
CURRENT LIABILITIES

CAPITAL AND RESERVES

Called-up share capital
Share premium
Profit and loss account - (deficit)

EQUITY SHAREHOLDERS’
FUNDS

Notes

Group
2000
IR£

Company
2000
IR£

Group
1999
IR£

Company
1999
IR£

5
6
7

10
11

3,254
396,426
—
–––––––
399,680
–––––––

3,254
396,426
2
–––––––
399,682
–––––––

3,050
235,406
—
–––––––
238,456
–––––––

3,050
235,406
2
–––––––
238,458
–––––––

13,038
518,744
–––––––
531,782

5,742
73,676
–––––––
79,418

(212,212)
–––––––
319,570
–––––––

(212,214)
–––––––
319,568
–––––––

(61,621)
–––––––
17,797
–––––––

(61,623)
–––––––
17,795
–––––––

719,250
–––––––
–––––––

256,253
–––––––
–––––––

389,844

389,844
1,385,942 1,385,942
(1,056,536) (1,056,536)
––––––––– –––––––––

354,104
997,052
(1,094,903)
––––––––

719,250
–––––––
–––––––

256,253
–––––––
–––––––

The financial statements were approved by the Board of Directors on 25 June 2001 and signed on its behalf by:

John Teeling

David Horgan

}

Directors

CONSOLIDATED CASH FLOW STATEMENT
AT DECEMBER 31, 2000

NET CASH OUTFLOW FROM
OPERATING ACTIVITIES

RETURNS ON INVESTMENT AND
SERVICING OF FINANCE

Interest received

NET CASH INFLOW FROM RETURNS
ON INVESTMENTS AND SERVICING
OF FINANCE

TAXATION

Corporation tax paid

CAPITAL EXPENDITURE AND
FINANCIAL INVESTMENT

Disposal of intangible fixed asset
Payments to acquire intangible fixed assets
Payment to acquire tangible fixed asset

NET CASH INFLOW/(OUTFLOW)
BEFORE FINANCING

FINANCING

Issue of ordinary share capital

NET CASH INFLOW FROM FINANCING

INCREASE/(DECREASE) IN CASH

14(b)

Notes

14(a)

2000
IR£

1999
IR£

(130,416)
––––––––

(96,677)
–––––––

8,868
–––––––

2,707
–––––––

8,868
–––––––

2,707
–––––––

(807)
–––––––

(9,293)
–––––––

537,736
(393,869)
(1,074)
––––––––
142,793
––––––––

—
(7,167)
(3,812)
–––––––
(10,979)
–––––––

20,438
––––––––

(114,242)
–––––––

424,630
––––––––
424,630
––––––––
445,068
––––––––
––––––––

—
–––––––
—
–––––––
(114,242)
–––––––
–––––––

NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2000

EXCEPTIONAL ITEM
a) The exceptional charge represents the costs of the company being listed on the Alternative Investment

Market.

b) The exceptional item represents the sale of the company’s interest in a Ugandan oilfield.

Sales proceeds
Cost of interest
Related selling costs

PROFIT/(LOSS) BEFORE TAXATION

The profit/(loss) before taxation is stated after
charging the following items:

Depreciation
Directors’ remuneration
– fees
– salary
Auditors’ remuneration
Staff costs – salaries

The company had two employees during the year.

IR£

537,736
(232,849)
(10,710)
–––––––
294,177
–––––––
–––––––

2000
IR£

1999
IR£

870

762

18,500
11,845
3,000
14,000
–––––––
–––––––

10,000
-
3,000
27,035
–––––––
–––––––

TAXATION
The charge to taxation in the current year arises on interest income earned at the rate of 25%.The company
has availed of taxation losses forward.

NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2000 (Continued)

PROFIT/(LOSS) PER SHARE
Basic earnings per share is computed by dividing the profit or loss after taxation for the year available to
ordinary shareholders by the sum of the weighted average number of ordinary shares in issue and ranking for
dividend during the year. Diluted earnings per share is computed by dividing the profit or loss after taxation
for the year by the weighted average number of ordinary shares in issue, adjusted for the effect of all dilutive
potential ordinary shares that were outstanding during the year.

The following table sets forth the computation for basic and diluted earnings per share (EPS):

Numerator
Numerator for basic EPS retained profit/(loss)

Denominator
Denominator for basic EPS
Effect of diluted securities – options

Denominator for diluted EPS

Basic EPS
Diluted EPS

TANGIBLE FIXED ASSETS

Group and Company

Cost:
At January 1, 2000
Additions

At December 31, 2000

Accumulated Depreciation
At January 1, 2000
Charge for year

At December 31, 2000

Net book value:
At December 31, 2000

At December 31, 1999

2000
IR£

1999
IR£

38,367
–––––––––
–––––––––

(105,101)
–––––––––
–––––––––

38,984,388
4,593,033
––––––––––
43,577,421
––––––––––
––––––––––
0.10p
0.09p
–––––––––
–––––––––

35,410,388
3,593,824
–––––––––
39,004,212
–––––––––
–––––––––
(0.30p)
(0.27p)
–––––––––
–––––––––

Office Equipment
IR£

3,812
1,074
––––––
4,886
––––––

762
870
––––––
1,632
––––––

3,254
––––––
––––––
3,050
––––––
––––––

NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2000 (Continued)

INTANGIBLE ASSETS

Group and Company
Deferred development expenditure:

Cost:
At January 1, 2000
Additions
Disposals

At December 31, 2000

Net book value:
At December 31, 2000

At December 31, 1999

2000
IR£

235,406
393,869
(232,849)
––––––––
396,426
––––––––

396,426
––––––––
––––––––

235,406
––––––––
––––––––

Intangible assets
Deferred development expenditure at December 31, 2000 represents exploration and related expenditure in
respect of projects in Iraq (IR£384,346) and Ireland (IR£12,080).

The realisation of this intangible asset is dependent on the development of economic reserves, including the
ability to raise finance to develop the project. Should this prove unsuccessful the value included in the balance
sheet would be written off.

The directors are aware that by its nature there is an inherent uncertainty in such development expenditure
as to the value of the asset. Having reviewed the deferred development expenditure at December 31, 2000,
the directors are satisfied that the value of the intangible asset is not less than net book value.

INVESTMENT IN SUBSIDIARY COMPANY

Parent company
Shares at cost - unlisted:
Opening balance

Closing balance

2000
IR£

1999
IR£

2
–––––––
2
–––––––
–––––––

The group consisted of the parent company and the following wholly owned subsidiary as at December 31,
2000:

Name

Registered
Office

Group
Share

Nature of
Business

Petrel Industries Limited
(formerly Ireland Iraqi
Trading Company)

162 Clontarf Road,
Dublin 3.

100%

Dormant

NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2000 (Continued)

DEBTORS

VAT refund due

CREDITORS: (Amounts falling due within one year)

Accruals
Amount due to group company
Corporation tax

10.

SHARE CAPITAL

Authorised:

200,000,000 ordinary shares of IR1p each
(1999: 100,000,000 ordinary shares of IR1p each)

Allotted, Called-Up and Fully Paid:

Opening 35,410,388 shares of IR1p each
(1999: 35,410,388 shares of IR1p each)
Issued: 3,574,000 (1999: Nil) shares of IR1p each

Closing 38,984,388 shares of IR1p each
(1999: 35,410,388 shares of IR1p each)

Group and Company
1999
2000
IR£
IR£

13,038
–––––––
–––––––

5,742
–––––––
–––––––

Group

Company

2000
IR£

1999
IR£

2000
IR£

1999
IR£

210,438
—
1,774
––––––––
212,212
––––––––
––––––––

60,814
—
807
–––––––
61,621
–––––––
–––––––

210,438
2
1,774
–––––––
212,214
–––––––
–––––––

60,814
2
807
–––––––
61,623
–––––––
–––––––

2000
IR£

1999
IR£

2,000,000
––––––––
––––––––

1,000,000
––––––––
––––––––

354,104
35,740
–––––––

354,104
—
–––––––

389,844
–––––––
–––––––

354,104
–––––––
–––––––

The total number of options outstanding at December 31, 2000, including to directors, was 6,045,000 (1999:
5,295,000) shares.The options are exercisable at price between IR1p and IR10p in accordance with the option
agreement.

NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2000 (Continued)

11.

SHARE PREMIUM

Opening balance
Arising on shares issued during the year
Costs associated with shares issued during the year

Closing balance

12. RECONCILIATION OF MOVEMENT IN

SHAREHOLDERS’ FUNDS

Opening shareholders’ funds
Profit/(loss) for the year
Issue of shares:
— at par
— share premium

Closing shareholders’ funds

Group and Company
1999
2000
IR£
IR£

997,052
413,820
(24,930)
–––––––––
1,385,942
–––––––––
–––––––––

997,052
—
—
––––––––
997,052
––––––––
––––––––

2000
IR£

1999
IR£

256,253
38,367

361,354
(105,101)

35,740
388,890
––––––––
719,250
––––––––
––––––––

—
—
––––––––
256,253
––––––––
––––––––

13.

LOSS ATTRIBUTABLE TO PETREL RESOURCES PLC

The profit after taxation in the parent company amounted to IR£38,367 (1999 loss: IR£105,101).

A separate profit and loss account for Petrel Resources plc (the company) has not been prepared because
the company has complied with the conditions laid down in Section 43(2) of the European Communities
(Companies: Group Accounts) Regulations 1992.

NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2000 (Continued)

14. CASH FLOW STATEMENT

(a) Reconciliation of operating profit to net cash

outflow from operating activities

Operating profit/(loss)
Increase in creditors
Increase in debtors
Depreciation
Exceptional charge
Exceptional item Sale of Ugandan interest

Net cash outflow from operating activities

(b) Analysis of net funds

Cash in bank and in hand

2000
IR£

1999
IR£

138,459
149,624
(7,296)
870
(107,186)
(304,887)
––––––––
(130,416)
––––––––
––––––––

(107,290)
12,851
(3,000)
762
—
—
–––––––
(96,677)
–––––––
–––––––

At 1 January
2000

73,676
–––––––
–––––––

Cash
flow

At 31 December
2000

445,068
–––––––
–––––––

518,744
–––––––
–––––––

(c)

Reconciliation of net cash flow to movement
in net funds

Increase/(decrease) in cash in the year

Change in net funds resulting from cash flows

Movement in net funds in the year

Net funds at start of year

Net funds at end of year

2000
IR£

1999
IR£

445,068
––––––––
445,068
––––––––
445,068
––––––––
73,676
––––––––
518,744
––––––––
––––––––

(114,242)
––––––––
(114,242)
––––––––
(114,242)
––––––––
187,918
––––––––
73,676
––––––––
––––––––

NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2000 (Continued)

15. RISK MANAGEMENT

The group’s financial instruments comprise cash balances and various items such as trade debtors and trade
creditors which arise directly from trading operations.The main purpose of these financial instruments is to
provide working capital to finance group operations.

The group does not enter into any derivative transactions, and it is the group’s policy that no trading in
financial instruments shall be undertaken.

The main financial risk arising from the group’s financial instruments is currency risk.

Interest Rate Risk
The group finances its operations through the issue of equity shares, and has no fixed interest rate
agreements.The group has no significant exposures to interest rate risk.

Liquidity Risk
As regards liquidity, the group’s exposure is confined to meeting obligations under short term trade creditor
agreements.This exposure is not considered to be significant, and is fully financed from operating cashflow, or
where this is insufficient during the development stage, through additional issues of ordinary equity shares.

Foreign Currency Risk
Although the group is based in the Republic of Ireland, amounts held as deferred development expenditure
were originally expended in currencies other than Euro aligned currencies. However, this expenditure is not
considered to be a monetary asset, and has been translated to the reporting currency at the rates of
exchange ruling at the dates of the original transactions.The group at present does not hold significant foreign
currency monetary assets or liabilities.

The group also has transactional currency exposures. Such exposures arise from expenses incurred by the
group in currencies other than the functional currency. It is expected that almost all future revenue will arise
in US dollars.The group seeks to minimise its exposure to currency risk by closely monitoring exchange rates,
and restricting the buying and selling of currencies to predetermined exchange rates within specified bands.

The group does not presently utilise swaps or forward contracts to manage its currency exposures, although
such facilities are considered and may be used where appropriate in the future.

16. RELATED PARTY TRANSACTION

During the year the company paid consultancy fees to Guy Delbes amounting to IR£49,696. Guy Delbes is a
director of the company.

PETREL NOTICE OF MEETING

Notice is hereby given that the annual general meeting of the members of Petrel Resources plc will be held at
Clontarf Castle Hotel, Castle Avenue, Clontarf, Dublin 3, on July 20, 2001 at 12 noon for the following purposes:

To receive the report of the directors and audited financial statements for the year ended December 31, 2000.

To re-appoint director: H.Wilson retires in accordance with article 95 and seeks re-election.

To re-appoint director: G. Delbes retires in accordance with article 101 and seeks re-election.

To authorise the directors to fix the remuneration of the auditors.

To transact any other ordinary business of an annual general meeting.

SPECIAL BUSINESS

To consider and if thought fit, pass the following resolution as an ordinary resolution.

In accordance with the Economic and Monetary Union Act, 1998 (the EMU Act), the authorised share capital
of IR£2,000,000 divided into 200,000,000 Ordinary Shares of IR£0.01 each and the total issue share capital of
38,984,388 Ordinary shares divided into IR£0.01 each be and are hereby re-denominated into the Euro Unit
(as defined in the EMU Act) at the conversion rate of €1.26974 per £1 and converted in accordance with
Article 5 of the Council Regulation (EC) No. 1103/97 of the 17 June 1997, giving rise to a total authorised
Share Capital of €2,539,480 divided into 200,000,000 Ordinary Shares of €0.0126974 each and a total issued
Ordinary Share Capital of 38,984,388 Ordinary Shares of €0.0126974 each.

To consider and if thought fit, pass the following resolution as a special resolution.

The re-denominated nominal par value (calculated in accordance with Section 25(3) of the EMU Act) of each
share, issued or unissued in the capital of the Company be and is hereby reduced to €0.0125, the total
authorised share capital be and is hereby reduced accordingly to €2,5000,000 divided into 200,000,000
Ordinary Shares of €0.0125 each and an amount equal to the aggregate amount of the reduction in the issued
share capital of the Company resulting from the re-nominalisation be and is hereby transferred to the capital
conversion reserve fund and that the provisions of the Company’s Memorandum and Articles of Association
be and are hereby altered accordingly.

By order of the Board
James Finn
Secretary

June 25, 2001

PETREL FORM OF PROXY

I/We ................................................................................................................................................................................................................
(BLOCK LETTERS)

of .....................................................................................................................................................................................................................
being (an) ordinary shareholder(s) of Petrel Resources plc, hereby appoint the Chairman of the Meeting#

.........................................................................................................................................................................................................................

of .....................................................................................................................................................................................................................
as my / our proxy to vote for me / us and on my / our behalf at the Annual General Meeting of the Company to be
held on July 20, 2001 at Clontarf Castle Hotel, Castle Avenue, Clontarf, Dublin 3 at 12 noon and at any adjournment
thereof.

I/We direct my / our proxy to vote on the resolutions set out in the Notice convening the Meeting as follows:

For *

Against *

Reports and Accounts

Re-election of Director H.Wilson

Re-election of Director G. Delbes

Remuneration of Auditors

Conversion of Share Capital to the Euro

Re-nominalisation of Share Capital

Signature ........................................................................................................................................................................................................

Dated the....................................................................................day of..............................................................................................2001

If it is desire to appoint another person as proxy other than the Chairman of the Meeting the name and address of the proxy, who need not
be a member of the Company, should be inserted, the words “the Chairman of the meeting” deleted and the alterations initialled.

The manner in which the proxy is to vote should be indicated by inserting an “X” in the boxes provided. Proxies not marked as for or against
will be regarded as giving the proxy authority to vote, or to abstain at his/her discretion.

NOTES
1.

In the case of a corporation this proxy must be under its common seal or under the hand of an officer or
attorney duly authorised in writing.

2. To be effective this proxy must reach the address on the reverse hereof not less than 48 hours before the time of the meeting.

In the case of joint holders, the vote of the senior who tenders a vote whether in person of by proxy, shall be accepted to the exclusion of
the votes of the other joint holders and for this purpose seniority shall be determined by the order in which the names stand in the Register
of member in respect of such holding.

■
■
■
■
■
■
■
■
■
■
■
■
■
■
■
■
■
■
■
■
■
■
■
■
✂
FOLD 1

3
D
L
O
F

)
n

n
r
u
t

n
e
h
t
(

i
l

b
u
D

d
n
a
l
e
r
I

2
D
L
O
F

c
l
P
s
e
c
r
u
o
s
e
R

l
e
r
t
e
P

d
a
o
R

f
r
a
t
n
o
C
2
6
1

y
r
a
t
e
r
c
e
S

e
h
T