Wag! Group Co Annual Report 2009

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FY2009 Annual Report · Wag! Group Co

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Petrel Resources PLC
Annual Report and Accounts
Year ended 31 Dec 2009

Registration number: 92622

Turkey
Turkey

Syria
Syria

IraqIraq

IranIran

Baghdad
Baghdad

East Safawi
East Safawi

Block 6
Block 6

Merjan
Merjan

Dhufriyah
Dhufriyah

Subba
Subba
&
&
Luhais
Luhais

Saudi Arabia
Saudi Arabia

Contents
for year ended 31 December 2009

CHAIRMAN’S STATEMENT

REVIEW OF OPERATIONS

DIRECTORS’ REPORT

STATEMENT OF DIRECTORS’ RESPONSIBILITIES

INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF PETREL RESOURCES PLC

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

CONSOLIDATED BALANCE SHEET

COMPANY BALANCE SHEET

CONSOLIDATED AND COMPANY STATEMENT OF CHANGES IN EQUITY

CONSOLIDATED CASH FLOW STATEMENT

COMPANY CASH FLOW STATEMENT

NOTES TO THE FINANCIAL STATEMENTS

NOTICE OF ANNUAL GENERAL MEETING

FORM OF PROXY

enclosed

Chairman’s Statement

Petrel Resources Plc Annual Report & Accounts 2009

Chairman’s Statement

Progress is being made in Iraq. The Subba and Luhais oil ﬁ eld development restarted in May 2010. Within
14 months, the 200,000 barrel-a-day oil ﬁ eld project will be in production. After protracted negotiations
and a number of false starts, agreement was reached between the Iraqi authorities, Petrel and our Iraqi
partners Makman. Under the terms of the agreement, Petrel has received US$2 million cash, a further
$5m is guaranteed, plus a 10 per cent proﬁ t interest. Makman has taken over as operator. The deal is
satisfactory. We get most of the money due, suppliers have been paid, the project gets completed and
our working relationship with the authorities has been restored. Given the changes in the world since we
won the $197m tender in 2005, this is a satisfactory outcome. In the event that Makman can complete
the project on budget, Petrel will receive 10 per cent of any proﬁ t. At least as important as the ﬁ nancial
outcome is the fact that Petrel is now clear to pursue other oil opportunities in the country.

Since 2002, we have held a position on Block 6 in the desert between Iraq and Jordan. This 10,000 square
kilometre (sq km) block is prospective for oil and gas. We are hopeful that when an Iraqi government is
formed and an oil licence regime is put in place that the Petrel title to the ground will be formalised. We will
then drill.

In recent years, at the request of the local authorities, we have undertaken technical development studies
on two known oil ﬁ elds – a full study on Merjan and scoping studies on Dhurfriyah. Our expectation was
that we could turn our knowledge into a successful application to develop one or both ﬁ elds. This has not
happened. We were not included in a list of oil companies asked to tender for Iraqi oil ﬁ elds, due in part,
we believe, to our ongoing dispute over Subba and Luhais. No-one tendered for either of the above ﬁ elds.
You do not get title to any oil ﬁ eld, you simply develop them as a contractor. The current service contract
terms on offer are not attractive to most operators. Petrel would take the same view. So, in Iraq, we wait
and maintain our presence in Baghdad in the expectation that an oil licence regime with commercial terms
will emerge. Iraq should become the world’s leading oil producer. Production costs are the lowest in the
world and oil exploration prospectivity is the best in the world. Licence terms must be commercially viable
and title must be guaranteed.

The job of the directors is to create wealth for shareholders. In recent years we had to accept that there
was uncertainty over opportunities in Iraq, so in 2004, we looked at Jordan, and in 2007 won a production
sharing licence on the East Safawi block. The results of our work indicated a high potential, high risk oil
target that needs drilling. We decided against proceeding on sole risk drilling and sought farm-in partners.
We have been unsuccessful. In the near future, a decision will be made on this block.

Shareholders of long standing may remember that Petrel began life as an African explorer with ground
in Namibia and Uganda. We have gone back to our roots. Together with Hydrocarbon Exploration Plc
and Persian Gold Plc, we have negotiated a 1,500 sq km concession in the Tano region of Ghana. The
concession has been signed by the Ministry of Oil but must be ratiﬁ ed by cabinet and parliament. The
concession is a four way joint venture – Petrel (30%), Hydrocarbon Exploration Plc (30%), Persian Gold
Plc (30%) and local interests (10%). The block is onshore/offshore in the same area as the Tullow/Kosmos
discoveries. Terms in Ghana are competitive. Negotiations are ongoing to revise certain terms and
conditions in the existing agreement. In the meantime, data processing and interpretation is underway.
It is possible that Ghana will be the ﬁ rst of a number of African oil/gas plays.

Petrel Resources Plc Annual Report & Accounts 2009

Chairman’s Statement

THE FUTURE

Petrel is better placed today than it has been for some years. We are ﬁ nancially stable with $7m in cash
or guaranteed cash. There is clarity in our position in Iraq. We will support Makman as they complete
Subba and Luhais. We are ready to commence ﬁ eld work on Block 6 once title is ratiﬁ ed. When an Iraqi
government is formed and an oil policy agreed, we will make strenuous attempts to obtain one or more oil
ﬁ elds. But we cannot wait indeﬁ nitely in hope. We have spent 11 years in Iraq. Our expedition into Jordan
has not been successful so we have fallen back onto our African experience and contacts. The coming
year will see a continued focus on Iraq with growing activities in Africa. Tano in Ghana is a ﬁ rst step.

Chairman
25 June 2010

Petrel Resources Plc Annual Report & Accounts 2009

Review Of Operations

Petrel Resources Plc Annual Report & Accounts 2009

Review Of Operations

PETREL HAS LONG-STANDING PROJECTS IN IRAQ, JORDAN AND HAS
RECENTLY EXPANDED INTO GHANA.

IRAQ

The principal project in Iraq is the Subba and Luhais development contract. The company holds Block 6 under a
pre-2003 agreement in the western desert.

Work re-started in Iraq in May 2010 after a two year delay. This was critical, as it removed remaining obstacles,
allowing Petrel to move forward with other projects.

• The Petrel-Makman Joint Venture has re-started and will complete the Subba and Luhais

oilﬁ eld development services contract by the end of 2011.

• Petrel has received $2 million.
• Petrel will receive a further $5 million in 2 tranches over 12 months, guaranteed by a

leading Turkish Bank.

• Petrel maintains a 10% proﬁ t share.
• This solution clears the way for expansion in Iraq.

Petrel was a pioneer in Iraqi oil and is the only western company to have worked continuously in Iraq since 1999.
We have never lost an employee or suffered serious sabotage or loss of equipment. This operating expertise
is valuable and we have had discussions with larger groups interested in using our services. Our preference
is to maintain our independence, and develop Petrel into an Iraq-based oil and gas producer as soon as this is
commercially and legally practical.

Petrel/Makman joint venture is now reactivating its work on the Subba & Luhais EPC contract following an hiatus
due to circumstances outside our control. This should facilitate other projects, possibly including the reactivation
of and more detailed work on our studies with the Ministry of Oil on Dhufriya Field, and indeed negotiating or
bidding for contracts on other projects.

We have an active Baghdad ofﬁ ce and have maintained an Iraqi team continuously since 1999. They are
familiar with prevailing circumstances.

SUBBA AND LUHAIS OIL FIELD DEVELOPMENT

The Subba and Luhais oil ﬁ eld development services project is one of the largest EPC (Engineering,
Procurement and Supervision of Construction) contracts awarded by the Ministry of Oil.

The development of the oilﬁ elds will provide a minimum capacity of 200,000 barrels of oil daily for export and 120
million cubic feet of associated gas. Much of this gas is designated for use to support power generation for the
Iraqi National Grid. The contract is half completed with major equipment packages delivered to the designated
site.

Petrel Resources was awarded the $197 million Subba & Luhais oil ﬁ eld EPC contract in 2005. Work started
immediately. There were no serious security problems. Technical work proceeded well but payments were
initially slow and there were disputes over control of project bank accounts and related bank guarantees. The
resulting uncertainty led to project delays from 2008 and de-mobilising of our project early in 2009. After several
false dawns and lengthy negotiations, all outstanding issues on the Subba and Luhais oilﬁ eld development
in Southern Iraq were satisfactorily resolved in early 2010. Petrel has handed over primary responsibility for
the ﬁ nal phases of the work, in accordance with the original Joint Venture Agreement of December 2005, but
maintains a role. Petrel maintains a 10% proﬁ t share.

6
6

Petrel Resources Plc Annual Report & Accounts 2009
Petrel Resources Plc Annual Report & Accounts 2009

Review Of Operations

Under the terms of the Agreement reached between Petrel Resources, our local Iraqi partner, and SCOP,
an arm of the Iraqi Ministry of Oil:

1. Petrel will receive a total of $7 million, of which $2 million has been received, and two
further bank guaranteed payments of $2.5 million each in 2 tranches over 12 months.

This guarantee is furnished by Garanti Bank of Turkey;
2. The Petrel/Makman joint venture will complete the development, with Makman assuming
primary responsibility for the ﬁ nal phases of the work, including bulk procurement and
implementation;

3. Petrel will receive a 10% proﬁ t interest based on ﬁ nancial accounts;
4. A new Letter of Credit for the balance of the contract has been put in place by the Iraqi

authorities;

5. All necessary ofﬁ cial approvals have been delivered.
6. Petrel’s engineering contractor Enereco (of Northern Italy) will remain as the engineering

partner.

Payment for basic design engineering has been made. Payment for outstanding equipment, such as
compressors, is now being processed.

Relationships are courteous and professional and we are optimistic that the work will be completed within a
challenging 14-month schedule. Experts from the Iraqi Ministry of Oil’s Project Company (SCOP) visited site and
again inspected the compressors and conﬁ rmed that all remains correct and in order. Supporting documents
(certiﬁ cate of origin, insurance certiﬁ cates, etc.) are being re-issued. There do not appear to be any major
problems or issues at this stage. Requests for Quotations have been issued to international vendors and some
supply contracts have been awarded.

IRAQI EXPLORATION AND DEVELOPMENT PROJECTS:

Petrel is an oil explorer, not a services contractor, so we are pleased to be able to refocus on growing our
exploration interests in Iraq, which remains the world’s best oil province.

Iraq remains a complicated and uncertain place to do business. The steady withdrawal of international forces
continues. Power and authority are steadily returning to the sovereign central government.

The March 2010 election went well and peacefully but the election did not yield a clear result and as of June
2010 negotiations to form a new government continue.

This will be the sixth government Petrel has dealt with since 1999, but the ﬁ rst whose electoral legitimacy is not
seriously questioned.

Recently, there have been oil development contracts awarded. Two bid rounds saw super-majors and National
Oil Companies agreeing to marginal rates of return on service contracts with demanding work commitments. As
of June 2010, the macro situation regarding the oil industry remains confused. No one is sure how the laws,
contracts and general government will turn out. The best legal advice remains that oil contracts require explicit
ratiﬁ cation by Parliament to be 100% reliable – unless there is a new General Hydrocarbon Law, which changes
the entire legal framework. So far the recent contracts have not received such approval.

The understandable objective of the Iraqi authorities is to drive the best bargain for their citizens. For historical
reasons there is public suspicion of the super-majors. Hence their attempts to develop the oil industry by means
of service contracts. Such an attitude is normal in the region, but no country has experienced Iraq’s difﬁ cult
recent history.

Petrel Resources Plc Annual Report & Accounts 2009

Review Of Operations

Since the service contract bid rounds for development of giant ﬁ elds, preliminary work has started and
intentions are positive but not everything has gone smoothly. The risk appetite of BP and other companies
may be impacted by a lower oil price and recent tragic events in the Gulf of Mexico. On the other hand the
straightforward geology and low environmental risk of conventional Iraqi projects is very compelling.

Long experience in Iraq’s special conditions suggest that it is unlikely that the bid-round contracts will be
implemented as planned to the satisfaction of all parties. This is because bidding for service contracts does not
really align the interests of the players or guarantee access to the best technology to maximise recovery from
reservoirs.

One lesson of the ﬁ rst bid process was the demonstrated belief that leading oil industry players, who have
studied Iraqi ﬁ elds, are convinced that production can be dramatically increased – to the point that they were
prepared to lock remuneration into achieved targets that until recently would have been considered very
demanding. This conﬁ rms that the potential economic value of Iraqi is world class. The Iraqi industry will not
be able to maximise this value for some years without international technology and capital. The challenge is
persuading the authorities that 80% of a much bigger cake is better than 100% of a smaller cake.

THE ULTIMATE SOLUTION MUST BE RISK-SHARING ARRANGEMENTS WHICH ALIGN THE INTERESTS
OF THE PARTIES. IRAQ WILL RECEIVE OVER 80% OF THE ECONOMIC VALUE BUT AGILE, HARD-
WORKING PARTNERS WILL BE FAIRLY REMUNERATED.

Meantime oil production continues to stagnate at circa 2.4 million barrels daily, of which circa 1.8 million barrels
is exported. We expect that 2 to 3 million barrels daily will be added under existing plans – but the announced
expectation of 12.5 million barrels daily will be challenging to deliver under prevailing circumstances and hard to
explain to OPEC partners. Since world oil demand has been effectively ﬂ at at 86 million barrels daily since 2005
and there are nearly 6 million barrels daily of surplus capacity already available within OPEC, mainly in Saudi
Arabia.

We expect these issues to clarify over the coming months when the policy of the new government becomes
clear. Divisions among the policy-making parties probably require the democratic endorsement of the upcoming
elections in January 2011.

Petrel continues to work only with the Iraqi Central Government Authorities and has no business relationships
with any of the Regional Authorities. All of Petrel’s contracts are with the ofﬁ cial Ministry of Oil of the sovereign
government of the Republic of Iraq. In our belief, this is the correct and secure way to proceed. Local
relationships are important, but not to the point where they undermine legitimate authority.

MERJAN AND DHURFRIYAH OIL FIELD TECHNICAL COOPERATION
AGREEMENTS

In 2007, Petrel completed a study of the Merjan oil ﬁ eld on the western edge of the Euphrates river valley in
central Iraq. This was updated with some additional data and reviewed at a high level by the Ministry during
2008.

Petrel conducted this work as operator, with Itochu, the Japanese conglomerate, as a 50% partner.

The shallow depth Merjan oil ﬁ eld was discovered in 1983 by accident while exploring a deep reef target.
This conﬁ rmed that Iraq’s oil potential extended westwards. The discovery was not developed due to OPEC
limitations and the political circumstances then prevailing.

The initial study aimed to determine the oil entrapment mechanism of the discovery, so as to estimate the limits
of the ﬁ eld and its possible reserves. A range of modern oil industry techniques, including cutting-edge seismic

Petrel Resources Plc Annual Report & Accounts 2009

David Horgan meeting with Cameroon authorities

Review Of Operations

inversion by Fugro-Jason, was used.

The work included a broadening of previous regional analysis of the western desert, including Block 6 where we
had already done work. Its output included detailed analysis of seismic data and well logs made available to
our team. We conﬁ rmed that the oil-bearing structure extended well beyond the previously mapped structure.
Deﬁ nitive delineation of the ﬁ eld’s extent requires a proposed work programme of targeted wells and 3d seismic,
when suitable contract arrangements are in place.

During 2008, the study was reviewed by an expert technical team and a review panel of senior ofﬁ cials of the
Ministry’s Petroleum Contracts & Licensing Directorate. Both the technical team and PCLD approved the work.

Petrel maintains its interest in this project and hopes to reﬁ ne reserve estimates when additional information
becomes available.

We are interested in further exploring and developing this ﬁ eld if and when it is legally possible. The ﬁ eld has the
possibility to become a 100,000 barrel a day producer.

Following successful completion of the initial Merjan Oil Field work, the Chairman of Petrel’s Framework of Case
Study recommended Petrel for an additional Technical Cooperation Agreement (TCA).

The Dhurfriyah gas & oil ﬁ eld Technical Cooperation Agreement study was conﬁ rmed in 2007, after which
technical meetings reviewed available data and a work programme was agreed. Initial work was completed in
2008.

WESTERN DESERT BLOCK 6

Other than regional work associated with the Merjan oil ﬁ eld, no geological or geophysical work was conducted
on Western Desert Block 6 during 2009.

Petrel was asked by the Oil Exploration Company of the Iraqi Ministry of Oil to study Western Desert Block
6 in 2000. We worked intensively with Ministry staff and reached agreement on the work programme and
terms under the then Iraqi model Exploration & Development Contract in March 2002. Because of prevailing
circumstances and expectation of imminent political change we did not request the then necessary ministerial
visit by our sponsoring country to formally sign & ratify this contract.

Since then Petrel and other parties interested in other pre-2003 blocks have carefully monitored developments.
The normal, legal position is that title passes across governments and that parties honour commitments made
legitimately and in good faith. Of course, the hard reality in the real world is that title in most countries also
depends on goodwill and usefulness as much as formal legal title. There are many examples of resource
nationalism worldwide where companies with proper title and professional work records have been nonetheless
marginalised by politicians. Petrel fully accepts Iraqi sovereignty and continues to work to perfect its title and
participate fully in Iraqi oil exploration & development no matter how the Hydrocarbon Law debate plays out and
which policy options are chosen by the authorities to develop Iraq’s resources.

Article 40 of the draft hydrocarbon law stipulates that the Ministry must review pre-2003 agreements “to ensure
harmony with the objectives and general provisions of the law.” New contracts must be approved by Iraq’s
Federal Oil and Gas Council.

It may prove necessary to adapt to the new model contracts, currently described as ‘Service Exploration and
Production Contracts’ (SEPC), the ministry plans to introduce for exploration deals. Financial terms would be
renegotiated to incorporate new work, and reﬂ ect the higher oil price since we agreed terms in 2002:

The new model currently envisages a 5 year exploration period, extendible by 2 years extension, but

Petrel Resources Plc Annual Report & Accounts 2009

Review Of Operations

development and production rights are limited to 20 years. There may also be payments at signing, discovery
and start of production, as well as 12.5% royalty.

The Iraqi authorities are working their way through the pre-2003 contracts and agreements on Western Desert
Exploration Blocks and have had discussions with ONGC on Block 8 and Pertamina on Block 2.

Petrel remains interested in the region and hopes to move forward with a full exploration programme as soon as
title is conﬁ rmed.

The security situation had been challenging in this area, but improved after 2007. Our geophysics contractor
GSC has conﬁ rmed the availability of a ﬁ eld crew to shoot a state-off-the-art 2D, or if necessary 3D, seismic
survey.

EAST SAFAWI BLOCK, JORDAN

Detailed technical work between 2004 & 2008 did not identify the ‘Risha type’ deep gas targets we had originally
sought in East Safawi. The sands at the target depth appear to be thin and tight.

During the ﬁ rst year of the East Safawi Production Sharing Agreement (PSA) Petrel identiﬁ ed potential drill
targets in the Triassic section in the north of the East Safawi block. The carbonate prospects are relatively
shallow and have the potential to hold commercial quantities of hydrocarbons. Petrel commissioned leading
contractor, Fugro-Jason, to carry out acoustic impedance conversion of selected seismic data. The results
supported our technical interpretation and provided a range of volumetric values for the reservoir.

This is comparable to the reef plays in Libya, albeit of different age and it is so far untested. If this well were in
Libya it might have a 50% chance of commercial success. In a new province it is under a 20% chance. This is
more or less in keeping with exploration-type ‘wildcats’ elsewhere. Accordingly Petrel decided that we would not
fund more than a minority of this drilling expenditure, ideally seeking a full carry.

Prior to the economic collapse in late 2008, there was considerable industry interest in farming-in. After the
ﬁ nancial crisis, the industry got cold feet about farming-in to pure exploration. So far, we have not concluded
a deal. The Jordanian authorities have indulged us so far, but there is no certainty that this indulgence will
continue. The issues that we have faced in East Safawi are similar to those faced by most of the operators
elsewhere in Jordan and indeed in many other countries which are still frontier for oil exploration.

On the positive side, Jordanian terms are good for oil and Jordan is a secure, pro-investment country. There is
good site access and a ready market.

From 2007 to date Petrel has maintained an ofﬁ ce in Amman, Jordan. This supports both existing and potential
projects in Jordan. It is mainly staffed by experienced Iraqi personnel.

Targets identiﬁ ed on the East Safawi acreage represent an entirely new play in a new basin that has not
previously been drilled. Hence, there are unknown technical elements that add risk to the play. Accordingly,
Petrel sought to minimise its exposure to the ongoing exploration costs by attracting partners.

Since the drill targets are well-deﬁ ned on the existing seismic Petrel sought and was awarded an amendment
to the PSA work programme from the Jordanian Natural Resources Authority to allow postponement of the
obligatory seismic survey until after a well had been drilled. This amendment was granted by the NRA in March
2009, and later extended until August 2010. There can be no certainty that any further extensions will be
granted. If we are unable to deliver on the PSA work programme we will forfeit our $0.5 million bond. This has
been fully provided for in the Audited Accounts to 31 December 2009.

Petrel Resources Plc Annual Report & Accounts 2009 11

David Horgan TV Interview on possible projects in Cameroon

Review Of Operations

WEST AFRICA:

Africa is not a new area for the team. Petrel started as an oil & gas explorer in Uganda & Namibia – before
focusing on Iraq in 1999. Our group’s management has 25 years continuous African experience.

There is now more than 330 Billion barrels of oil equivalent of reserves discovered in Africa, of which 50% is in
Sub-Saharan Africa.

There are many hydrocarbon-rich basins in Africa, which remains under-explored. New ideas are constantly
emerging. Discoveries since 2000 in Angola and Ghana alone exceed the entire Africa Yet-to-Find calculations
of Peak Oil theorists in 1999.

Petrel’s focus is on:

1. West Africa Offshore (Ghana and neighbours, Nigeria, Cameroon).
2. Unconventional oil & gas potential (Morocco, Southern Africa, Botswana).
3. Onshore Central Africa (Rift basins).

There are opportunities and a generally welcoming business environment for small E&P companies in these
countries. The big up-front costs of the established provinces of Nigeria and Libya are a deterrent, as are the
poor ﬁ scal terms available in Algeria, Libya and Angola. We aim at areas of potential with attractive ﬁ scal terms
and limited up-front costs:

Ghana meets those objectives and moreover is the oil industry’s new hotspot, especially following recent
success by Tullow/Kosmos in new, especially Cretaceous, plays. Ghana offers competitive conditions and large
exploration potential.

Petrel’s management team has decades of west African experience, so was well placed to seize this opportunity.
Ghana became our priority outside of Iraq. Petrel participated in a proposal to explore and develop the 1,500km,
2 Tano Block 2A.

We signed a Memorandum of Understanding with Ghanaian state petroleum company, GNPC, on the Tano 2A
Block in November 2008, and a Petroleum Agreement with GNPC on Tano 2A Block in December 2008. The
Block is held via a Ghanaian private company (called ‘Pan Andean Resources limited’), owned 30% by Petrel,
30% by Hydrocarbon Exploration, 30% by Persian Gold and 10% by Ghanaian interests.

Details on the concession are given below:

Block size: c. 1,500 km2 (150k hectares)
Basin: Tano
Geological Target: Cretaceous
Potential : multi-billion barrel recoverable

Fiscal terms are competitive: splitting into a royalty, carried state interest (held by the national oil company the
GNPC) and income tax on proﬁ ts.

Fiscal Terms
Royalty Oil
Royalty Gas
Initial Interest of GNPC (Carried)
Additional Interest of GNPC (Paying)
Income Tax

12.5%
10.0%
10.0%
15.0%
35%

Petrel Resources Plc Annual Report & Accounts 2009 13

Review Of Operations

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Petrel Resources Plc Annual Report & Accounts 2009

Review Of Operations

There is also a super-proﬁ ts tax or ‘Additional Oil Entlement (AOE)’ which is payable depending on the overall
Rate of Return. This does not apply for a return under 12.5%. The AOE rises in a step function with returns to a
maximum of 30% for project Rates of Return over 27.5%:

Additional Oil Tax is driven by Rate of Return Additional Oil Tax
Less than 12.5%
More than 12.5% but less than 17.5%
More than 17.5% but less than 22.5%
More than 22.5% but less than 27.5%
More than 27.5%

0%
15%
20%
25%
30%

Area Rentals – US$/km2
Initial Exploration Period
First Extension Period
Second Extension Period
Development and Production Period

30
50
75
100

There are also the normal, relatively modest land rentals plus Training Allowance & an additional Technology
Support one-time payment.

Work Programme

Initial Exploration Period
Minimum Expenditure
Onshore
Offshore
(no sum was speciﬁ ed for the offshore area and upon conferring with the Exploration Department they gave
US$35m as a reasonable ﬁ gure)

US$ 20m
US$35m

First Extension Period
Minimum Expenditure
Onshore
Offshore

Second Extension Period
Minimum Expenditure
Onshore
Offshore

US$15m
US$30m

We have collected all data available from GNPC and are now consolidating and integrating the GNPC data with
our regional database so as to expedite and focus the exploration work programme.

In 2008 our negotiating team had conceded the GNPC’s desire for 3d seismic in the surf-zone and mangrove
swamp areas of the block notwithstanding their technical concerns that 3d seismic in such circumstances was
not appropriate or possible. Further technical work during 2009 conﬁ rmed these concerns and we proposed
appropriate adjustments.

Simultaneously with these technical clariﬁ cations, the GNPC negotiators asked us to amend the Petroleum
Agreement to grant greater entitlements pre-emption rights and the need for more comprehensive approvals
of future corporate transactions involving the block. Our technical and senior management team have made
several presentations to GNPC, the Ministry of Energy, Ghana Internal Revenue Service, as well as other
branches of the Ghanaian authorities.

Petrel Resources Plc Annual Report & Accounts 2009 15

Review Of Operations

All Ghanaian Petroleum Agreements are subject to Cabinet approval and ratiﬁ cation by Parliament.

Initial data organization, processing and interpretation is now underway.

FINANCE

Petrel has sought to limit shareholder dilution, and has raised a total of circa US$15 million since 1997.
Currently Petrel has $2 million in cash, with a further $5 million bank guaranteed to be received over the coming
12 months.

GLOBAL INDUSTRY BACKGROUND

The oil and related prices have been very strong, though volatile since 2004. Actual physical trades have been
superseded by ﬁ nancial transactions. Traditionally total trades were 3 to 5 times the actual physical trades.
From 2008 through 2010 this ratio has ﬂ uctuated around 20 times. Financial players are prepared to pay a large
‘security risk premium’ over the long-term average price. This is not new: the long term average price of oil in
real dollars is about $24 per barrel. But in times of crisis the average price of oil in real dollars is about $45.
Now oil is range trading between $65 and $80.

Energy prices have effectively been re-rated. The ﬁ nancial markets shrug off OPEC’s circa 6 million barrels of
surplus capacity, the need to slash OPEC quotas in late 2008, delaying of major new projects and ﬂ at oil demand
since 2005.

Financial players are inﬂ uenced by the ‘peak oil theory’, a long-established viewpoint that is controversial around
the timing of peak production and shape of the decline curve. Ironically the higher oil prices since 2003 and
technological progress have greatly increased economic reserves. The real problems for the energy industry
today are ‘above the ground’ involving challenges of resource nationalism, logistics and politics. Geology is less
of an issue for onshore, conventional oil as in Iraq.

One result of these trends is the growing popularity of service contracts. The Iranian Buy-back contract type
severely limits returns to about 12% for development projects, though exploration projects can yield up to 17%.
Venezuela is effectively capped at 15%.

Against this background the outgoing Iraqi Government opted for a service model involving tight fees per barrel
on demanding production targets. Only the super-majors and largest of the National Oil Corporations (NOCs)
can realistically work under such terms. Iraqi geology is the best worldwide but many of the super-giant and
giant ﬁ elds in Iraq have been produced in sub-optimal conditions since 1990. This introduces an element of
engineering and even geological uncertainty. The challenging circumstances under which Iraqi oil professionals
had to work in recent decades mean that there is inadequate infrastructure.

After a shaky start the Iraqi authorities succeeded in getting super-majors and National Oil Corporations to agree
to what most informed observers believe are uneconomic conditions in that Iraqi operating circumstances are
not ideal. There are operating risks. Our long-standing view is that under current laws parliamentary approval
is necessary, which is one of the reasons why post-2003 Iraqi Governments have declared an intention to pass
a new Hydrocarbon Law. The Iraqi negotiating success appears to have delivered such a demanding deal that
even the most wary nationalist would see the value to Iraq. Unfortunately, involvement of super-majors from
Coalition countries who have been prior shareholders of the former Iraq Petroleum Company which operated
from the 1920s till the 1970s, has enraged many nationalists.

Petrel Resources Plc Annual Report & Accounts 2009

Reports & Accounts

Directors’ Report
for year ended 31 December 2009

The directors present their annual report and the audited ﬁ nancial statements for the year ended 31 December 2009.

PRINCIPAL ACTIVITIES AND FUTURE DEVELOPMENTS

The main activity of Petrel Resources plc and its subsidiaries (the Group) is oil and gas exploration. The company
commenced development of an oil ﬁ eld in Iraq in 2008. The company is also involved in exploration in Jordan. On 26
April 2010, the company announced the settlement of all outstanding operational issues on the Subba and Luhais
Oilﬁ eld Development in Southern Iraq which will result in the company having a signiﬁ cantly reduced role in the Project
going forward. See Note 3 for further details.

Further information concerning the activities of the Group during the year and its future prospects is contained
in the Chairman’s Statement and Review of Operations.

RESULTS FOR THE YEAR

The consolidated loss after taxation for the year, transferred to reserves, amounted to €6,526,075 (2008: €761,637).

The directors do not recommend that a dividend be declared for the year ended 31 December 2009 (2008: €Nil).

PERFORMANCE REVIEW

The performance review is set out in the Chairman’s Statement and Review of Operations.

RISKS AND UNCERTAINTIES

The group is subject to a number of signiﬁ cant potential risks including:

• Foreign exchange risks;
• Solvency of counterparty entities on contracts;
• Uncertainties over development and operational costs;
• Political and legal risks, including arrangements for licenses, proﬁ t sharing and taxation;
• Foreign investment risks including increases in taxes, royalties and renegotiation of contracts;
• Liquidity risks;
• Operations and environmental risks and.
• Going Concern.

In addition to the above there can be no assurance that current exploration programmes will result in proﬁ table
operations. The recoverability of the carrying value of exploration and evaluation assets is dependent upon the
successful discovery of economically recoverable reserves, the achievement of proﬁ table operations, and the ability
of the Group to raise additional ﬁ nancing, if necessary, or alternatively upon the Group’s and Company’s ability to
dispose of its interests on an advantageous basis. Changes in future conditions could require material write down of
the carrying values of the Group’s assets.

KEY PERFORMANCE INDICATORS

The Group reviews expenditure incurred on exploration projects and successes thereon, and ongoing operating costs.
In addition the Group reviewed the stages of completion in respect of the Subba & Luhais development services
contract up to the date of the primary responsibility of the project being transferred to Makman, as outlined in the
ﬁ nancial statements.

DIRECTORS

The current directors are listed on the inside of back cover. There were no changes to the Board during the year.

DIRECTORS’ AND SECRETARY’S INTERESTS IN SHARES

The directors and secretary held the following beneﬁ cial interests in the shares of the company:

31/12/2009
Ordinary
Shares of
€0.0125

No.

3,615,000
2,715,384
190,000
1,015,384
155,000

31/12/2009
Options -
Ordinary
Shares of
€0.0125
No.

1,900,000
1,650,000
-
870,000
450,000

31/12/2008
Ordinary
Shares of
€0.0125

No.

3,615,000
2,715,384
190,000
1,015,384
155,000

31/12/2008
Options -
Ordinary
Shares of
€0.0125
No.

1,900,000
1,650,000
-
870,000
450,000

J. Teeling
D. Horgan
G. Delbes
J. Finn (Secretary)
S. Borghi

Petrel Resources Plc Annual Report & Accounts 2009

Directors’ Report (continued)
for year ended 31 December 2009

SUBSTANTIAL SHAREHOLDINGS

The share register records that, in addition to the directors, the following shareholders held 3% or more of the issued
share capital as at 31 December 2009 and at 31 May 2010

31 May 2010
Number of
Ordinary Shares

10,873,735
5,127,756
4,123,143
2,646,134
2,940,000
2,526,000
2,310,038

14.18
6.69
5.38
3.45
3.83
3.29
3.01

31 December 2009
Number of
Ordinary Shares

12,057,506
5,006,418
3,114,642
2,252,334
2,940,000
3,066,000
1,964,441

15.73
6.53
4.06
2.94
3.83
4.00
2.56

Citibank Nominees (Ireland) Limited (CLRLUX)
L. R. Nominees Limited
TD Waterhouse Nominee (Europe) Limited
Lynchwood Nominees Limited
HSBC Global Custody Nominee
Smith & Williamson Nominees Limited
Barclayshare Nominee

FINANCIAL RISK MANAGEMENT

Details of the Group’s ﬁ nancial risk management policies are set out in Note 19 to the ﬁ nancial statements.

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 ﬁ nancial statements on a going concern basis. Further information is outlined in Note 3.

CORPORATE GOVERNANCE

The Board is committed to maintaining high standards of corporate governance and to managing the company in an
honest and ethical manner.

The Board approves the Group’s strategy, investment plans and regularly reviews operational and ﬁ nancial
performance, risk management, and Health, Safety, Environment and Community (HSEC) matters.

The Chairman is responsible for the leadership of the Board, whilst the Executive Directors are responsible for
formulating strategy and delivery once agreed by the Board. Regional leaders and country managers are responsible
for the implementation of the Group’s strategy.

SUBSIDIARIES

Details of the company’s signiﬁ cant subsidiaries are set out in Note 13 to the ﬁ nancial statements.

CHARITABLE AND POLITICAL DONATIONS

The company made no political or charitable contributions during the year.

BOOKS OF ACCOUNT

To ensure that proper books and accounting records are kept in accordance with Section 202 of the Companies Act,
1990, the directors have employed appropriately qualiﬁ ed accounting personnel and have maintained appropriate
computerised accounting systems. The books of account are located at the company’s ofﬁ ce at 162 Clontarf Road,
Dublin 3.

SUBSEQUENT EVENTS

On 26 April 2010, the company announced the settlement of all outstanding operational issues on the Subba and
Luhais oilﬁ eld development in Southern Iraq which will result in the company having a signiﬁ cantly reduced role in the
Project going forward. See the terms of the agreement between Petrel, Makman and SCOP (State Company of Oil
Projects) in Note 3 to the ﬁ nancial statements.

Petrel Resources Plc Annual Report & Accounts 2009 19

Directors’ Report (continued)
for year ended 31 December 2009

AUDITORS

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

Signed on behalf of the Board:

John Teeling
Director

25 June 2010

David Horgan
Director

Petrel Resources Plc Annual Report & Accounts 2009

Statement Of Directors’ Responsibilities

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

(cid:129) select suitable accounting policies for the Group and the Parent Company Financial Statements and then apply

them consistently;

(cid:129) make judgments and estimates that are reasonable and prudent; and

(cid:129) 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 proper books of account which disclose with reasonable accuracy at any
time the ﬁ nancial position of the company and to enable them to ensure that the ﬁ nancial statements are prepared
in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union and
comply with Irish statute comprising the Companies Acts, 1963 to 2009. 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. The directors are responsible for the maintenance and integrity of the corporate and ﬁ nancial information
included on the company’s website.

Petrel Resources Plc Annual Report & Accounts 2009 21

Independent Auditor’s Report To The Members Of
Petrel Resources Plc

We have audited the Group and Parent Company Financial Statements (‘the ﬁ nancial statements’) of Petrel Resources
Plc for the year ended 31 December 2009 which comprise the Group Financial Statements: the Consolidated
Statement of Comprehensive Income, the Consolidated Balance Sheet, the Group Statement of Changes in Equity,
the Consolidated Cash Flow Statement; and the Company Financial Statements: the Company Balance Sheet, the
Company Statement of Changes in Equity, the Company Cash Flow Statement; and the related notes 1 to 26. These
ﬁ nancial statements have been prepared under the accounting policies set out therein.

This report is made solely to the company’s members, as a body, in accordance with Section 193 of the Companies
Act, 1990. 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 auditors’ 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
The directors are responsible, as set out in the Statement of Directors’ Responsibilities, for preparing the Annual
Report, including the preparation of the Group Financial Statements and the Parent Company Financial Statements in
accordance with applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European
Union.

Our responsibility, as independent auditor, is to audit the ﬁ nancial statements in accordance with relevant legal and
regulatory requirements and International Standards on Auditing (UK and Ireland).

We report to you our opinion as to whether the Group Financial Statements and the Parent Company Financial
Statements give a true and fair view, in accordance with IFRSs as adopted by the European Union, and are properly
prepared in accordance with Irish statue comprising of the Companies Acts, 1963 to 2009. 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 ﬁ nancial 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 ﬁ nancial statements. In addition, we state
whether we have obtained all the information and explanations necessary for the purpose 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 speciﬁ ed by law regarding directors’ remuneration and
directors’ transactions is not disclosed and, where practicable, include such information in our report.

We read the other information contained in the Annual Report and consider implications for our report if we become
aware of any apparent misstatement or material inconsistencies with the Financial Statements. The other information
comprises only the Chairman’s Statement, the Review of Operations and the Directors’ Report. Our responsibilities do
not extend to other information.

Basis of audit opinion
We conducted our audit in accordance with International Standards on Auditing (UK and Ireland) issued by the
Auditing Practices Board. An audit includes examination, on a test basis, of evidence relevant to the amounts and
disclosures in the ﬁ nancial statements. It also includes an assessment of the signiﬁ cant estimates and judgments
made by the directors in the preparation of the ﬁ nancial statements and of whether the accounting policies are
appropriate to the Company’s and Group’s circumstances, 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 sufﬁ cient evidence to give reasonable assurance that the ﬁ nancial statements
are free from material misstatement, whether caused by fraud or other irregularity or error. In forming our opinion we
evaluated the overall adequacy of the presentation of information in the ﬁ nancial statements.

OPINION

In our opinion:

(cid:129) the Group Financial Statements give a true and fair view, in accordance with IFRSs as adopted by the
European Union, of the state of the affairs of the Group as at 31 December 2009 and of its loss for the year

then ended;

(cid:129) the Group Financial Statements have been properly prepared in accordance with the Companies Acts, 1963 to

2009;

(cid:129) the Parent Company’s Financial Statements give a true and fair view, in accordance with IFRSs as adopted by
the European Union as applied in accordance with the provisions of the Companies Acts, 1963 to 2009 of the
state of the parent company’s affairs as at 31 December 2009; and

(cid:129) the Parent Company’s Financial Statements have been properly prepared in accordance with the Companies
Acts, 1963 to 2009.

Petrel Resources Plc Annual Report & Accounts 2009

Independent Auditor’s Report To The Members Of
Petrel Resources Plc (continued)

Emphasis of matter - valuation of intangible assets
Without qualifying our opinion we draw your attention to Note 12 to the ﬁ nancial statements concerning the valuation
of intangible assets. The realisation of intangible assets of €1,644,482 included in the consolidated balance sheet and
intangible assets of €1,633,245 included in the company balance sheet is dependent on the successful development
of economic reserves including the ability of the Group to raise sufﬁ cient ﬁ nance to develop these projects. The
ultimate outcome cannot, at present, be determined.

We have obtained all the information and explanations we considered necessary for the purpose 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 is consistent with the ﬁ nancial statements.

The net assets of the company, as stated in the company balance sheet are more than half the amount of its called-
up share capital and, in our opinion, on that basis there did not exist at 31 December 2009 a ﬁ nancial 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 House
Earlsfort Terrace
Dublin 2

25 June 2010

Petrel Resources Plc Annual Report & Accounts 2009 23

Consolidated Statement Of Comprehensive Income
for the year ended 31 December 2009

CONTINUING OPERATIONS

REVENUE

Cost of sales

GROSS PROFIT

Administrative expenses

Impairment of exploration and evaluation expenditure

Impairment of construction costs

OPERATING LOSS

Investment revenue

LOSS BEFORE TAXATION

Income tax expense

LOSS FOR THE YEAR: all attributable
to equity holders of the parent

Notes

2009
€

2008
€

8,233,050

(8,233,050)

(545,835)

(853,968)

(3,923,885)

(2,085,100)

(6,554,820)

(853,968)

28,745

92,331

(6,526,075)

(761,637)

(6,526,075)

(761,637)

Exchange differences on translation of foreign operations

(2,936)

(138,646)

TOTAL COMPREHENSIVE INCOME FOR THE PERIOD

(6,529,011)

(900,283)

Loss per share – basic and diluted

(8.73c)

(1.05c)

The ﬁ nancial statements were approved by the Board of Directors on 25 June 2010 and signed on its behalf by:

John Teeling
Director

David Horgan
Director

Petrel Resources Plc Annual Report & Accounts 2009

Consolidated Balance Sheet
as at 31 December 2009

ASSETS

NON-CURRENT ASSETS

Intangible assets

CURRENT ASSETS

Construction contracts
Trade and other receivables
Cash and cash equivalents

TOTAL ASSETS

CURRENT LIABILITIES

Trade and other payables

NET CURRENT ASSETS

Notes

2009
€

2008
€

1,644,482

4,781,953

14
15
16

5,361,939
37,407,723
923,429

5,315,599
38,684,794
559,599

43,693,091

44,559,992

45,337,573

49,341,945

(37,677,450)

(37,299,416)

6,015,641

7,260,576

TOTAL ASSETS LESS CURRENT LIABILITIES

7,660,123

12,042,529

EQUITY

Called-up share capital
Capital conversion reserve fund
Share premium
Share based payment reserve
Retained earnings - (deﬁ cit)

958,308
7,694
17,784,268
205,971
(11,296,118)

902,873
7,694
15,693,098
205,971
(4,767,107)

TOTAL EQUITY

7,660,123

12,042,529

The ﬁ nancial statements were approved by the Board of Directors on 25 June 2010 and signed on its behalf by:

John Teeling
Director

David Horgan
Director

Petrel Resources Plc Annual Report & Accounts 2009 25

Company Balance Sheet
as at 31 December 2009

ASSETS

NON-CURRENT ASSETS

Intangible assets
Investment in subsidiaries

CURRENT ASSETS

Trade and other receivables
Cash and cash equivalents

TOTAL ASSETS

CURRENT LIABILITIES

Trade and other payables

NET CURRENT ASSETS

Notes

2009
€

2008
€

12
13

15
16

1,633,245
11,237

4,770,716
11,237

1,644,482

4,781,953

5,865,154
864,644

7,850,500
498,512

6,729,798

8,349,012

8,374,280

13,130,965

(714,157)

(1,088,436)

6,015,641

7,260,576

TOTAL ASSETS LESS CURRENT LIABILITIES

7,660,123

12,042,529

EQUITY

Called-up share capital
Capital conversion reserve fund
Share premium
Share based payment reserve
Retained earnings - (deﬁ cit)

958,308
7,694
17,784,268
205,971
(11,296,118)

902,873
7,694
15,693,098
205,971
(4,767,107)

TOTAL EQUITY

7,660,123

12,042,529

The ﬁ nancial statements were approved by the Board of Directors on 25 June 2010 and signed on its behalf by:

John Teeling
Director

David Horgan
Director

Petrel Resources Plc Annual Report & Accounts 2009

Statement Of Changes In Equity
for the year ended 31 December 2009

GROUP AND COMPANY

Share
Based
Capital
Share Conversion Payment
Capital Premium Reserve fund Reserve
€

€

Retained
Earnings-
(Deﬁ cit)
€

Total
€

At 1 January 2008

902,873 15,693,098

7,694

205,971

(3,866,824) 12,942,812

Total comprehensive income for the period

(900,283)

At 31 December 2008

902,873 15,693,098

7,694

205,971

(4,767,107) 12,042,529

Shares issued

55,435 2,137,544

Share issue expenses

Total comprehensive income for the period

(46,374)

2,192,979

(46,374)

(6,529,011)

At 31 December 2009

958,308 17,784,268

7,694

205,971 (11,296,118)

7,660,123

Share premium

The share premium comprises of the excess of monies received in respect of share capital over the nominal value of
shares issued.

Capital conversion reserve fund

The ordinary shares of the company were renominalised from €0.0126774 each to €0.0125 each in 2001 and the
amount by which the issued share capital of the company was reduced was transferred to the capital conversion
reserve fund.

Share based payment reserve

The share based payment reserve represents share based payments granted which are not yet exercised and issued
as shares.

Retained earnings (deﬁ cit)

Retained earnings (deﬁ cit) comprise accumulated proﬁ t and loss in the current year and prior year.

Petrel Resources Plc Annual Report & Accounts 2009 27

Consolidated Cash Flow Statement
for the year ended 31 December 2009

CASH FLOW FROM OPERATING ACTIVITIES

Loss for the year
Investment revenue recognised in loss
Exchange movements
Shares issued in lieu of fees
Impairment of exploration and evaluation expenditure
Impairment of construction costs

OPERATING CASHFLOW BEFORE
MOVEMENTS IN WORKING CAPITAL

Movements in working capital:
(Increase)/decrease in construction contracts
Decrease in trade and other payables
Decrease/(increase) in trade and other receivables

CASH USED IN OPERATIONS

Investment revenue

NET CASH USED IN
OPERATING ACTIVITIES

INVESTING ACTIVITIES

Notes

2009
€

2008
€

(6,526,075)
(28,745)
(5,659)
107,434
3,923,885
2,085,100

(761,637)
(92,331)
273,150
-
-
-

(444,060)

(580,818)

(154,765)
(869,557)
1,277,070

5,664,224
(4,077,001)
(9,350,351)

(191,312)

(8,343,946)

28,745

92,331

(162,567)

(8,251,615)

Payments for intangible ﬁ xed assets

(789,347)

(730,956)

NET CASH USED IN INVESTING ACTIVITIES

(789,347)

(730,956)

FINANCING ACTIVITIES

Increase in bank loan
Proceeds from issue of equity shares
Share issue costs

-
2,085,544
(46,374)

2,531,338
-
-

NET CASH GENERATED BY FINANCING ACTIVITIES

2,039,170

2,531,338

NET INCREASE/(DECREASE) IN CASH

1,087,256

(6,451,233)

Cash and cash equivalents at beginning of ﬁ nancial year

559,599

6,710,767

Effect of exchange rate changes on cash held in
foreign currencies

(723,426)

300,065

Cash and cash equivalents at end of ﬁ nancial year

923,429

559,599

Petrel Resources Plc Annual Report & Accounts 2009

Company Cash Flow Statement
for the year ended 31 December 2009

CASH FLOW FROM OPERATING ACTIVITIES

Loss for the year
Investment revenue recognised in loss
Exchange movement
Shares issued in lieu of fees
Impairment of exploration and evaluation expenditure
Impairment of construction costs

OPERATING CASHFLOW BEFORE
MOVEMENTS IN WORKING CAPITAL

Movements in working capital:
(Decrease)/increase in trade and other payables
Increase in trade and other receivables

CASH USED IN OPERATIONS

Investment revenue

Notes

2009
€

2008
€

(6,526,075)
(28,745)
(5,659)
107,434
3,923,885
2,085,100

(761,637)
(92,331)
744,143
-
-
-

(444,060)

(109,825)

(374,279)
(99,756)

474,142
(2,156,137)

(918,095)

(1,791,820)

28,745

92,331

NET CASH USED IN OPERATING ACTIVITIES

(889,350)

(1,699,489)

INVESTING ACTIVITIES

Payments for intangible ﬁ xed assets

(789,347)

(730,956)

NET CASH USED IN INVESTING ACTIVITIES

(789,347)

(730,956)

FINANCING ACTIVITIES

Proceeds from issue of equity shares
Share issue costs

NET CASH GENERATED BY FINANCING ACTIVITIES

2,085,544
(46,374)

2,039,170

-
-

NET INCREASE/(DECREASE) IN CASH

360,473

(2,430,445)

Cash and cash equivalents at beginning
of ﬁ nancial year

Effect of exchange rate changes on cash held in
foreign currencies

Cash and cash equivalents at end
of ﬁ nancial year

498,512

3,673,100

5,659

(744,143)

864,644

498,512

Petrel Resources Plc Annual Report & Accounts 2009 29

Notes To The Financial Statements
for the year ended 31 December 2009

1. PRINCIPAL ACCOUNTING POLICIES

The signiﬁ cant accounting policies adopted by the Group and Company are as follows:

(i) Basis of preparation

The ﬁ nancial statements are prepared under the historical cost convention. The consolidated ﬁ nancial statements are
presented in Euro.

(ii) Statement of compliance

The ﬁ nancial statements of Petrel Resources plc and all its subsidiaries (“the Group”) have been prepared in
accordance with International Financial Reporting Standards (IFRS). The ﬁ nancial statements have also been prepared
in accordance with International Financial Reporting Standards (IFRSs) issued by the International Accounting
Standards Board (IASB) and International Financial Reporting Interpretations Committee (IFRIC) as adopted by the
European Union.

(iii) Basis of consolidation

The consolidated ﬁ nancial statements incorporate the ﬁ nancial statements of the Company and entities controlled by
the Company (its subsidiaries) made up to 31 December each year. Control is achieved where the Company has the
power to govern the ﬁ nancial and operating policies of an investee entity so as to obtain beneﬁ ts from its activities.
Where necessary, adjustments have been made to the ﬁ nancial statements of the subsidiaries to bring the accounting

policies used into line with those used by the Group.

The assets, liabilities and contingent liabilities of a subsidiary are measured at their fair value at the date of
acquisition. Goodwill and acquisitions are recognised in accordance with IFRS 3 (2004) as an asset measured at cost
initially, then at cost less any accumulated impairment loss.

The results of subsidiaries acquired or disposed of during the year are included in the consolidated statement of
comprehensive income from the effective date of acquisition or up to the effective date of disposal.

All intra-group transactions, balances, income and expenses are eliminated on consolidation.

(iv) Investment in subsidiaries

Investment in subsidiaries is stated at cost less any provision for impairment.

(v) Revenue

Revenue from construction contracts is recognised in accordance with the Group’s accounting policy on construction
contracts – see (vii).

(vi) Intangible assets

Exploration and evaluation assets

Exploration expenditure relates to the initial search for mineral deposits with economic potential in Iraq and Jordan.
Evaluation expenditure arises from a detailed assessment of deposits that have been identiﬁ ed as having economic
potential.

The costs of exploration properties and leases, which include the cost of acquiring prospective properties and
exploration rights and costs incurred in exploration and evaluation activities, are capitalised as intangible assets as part
of exploration and evaluation assets.

Exploration costs are capitalised as an intangible asset until technical feasibility and commercial viability of extraction
of reserves are demonstrable, when the capitalised exploration costs are re-classed to property plant and equipment.
Exploration costs include an allocation of administration and salary costs (including share based payments) as
determined by management, where they relate to speciﬁ c projects.

Prior to reclassiﬁ cation to property, plant and equipment exploration and evaluation assets are assessed for impairment
and any impairment loss is recognised immediately in the statement of comprehensive income.

Impairment of intangible assets
Exploration and evaluation assets are assessed for impairment when facts and circumstances suggest that the
carrying amount may exceed its recoverable amount. The company reviews and tests for impairment on an ongoing
basis and speciﬁ cally if the following occurs:

the period for which the Group and Company has a right to explore in the speciﬁ c area has expired or is expected to
expire;
the exploration and evaluation has not led to the discovery of economic reserves;
the development of the reserves is not economically or commercially viable;

b)
c)
d) the exploration is located in an area that has become politically unstable;
e)

the board resolves to exit a particular project or region.

Petrel Resources Plc Annual Report & Accounts 2009

Notes To The Financial Statements (continued)
for the year ended 31 December 2009

1. PRINCIPAL ACCOUNTING POLICIES (continued)

(vii) Construction contract
Work in progress relates to costs incurred to date on the Subba & Luhais oilﬁ eld development and is stated at the

lower of cost and net realisable value. Amounts previously capitalised in exploration and evaluation expenditure
relating to this project were transferred to work in progress after being tested for impairment.

Where the outcome of the construction contract can be estimated reliably, revenue and costs are recognised by

reference to the stage of completion of the contract at the balance sheet date, measured based on the proportion of
contract costs incurred for work performed to date relative to the estimated total contract costs, except where this
would not be representative of the stage of completion.

Variations are included in contract revenue when it is probable that the customer will approve the variation and the
amount of revenue arising from the variation and the amount of revenue can be reliably measured.

Where the outcome of the construction contract cannot be estimated reliably, contract revenue is recognised to the

extent of contract costs incurred that it is probable will be recoverable. Contract costs are recognised as expenses in
the period in which they are incurred.

When it is probable that total contract costs will exceed total contract revenue, the expected loss is recognised as an

expense immediately.

(viii) Foreign currencies

The individual ﬁ nancial statements of each Group company are maintained in the currency of the primary economic
environment in which it operates (its functional currency). The functional currency of the Group is US Dollars.
However, for the purpose of the consolidated ﬁ nancial statements, the results and ﬁ nancial position of each Group
company are expressed in Euro (the presentation currency). This is for the beneﬁ t of the Group’s shareholders, the
majority of whom reside in the Eurozone.

In preparing the ﬁ nancial statements of the individual companies, transactions in currencies other than the entity’s
functional currency (foreign currencies) are recorded at the rates of exchange prevailing on the dates of the
transactions. At each balance sheet date, monetary assets and liabilities that are denominated in foreign currencies are
retranslated at the rates prevailing on the balance sheet date. Non-monetary items carried at fair value that are
denominated in foreign currencies are retranslated at the rates prevailing at the date when the fair value was re-
determined. Non-monetary items that are measured in terms of historical cost in a foreign currency are not
retranslated.

Exchange differences arising on the settlement of monetary items, and on the retranslation of monetary items, are
included in the statement of comprehensive income for the period. Exchange differences arising on the retranslation
of non-monetary items carried at fair value are included in the statement of comprehensive income for the period
except for differences arising on the retranslation of non-monetary items in respect of which gains and losses are
recognised directly in equity.

For the purpose of presenting consolidated ﬁ nancial statements, the assets and liabilities of the Group’s foreign
operations are translated at exchange rates prevailing on the balance sheet date. Income and expense items are
translated at the average exchange rates for the period, unless exchange rates ﬂ uctuate signiﬁ cantly during that period,
in which case the exchange rates at the date of transactions are used.

Fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign
entity and translated at the closing rate.

(ix) Taxation

The tax expense represents the sum of the tax currently payable and deferred tax.

Current tax is based on taxable proﬁ t for the year. Taxable proﬁ t differs from net proﬁ t as reported in the statement
of comprehensive income because it excludes items of income or expense that are taxable or deductible in other years
and it further excludes items that are never taxable or deductible. The Group’s liability for current tax is calculated using
tax rates that have been enacted or substantively enacted by the balance sheet date.

Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets
and liabilities in the ﬁ nancial statements and the corresponding tax bases used in the computation of taxable proﬁ t,
and is accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognised for all
taxable temporary differences and deferred tax assets are recognised for all deductible temporary differences, carry
forward of unused tax assets and unused tax losses to the extent that it is probable that taxable proﬁ ts will be available
against which deductible temporary differences and the carry forward of unused tax credits and unused tax losses can
be utilised. Such assets and liabilities are not recognised if the temporary difference arises from the initial recognition
of goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a
transaction that affects neither the taxable proﬁ t nor the accounting proﬁ t.

Petrel Resources Plc Annual Report & Accounts 2009 31

Notes To The Financial Statements (continued)
for the year ended 31 December 2009

1. PRINCIPAL ACCOUNTING POLICIES (continued)

(ix) Taxation (continued)

Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries and
associates, except where the Group is able to control the reversal of the temporary difference and it is probable that the
temporary difference will not reverse in the foreseeable future.

Deferred tax assets are recognised for deductible temporary differences arising on investments in subsidiaries and
associates, only to the extent that it is probable that the temporary difference will reverse in the foreseeable future and
taxable proﬁ t will be available against which the temporary difference can be utilised.

The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is
no longer probable that sufﬁ cient taxable proﬁ ts will be available to allow all or part of the asset to be recovered.

Unrecognised deferred tax assets are reassessed at each balance sheet date and are recognised to the extent that it
has become probable that future taxable proﬁ ts will allow the deferred tax asset to be recovered.

Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the
asset is realised, based on tax rates (and tax laws) that have been enacted or substantively enacted at the balance
sheet date. Deferred tax is charged or credited in the statement of comprehensive income, except when it relates to
items charged or credited directly to equity, in which case the deferred tax is also dealt with in equity.

Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets
against current tax liabilities and when they relate to income taxes levied by the same taxation authority and the Group
intends to settle its current tax assets and liabilities on a net basis.

(x) Share-based payments

The Group and Company have applied the requirements of IFRS 2 “Share-Based Payment”. In accordance with the
transitional provisions, IFRS 2 has been applied to all equity instruments vesting after 1 January 2006.

The Group and Company issue equity-settled share based payments to directors and certain consultants. Equity
settled share-based payments are measured at fair value at the date of grant. The fair value excludes the effect of non
market based vesting conditions. The fair value determined at the grant date of the equity-settled share-based
payments is expensed on a straight-line basis over the vesting period based on the Group and Company’s estimate
of shares that will eventually vest. At the balance sheet date the Group reviews its estimate of the nature of equity
instruments expected to vest as a result of the effect of non market based vesting conditions.

Where the value of the goods or services received in exchange for the share-based payment cannot be reliably

estimated the fair value is measured by use of a Black-Scholes model.

(xi) Operating loss

Operating loss comprises general administrative costs incurred by the company, which are not speciﬁ c to evaluation
and exploration projects. Operating loss is stated before ﬁ nance income, ﬁ nance costs and other gains and losses.

(xii) Provisions

Provisions are recognised when the Group has a present obligation as a result of an event, and it is probable that
the Group will be required to settle the obligation. Provisions are measured at the directors’ best estimate of the
expenditure required to settle the obligation at the balance sheet date, and are discounted to present value where the
effect is material.

(xiii) Financial instruments

Financial assets and ﬁ nancial liabilities are recognised in the Group and Company balance sheet when the Group and
Company becomes a party to the contractual provisions of the instrument.

Trade receivables
Trade receivables are measured at initial recognition at invoice value, which approximates to fair value. Appropriate
allowances for estimated irrecoverable amounts are recognised in the consolidated statement of comprehensive
income when there is objective evidence that the carrying value of the asset exceeds the recoverable amount.
Subsequently, trade receivables are classiﬁ ed as loans and receivables which are measured at amortised cost, using
the effective interest method.

Cash and cash equivalents
Cash and cash equivalents comprise cash held by the Group and Company and short-term bank deposits with a
maturity of three months or less from the date of acquisition.

Financial liabilities
Financial liabilities are classiﬁ ed according to the substance of the contractual arrangements entered into.

Petrel Resources Plc Annual Report & Accounts 2009

Notes To The Financial Statements (continued)
for the year ended 31 December 2009

1. PRINCIPAL ACCOUNTING POLICIES (continued)

(xiii) Financial instruments (continued)

Trade payables
Trade payables are classiﬁ ed as ﬁ nancial liabilities, are initially measured at fair value, and are subsequently measured
at amortised cost using the effective interest rate method.

Borrowings
Borrowings are initially recorded at the value of proceeds received, net of transaction costs. Subsequently they are
measured at amortised cost.

Equity instruments
Equity instruments issued by the Company are recorded at the proceeds received, net of direct issue costs.

(xiv) Comparative Amounts

Comparative amounts have been reclassed, where necessary, on the same basis as the current year.

(xv) Critical accounting judgments and key sources of estimation uncertainty

Critical judgments in applying the Group and company accounting policies
In the process of applying the Group and company accounting policies above, management has identiﬁ ed the
judgmental areas as those that have the most signiﬁ cant effect on the amounts recognised in the ﬁ nancial statements
(apart from those involving estimations, which are dealt with below);

- Exploration and evaluation expenditure
The assessment of whether general administration costs and salary costs are capitalised or expensed involves
judgement. Management considers the nature of each cost incurred and whether it is deemed appropriate to capitalise
it within intangible assets.

Costs which can be demonstrated as project related, are included within exploration and evaluation assets.
Exploration and evaluation assets relate to exploration and related expenditure in Iraq and Jordan.

The Group and Company’s exploration activities are subject to a number of signiﬁ cant and potential risks including:

(cid:129) Foreign exchange risks;
(cid:129) Uncertainties over development and operational costs;
(cid:129) Political and legal risks, including arrangements for licenses, proﬁ t sharing and taxation;
(cid:129) Foreign investment risks including increases in taxes, royalties and renegotiation of contracts;
(cid:129) Liquidity risks;
(cid:129) Operation and environmental risks and;
(cid:129) Going Concern.

The recoverability of these exploration and evaluation assets is dependent on the discovery and successful
development of economic reserves, including the ability to raise ﬁ nance to develop future projects. Should this prove
unsuccessful, the value included in the balance sheet would be written off as an impairment to the statement of
comprehensive income.

- Impairment of intangible assets
The assessment of intangible assets for any indications of impairment involves judgement. If an indication of
impairment exists, a formal estimate of recoverable amount is performed and an impairment loss recognised to the
extent that carrying amount exceeds recoverable amount. Recoverable amount is determined as the higher of fair
value less costs to sell and value in use.

The assessment requires judgements as to the likely future commerciality of the assets and when such commerciality
should be determined, future revenue capital and operating costs and the discount rate to be applied to such revenues
and costs.

- Work in progress
Reviews of the carrying value of site work in progress are carried out at regular intervals to ensure the cost is lower
than the net realisable value. This process involves assessing the overall outcome of the projects which includes
estimating the costs to complete and anticipated revenues and therefore requires considerable judgement.

- Deferred tax assets
The assessment of availability of future taxable proﬁ ts involves judgement. A deferred tax asset is recognised to the
extent that it is probable that taxable proﬁ ts will be available against which deductible temporary differences and the
carry forward of unused tax credits and unused tax losses can be utilised.

- Going Concern
The preparation of ﬁ nancial statements requires an assessment on the validity of the going concern assumption. The
validity of the going concern assumption is dependent on ﬁ nance being available for the continuing working capital
requirements of the Group and Company and ﬁ nance for the development of the Group’s projects. The Group and

Petrel Resources Plc Annual Report & Accounts 2009 33

Notes To The Financial Statements (continued)
for the year ended 31 December 2009

1. PRINCIPAL ACCOUNTING POLICIES (continued)

(xv) Critical accounting judgments and key sources of estimation uncertainty (continued)

- Going Concern (continued)

Company activities in respect of the Subba & Luhais development services contract are ﬁ nanced by a letter of credit
with the Trade Bank of Iraq. Subsequent to year end the company announced the settlement of all outstanding
operational issues on the Subba and Luhais oilﬁ eld development in Southern Iraq which resulted in the company
having a reduced role in the project and a net cash inﬂ ow of $2 million with a guarantee of a further $5 million within 12
months of the effective date of the contract. Further information is disclosed in Note 3.

Based on this subsequent event, the directors believe that the going concern basis continues to be appropriate. Should
the going concern basis not be appropriate, adjustments would have to be made to reduce the value of the Group and
Company assets, in particular the intangible ﬁ xed assets, to their realisable values.

Key sources of estimation uncertainty
The preperation of ﬁ nancial statements requires management to make estimates and assumptions that affect the
amounts reported for assets and liabilities at the balance sheet date and the amounts reported in the statement of
comprehensive income for the year. The key of estimation uncertainty are discussed below.

- Share-based payments
The estimation of share-based payment costs requires the selection of an appropriate valuation model and
consideration as to the inputs necessary for the valuation model chosen. The Group and Company have made
estimates as to the volatility of its own shares, the probable life of options granted and the time of exercise of those
options. The model used by the Group and Company is the Black-Scholes valuation model.

2. STANDARDS AND INTERPRETATIONS IN ISSUE BUT NOT YET ADOPTED

The Group has adopted IFRS 8 Operating Segments with effect from 1 January 2009. IFRS 8 requires operating segments
to be identiﬁ ed on the basis of internal reports about components of the Group that are regularly reviewed by the chief
operating decision maker in order to allocate resources to the segments and to assess their performance. As a result of this
adoption there has been a change in the identiﬁ cation of the Group’s reportable segments (Note 9).

The Group did not adopt any other new International Financial Reporting Standards (IFRSs) or Interpretations in the year
that had a material impact on the Group’s Financial Statements.

The following IFRSs also become effective since the last Annual Report but had no material impact on the Financial
Statements:

IAS 1 Presentation of Financial Statements (effective for accounting periods beginning on or after 1 January 2009);

IAS 16 (Amendment) Property, Plant and Equipment (effective for accounting periods beginning on or after 1 January 2009);

IAS 19 (Amendment) Employee Beneﬁ ts (effective for accounting periods beginning on or after 1 January 2009);

IAS 20 (Amendment) Accounting for Government Grants and disclosure of Government assistance (effective for accounting
periods beginning on or after 1 January 2009);

IAS 23 (Amendment) Borrowing Costs (effective for accounting periods beginning on or after 1 January 2009);

IAS 27 (Amendment) Consolidated and Separate Financial Statements (effective for accounting periods beginning on or
after 1 January 2009);

IAS 28 (Amendment) Investments in Associates (effective for accounting periods beginning on or after 1 January 2009);

IAS 29 (Amendment) Financial Reporting in Hyperinﬂ ation Economies (effective for accounting periods beginning on or after
1 January 2009);

IAS 31 (Amendment) Interest in Joint Ventures (effective for accounting periods beginning on or after 1 January 2009);

IAS 32 (Amendment) Financial Instruments: Presentation (effective for accounting periods beginning on or after 1 January
2009);

IAS 36 (Amendment) Impairment of Assets (effective for accounting periods beginning on or after 1 January 2009);

IAS 38 (Amendment) Intangible Assets (effective for accounting periods beginning on or after 1 January 2009);

IAS 40 (Amendment) Investment in Property (effective for accounting periods beginning on or after 1 January 2009);

IAS 41 (Amendment) Agriculture (effective for accounting periods beginning on or after 1 January 2009);

IFRS 2 (Amendment) Share Based Payment (effective for accounting periods beginning on or after
January 2009);

Petrel Resources Plc Annual Report & Accounts 2009

Notes To The Financial Statements (continued)
for the year ended 31 December 2009

2. STANDARDS AND INTERPRETATIONS IN ISSUE BUT NOT YET ADOPTED (continued)

IFRS 7 (Amendment) Financial Instruments: Disclosures (effective for accounting period beginning on or after 1 July 2008);

FRIC 13 Customer Loyalty Programmes (effective for accounting periods beginning on or after 1 January 2009);

IFRIC 15 Agreements for the Construction of Real Estate (effective for accounting periods beginning on or after 1 January
2009); and

IFRIC 16 Hedges of a Net Investment in a Foreign Operation (effective for accounting periods beginning on or after 1
October 2008).

At the date of authorisation of these ﬁ nancial statements, the following Standards and Interpretations which have
not been applied in these ﬁ nancial statements were in issue but not yet effective:

IFRS 1 (Amendment) First-time Adoption of International Financial Reporting Standards (effective for accounting periods
beginning on or after 1 January 2010);

IFRS 1 (Revised) First-time Adoption of International Financial Reporting Standards (effective for accounting periods
beginning on or after 1 July 2009);

IFRS 2 (Amendment) Share Based Payments (effective for accounting periods beginning on or after 1 July 2009 and 1
January 2010);

IFRS 3 (Revised) Business Combinations (effective for accounting periods beginning on or after 1 July 2009);

IFRS 5 (Amendment) Non-Current Assets Held for Sale and Discontinued Operations (effective for accounting period
beginning on or after 1 July 2009 and 1 January 2010);

IFRS 8 (Amendment) Operating Segments (effective for accounting periods beginning on or after 1 January 2010);

IFRS 9 Financial Instruments; Classiﬁ cation and Measurement (effective for accounting periods beginning on or after 1
January 2013);

IAS 1 (Amendment) Presentation of Financial Statements (effective for accounting periods beginning on or after 1 January
2010);

IAS 7 (Amendment) Statement of Cash Flows (effective for accounting periods beginning on or after 1 January 2010);

IAS 17 (Amendment) Leases (effective for accounting periods beginning on or after 1 January 2010);

IAS 24 (Revised) Related Party Disclosures (effective for accounting periods beginning on or after 1 January 2011);

IAS 27 (Amendment) Consolidated and Separate Financial Statements (effective for accounting periods beginning on or
after 1 July 2009);

IAS 28 (Amendment) Investments in Associates (effective for accounting periods beginning on or after 1 July 2009);

IAS 31 (Amendment) Interests in Joint Ventures (effective for accounting periods beginning on or after 1 July 2009);

IAS 32 (Amendment) Financial Instruments: Presentation (effective for accounting periods beginning on or after 1 February
2010);

IAS 36 (Amendment) Impairment of Assets (effective for accounting periods beginning on or after 1 January 2010);

IAS 38 (Amendment) Intangible Assets (effective for accounting periods beginning on or after 1 July 2009);

IAS 39 (Amendment) Financial Instruments: Recognition and Measurement (effective for accounting period beginning on or
after 1 July 2009 and 1 January 2010);

IFRIC 14 (Amendment) Prepayments of a Minimum Funding Requirement (effective for accounting periods beginning on or
after 1 January 2011);

IFRIC 17 Distributions of Non-cash Assets to Owners (effective for accounting periods beginning on or after 1 July 2009);

IFRIC 18 Transfers of Assets from Customers (effective for accounting periods beginning on or after 1 July 2009); and

IFRIC 19 Extinguishing Financial Liabilities with Equity Instruments (effective for accounting periods beginning on or after 1
July 2010).

Improvements to IFRSs 2009 (effective for accounting periods beginning on or after 1 January 2010).

Improvements to IFRSs 2010 (effective for accounting periods beginning on or after 1 January 2011).

The directors are currently assessing the impact in relation to the adoption of these standards and interpretations for future
periods of the Group. Given the current Group operation, in the opinion of the Directors, the above should have no material
impact on the Group ﬁ nancial statements.

Petrel Resources Plc Annual Report & Accounts 2009 35

Notes To The Financial Statements (continued)
for the year ended 31 December 2009

3. GOING CONCERN

The Group and Company incurred a loss for the year of €6,526,075 and had a retained earnings deﬁ cit of €11,296,118, at
the balance sheet date leading to concern about the Group and Company’s ability to continue as a going concern. The
Group had a cash balance of €923,429 at the balance sheet date together with a bank loan of €23,501,833 representing the
amount drawn down on a letter of credit which is in place in respect of the Subba & Luhais development contract. The
company had a cash balance of €864,644 at the balance sheet date.

Subsequent to year end, on 26 April 2010, the company announced the settlement of all outstanding operational issues
on the Subba and Luhais oilﬁ eld development in Southern Iraq. Under the terms of the agreement reached between Petrel,
Makman FZC(Makman), its local Iraqi partner, and SCOP (State Company for Oil Projects):

(cid:129) Petrel will receive a total of $7 million, of which $2 million has been received post year end. Two further payments of
$2.5 million each, for which bank guarantees have been received, are due on 1 November 2010 and 1 May 2011,
respectively.

(cid:129) Petrel no longer has any signiﬁ cant liability or exposure to possible project losses but maintains a proﬁ t share.

(cid:129) Petrel will receive a 10% proﬁ t interest based on accounts for the project.

(cid:129) The Petrel/Makman joint venture will complete the development, with Makman assuming primary responsibility for the

ﬁ nal phases of the work. A new Letter of Credit for the balance of the contract is being put in place by the Iraqi
Authorities.

(cid:129) Petrel transfers its controlling interest of its shares in Petrel/Makman Joint Venture Agreement to Makman.

Accordingly the directors are satisﬁ ed that it is appropriate to continue to prepare the ﬁ nancial statements of the
group and company on the going concern basis, as the agreement outlined above removes the Group’s ongoing
responsibility in respect of the contract and the additional cash resources of $7 million realised can be used on other
projects. The ﬁ nancial statements do not include any adjustment to the carrying amount, or classiﬁ cation of assets and
liabilities, if the Group or Company was unable to continue as a going concern.

4. REVENUE

An analysis of the Group’s revenue is as follows:

2009
€

2008
€

Revenue from construction contract

8,233,050

INVESTMENT REVENUE

Investment bank deposits

6. LOSS BEFORE TAXATION

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

Directors’ remuneration
- fees for services as directors
- fees for other services

Total

2009
€

28,745

2008
€

92,331

2009
€

2008
€

100,000
112,200

212,200*

100,000
73,275

173,275

Petrel Resources Plc Annual Report & Accounts 2009

Notes To The Financial Statements (continued)
for the year ended 31 December 2009

6. LOSS BEFORE TAXATION (continued)

* Additional directors’ remuneration of €82,500 was capitalised as exploration and evaluation expenditure during 2009.

Auditor remuneration
Staff costs - salaries
- payroll taxes
Foreign exchange (gain)/loss

The analysis of auditor remuneration is as follows:

Fees payable to the Group’s auditor for the audit of the
Group’s ﬁ nancial statements
Fees for Taxation Services

Total fees paid to auditor

Administrative expenses comprise:

Professional fees
Net foreign exchange (gains)/losses
Directors’ remuneration
Other administration expenses

Impairment of exploration and evaluation expenditure

Impairment of construction costs

7. RELATED PARTY AND OTHER TRANSACTIONS

Group and Company
(cid:129) Key management compensation

Short- term employee beneﬁ ts

(cid:129) Other

2009
€

30,000
229,671
43,000
(5,659)

25,000
5,000

30,000

263,720
(5,659)
212,200
75,574

545,835

3,923,885

2,085,100

2008
€

30,000
208,552
5,375
286,776

25,000
5,000

30,000

198,354
286,776
173,275
195,563

853,968

2009
€

2008
€

407,200

341,175

Petrel Resources plc shares ofﬁ ces and overheads with a number of companies also based at 162 Clontarf Road. These
companies have some common directors. During the year €25,699 (2008: €11,234) was paid by other companies and re-
charged to the company in respect of these overheads and ofﬁ ce costs as follows:

Pan Andean Resources plc
Cooley Distillery plc
African Diamonds plc
Persian Gold plc
Connemara Mining Company plc

West African Diamonds plc

2009
€

19,330
(27,658)
10,191
7,757
1,343
14,706

25,669

2008
€

10,707
(18,332)
3,869
-
-
14,990

11,234

Petrel Resources Plc Annual Report & Accounts 2009 37

Notes To The Financial Statements (continued)
for the year ended 31 December 2009

7. RELATED PARTY AND OTHER TRANSACTIONS (continued)

(cid:129) Other (continued)

The following amounts were due to/ (by) the
company at 31 December:

Swala Resources plc
Pan Andean Resources plc
African Diamonds plc
Persian Gold plc
Connemara Mining Company plc

West African Diamonds plc

Cooley Distillery plc

Company

2009
€

-
35,384
11,836
19,153
1,343
13,178
(14,075)

2008
€

217
27,214
(9,284)
11,396
-
20,539
(9,525)

66,819

(40,557)

During the year, the company paid consultancy fees to Guy Delbes amounting to €14,303 (2008: €25,567). Guy Delbes is a
director of the company.

At 31 December the following amount was due to the company by its subsidiaries:

Amounts due from the Petrel/ Makman Service
Contract Joint Venture

8. STAFF NUMBERS

2009
€

2008
€

5,758,994

7,772,381

There were no employees of the Group other than the directors and the secretary during the current or prior year.

9. SEGMENTAL ANALYSIS

The group has adopted IFRS 8 Operating Segments with effect from 1 January 2009. IFRS 8 requires operating segments
to be identiﬁ ed on the basis of internal reports about the Group that are regularly reviewed by the chief operating decision
maker. The Board is deemed the chief operating decision maker within the Group. As a result of this adoption, there has
been a change in the identiﬁ cation of the Group’s reportable segments and this change has been adjusted for
retrospectively. For management purposes, the Group has two classes of business: mining exploration and development
and construction of an oil ﬁ eld. These are analysed on a project by project basis.

Segment information about the Group’s activities is presented below:

9A. Segment Revenue

Continuing Operations
Subba & Luhais Oil Field Development

Merjan and Dhufriya Oil Field Agreement
Western Dessert Block 6

East Safawi Block, Jordan

Total for continuing operations
Unallocated head ofﬁ ce

Exploration
and evaluation
2008
€

2009
€

Construction of
an oil ﬁ eld

2009
€

2008
€

Total

2009
€

2008
€

-
-
-
-

-
-

-
-
-
-

-
-

-
-
-
-

-
-

8,233,050
-
-
-

8,233,050
-

8,233,050

-
-
-
-

-
-

8,233,050
-
-
-

8,233,050
-

8,233,050

Petrel Resources Plc Annual Report & Accounts 2009

Notes To The Financial Statements (continued)
for the year ended 31 December 2009

9. SEGMENTAL ANALYSIS (continued)

Exploration
and evaluation
2008
€

2009
€

Construction of
an oil ﬁ eld

2009
€

2008
€

Total

2009
€

2008
€

9B. Segment Results

Continuing Operations
Subba & Luhais Oil Field Development
Merjan and Dhufriya Oil Field Agreement

Western Dessert Block 6

East Safawi Block, Jordan

(4,420,290)
(36,925)
-
(1,551,769)

-
-
-
-

Total for continuing operations
Unallocated head ofﬁ ce

(6,008,984)
(517,091)

-
(761,637)

(6,526,075)

(761,637)

9.B Segment Assets

Group

Subba & Luhais Oil Field Development
Merjan and Dhufriya Oil Field Agreement

Western Dessert Block 6

East Safawi Block, Jordan

-
402,749
1,241,733
-

2,076,305
452,102
1,285,363
968,183

Total for continuing operations
Unallocated head ofﬁ ce

1,644,482
970,804

4,781,953
576,631

-
-
-
-

-
-

-
-
-
-

-
-

(4,420,290)
(36,925)
-
(1,551,769)

-
-
-
-

(6,008,984)
(517,091)

-
(761,637)

(6,526,075)

(761,637)

42,722,287 43,983,361 42,722,287 46,059,666
452,102
1,285,363
968,183

402,749
1,241,733
-

-
-
-

42,722,287 43,983,361 44,366,769 48,765,314
576,631

970,804

2,615,286

5,358,584

42,722,287 43,983,361 45,337,573 49,341,945

9.C Company
Subba & Luhais Oil Field Development

Merjan and Dhufriya Oil Field Agreement
Western Dessert Block 6

East Safawi Block, Jordan

-
402,749
1,241,733
-

2,076,305
452,102
1,285,363
988,183

Total for continuing operations
Unallocated head ofﬁ ce

1,644,482
6,729,798

4,781,953
8,349,012

8,374,280 13,130,965

-
-
-
-

-
-

-
-
-
-

-
-

-
402,749
1,241,733
-

2,076,305
452,102
1,285,363
988,183

1,644,482
6,729,798

4,781,953
8,349,012

8,374,280 13,130,965

9D. Segment Liabilities

Group

Subba & Luhais Oil Field Development
Merjan and Dhufriya Oil Field Agreement

Western Dessert Block 6

East Safawi Block, Jordan

-
-
-
(411,357)

-
-
-
-

(36,963,293) (36,210,890) (36,963,293) (36,210,890)
-
-
-
-
-
-

-
-
(411,357)

-
-
-

Total for continuing operations
Unallocated head ofﬁ ce

-
(411,357)
(302,800) (1,088,436)

(36,963,293) (36,210,890) (37,374,650) (36,210,980)
(302,800) (1,088,436)
-

(714,157) (1,088,436)

(36,963,293) (36,210,890) (37,677,450) (37,299,416)

Petrel Resources Plc Annual Report & Accounts 2009 39

Notes To The Financial Statements (continued)
for the year ended 31 December 2009

9. SEGMENTAL ANALYSIS (continued)

9D. Segment Liabilities (continued)

Company

Exploration
and evaluation

2009
€

2008
€

Construction of
an oil ﬁ eld

2009
€

2008
€

Total

2009
€

2008
€

Subba & Luhais Oil Field Development
Merjan and Dhufriya Oil Field Agreement

Western Dessert Block 6

East Safawi Block, Jordan

-
-
-
(411,357)

-
-
-
-

Total for continuing operations
Unallocated head ofﬁ ce

(411,357)
(302,800)

-
(1,088,436)

(714,157)

(1,088,436)

Additions to new current assets (Group and Company)

Subba & Luhais Oil Field Development 210,679
-
Merjan and Dhufriya Oil Field Agreement
-
578,668

East Safawi Block, Jordan

Western Dessert Block 6

-
-
-
-

Total for continuing operations
Unallocated head ofﬁ ce

789,347
-

730,956
-

789,347

730,956

10. INCOME TAX EXPENSE

Factors affecting the tax expense:

Loss on ordinary activities before tax

Income tax calculated @ 12.5%

Effects of:
Expenses not allowable
Tax losses carried forward
Income taxed at higher rate
Tax charge

-
-
-
-

-
-

-
-
-
-

-
-

-
-
-
-

-
-

-
-
-
-

-
-

-
-
-
(411,357)

-
-
-
-

(411,357)
(302,800)

-
(1,088,436)

(714,157)

(1,088,436)

210,679
-
-
578,668

789,347
-

-
-
-
-

730,956
-

789,347

730,956

2009
€

2008
€

(6,526,075)

(761,637)

(815,759)

(95,205)

748,261
62,708

4,790

-
95,205

-
-

No corporation tax charge arises in the current year or the prior year due to losses brought forward.

At the balance sheet date, the Group had unused tax losses of €5,444,220 (2008: €4,628,461) which equates to a deferred
tax asset of €680,527 (2008: €578,558). No deferred tax asset has been recognised due to the unpredictability of the future
proﬁ t streams. Losses may be carried forward indeﬁ nitely.

11. LOSS PER SHARE

Loss per share - Basic and diluted

2009
€

2008
€

(8.73c)

(1.05c)

Petrel Resources Plc Annual Report & Accounts 2009

Notes To The Financial Statements (continued)
for the year ended 31 December 2009

11. LOSS PER SHARE (continued)

Basic loss per share

The earnings and weighted average number of ordinary shares used in the calculation of basic loss per share are as
follows:

2009
€

2008
€

Loss for the year attributable to equity holders of the parent

(6,526,075)

(761,637)

Weighted average number of ordinary shares for the

purpose of basic earnings per share

2009
Number

2008
Number

74,727,222

72,229,796

Basic and diluted loss per share is the same as the effect of the outstanding share options is anti-dilutive and is therefore
excluded.

12. INTANGIBLE ASSETS

Exploration and evaluation assets:

Cost:
Opening balance
Additions
Impairment
Exchange translation adjustment

Group

Company

2009
€

2008
€

2009
€

2008
€

4,781,953
789,347
(3,923,885)
(2,933)

4,189,643
730,956
-
(138,646)

4,770,716
789,347
(3,923,885)
(2,933)

4,178,406
730,956
-
(138,646)

Closing balance

1,644,482

4,781,953

1,633,245

4,770,716

Exploration and evaluation assets at 31 December 2009 represent exploration and related expenditure in respect of projects
in Iraq. The directors are aware that by its nature there is an inherent uncertainty in relation to the recoverability of amounts
capitalised on the exploration projects. In addition, the current economic and political situation in Iraq is uncertain. Having
reviewed the exploration and evaluation expenditure at 31 December 2009 and as a result of a subsequent event regarding
the settlement of all outstanding operational issues on the Subba and Luhais Oilﬁ eld development in Southern Iraq, the
directors have decided to write off €2,372,116 of the exploration and evaluation costs capitalised in relation to the projects in
Iraq in the current year. See Note 3 for further details regarding this subsequent event.

In addition, the directors have impaired all exploration and evaluation costs amounting to €1,551,769 relating to the project
in Jordan due to an anticipated loss of the license on the block as a result of the group being unable to identify a partner to
progress and fund development of the project.

No amortisation is charged prior to the commencement of production. When production commences within an area of
interest previously capitalised in respect of exploration, evaluation and development, these costs are amortised over the
commercial reserves of the mining property on a unit of production basis.

The group’s activities are subject to a number of signiﬁ cant potential risks including:

(cid:129) Foreign exchange risks;
(cid:129) Uncertainties over development and operational costs;
(cid:129) Political and legal risks, including arrangements for licenses, proﬁ t sharing and taxation;
(cid:129) Foreign investment risks including increases in taxes, royalties and renegotiation of contracts;
(cid:129)
(cid:129) Operations and environmental risks and;
(cid:129) Going Concern.

Liquidity risks;

The realisation of these intangible assets is dependent on the successful development of economic reserves, including the
ability to raise ﬁ nance to develop the projects. Should this prove unsuccessful the value included in the balance sheet
would be written off to the statement of comprehensive income.

Petrel Resources Plc Annual Report & Accounts 2009 41

Notes To The Financial Statements (continued)
for the year ended 31 December 2009

12. INTANGIBLE ASSETS (continued)

Regional Analysis – Group

At 1 January 2008
Additions
Exchange translation adjustment

At 1 January 2009

Additions
Impairment
Exchange translation adjustment

At 31 December 2009

13. INVESTMENT IN SUBSIDIARIES

Company

Shares at cost - unlisted:
Opening balance

Closing balance

Iraq
€

3,541,541
405,957
(133,728)

Jordan
€

648,102
324,999
(4,918)

Total
€

4,189,643
730,956
(138,646)

3,813,770

968,183

4,781,953

210,679
(2,372,116)
(7,851)

578,668
(1,551,769)
4,918

789,347
(3,923,885)
(2,933)

1,644,482

2009
€

11,237

2008
€

11,237

The Group consisted of the parent company and the following wholly owned subsidiaries as at
31 December 2009:

Name

Petrel Industries Limited

Petrel Resources of the
Middle East Offshore S.A.L.

Registered
Ofﬁ ce

162 Clontarf Road,
Dublin 3, Ireland

Damascus Street
Beirut, Lebanon

Group
Share

100%

Nature of
Business

Dormant

100%

Dormant

During 2005 the company entered into an agreement with Makman, which is referred to as a joint venture arrangement
to develop the Subba and Luhais Development Project in Iraq. At the balance sheet date the company had ultimate control
of this project and accordingly it has been consolidated as a subsidiary. This project did not generate either a proﬁ t or loss
and accordingly no minority interest arises at the balance sheet date. However on 26 April 2010, the company announced
the settlement of all outstanding operational issues on the Subba and Luhais oilﬁ eld development in Southern Iraq which
resulted in control of the Joint Venture Agreement passing to Makman. See Note 3 for further details.

The company holds a 30% interest in a Ghanaian private company, Pan Andean Resources Limited, which is an early stage
exploration vehicle in Africa.

The directors are satisﬁ ed that the carrying value of the investments is not impaired.

14. CONSTRUCTION CONTRACTS

Work in progress:
Opening balance
Expenditure incurred in period
Impairment
Work completed

Group

Company

2009
€

2008
€

2009
€

2008
€

5,315,599
2,131,440
(2,085,100)
-

9,558,084
3,990,565
-
(8,233,050)

5,361,939

5,315,599

-
-
-
-

Petrel Resources Plc Annual Report & Accounts 2009

Notes To The Financial Statements (continued)
for the year ended 31 December 2009

14. CONSTRUCTION CONTRACTS (continued)

The above expenditure relates to costs incurred and not billed in respect of the Subba and Luhais development services
contract.

The Subba and Luhais development services contract represents a contract with the Iraqi Ministry of Oil, and SCOP (State
Company of Oil Projects) to assist design, supply materials and services for the development of an oil ﬁ eld.

On 26 April 2010, the company announced the settlement of all outstanding operational issues on the Subba and
Luhais oilﬁ eld development in Southern Iraq. See Note 3 for further details. Under the terms of the agreement Petrel will
receive a minimum consideration of $7 million. The directors have assessed the carrying value of the amounts recoverable
under construction contracts at the year end date. As a result an impairment of €2,085,100 was recognised to bring the
values recoverable under the contract to the actual amount receivable under the terms of the settlement.

15. TRADE AND OTHER RECEIVABLES

Group

Company

Current assets:
Trade receivables
VAT refund due
Other receivables

Non-current assets:
Amounts due from group undertakings

2009
€

2008
€

37,301,562
19,953
86,208

38,606,675
27,628
50,491

2009
€

-
19,953
86,207

2008
€

-
27,628
50,491

5,758,994

7,772,381

37,407,723

38,684,794

5,865,154

7,850,500

Trade receivables relate to amounts billed in respect of the Subba and Luhais development services contract up to 31
December 2009. Included in the Group trade receivable balance are debtors with a carrying amount of €37,301,562
(2008: €36,252,298) which are past due at the reporting date and for which the Group has not made any impairment
provisions. As disclosed in note 3, subsequent to year end the risks and the substantial rewards relating to the Subba and
Luhais Development Contract were transferred to Makman.

In respect to the amounts due from group undertakings, recognised in the company balance sheet, an amount of $2 million
has been received subsequent to year end and, as outlined in note 3, guarantees have been received for further payments
of $5 million due within 12 months from the 26 April 2010.

Accordingly, in the opinion of the directors the amounts above are considered to be fully recoverable.

Ageing of past due but not impaired.

90 – 120 days
> 120 days

Total

16. CASH AND CASH EQUIVALENTS

Group

Company

2009
€
-
37,301,562

2008
€
4,761,128
31,491,170

37,301,562

36,252,298

2009
€
-
-

Group

Company

2009
€

2008
€

2009
€

2008
€
-
-

2008
€

Cash and cash equivalents

923,429

559,599

864,644

498,512

Cash at bank earns interest at ﬂ oating rates on daily bank rates. The fair value for cash and cash equivalents is €923,429
(2008: €559,599) for Group and €864,644 (2008: €498,512) for Company. The Group and Company only deposits cash
surpluses with major banks.

Petrel Resources Plc Annual Report & Accounts 2009 43

Notes To The Financial Statements (continued)
for the year ended 31 December 2009

17. TRADE AND OTHER PAYABLES

Bank loan
Accruals
Amount due to group undertaking
Other creditors
Customer deposits

Group

Company

2009
€
23,501,833
119,074
-
595,083
13,461,460

2008
€
21,560,087
1,088,436
-
718,442
13,932,451

2009
€
-
119,074
3
595,080
-

2008
€
-
1,088,433
3
-
-

37,677,450

37,299,416

714,157

1,088,436

The bank loan represents the amounts drawn down on a letter of credit which was in place at the year end in respect of the
Subba & Luhais development contract. The letter of credit has been guaranteed by Makman. The customer deposits relate
to payments on account received in respect of the Subba & Luhais development services contract – further details are set
out in Notes 14 and 15. The Petrel/Makman Joint Venture Service Agreement which includes both the bank loan and the
customer deposits was transferred to Makman subsequent to year end. For further details see note 3

It is the Group’s normal practice to agree terms of transactions, including payment terms, with suppliers and provided
suppliers perform in accordance with the agreed terms, and it is the Group’s policy that payments are made between
30 - 45 days. The Group has ﬁ nancial risk management policies in place to ensure that all payables are paid within the
credit timeframe.

18. FINANCIAL INSTRUMENTS

The Group and Company undertakes certain transactions denominated in foreign currencies. Hence, exposures to
exchange rate ﬂ uctuations arise.

The Group and Company holds cash as a liquid resource to fund the obligations of the Group. The Group’s cash balances
are held in euro, sterling and in US dollar. The Group’s strategy for managing cash is to maximise interest income whilst
ensuring its availability to match the proﬁ le of the Group’s expenditure. This is achieved by regular monitoring of interest
rates and monthly review of expenditure.

The Group and Company has a policy of not hedging due to no signiﬁ cant dealings in currencies other than the reporting
currency and euro denominated transactions and therefore takes market rates in respect of foreign exchange risk; however,
it does review its currency exposures on an adhoc basis.

The group had a letter of credit in place at the year end with the Trade Bank of Iraq for €23,501,833 (2008: €21,560,087).
The amount drawn down and outstanding at year end in respect of this was approximately US$30 million.

The Group and Company has relies upon equity funding to ﬁ nance operations. The Directors are conﬁ dent that adequate
cash resources exist to ﬁ nance operations for future exploration but controls over expenditure are carefully managed.

The carrying amounts of the Group and company’s foreign currency denominated monetary assets and monetary liabilities
at the reporting dates are as follows:

Group

Sterling
US Dollar

Company

Sterling
US Dollar

Assets

Liabilities

2009
€

2008
€

2009
€

2008
€

434,885
38,331,152

282,276
38,848,187

5,334
37,388,463

315,092
36,332,938

Assets

Liabilities

2009
€

2008
€

2009
€

2008
€

434,883
6,135,042

282,276
7,952,794

5,334
425,170

315,092
121,958

Petrel Resources Plc Annual Report & Accounts 2009

Notes To The Financial Statements (continued)
for the year ended 31 December 2009

19. RISK MANAGEMENT

The Group’s ﬁ nancial instruments comprise cash balances and various items such as trade receivables and trade payables
which arise directly from trading operations. The main purpose of these ﬁ nancial instruments is to provide working capital to
ﬁ nance Group operations.

The Group and Company does not enter into any derivative transactions, and it is the Group’s policy that no trading in
ﬁ nancial instruments shall be undertaken. The main ﬁ nancial risk arising from the group’s ﬁ nancial instruments is currency
risk. The board reviews and agrees policies for managing this risk and they are summarised below.

Interest rate risk proﬁ le of ﬁ nancial assets and ﬁ nancial liabilities
The Group ﬁ nances its operations through the issue of equity shares, and had no exposure to interest rate
agreements at the year end date.

Liquidity Risk
As regards liquidity, the Group’s policy is to ensure continuity of funding primarily through fresh issues of shares. Short-term
funding is achieved through utilizing and optimising the management of working capital. The directors are conﬁ dent that
adequate cash resources exist to ﬁ nance operations in the short term, including exploration and development.

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. At 31 December 2009, the Group held €869,731 in sterling and U.S. dollar denominated bank accounts (2008:
€523,775). The group had a bank loan of US$33,856,741 translated at the year end rate to €23,501,833 (2008:
€21,560,087).

The Group also has transactional currency exposures. Such exposures arise from expenses incurred by the Group in
currencies other than the functional currency. 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
speciﬁ ed bands.

Credit risk

With respect to credit risk arising from ﬁ nancial assets of the group which comprise cash and cash equivalents and trade

receivables, the Group’s exposure to credit risk arises from default of the counterparty, with a maximum exposure equal to
the carrying amount of these instruments. Further information is outlined in Note 15 and 16.

Capital Management
The primary objective of the Group’s capital management is to ensure that it maintains an adequate capital ratio in order to
support its business and maximise shareholder value. The capital structure of the group consists of equity (comprising
issued share capital and reserves).

The Group manages its capital structure and makes adjustments to it, in light of changes in economic conditions. No
changes were made in the objectives policies or processes during the years ended 31 December 2009 and 31 December
2008.

Financial Assets
The group has no ﬁ nancial assets, other than short-term receivables and cash at bank.

20. SHARE CAPITAL

Authorised:
200,000,000 ordinary shares of €0.0125

Allotted, Called-Up and Fully Paid:
Opening 72,229,796 (2008: 72,229,796) ordinary
shares of €0.0125 each

Issued:
4,434,828 (2008:Nil) ordinary shares of €0.0125 each

Closing 76,664,624 (2008: 72,229,796) ordinary shares
of €0.0125 each

Group and Company
2008
€

2009
€

2,500,000

902,873

55,435

958,308

902,873

Petrel Resources Plc Annual Report & Accounts 2009 45

Notes To The Financial Statements (continued)
for the year ended 31 December 2009

20. SHARE CAPITAL (continued)

The total number of options outstanding at 31 December 2009, including directors was 4,870,000 (2008: 4,870,000) shares.
The options are exercisable at prices ranging between €0.0339 and €1.78 in accordance with the option agreement.

Movements in issued share capital

On 4 February 2009, 344,828 shares were issued at a price of 29p per share to consultants in lieu of
consulting fees that were due to them.

On 14 May 2009, 4,090,000 shares were issued at a price of 45p per share to provide additional working capital and fund
development costs.

21. SHARE BASED PAYMENTS

The Group issues equity-settled share-based payments to certain directors and individuals who have performed services
for the Group. Equity-settled share-based payments are measured at fair value at the date of grant. The fair value
determined at the grant date of the equity-settled share-based payments is capitalised as part of exploration and evaluation
assets as the transaction relates to the payment of goods and services which qualify to be recognised as an asset. Fair
value is measured by the use of a Black-Scholes model.

OPTIONS

The Group plan provides for a grant price equal to the average quoted market price of the ordinary shares on the date of
grant. The options vest immediately.

Outstanding at beginning of year
Granted during the year

Outstanding and exercisable at
the end of year

Exercisable at the end of year

Year ended
31/12/2009`
Options

Year ended Year ended Year ended
31/12/2008
31/12/2008
31/12/2009
Weighted
Weighted
Options
average
average
exercise
exercise
price in cent
price in cent

200,000
-

200,000

178
-

200,000
-

200,000

178

200,000

178
-

178

The options outstanding at 31 December 2009 had a weighted average exercise price of 178c, and a weighted average
remaining contractual life of 6.75 years.

The fair value of the options was calculated using the Black Scholes option pricing model. No options were granted in 2009.
The inputs into the model were as follows:

Weighted average share price at date of grant (in cent)
Weighted average exercise price (in cent)

Expected volatility
Expected life
Risk free rate
Expected dividends

2009

2008

-
-
-
-
-
-

Expected volatility was determined by management based on their cumulative experience of the movement in share prices
over the previous number of years. The expected useful life used in the model has been adjusted based on management’s
best estimate for the effects of non-transferability, exercise restrictions and behavioral considerations.

The Group capitalised expenses of €Nil (2008: € Nil) related to equity-settled share-based payments transactions during the
period. No share options were issued in 2009 (2008: €Nil).

Petrel Resources Plc Annual Report & Accounts 2009

Notes To The Financial Statements (continued)
for the year ended 31 December 2009

22. PROFIT ATTRIBUTABLE TO PETREL RESOURCES PLC

In accordance with Section 148 (8) of the Companies Act, 1963 and Section 7 (1A) of the Companies (Amendment) Act,
1986, the company is availing of the exemption from presenting its individual proﬁ t and loss account to the Annual General
Meeting and from ﬁ ling it with the Registrar of Companies. The loss for the year in the parent company was €6,526,075
(2008: €761,637).

23. NON-CASH TRANSACTIONS

During the year a total impairment charge of €6,008,985 was expensed to the Statement of Comprehensive Income due to
an announcement by the company, on 26 April 2010, of the settlement of all outstanding operational issues on the Subba
and Luhais oilﬁ eld development in Southern Iraq. For more details see note 3. There were no other non-cash transactions
during 2009 except as reﬂ ected in Note 20.

24. CAPITAL COMMITMENTS

There were no capital commitments at the balance sheet date other than the Subba and Luhais development services
contract, a total contract price of US$197m. On 26 April 2010, the company announced the settlement of all outstanding
operational issues on the Subba and Luhais oilﬁ eld development in Southern Iraq. See note 3 for further details.

25. POST BALANCE SHEET EVENTS

On 26 April 2010, the company announced the settlement of all outstanding operational issues on the Subba and Luhais
oilﬁ eld development in Southern Iraq. See note 3 for further details.

26. CONTINGENT LIABILITIES

There are no contingent liabilities (2008: Nil).

Petrel Resources Plc Annual Report & Accounts 2009 47

Notice Of Annual General Meeting

Notice is hereby given that an Annual General Meeting of Petrel Resources plc will be held on 26 July 2010 in The
Stephen’s Green Hibernian Club, 9 St. Stephen’s Green, Dublin 2 at 12 noon for the following purposes:

To receive and consider the Directors Report, Audited Accounts and Auditors Report for the year ended
December 31, 2009.

2. To re-elect Director:

John Teeling retires in accordance with Article 95 and seeks re-election.

3. To authorise the directors to ﬁ x the remuneration of the auditors.

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

By order of the Board:

James Finn
Secretary

25 June 2010

Note:

A member of the Board who is unable to attend and vote at the above Annual General Meeting is entitled to
appoint a proxy to attend, speak and vote in his stead. A proxy need not be a member of the Company.

Petrel Resources Plc Annual Report & Accounts 2009

Corporate Directory
Directors’ and Other Information

CURRENT DIRECTORS

SECRETARY

REGISTERED OFFICE

AUDITORS

BANKERS

SOLICITORS

NOMINATED BROKER & ADVISOR

REGISTRATION NUMBER

WEBSITE

J. Teeling (Chairman)
D. Horgan (Managing)
G. Delbes
S. Borghi

J. Finn

162 Clontarf Road
Dublin 3.
T: 353-1-8332833
F: 353-1-8333505
E: petrel@iol.ie
www.petrelresources.com

Deloitte & Touche
Chartered Accountants
Deloitte & Touche House
Earlsfort Terrace
Dublin 2.

Allied Irish Banks plc.
Annesley Bridge
North Strand Road
Dublin 3.

Trade Bank of Iraq
Eskan Street
Building N.359
Erbil
Republic of Iraq

McEvoy & Partners
Connaught House
Burlington Road
Dublin 2.

Astaire Securities
46 Worship Street
London
EC2A 2EA, UK.

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