Wag! Group Co Annual Report 2010

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FY2010 Annual Report · Wag! Group Co

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Contents

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

Petrel Resources Annual Report & Accounts 2010

Chairman’s Statement

Petrel has been in existence for almost 30 years. This will undoubtedly come as a surprise to many

shareholders who know only of our Iraqi activities. It was set up in 1982 to explore for oil offshore

Ireland – but that venture failed. Following an abortive and expensive incursion into US oil and gas,

the company value was virtually written off. David Horgan, currently the Managing Director, bought the

shell in the mid 1990s and ﬁ nanced it, initially for African exploration in Namibia and Uganda. Then an

opportunity opened in 1999 to go into Iraq, which was and is the best hydrocarbon province in the world.

We exited Africa.

In Iraq we worked with the Ministry of Oil under the Saddam regime. Since 2003 operating in Iraq has

become more difﬁ cult, complicated and dangerous. In the last eight years Iraqi oil development has

languished with production levels only now getting back to pre-war levels. There is no clear set of rules,

there is no new Hydrocarbon Law. We had an early success getting access to a 10,000 sq km block

in the Western Desert and a very substantial success in 2005 with the award of the Subba and Luhais

$197 million (Engineering Procurement and Supervision of Construction) development contract to a

Petrel/Makman partnership. But repeated changes in rules and personnel made it difﬁ cult to operate.

Nevertheless we obtained two further Technical Cooperation Agreements in Iraq, to produce evaluators

of both the Merjan and Dhurﬁ ya ﬁ elds. The world’s supermajors have rushed in and accepted service

contracts on sub-economic terms.

Work progressed on Subba and Luhais. There was a hiatus while payment was received for work done

and acceptable Letters of Credit put in place for future payments. Inﬂ ation, design changes and delays

meant that any proﬁ t was likely to be small, so Petrel negotiated with Makman to obtain an exit payment

of US$7 million plus a 10 per cent proﬁ t interest while remaining operator of record. The project is now

94% completed and will soon operate as a 200,000 plus barrel a day oil producer. In one of the most

unstable and dangerous areas on Earth a state of the art world class project has been delivered. No

one was killed, international suppliers have been paid and the Iraqi people will shortly have additional

exports of over US$700 million each year.

But Iraq was proving an impossible location in which to obtain oil concessions so Petrel sought to

leverage its Iraq experience by exploring in Jordan.

The Jordanian experience was good, but costly and ultimately unsuccessful. We got licences, we did the

necessary work, we identiﬁ ed targets but drilling was going to be expensive and was deemed too risky.

We were unable to joint venture the project so we dropped it.

We next sought to build on our international contacts.

Ghana is the hottest hydrocarbon exploration area on earth. Recent giant offshore discoveries are

drawing Ghana to the ﬁ rst rank of oil producers. Petrel, with two associate companies and a local

partner, applied for, and obtained, a concession, Tano 2A close to the big Kosmos/Tullow discoveries.

Cabinet and parliament approval is taking a long time, understandable when you realise that the

legislators have to learn about and understand the effects and impact of oil wealth. The curse of

resources is well known.

In a return to our roots we have applied for blocks in the current Irish offshore licencing round. Irish

offshore exploration has not been successful to date with ﬁ ve small discoveries from over 200 wells

Petrel Resources Annual Report & Accounts 2010

Chairman’s Statement (continued)

drilled. But technology improves and oil prices are high. Petrel has for many years maintained a

signiﬁ cant library of Irish offshore seismic and well log data. This database has been analysed and new

data added. Our team have put together applications for a couple of blocks. No awards have been made

to date.

Why oil and why Iraq?

Growing world demand particularly in the large emerging markets is expected to grow to 120 million

barrels a day by 2020. Current capacity cannot meet that demand. Finding new supplies is becoming

more difﬁ cult and expensive. The vast new discoveries offshore West Africa are in ultra deep waters and

will require hundreds of billions to develop. The even bigger discoveries offshore Brazil, at total depths

approaching 10 kilometres, will require as yet undeveloped engineering technology and vast sums of

capital.

Contrast this with Iraq. Over 70 discovered undeveloped oil ﬁ elds with known resources of over 150

billion barrels and potential to go to 300 billion matching the Saudi Arabian reserve ﬁ gures. Capital

and operating costs will be the lowest in the world. Cash operating costs could be under $2 a barrel.

Technical, management and geological skills are in country. The infrastructure is good when compared

to offshore Africa and Brazil. Iraq is simply the world’s best hydrocarbon province. We have been there

for twelve years, we have maintained an ofﬁ ce in Baghdad, we have experienced staff. All we need is

the opportunity.

Petrel has prepared and submitted a detailed proposal to participate in the Fourth Licencing Round. The

focus is on oil prone acreage becoming available from January 2012.

Iraq

The Subba & Luhais project will be completed by end 2011. While we are the operator of record, day to

day operations are under the control of Makman who paid Petrel US $7 million to take 100% ownership.

We maintain a 10% proﬁ t interest. Despite facing obstacles that would defeat most groups, Petrel/

Makman have delivered the contracted elements of a 200,000 barrel a day oil development.

We continue to maintain an interest in the former Block 6. It should be noted that this nomenclature

refers to areas included in blocks advertised over a decade ago. It is not the same as the Block 6 offered

in recent rounds. Petrel began to work on the 10,000 sq km Western Desert area formerly known as

Block 6 in 2000 and reached agreement with the authorities on a work programme in 2002. No ﬁ nal

signatures were obtained. Article 40 of the draft hydrocarbon law requires the Ministry of Oil to review

2003 agreements to operate in accordance with the law. We think and hope that this means a revision

of ﬁ nancial terms and a new work programme. We are ready to begin ﬁ eld work once agreement is

reached.

Ghana

The Petrel board of directors and management team has extensive experience in resources in Africa.
While waiting for a clear path in Iraq, an opportunity arose to apply for a highly prospective onshore/

offshore block in Ghana, Tano 2A, close to the massive discoveries of Tullow and Kosmos. A consortium

of four companies applied for, and obtained the 1,532 sq km Tano 2A block. The target is a multibillion

barrel discovery in the proliﬁ c Cretaceous geological structure. Terms in Ghana are good. The

Petrel Resources Annual Report & Accounts 2010

Chairman’s Statement (continued)

agreement was signed in 2010 with the Ghana National Petroleum Company (GNPC) and is now

working its way through cabinet and parliament. The agreed work programme requires a minimum

expenditure of US$25 million in the ﬁ rst three years including a well. While awaiting ratiﬁ cation we

have acquired, processed and analysed 769 kilometres of seismic and studied ﬁ ve horizons at different

depths. We have identiﬁ ed a number of promising areas.

Offshore Ireland

Petrel, in a previous guise and time, was an active participant in Irish offshore exploration working on

three blocks in the Irish Sea (Kish Basin), Celtic Sea (Block 57/1) and Porcupine (Blocks 35/23 and

35/24). Nothing commercial was discovered. In the past year the Irish government has offered large

offshore blocks totalling 500,000 sq km. The ﬁ scal terms are very good, title is not an issue and there

is a positive State attitude. They need to be positive as drilling results have been poor and exploration

costs will be high.

Following a detailed review of newly constructed seismic base maps together with analysing well log

data on over 50 holes a number of leads were identiﬁ ed. Petrel has submitted applications for blocks in

the Porcupine Basin.

Future

Petrel with over US$6 million in cash is well ﬁ nanced for all current activities. We are active in Iraq,

Ghana and now Ireland. We are very hopeful of participating in the 4th Licencing Round in Iraq. The

status of our Western Desert interest awaits the passing of the Hydrocarbon Law. Once parliament

approves our Ghana licence we will move quickly. We know what we want to do and have the cash

to do it. Many shareholders have been patient for a long time and we appreciate that support. They

understand that we have no control over the decisions of sovereign states. Building a successful

hydrocarbon company in politically uncertain areas is high risk but, in the areas we are, the potential is

great.

Chairman
27 June 2011

Petrel Resources Annual Report & Accounts 2010

Review of Operations

Petrel has long-standing projects in Iraq, has

which changes the entire legal framework. So far the

recently expanded into Ghana and is an applicant for

recent contracts have not approved such approval.

blocks offshore Ireland.

Iraq

Petrel has two interests in Iraq:

• The Subba and Luhais EPC Contract

• Western Desert Block 6 pre-2003 Agreement

Highlights
Background

Iraq remains a complicated and uncertain place to

do business. Security issues remain, but power and

authority steadily return to the sovereign central

government.

Meantime oil production has begun to recover and

has already reached circa 2.7 million barrels daily,

of which circa 2.1 million barrels is exported daily.

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. Most

observers believe that about 5 to 6 million barrels

will be delivered from the current projects – already

a major accomplishment which would triple Iraq’s

output. World oil demand is now growing moderately,

at a total level of c. 89 million barrels daily – with

The March 2010 election went well and peacefully

about 87% of the growth in developing countries.

but the election did not yield an immediately clear

There are nearly 4.4 million barrels daily of surplus

result. It took until early 2011 to complete the

capacity already available within OPEC, 67% of

formation of a new government. This is the sixth

which is in Saudi Arabia.

government Petrel has dealt with since 1999, but

the ﬁ rst whose electoral legitimacy is not seriously

disputed.

The objective of the Iraqi authorities remains to drive

the best bargain for their citizens. This was indeed

necessary Realpolitik in terms of the need to gain the

There have been contracts awarded and two main

grudging acceptance of a skeptical and fragmented

bid rounds involving super-majors and National

electorate for necessary restructuring and opening-

Oil Companies agreeing to marginal rates of

up to international investment and technology. For

return on service contracts with demanding work

historical reasons, as in Iran, there is deep public

commitments.

The gas round did not excite the same level of

interest due to the current lack of major gas export

infrastructure. These gas export pipelines will

ultimately be resolved by direct market access

to Europe, India and China – but this will take

time, because of ﬁ nancial, political and logistical

challenges.

As of June 2011, the macro situation regarding the

oil industry remains confused:

No one is yet certain 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,

suspicion of the super-majors. Hence Iraqi efforts to

develop the oil industry via service contracts. There

are major disadvantages to this model, as can be

seen from the limited and slow progress to date. Few

anticipated that output would be at such a modest

level 8 years after the toppling of the former régime.

Such an attitude is normal in the region, but no

country has experienced Iraq’s difﬁ cult recent history.

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 might be impacted if oil price corrects and

indeed 2010’s tragic events in the Gulf of Mexico. On

the other hand the straightforward geology and low

Petrel Resources Annual Report & Accounts 2010

Review of Operations (continued)

environmental risk of conventional Iraqi projects is

to reverse a long production decline and increase

even more compelling.

Long experience of Iraq’s special conditions

convince us that the bid-round contracts will not

be implemented as planned to the satisfaction

output to c. 2.7mmbod in recent months. While well

below pre-2003 levels, this has to be seen in terms

of decades of strife, sanctions and under-investment.

A national oil company will be re-established.

of all parties. This is because bidding for service

Security continues to improve. Our recent Baghdad

contracts does not align the interests of the players

visit (May 2011) for meetings, and to deliver our

or guarantee access to the best technology to

qualiﬁ cation materials to the Ministry of Oil, was

maximise recovery from reservoirs.

conducted without special security and went

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

smoothly, without incident. While challenges remain,

there are regular air services and travelling within

Iraq can normally be conducted at acceptable risk –

for the ﬁ rst time since 2007.

point that they were prepared to lock remuneration

Petrel continues to work only with the Iraqi Central

into achieved targets that until recently would have

Government Authorities and has no inappropriate

been considered very demanding. This conﬁ rms

business relationships with any of the Regional

that the potential economic value of Iraqi is world

Authorities. All of Petrel’s contracts are with the

class. However, the Iraqi industry will not be able

ofﬁ cial Ministry of Oil of the sovereign government of

to maximise this value for some years without

the Republic of Iraq. In our belief, this is the correct

international technology and capital. The challenge is

and secure way to proceed. Local relationships are

persuading the authorities that circa 80% of a much

important, but not to the point where they undermine

bigger cake is better than 100% of a smaller cake.

legitimate authority.

The ultimate solution may be risk-sharing

• The ﬁ nal payment due of $2.5 million was

arrangements which align the interests of the

received, on schedule in April 2011, in relation

parties. Iraq will receive over 80% of the economic

to the Engineering, Procurement and supervision

value but agile, hard-working partners will be fairly

of Services (EPC) contract on the Subba and

remunerated. Much of the political passion against

Luhais development contract in Iraq.

international operators is now dissipating with the

• Petrel has now received a total of $7 million in

departure of international forces and restoration of

cash over the past year from Subba and Luhais.

Iraqi sovereignty.

All existing or potential liabilities have been

The legal situation is further complicated by attempts

of regional government to extend its inﬂ uence into

areas properly belonging to the central authorities

exacerbate nationalism and complicate matters.

Attempting to bypass the legitimate sovereign

authorities is not a sensible or ethical way to invest.

ironed out.

• Petrel maintains a 10% proﬁ t share in the

project but has no further liability or exposure.

The unavoidable delays and cost escalation

of key items, including steel and long-lead items,

mean that the ultimate project proﬁ t is unlikely to

be signiﬁ cant.

We expect these issues to steadily clarify when the

policy of the current government steadily clariﬁ es

• The Subba and Luhais project is nearing

completion, with all Letters of Credit opened and

over the coming months.

94% of procurement complete.

Ministry of Oil producing companies have done well

• This track record of steady progress clears the

way for expansion in Iraq.

Petrel Resources Annual Report & Accounts 2010

Review of Operations (continued)

• An application has being made to participate

group, Makman. At ﬁ rst the project went smoothly,

in the Fourth Iraqi Hydrocarbon Licensing

with basic design work conducted to the highest

Round. Initial studies of the Blocks offered are

international standards and key orders for the critical

underway.

After a long effort and overcoming many obstacles,

work is now almost complete on the Engineering,

Procurement and supervision of Services (EPC)

contract on the Subba and Luhais additional ﬁ eld

development contract in Iraq.

Petrel has now received the ﬁ nal $2.5m payment

due in relation to this project, in accordance with

agreements in place. Petrel retains a 10 per cent

proﬁ t interest in the project, based on audited

accounts of the project Joint Venture company.

Completion meetings with the Iraqi authorities

were conducted during May 2011. Given the

prevailing circumstances, the escalation of steel

and component prices from 2004 through 2008, and

the many obstacles which we had to overcome or

work a way around, completion represents a huge

achievement for your company. Your company has

shown that one can operate in southern Iraq, without

injury to personnel or equipment. We maintained

high international Health & Safety standards

throughout.

Petrel maintains a 10% proﬁ t interest in the EPC

project, but the prevailing circumstances in Iraq,

packages of long-lead items placed. The prevailing

circumstances did however pose challenges, with

the unfortunate loss of key individuals at the Ministry.

The world ﬁ nancial crisis after Lehman Brothers

complicated the acquisition and necessary extension

of Letters of Credit on acceptable commercial terms.

This led to unavoidable project delays, which were

eventually resolved with goodwill and ﬂ exibility on all

sides. The many problems were resolved one by one

and this important project is now nearing successful

completion. Successful delivery of all equipment

and services to site, without injury, loss of life or

equipment is a major achievement for everyone

involved with this important project. This unique

and valuable experience proves that with goodwill,

enthusiasm and unremitting effort, large-scale work

can be satisfactorily delivered notwithstanding the

prevailing circumstances.

Petrel is now preparing a detailed proposal to

participate in the recently announced Fourth

Licensing Round in Iraq. Speciﬁ c blocks have been

identiﬁ ed, with a focus on the oil-prone acreage

becoming available from January 2012. Petrel

met the original closure date for pre-qualiﬁ cation

documents of 19th May 2011, though it was later

especially delays and materials’ inﬂ ation, means that

extended till June.

net proﬁ ts are unlikely to be signiﬁ cant. We have

however learnt a great deal from the experience

of operating in an unusual environment. We have

established a network of important contacts that

hopefully will be a foundation for future success in

development contracts.

We ﬁ rst studied the Subba and Luhais project in

2000, but development was then constrained by the

UN sanctions then in place. We were pre-qualiﬁ ed to

bid and asked to bid on the EPC contracts in 2004.

The 10,000km2 area formerly known as ‘Iraqi

Western Desert Block 6’ is not one of the blocks on

offer in the current round. The new, additional ‘Block

6’ advertised by the Iraqi authorities is not in any way

connected with the ‘Iraqi Western Desert Block 6’

that Petrel was invited to study by the Oil Exploration

Company of the Iraqi Ministry of Oil in 2000.

The long term, continued interest of Petrel in this

area is known to the relevant authorities in Iraq.

Petrel bid and was awarded this contract in 2005,

We have identiﬁ ed speciﬁ c targets in the blocks

after which we formed a 50:50 Joint Venture with a

included in the Fourth Hydrocarbon Licensing

leading Iraqi construction and engineering

Round. Petrel is now completing a detailed study

Petrel Resources Annual Report & Accounts 2010

Review of Operations (continued)

of the blocks of interest. The blocks on offer are

Reﬂ ecting the difﬁ cult circumstances through which

interesting for gas and oil but do not include the

the Iraqi oil industry has battled in recent years and

10,000km2 area known as ‘Iraqi Western Desert

decades, there was considerable turnover in key

Block 6’.

A successful election in March 2010 led to

many months delay in the formation of a new

government, which in turn hampered the planned

rapid development of Iraqi oil. A new Administration

has taken charge, and remaining issues are being

resolved. We expect renewed progress in the coming

individuals and sometimes policy-making delays.

We are pleased therefore to have ﬁ nally overcome

these difﬁ culties and helped reﬁ ne attitudes on all

sides to be more commercial and pragmatic, so as

to expedite the development of the oil industry and

of Iraq generally in the interests of all legitimate

stakeholders.

months to drive forward the development of Iraq and

After several false dawns and lengthy negotiations,

particularly its hydrocarbons industry, to the beneﬁ t

all outstanding issues on the Subba and Luhais

of all stakeholders.

Subba and Luhais Technical
Work

The Subba and Luhais oil ﬁ eld development services

project is one of the largest EPC (Engineering,

Procurement and Supervision of Construction)

contracts awarded to date by the Ministry of Oil.

oilﬁ eld development in Southern Iraq were

satisfactorily resolved in February 2010, and all

ministerial approvals received in April 2010. Petrel

handed over primary responsibility for the ﬁ nal

phases of the work, in accordance with the original

Joint Venture Agreement of December 2005, but

maintained a role. Mobilisation for the project, which

was effectively suspended for 20 months, began

The development of the Subba and Luhais oilﬁ elds

promptly.

will provide a minimum capacity of 200,000 barrels

Project Description:

of oil daily and 120 million cubic feet of associated

gas for export from the ﬁ eld area. Much of this gas

is designated for use to support power generation for

the Iraqi National Grid.

• Development of a grass roots Gas Oil

Separation Plant (at Subba central) with a

100,000 bbl/d capacity and relevant satellite

ﬂ ow-station,

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

• Revamping of an existing 50,000 bbl/d capacity

Gas Oil Separation Plant (at Luhais central) and

relevant satellite ﬂ ow-station to increase

production up to 150,000 bbl/day,

payments were initially slow and there were disputes

• Installation of ﬂ ow-lines, treated oil and gas

over control of project bank accounts and related

bank guarantees. The resulting uncertainty led to

project delays from 2008 and de-mobilising most of

our project team in late 2009.

The project was further complicated by the

escalation of oil industry component costs between

2004 and 2008. We were therefore pleased to be

eventually able to organise Letters of Credit, source

components and bulk supplies at reasonable cost

and deliver same to site without loss or incident.

export pipelines, fresh water supply lines for both

ﬁ elds (Net Diameter from 4” to 28”) for a total

length of about 500km).

• Together with our JV partner and engineering

partner, Enereco, the team carried out all basic

and detail design activities, procurement

assistance, Vendor follow-up and expediting.

Project completion is now close (at June 2011).

Immediately following resolution of the Subba &

Luhais outstanding issues, on the ground work

Petrel Resources Annual Report & Accounts 2010

Review of Operations (continued)

re-started in Iraq in May 2010. Our Project Joint

No pioneer can guarantee quick success. We

Venture Company extended the Performance Bond

guarantee is that we will not spend shareholders’

and Advance Payment Guarantee for an initial

money on overhead. We put it into projects. When it

6 months based on the agreed extension of the

works shareholders do very well. If not, there is no

Contract period and the Ministry of Oil’s Project

disgrace in honest failure.

Letter of Credit for an initial 6 months, extendible.

The initial adjusted schedule was 14 months, but

this is being extended by agreement to cover minor

exceptional unforeseen delays.

Petrel has raised a total of $15 million or £10 million

from 1994 to date. Petrel still has $6 million in cash

and a market capitalisation of $22 million. It has

operated continually in Iraq since 1999 and has run a

Completing the project in this way avoided any

Baghdad ofﬁ ce through sanctions, invasion, civil war

legal complications or lengthy delays resulting

and 5 governments. A super-major told us that their

from re-bidding. The current Contractor’s team was

minimum security budget would have been $2 million

acknowledged by all to be now experienced and

yearly since 2003 – or equal to all of the funds that

expert, and therefore best positioned to complete

Petrel has raised.

this work quickly given its experience to date and

familiarity with the project.

Petrel also gains from the contacts of its

management elsewhere: this brought a 30% stake in

By May 2011 the procurement phase was 94%

the fashionable Ghanaian Tano 2A Block. There are

complete. While there were some limited additional

more such opportunities.

delays and issues because of the prevailing

circumstances, steady progress was made across

all main disciplines. This work has been conducted

without any casualties or signiﬁ cant injury, and

without any material being destroyed or damaged.

Our generally smooth operating experience shows

that we can operate in Iraq, provided commercial

aspects are robust. The steady advance of the work,

and overcoming of obstacles, allows Petrel to move

forward with other projects. Accordingly, and despite

the many challenges, we regard this project as a

success in that it has ﬁ rmly established our ability to

deliver.

Petrel’s philosophy remains to seek big potential

projects – typically in places with good geology

but challenging politics. Our logic is that politicians

change but rocks do not.

We deliver quality work but, like larger groups, are

still exposed to bureaucracy and politics. Sometimes

players seek to impose conditions or unattractive

limits on rates of return that are not fully commercial.

We are not a charity, so must always seek adequate

upside. But there is always a solution.

Exploration and Development
Projects

Petrel was a pioneer in Iraqi oil and 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 has trained Ministry staff, undertaken

technology transfer work on the Merjan and Dhufriya

ﬁ elds, and has studied, at the request of the Ministry,

Block 6 in the Western Desert.

Our work on Merjan has been reviewed and

endorsed by the Technical Committee of the Ministry.

A subsequent thorough Ministry technical and

Petroleum Licensing & Contracts Directorate (PLCD)

review also endorsed our technical work.

Petrel works, where possible, with Iraqi staff; they

Petrel Resources Annual Report & Accounts 2010

Review of Operations (continued)

act as contractors to maximise ﬂ exibility and protect

experience. Petrel was an oil & gas explorer in

their security. Petrel has maintained a continuous

Uganda & Namibia – before focusing on Iraq in

Baghdad presence since 2000. We maintained

1999.

a core Iraqi team through the difﬁ cult times and

continue with training activities.

There are now more than 330 Billion barrels of oil

equivalent of reserves discovered in Africa, of which

The work included a broadening of previous regional

about half is in Sub-Saharan Africa.

analysis of the western desert, including Block 6. 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.

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 maintains its interest in this project and

In exploration, technology moves forward by ﬁ ts and

hopes to reﬁ ne reserve estimates when additional

starts but it is rightly said that ‘exploration begins

information becomes available.

again every 15 years’. The $100 price for locally

We are interested in further exploring and developing

this ﬁ eld if and when it is legally possible. The ﬁ eld

produced Bonny Light Sweet crude has dramatically

improved the economics of West African projects.

has the possibility to become a 100,000 barrel a day

There is a generally welcoming business

producer.

Other than regional work associated with the Merjan

oil ﬁ eld, no geological or geophysical work was

conducted on Western Desert Block 6 during 2010.

The Iraqi authorities are working their way through

the pre-2003 contracts and agreements on Western

Desert Exploration Blocks and have had discussions

environment for junior E&P companies in these

countries of focus. The big up-front costs of the

established provinces are a deterrent, as are the

poor ﬁ scal terms available in established producers

such Algeria and Angola. Many other countries like

Libya or DRC suffer political issues. We aim at areas

of geological potential, reasonable legal and physical

security with attractive ﬁ scal terms and limited up-

with ONGC on Block 8.

front costs:

The security situation had been challenging in this

area, but dramatically 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.

Ghana emphatically now meets those objectives:

over the past year Ghana has solidiﬁ ed its status

as the oil industry’s new hotspot, following recent

success by Tullow / Kosmos in new (especially

Cretaceous) plays generating an estimated 2 billion

4th Iraqi Bid Round, 2011/2012:

barrels of recoverable oil.

Petrel has submitted Pre-Qualiﬁ cation materials to

participate in the 4th Bid Round in Baghdad.

Key strengths are Petrel’s 12 years of experience

in Iraq and unique familiarity among international

companies with operational challenges.

Ghana

Our group has 25 years continuous Africa

Almost overnight Ghana moved from small

production of circa 700 barrels daily to about 60,000

and ultimately over 200,000 barrels daily. Anchor

infrastructure is now being planned that will lower

the costs and accelerate development time for

additional projects. In a world that generally suffers

from resource nationalism, Ghana offers competitive

conditions and large exploration potential. Despite

1
0

Petrel Resources Annual Report & Accounts 2010

Review of Operations (continued)

Ghana’s rich history and culture, English is the

should be roughly half the total value created. This

working language and there is established legal title

compares favourably with ﬁ scal terms in comparable

based on English Law.

Accordingly. Ghana became our priority outside of

Iraq, and Petrel participated in a proposal to explore

and develop the circa 1,532km2 Tano Block 2A.

Our group of related companies (as the Ghanaian

company ‘Pan Andean Resources Limited’) signed a

Memorandum of Understanding with Ghanaian state

areas (typically 60 to 70%) and for established

producers (80% +). There are risks in West Africa

but contractors are well-remunerated if they discover

and develop oil.

The work programme has agreed been agreed

with GNPC, is reasonably ﬂ exible and is not

speciﬁ cally bonded:

petroleum company, GNPC, on the Tano 2A Block in

Minimum Expenditure in the Initial Exploration Period

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, 60% by Clontarf Energy plc and 10% by

Ghanaian interests.

Block size: c. 1,532 km2 (153,200 hectares)

Basin: Tano

Geological Target: Cretaceous

Potential: multi-billion barrel recoverable

Fiscal terms are competitive: There is a royalty

off the top (12.5% for oil and 10% for gas), a 10%

carried state interest (held by the national oil

company, the GNPC) and a standard 35% income

tax on proﬁ ts.

In addition the GNPC can elect to pay their way for

a further 15%. There is also a super-proﬁ ts tax or

‘Additional Oil Entitlement (AOE)’ which is payable

according to the overall Rate of Return. This extra

‘bonanza tax’ does not apply for a rate of return

under 12.5%. The Additional Oil Entitlement rises

in a step function with returns to a maximum of 30%

for project Rates of Return over 27.5%. There are

also the normal, relatively modest land rentals plus

Training Allowance plus an additional ‘Technology

Support’ one-time payment.

These terms compare favourably with best practice

elsewhere and are broadly similar in economic effect

to the terms available in Colombia and Peru. For

likely discovery economics the total state take

If the 1st well is Onshore

US$ 25 million

If the 1st well is Offshore

US$ 35 million

(no sum was contractually speciﬁ ed for the offshore

area and upon conferring with the Exploration

Department they gave US$35m as a reasonable

ﬁ gure).

Our team has collected, during 2010, all data

available from GNPC and have now consolidated

and integrated the GNPC geological and seismic

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 oft-mentioned 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 has made several presentations to GNPC,

the Ministry of Energy, Ghana Internal Revenue

Service, as well as other branches of the Ghanaian

authorities.

Petrel Resources Annual Report & Accounts 2010

1
1

Review of Operations (continued)

All Ghanaian Petroleum Agreements are subject to

outlined, but we succeeded in identifying areas of

Cabinet approval and ratiﬁ cation by Parliament. We

greater promise within the Tano 2A Block.

understand that this process was well advanced by

June 2011.

Reprocessing of the existing seismic lines using the

original tapes is a critical early step in a methodical

Ratiﬁ cation is a notoriously slow process in West

exploration programme. This solid base, together

Africa, so we have used the time to push ahead with

with later acquisition of new seismic data will

our technical work:

We reviewed the four seismic survey databases,

undoubtedly deﬁ ne additional areas of interest,

particularly in the offshore section of the Block.

shot and originally processed by different companies.

Offshore Ireland

Our group purchased all the available data from the

GNPC. A total of 769 line kilometres of seismic data

were loaded onto our corporate database.

Interpretation of the seismic data was conducted

by Geophysical Center (GSC) a top contractor we

have worked with in the Middle East for many years.

Data quality was generally poor to fair, so much work

was required to maximize the value of the database.

This reﬂ ects the data’s vintage, together with some

apparent defects in the processing parameters.

However, it also reﬂ ects the challenges in acquiring

quality seismic data in the shallow water and surf

zone conditions immediately offshore, and the

frequently swampy nature of the coastal plain.

Future reprocessing of diverse original data would

provide a more uniform database, and improve the

seismic data in terms of statics, velocities, frequency

content and multiple elimination. In turn, this will

help to minimize the ‘mis-tie’ problems between the

different surveys that bedevil such exploration.

Petrel technical staff has long experience of the Irish

offshore, dating back to 1982.

When Petrel was known as Kish Developments Ltd

in the 1980s, it was an active participant in Irish

offshore exploration. We were involved in three

petroleum licences or options:

• Licence 82/8 covering Blocks 33/17 & 33/23

in the (Irish Sea) Kish Basin. We assembled the

group for this licence and initially operated

the block. Operatorship was later assumed by

Charterhouse plc (subsequently acquired by

Total). The group carried out a seismic survey

and then drilled the 33/17-1 well. We held a

34% working interest in the licence.

• We held a 10% interest in the group holding a

Celtic Sea licence, covering Block 57/1 and

operated by Premier Consolidated Oilﬁ elds plc.

• We operated a group with an option over Blocks

35/23 and 35/24 in the Porcupine Basin. This

group carried out a seabed geochemical survey

We studied ﬁ ve horizons of different depths, and

and undertook the ﬁ rst gravity coring of the, then

produced ‘time structure maps’ of acceptable

largely unknown, cold-water coral mounds that

reliability for two horizons. While these maps show

are a feature of the Porcupine Basin. The

the overall form of the basin, they are insufﬁ ciently

company funded research on the cores that was

detailed to allow prospect deﬁ nition. Therefore

later published.

a second analysis was conducted to scrutinize

all seismic lines individually. This work aimed to

deﬁ ne areas of structural or stratigraphic potential,

and develop play or prospect leads. This project

was completed in May 2011. Data quality and grid

spacing did not allow drillable prospects to be

Subsequently Petrel re-focused elsewhere, but has

maintaining a watching brief on this intriguing though

complicated petroleum province.

Irish ﬁ scal terms available are some of the most

attractive world-wide, and politicians of all parties

have been adept in deﬂ ecting naïve resource

1
2

Petrel Resources Annual Report & Accounts 2010

Review of Operations (continued)

nationalism, and encouraging exploration. Drilling

2. Ballycotton gas ﬁ eld of 0.1 trillion cubic feet

has been limited in recent years but we feel that this

(which was economic because it was effectively

will now change:

a satellite of Kinsale),

The local gas market is growing and prices high.

According to the IEA, Ireland is 58% dependent on

gas for electricity generation, and 95% dependent on

gas imports.

Part of the reasoning behind the opening-up of large

tracts of offshore acreage is the need to diversify

away from imports. There are security of supply

3. Corrib gas ﬁ eld of 0.8 to 1 trillion cubic feet +,

which is marginally economic and encountered

vigorous local minority opposition because of

poor community relations by Enterprise and

Shell.

There have been several uneconomic discoveries,

chieﬂ y:

concerns due to the fact that Ireland is at the end

Helvick (at circa 1 million barrels of oil (mmbo)

of a long supply pipeline ultimately emanating from

recoverable),

western Siberia and North Africa – though there is

Seven Heads (an uneconomic gas/condensate ﬁ eld

also European production, especially in the North

in the Celtic Sea - though effectively a satellite of

Sea and likely in the future from unconventional

Kinsale), and

sources. A ﬂ attening on the long German decline

BP Connemara (Porcupine Basin: high initial oil ﬂ ow

in hydrocarbons consumption since 2007, together

rates which declined).

with the recently announced de-commissioning

of the German nuclear industry has exacerbated

supply worries in Western Europe. Germany

already sources 24% of its energy from gas and

39% from oil, with coal accounting for 25% and

nuclear currently 11%. The modest presence and

prospects for renewables in the short-term suggest

that gas will make up the difference together with

any growth. This initiative and the legal prohibition on

generation of electricity from nuclear plants shows

the importance of political and emotional factors in

the European energy debate.

In fact, a good proportion of the circa 150 true

exploration ‘wildcats’ offshore Ireland did intersect

hydrocarbons – though at sub-commercial levels.

On the Irish Atlantic Margin in recent years some 42

exploration ‘wildcats’ have been drilled, with maybe

5 gas/condensate or possibly oil discoveries that will

ultimately be developed. While this is a low hit-rate

of 1 in 8, after taking into account the attractive

ﬁ scal terms (basically a 25% tax, with ‘bonanza

taxes’ unlikely to kick-in because of the ‘R’ formula

linking revenue and total costs). Most wells were

drilled during a previous era of high oil prices in the

As a result, about 500,000km2 of sedimentary

1970s and 1980s, when analysts wrongly saw this

acreage, including much of the available Atlantic

Irish offshore province as comparable to the quite

acreage, was opened up by the Irish Department of

different North Sea.

Energy in the May 2011 bid-round.

The high proportion of shows (c. 50% in the Celtic

The fact that no commercially producing oil ﬁ eld

Sea, for instance) show that there is a working

has been discovered offshore Ireland despite 214

petroleum system in the main Irish offshore basins.

exploration and development wells drilled since 1968

is a negative. Despite about €3 billion of exploration

or risky appraisal/development investment since

then, there have been only 3 commercial ﬁ nds:

1. Kinsale gas ﬁ eld of 1.4 trillion cubic feet,

The big volume potential is in the deep water, but the

best immediate risk vs. reward trade-off is, we think,

in the Porcupine Basin.

There will be discoveries in the Irish offshore.

Petrel Resources Annual Report & Accounts 2010

3
1

Review of Operations (continued)

In preparing an application for the current round

Petrel and our contractor GSC professionals

worked closely in order to obtain the most useful

interpretation results from the existing seismic

database, and to deﬁ ne target horizons and

features. The work project was carried out on newly-

constructed seismic base maps. Petrel already held

a considerable seismic database and purchased an

additional 2,740 line km of seismic data to assist in

the study. Petrel also holds well information for most

of the wells drilled along the Atlantic seaboard and

petrophysical studies were carried out on the critical

wells.

Careful quality control management of this material

was carried out to validate all data being used in the

project.

Well information data was used for the calibration of

seismic data, and contour maps are produced in time

and depth for each of the selected seismic markers.

The study identiﬁ ed a number of leads in the region.

1
4

Petrel Resources Annual Report & Accounts 2010

Director’s Report

The directors present their annual report and the audited ﬁ nancial statements for the year ended 31 December
2010.

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 2007. The company is also involved in exploration
in Ghana. On the 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 €836,052 (2009: loss of
€6,526,075).

The directors do not recommend that a dividend be declared for the year ended 31 December 2010 (2009: €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;
• 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 risks.

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.

Petrel Resources Annual Report & Accounts 2010

5
1

Director’s Report (continued)

DIRECTORS’ AND SECRETARY’S INTERESTS IN SHARES

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

31/12/2010
Ordinary
Shares of
€0.0125

Number

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

31/12/2010
Options -
Ordinary
Shares of
€0.0125
Number

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

31/12/2009
Ordinary
Shares of
€0.0125

Number

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

31/12/2009
Options -
Ordinary
Shares of
€0.0125
Number

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

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

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 2010 and at 31 May 2011:

31 May 2011
Number of
Ordinary Shares

31 December 2010
Number of
Ordinary Shares

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

10,960,803
5,335,883
4,327,307
2,940,000
2,464,234

14.3
6.96
5.64
3.83
3.21

10,769,283 14.05
6.93
5.41
3.83
3.30

5,316,303
4,147,928
2,940,000
2,530,134

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

Information in relation to going concern 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.

1
6

Petrel Resources Annual Report & Accounts 2010

Director’s Report (continued)

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 involved 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

Details of signiﬁ cant subsequent events are outlined in Note 25.

AUDITORS

Deloitte & Touche, Chartered Accountants, will 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

27 June 2011

David Horgan
Director

Petrel Resources Annual Report & Accounts 2010

7
1

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 proﬁ t or loss of the Group for that
period. In preparing those ﬁ nancial statements, the directors are required to:

• select suitable accounting policies for the Group and the Parent Company Financial Statements and then
apply them consistently;
• make judgments and estimates that are reasonable and prudent; and
• 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. Legislation in the Republic of Ireland governing the
preparation and dissemination of ﬁ nancial statements may differ from legislation in other jurisdictions.

1
8

Petrel Resources Annual Report & Accounts 2010

Independent Auditor’s Report to the Members of
Petrel Resources Plc

We have audited the ﬁ nancial statements of Petrel Resources Plc for the year ended 31 December 2010
which comprise the Group Financial Statements: the Consolidated Statement of Comprehensive Income, the
Consolidated Balance Sheet, the Group Statement of Changes in Equity and the Consolidated Cash Flow
Statement and the Company Financial Statements: the Company Balance Sheet, the Company Statements
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 Company Financial Statements
in accordance with applicable law and International Financial Reporting Standards (IFRSs) as adopted by the
European Union.

Our responsibility, as independent auditors, 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 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 statute 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, other 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 the implications for our report if we
become aware of any apparent misstatement or material inconsistencies with the ﬁ nancial statements. The
other information comprises only the Chairman’s Statement, the Review of Operations and the Directors’ Report.
Our responsibilities do not extend to any 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 the 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

Petrel Resources Annual Report & Accounts 2010

9
1

Independent Auditor’s Report to the Members of
Petrel Resources Plc

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:

•
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 2010 and of its loss for the

year then ended;
the Group Financial Statements have been properly prepared in accordance with the Companies Acts,

•
1963 to 2009;
•
adopted by the European Union as applied in accordance with the provisions of the Companies Acts, 1963

the Parent Company’s Financial Statements give a true and fair view, in accordance with IFRSs as

to 2009 of the state of the parent company’s affairs as at 31 December 2010; and
the Parent Company’s Financial Statements have been properly prepared in accordance with the

•
Companies Acts, 1963 to 2009.

Emphasis of matter – Realisation 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 €2,149,670 (2009: €1,644,482) included in
the consolidated balance sheet and intangible assets of €2,138,433 (2009: €1,633,245) included in the company
balance sheet is dependent on the successful discovery and development of economic reserves including
the ability of the Group to raise sufﬁ cient ﬁ nance to develop these projects. The ultimate outcome of these
uncertainties cannot, at present, be determined.

We have obtained all the information and explanations we consider 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 2010 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 Statutory Auditors
Earlsfort Terrace
Dublin 2, Ireland

27 June 2011

2
0

Petrel Resources Annual Report & Accounts 2010

Consolidated Statement of Comprehensive Income
for the year ended 31 December 2010

CONTINUING OPERATIONS

Administrative expenses

Loss on foreign exchange

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

2010
€

2009
€

(462,646)

(545,835)

(387,180)

(3,923,885)

(2,085,100)

(849,826)

(6,554,820)

13,774

28,745

(836,052)

(6,526,075)

(836,052)

(6,526,075)

Exchange differences on translation of foreign operations

128,486

(2,936)

TOTAL COMPREHENSIVE INCOME FOR THE YEAR

(707,566)

(6,529,011)

Loss per share – basic and diluted

(1.09c)

(8.73c)

The ﬁ nancial statements were approved by the Board of Directors on 27 June 2011 and signed on its behalf by:

John Teeling
Director

David Horgan
Director

Petrel Resources Annual Report & Accounts 2010

1
2

Consolidated Balance Sheet
as at 31 December 2010

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

NET ASSETS

EQUITY

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

TOTAL EQUITY

Notes

2010
€

2009
€

2,149,670

1,644,482

14
15
16

-
2,139,269
2,748,831

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

4,888,100

43,693,091

7,037,770

45,337,573

(85,213)

(37,677,450)

4,802,887

6,015,641

6,952,557

7,660,123

958,308
7,694
17,784,268
205,971
(12,003,684)

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

6,952,557

7,660,123

The ﬁ nancial statements were approved by the Board of Directors on 27 June 2011 and signed on its behalf by:

John Teeling
Director

David Horgan
Director

2
2

Petrel Resources Annual Report & Accounts 2010

Company Balance Sheet
as at 31 December 2010

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

NET ASSETS

EQUITY

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

TOTAL EQUITY

Notes

2010
€

2009
€

12
13

15
16

2,138,433
11,237

1,633,245
11,237

2,149,670

1,644,482

2,139,269
2,748,831

5,865,154
864,644

4,888,100

6,729,798

7,037,770

8,374,280

(85,213)

(714,157)

4,802,887

6,015,641

6,952,557

7,660,123

958,308
7,694
17,784,268
205,971
(12,003,684)

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

6,952,557

7,660,123

The ﬁ nancial statements were approved by the Board of Directors on 27 June 2011 and signed on its behalf by:

John Teeling
Director

David Horgan
Director

Petrel Resources Annual Report & Accounts 2010

3
2

Statement of Changes in Equity
for the year ended 31 December 2010

GROUP AND COMPANY

Share
Capital
€

Capital
Conversion
Premium Reserve fund
€

€

Share
Based
Payment
Reserve
€

Retained
Deﬁ cit
€

Total
€

At 1 January 2009
Shares issued
Share issue expenses
Total comprehensive
income for the year

902,873
55,435
-

15,693,098
2,137,544
(46,374)

7,694
-
-

205,971 (4,767,107) 12,042,529
- 2,192,979
(46,374)
-

-
-

(6,529,011) (6,529,011)

At 31 December 2009

958,308

17,784,268

7,694

205,971 (11,296,118) 7,660,123

Total comprehensive
income for the year

(707,566)

At 31 December 2010

958,308

17,784,268

7,694

205,971 (12,003,684) 6,952,557

Share premium
The share premium comprises of the excess of monies received in respect of the issue 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 deﬁ cit
Retained deﬁ cit comprises accumulated losses in the current year and prior years.

2
4

Petrel Resources Annual Report & Accounts 2010

Consolidated Cash Flow Statement
for the year ended 31 December 2010

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:
Decrease/(increase) in construction contracts
Decrease in trade and other payables
Decrease in trade and other receivables

Notes

2010
€

2009
€

(836,052)
(13,774)
7,644
-
-
-

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

(842,182)

(444,060)

5,361,939
(37,592,237)
35,268,454

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

CASH GENERATED BY/(USED IN) OPERATIONS

2,195,974

(191,312)

Investment revenue

NET CASH FROM/(USED IN)
OPERATING ACTIVITIES

INVESTING ACTIVITIES

13,774

28,745

2,209,748

(162,567)

Payments for intangible ﬁ xed assets

(376,702)

(789,347)

NET CASH USED IN INVESTING ACTIVITIES

(376,702)

(789,347)

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 IN CASH AND CASH EQUIVALENTS

1,833,046

1,087,256

Cash and cash equivalents at beginning of ﬁ nancial year

923,429

559,599

Effect of exchange rate changes on cash held in
foreign currencies

(7,644)

(723,426)

Cash and cash equivalents at end of ﬁ nancial year

2,748,831

923,429

Petrel Resources Annual Report & Accounts 2010

5
2

Company Cash Flow Statement
for the year ended 31 December 2010

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 in trade and other payables
Decrease/(increase) in trade and other receivables

Notes

2010
€

2009
€

(836,052)
(13,774)
7,644
-
-
-

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

(842,182)

(444,060)

(628,944)
3,725,885

(374,279)
(99,756)

CASH GENERATED BY/(USED IN) OPERATIONS

2,259,759

(918,095)

Investment revenue

13,774

28,745

NET CASH GENERATED BY/(USED IN)
OPERATING ACTIVITIES

INVESTING ACTIVITIES

2,268,533

(889,350)

Payments for intangible ﬁ xed assets

(376,702)

(789,347)

NET CASH USED IN INVESTING ACTIVITIES

(376,702)

(789,347)

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 IN CASH AND CASH EQUIVALENTS

1,891,831

360,473

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

864,644

498,512

(7,644)

5,659

2,748,831

864,644

2
6

Petrel Resources Annual Report & Accounts 2010

Notes to the Financial Statements
for the year ended 31 December 2010

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 as modiﬁ ed by the revaluation of certain
ﬁ nancial instruments which are held at fair value. 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) as adopted by the European Union. 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.

The ﬁ nancial statements are prepared under the Companies Acts, 1963 to 2009.

(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.

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)

Intangible assets

Exploration and evaluation assets
Exploration expenditure relates to the initial search for mineral deposits with economic potential in Iraq and Ghana.
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:

a) 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;

b) the exploration and evaluation has not led to the discovery of economic reserves;
c) the development of the reserves is not economically or commercially viable;
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 Annual Report & Accounts 2010

7
2

Notes to the Financial Statements
for the year ended 31 December 2010

1. PRINCIPAL ACCOUNTING POLICIES (continued)

(vi) Construction contracts

Work in progress related to costs incurred on the Subba & Luhais oilﬁ eld development and was 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 could have been estimated reliably, revenue and costs were
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 have been 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 could not be estimated reliably, contract revenue was recognised to
the extent of contract costs incurred that it was probable would be recoverable. Contract costs were recognised as
expenses in the period in which they were incurred.

When it was probable that total contract costs would exceed total contract revenue, the expected loss was
recognised as an expense immediately.

During 2010, the company announced the settlement of all outstanding operational issues on the Subba & Luhais
contract which will result in the company having a signiﬁ cantly reduced role in the project going forward.

(vii) 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 company is US Dollars.
However, for the purpose of the consolidated ﬁ nancial statements, the results and ﬁ nancial position of the Group 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.

(viii) 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.

2
8

Petrel Resources Annual Report & Accounts 2010

Notes to the Financial Statements
for the year ended 31 December 2010

1. PRINCIPAL ACCOUNTING POLICIES (continued)

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.

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.

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.

(ix) Share-based payments

The Group and Company have applied the requirements of IFRS 2 “Share-Based Payments”. 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.

(x) 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.

(xi) 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.

Petrel Resources Annual Report & Accounts 2010

9
2

Notes to the Financial Statements
for the year ended 31 December 2010

1. PRINCIPAL ACCOUNTING POLICIES (continued)

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.

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.

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

(xii) Comparative Amounts

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

(xiii) 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
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 Ghana.

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

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 the carrying amount exceeds the 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 and operating costs and the discount rate to be applied to such
revenues and costs.

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.

3
0

Petrel Resources Annual Report & Accounts 2010

Notes to the Financial Statements
for the year ended 31 December 2010

1. PRINCIPAL ACCOUNTING POLICIES (continued)

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. Under the
terms of the agreement reached between Petrel and Makman FZC (Makman), Petrel received a ﬁ nal payment of
$2.5 million on 3 May 2011.

Key sources of estimation uncertainty
The preparation 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 nature of estimation means that actual outcomes could differ from those
estimates. The key sources of estimation uncertainty that have a signiﬁ cant risk of causing material adjustment to
the carrying amounts of assets and liabilities within the next ﬁ nancial year 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.

INTERNATIONAL FINANCIAL REPORTING STANDARDS

The Group did not adopt any new International Financial Reporting Standards (IFRS) or Interpretations in the year that
had a material impact on the Group’s Financial Statements. The following IFRS became effective since the last Annual
Report but had no material impact on the Financial Statements:

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

IFRS 3
IFRS 5

IFRS 8
IAS 1

IAS 7
IAS 17
IAS 27

IAS 28
IAS 31
IAS 36
IAS 38
IAS 39

January 2010);
(Revised) Business Combinations (effective for accounting periods beginning on or after 1 January 2010);
(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);
(Amendment) Operating Segments (effective for accounting periods beginning on or after 1 January 2010)
(Amendment) Presentation of Financial Statements (effective for accounting periods beginning on or after 1
January 2010)
(Amendment) Statement of Cash Flows (effective for accounting periods beginning on or after 1 January 2010);
(Amendment) Leases (effective for accounting periods beginning on or after 1 January 2010);
(Amendment( Consolidated and Separate Financial Statements (effective for accounting periods beginning on
or after 1 July 2009)
(Amendment) Investments in Associates (effective for accounting periods beginning on or after 1 July 2009);
(Amendment) Interests in Joint Ventures (effective for accounting periods beginning on or after 1 July 2009);
(Amendment) Impairment of Assets (effective for accounting periods beginning on or after 1 January 2010);
(Amendment) Intangible Assets (effective for accounting periods beginning on or after 1 July 2009);
(Amendment) Financial Instruments: Recognition and Measurement (effective for accounting period beginning
on or after 1 July 2009 and 1 January 2010);

IFRIC 9 (Amendment) Reassessment of Embedded Derivatives (effective for accounting periods beginning on or after 1

July 2009);

IFRIC 16 (Amendment) Hedges of a Net Investment in a Foreign Operation (effective for accounting periods beginning on

or after 1 July 2009);

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

and

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

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

IFRS 3
IFRS 7

(Revised) First-time Adoption of International Financial Reporting Standards (effective for accounting periods
beginning on or after 1 July 2010);
(Amendment) First-time Adoption of International Financial Reporting Standards (effective for accounting
periods beginning on or after 1 July 2010);
(Amendment) Business Combinations (effective for accounting periods beginning on or after 1 July 2010);
(Amendment) Financial Instruments: Disclosures (effective for accounting periods beginning on or after 1 July
2011);

Petrel Resources Annual Report & Accounts 2010

1
3

Notes to the Financial Statements
for the year ended 31 December 2010

INTERNATIONAL FINANCIAL REPORTING STANDARDS (continued)

IFRS 9 Financial Instruments (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 2011)
(Amendment) Deferred Tax: Recovery of Underlying Assets (effective for accounting periods beginning on or
after 1 January 2012);
(Revised) Related Party Disclosures (effective for accounting periods beginning on or after 1 January 2011);
(Amendment) Consolidated and Separate Financial Statements (effective for accounting periods beginning on
or after 1 July 2010);
(Amendment) Financial Instruments: Presentation (effective for accounting periods beginning on or after 1
February 2010);
(Amendment) Interim Financial Reporting (effective for accounting periods beginning on or after 1 January
2011)

IAS 12

IAS 24
IAS 27

IAS 32

IAS 34

IFRIC 14 (Amendment) Prepayments of a Minimum Funding Requirement (effective for accounting periods beginning on

or after 1 January 2011); and

IFRIC 19 Extinguishing Financial Liabilities with Equity Instruments (effective for accounting periods beginning on or after

1 July 2010).

The Directors are currently assessing the impact in relation to the adoption of these Standards and Interpretations
for future periods of the Group, however, at this point they do not believe they will have a signiﬁ cant impact on the
ﬁ nancial statements of the Group in the period of initial application.

3. GOING CONCERN

The Group and Company incurred a loss for the year of €836,052 (2009: loss of €6,526,075) and had a retained
earnings deﬁ cit of €12,003,684 (2009: deﬁ cit of €11,296,118), at the balance sheet date leading to doubt about the Group
and Company’s ability to continue as a going concern. The Group had a cash balance of €2,748,831 at the balance sheet
date together with a bank loan of € Nil (2009: €23,501,833) representing the amount drawn down on a letter of credit
which was in place in respect of the Subba & Luhais development contract. Under the terms of the agreement reached
between Petrel and Makman FZC (Makman), Petrel received the ﬁ nal payment of $2.5 million, subsequent to the year
end on 3 May 2011.

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 additional cash resources of $2.5 million realised can be used on other
projects along with the day to day running of the Group. 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.

INVESTMENT REVENUE

Interest on bank deposits

5. LOSS BEFORE TAXATION

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

Administrative expenses:
Professional fees
Staff costs - salaries
- payroll taxes
Net foreign exchange losses/(gains)
Other administration expenses

Impairment of exploration and evaluation expenditure

Impairment of construction costs

Details of directors’ remuneration are set out in Note 7.

2010
€

13,774

2010
€

206,851
182,535
21,390
394,825
44,225

849,826

2009
€

28,745

2009
€

203,249
229,671
43,000
(5,659)
75,574

545,835

3,923,885

2,085,100

3
2

Petrel Resources Annual Report & Accounts 2010

Notes to the Financial Statements
for the year ended 31 December 2010

6. AUDITOR’S REMUNERATION

Auditor’s remuneration for work carried out for the Group and Company in respect of the ﬁ nancial year is as follows:

Group

Audit of Group accounts
Other assurance services
Tax advisory services
Other non-audit services

Total

Company

Audit of company accounts
Other assurance services
Tax advisory services
Other non-audit services

Total

7. RELATED PARTY AND OTHER TRANSACTIONS

Group and Company

• Directors’ Remuneration
The remuneration of the directors is as follows:

2010
Fees –
services as
directors
€

2010
Fees-other
services

2010
Total

€

2010
€

18,000
1,000
3,300
-

22,300

9,000
9,000
3,300
-

21,300

2009
€

24,000
1,000
5,000
-

30,000

16,000
8,000
5,000
-

29,000

2009
Total

2009
2009
Fees- Fees-other
services

services as
directors
€

€

John Teeling
David Horgan
Guy Delbes

Total

5,000
5,000
5,000

99,783
156,825
9,095

104,783
161,825
14,095

5,000
5,000
5,000

107,900
172,200
9,303

112,900
177,200
14,303

15,000

265,703

280,703

15,000

289,403

304,403

Directors’ remuneration of €100,000 (2009: €82,500) was capitalised as exploration and evaluation expenditure as set out
in Note 12.

Key management compensation
Key management personnel are deemed to be John Teeling (Chairman), David Horgan (Managing Director), Guy Delbes
(Director) and James Finn (Chief Financial Ofﬁ cer). The total compensation expense comprising solely of short-term
beneﬁ ts in respect of key management personnel was as follows:

Short-term employee beneﬁ ts

2010
€

2009
€

385,686

407,200

Petrel Resources Annual Report & Accounts 2010

3
3

Notes to the Financial Statements
for the year ended 31 December 2010

7. RELATED PARTY AND OTHER TRANSACTIONS (continued)

Other
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.

Transactions with these companies during the year are set out below:

African Botswana Clontarf Connemara

Swala
Mining Distillery Resources Exploration Diamonds Resources

Cooley Pan Andean Hydrocarbon

Stellar

Plc
€
Balance at 1 January 2009 (9,284)

Diamonds Diamonds
Plc
€
-

Energy
Plc
€
11,396

Plc
€
-

Plc
€
(9,525)

Plc
€
27,214

Plc
€
-

Plc
€
20,539

Plc Total
€
217 40,557

€

Ofﬁ ce and overhead
costs recharged

Repayments

Balance at 31
December 2009

10,191

10.929

11,836

Ofﬁ ce and overhead
costs recharged

(22,926)

Exploration and evaluation
expenditure recharged
by Petrel

Exploration and evaluation
expenditure recharged
to Petrel

Transfer on demerger

11,090

(11,090)

Repayments

7,757

1,343

(27,658)

19,330

23,108

(11,160)

19,153

1,343

(14,075)

35,384

14,706

- 25,669

(22,067)

(217)

593

13,178

- 66,819

16,555

569

(35,300)

44,464

49,375

23,107

(67,560)

(35,384)

35,384

- (17,995)

- 44,464

- (67,560)

97,739

(13,178)

- 133,936

88,670

- 159,664

Balance at 31
December 2010

(11,090)

80,172

1,912

On 4 April 2010 certain assets of Pan Andean Resources plc were demerged to Hydrocarbon Exploration plc. The assets
demerged included amounts due by Pan Andean Resources plc to Petrel Resources plc.

On 20 December 2010 certain assets of African Diamonds plc were demerged to Botswana Diamonds plc. The assets
demerged included amounts due to African Diamonds plc by Petrel Resources plc.

Petrel Resources plc owns 30% of Pan Andean Resources Limited, an early stage exploration vehicle registered in Ghana.
Clontarf Energy plc, Hydrocarbon Exploration plc and Abbey Oil & Gas own the remaining 70%. During 2010 exploration
and evaluation expenditure was paid by Petrel Resources plc in relation to the Ghanian operations. This expenditure
was recharged to Clontarf Energy plc during the year. Exploration and evaluation expenditure was also paid by
Hydrocarbon Exploration plc and recharged to Petrel Resources plc during the year.

Cash held in Escrow Accounts
€1,197,425 and €580,890 of cash and cash equivalents were held on behalf of Botswana Diamonds Plc and Connemara
Mining Company Plc, respectively at the balance sheet date under Security Escrow Agreements dated 29 November
2010. Both Botswana Diamonds Plc and Connemara Mining Company Plc share ofﬁ ces with the company at 162
Clontarf Road and have some common directors.

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

3
4

Petrel Resources Annual Report & Accounts 2010

2010
€

2009
€

5,758,994

Notes to the Financial Statements
for the year ended 31 December 2010

8. STAFF NUMBERS

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. 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.

Exploration
and evaluation

Construction of
an oil ﬁ eld

2010
€

2009
€

2010
€

2009
€

2010
€

Total
2009
€

9A. Segment Results

Continuing Operations
Subba & Luhais Oil Field Development
Merjan and Dhufriya Oil Field Agreement
Western Dessert Block 6
Ghana
East Safawi Block, Jordan

(387,180)
-
-
-
-

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

Total for continuing operations
Unallocated head ofﬁ ce

(387,180)
(448,872)

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

(836,052)

(6,526,075)

There was no revenue earned during the year.

-
-
-
-
-

-
-

-
-
-
-
-

-
-

(387,180) (4,420,290)
(36,925)
-
-
-
-
-
- (1,551,769)

(387,180) (6,008,984)
(448,872)
(517,091)

(836,052) (6,526,075)

9B. Segment Assets

Group & Company
Subba & Luhais Oil Field Development
Merjan and Dhufriya Oil Field Agreement
Western Dessert Block 6
Ghana
East Safawi Block, Jordan

-
-
1,900,663
249,007
-

-
402,749
1,241,733
-
-

- 42,722,287
- 42,722,287
-
-
402,749
-
- 1,900,662 1,241,733
-
-
-
-
-
-
-

249,007
-

Total for continuing operations
Unallocated head ofﬁ ce

2,149,670
4,888,100

1,644,482
970,804

- 42,722,287 2,149,669 44,366,769
970,804
- 4,888,100
-

7,037,770

2,615,286

- 42,722,287 7,037,769 45,337,573

Petrel Resources Annual Report & Accounts 2010

5
3

Notes to the Financial Statements
for the year ended 31 December 2010

9. SEGMENTAL ANALYSIS (continued)

Exploration
and evaluation

Construction of
an oil ﬁ eld

2010
€

2009
€

2010
€

2009
€

2010
€

Total

2009
€

9C. Segment Liabilities

Group
Subba & Luhais Oil Field Development
Merjan and Dhufriya Oil Field Agreement
Western Dessert Block 6
Ghana
East Safawi Block, Jordan

-
-
-
-
-

-
-
-
-
(411,357)

Total for continuing operations
Unallocated head ofﬁ ce

-
(85,213)

(411,357)
(302,800)

-
-
-
-
-

-
-

(36,963,293)
-
-
-
-

- (36,963,293)
-
-
-
-
-
-
(411,357)
-

(36,963,293)
-

- (37,374,650)
(302,800)

(85,213)

(714,157)

(36,963,293)

(85,213) (37,677,450)

Company
Subba & Luhais Oil Field Development
Merjan and Dhufriya Oil Field Agreement
Western Dessert Block 6
Ghana
East Safawi Block, Jordan

-
-
-
-
-

-
-
-
-
(411,357)

Total for continuing operations
Unallocated head ofﬁ ce

-
(85,213)

(411,357)
(302,800)

(85,213)

(714,157)

Additions to non-current assets (Group and Company)

Subba & Luhais Oil Field Development
Merjan and Dhufriya Oil Field Agreement
Western Dessert Block 6
Ghana
East Safawi Block, Jordan

-
-
127,695
249,007
-

210,679
-
-
-
578,668

Total for continuing operations
Unallocated head ofﬁ ce

376,702
-

789,347
-

376,702

789,347

-
-
-
-
-

-
-

-
-
-
-
-

-
-

-
-
-
-
-

-
-

-
-
-
-
-

-
-
-
-
(411,357)

-
(85,213)

(411,357)
(302,800)

(85,213)

(714,157)

-
-
-
-
- 127,695
- 249,007
-
-

210,679
-
-
-
578,668

- 376,702
-
-

789,347
-

- 376,702

789,347

3
6

Petrel Resources Annual Report & Accounts 2010

Notes to the Financial Statements
for the year ended 31 December 2010

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

2010
€

2009
€

(836,052)

(6,526,075)

(104,506)

(815,759)

54,402
49,580
524

748,261
62,708
4,790

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 €3,960,185 (2009: €3,559,354) which equates to a
deferred tax asset of €495,023 (2009: €444,919). 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

Basic loss per share

2010
€

(1.09c)

2009
€

(8.73c)

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

2010
€

2009
€

Loss for the year attributable to equity holders

(836,052)

(6,526,075)

Weighted average number of ordinary shares for the
purpose of basic earnings per share

2010
Number

2009
Number

76,664,624

74,727,222

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

12. INTANGIBLE ASSETS

Exploration and evaluation assets:

Cost:

Opening balance
Additions
Impairment
Exchange translation adjustment

Group
2010
€

Group
2009
€

Company
2010
€

Company
2009
€

1,644,482
376,702
-
128,486

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

1,633,245
376,702
-
128,486

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

Closing balance

2,149,670

1,644,482

2,138,433

1,633,245

Petrel Resources Annual Report & Accounts 2010

7
3

Notes to the Financial Statements
for the year ended 31 December 2010

12. INTANGIBLE ASSETS (continued)

Exploration and evaluation assets at 31 December 2010 represent exploration and related expenditure in respect
of projects in Iraq and Ghana. 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 and as a result of the settlement of all outstanding
operational issues on the Subba and Luhais Oilﬁ eld development in Southern Iraq, the directors decided to write off
€2,372,116 of the exploration and evaluation costs capitalised in relation to the projects in Iraq in the prior year.

In addition, in 2009 the directors had 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

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

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;

• Foreign exchange risks;
• Uncertainties over development and operational costs;
•
•
• Liquidity risks;
• Operations and environmental risks and;
• Going Concern 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.

Directors’ remuneration of €100,000 (2009: €82,500) was capitalised as exploration and evaluation expenditure during
the year.

Segmental Analysis

Western Dessert Block 6
Ghana

13. INVESTMENT IN SUBSIDIARIES

Company

Shares at cost - unlisted:
Opening and closing balance

Group
2010
€

Group
2009
€

1,900,663
249,007

1,644,482
-

2,149,670

1,644,482

2010
€

2009
€

11,237

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

The Group consisted of the parent company and the following wholly owned subsidiaries as at
31 December 2010:

Name

Petrel Industries Limited

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

Registered
Ofﬁ ce

Group
Share

Nature of
Business

162 Clontarf Road,
Dublin 3, Ireland

Damascus Street
Beirut, Lebanon

100%

Dormant

100%

Dormant

The company also holds a 30% interest in Pan Andean Resources Limited, an early stage exploration company
incorporated in Ghana.

3
8

Petrel Resources Annual Report & Accounts 2010

Notes to the Financial Statements
for the year ended 31 December 2010

14. CONSTRUCTION CONTRACTS

Work in progress:
Opening balance
Expenditure incurred in period
Impairment
Transfer to trade and other receivables

Group
2010
€

5,361,939
-
-
(5,361,939)

Group
2009
€

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

5,361,939

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. Under the terms of the agreement Petrel were to receive a minimum consideration
of $7 million, $4.5m of which had been received as at 31 December 2010. The remaining $2.5m was received on 3 May
2011. The directors had assessed the carrying value of the amounts recoverable under construction contracts at the end
of 2009. 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

Current assets:
Trade receivables
VAT refund due
Other receivables

Non-current assets:
Amounts due from Group undertakings

Group
2010
€

Group
2009
€

1,870,977
11,969
256,323

37,301,562
19,953
86,208

Company
2010
€

1,870,977
11,969
256,323

Company
2009
€

-
19,953
86,207

5,758,994

2,139,269

37,407,723

2,139,269

5,865,154

Trade receivables relate to amounts billed in respect of the Subba and Luhais development services contract up to 31
December 2010 with a carrying amount of €Nil (2009: €37,301,562). As disclosed in Note 12, 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 Makman, a total of $4.5 million was received during the year and the ﬁ nal
payment of $2.5 million was received subsequent to year end on 3 May 2011.

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

Ageing of past due but not impaired

Group
2010
€

Group
2009
€

Company
2010
€

Company
2009
€

90 – 120 days
> 120 days

Total

-
1,870,977

-
37,301,562

-
1,870,977

1,870,977

37,301,562

1,870,977

-
-

Petrel Resources Annual Report & Accounts 2010

9
3

Notes to the Financial Statements
for the year ended 31 December 2010

16. CASH AND CASH EQUIVALENTS

Group
2010
€

Group
2009
€

Company
2010
€

Company
2009
€

Cash and cash equivalents

2,748,831

923,429

2,748,831

864,644

Cash at bank earns interest at ﬂ oating rates on daily bank rates. The fair value for cash and cash equivalents is
€2,748,831 (2009: €923,429) for Group and €2,748,831 (2009: €864,644) for Company. The Group and Company only
deposits cash surpluses with major banks.

Cash held in Escrow Account

€1,197,425 and €580,890 of cash and cash equivalent balances were held on behalf of Botswana Diamonds Plc and
Connemara Mining Company Plc, respectively at the balance sheet date under Security Escrow Agreements dated 29
November 2010. Both Botswana Diamonds Plc and Connemara Mining Company Plc share ofﬁ ces with the company at
162 Clontarf Road and have some common directors.

17. TRADE AND OTHER PAYABLES

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

Group
2010
€

-
25,000
-
60,213
-

Group
2009
€

Company
2010
€

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

-
25,000
-
60,213
-

Company
2009
€

-
119,074
3
595,080
-

85,213

37,677,450

85,213

714,157

The bank loan represents the amounts drawn down on a letter of credit which was in place at the end of 2009 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 Agreement which includes both the bank
loan and the customer deposits was transferred to Makman on 26 April 2010.

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 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.

At 31 December 2009, the Group had a letter of credit in place with the Trade Bank of Iraq for €Nil (2009: €23,501,833).
The amount drawn down and outstanding at year end in respect of this was US$Nil.

The Group and Company has relied 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.

4
0

Petrel Resources Annual Report & Accounts 2010

Notes to the Financial Statements
for the year ended 31 December 2010

18. FINANCIAL INSTRUMENTS (continued)

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

19. RISK MANAGEMENT

Assets
2010
€

Assets
2009
€

Liabilities
2010
€

Liabilities
2009
€

77,630
4,538,635

434,885
37,736,396

18,408
18,710

5,334
37,388,463

Assets
2010
€

Assets
2009
€

77,630
4,538,635

434,883
6,135,042

Liabilities
2010
€

18,408
18,710

Liabilities
2009
€

5,334
425,170

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 do 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 2010, the Group held €2,745,288 in Sterling and U.S. dollar denominated bank
accounts (2009: €869,731). The Group had a bank loan of US$Nil (2009: €33,856,741).

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
The 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 2010 and 31
December 2009.

Petrel Resources Annual Report & Accounts 2010

1
4

Notes to the Financial Statements
for the year ended 31 December 2010

20. SHARE CAPITAL

Group and Company

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

Allotted, Called-Up and Fully Paid:
Opening 76,664,624 (2009: 72,229,796) ordinary
shares of €0.0125 each

Issued:
Nil (2009:4,434,828) ordinary shares of €0.0125 each

Closing 76,664,624 (2009: 76,664,624) ordinary shares
of €0.0125 each

2010
€

2009
€

2,500,000

958,308

902,873

55,435

958,308

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.

Year ended
31/12/2010`
Options

Year ended
31/12/2010
Weighted
average
exercise
price in cent

Year ended
31/12/2009
Options

200,000
-

200,000

178
-

178

200,000
-

200,000

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

178
-

178

Outstanding at beginning of year
Granted during the year

Outstanding and exercisable at
the end of year

Exercisable at the end of year

At 31 December 2010, there were 4,670,000 options in existence which are not accounted for under IFRS2 as the grant
date was prior to 1 January 2006.

The options outstanding at 31 December 2010 had a weighted average exercise price of 178c, and a weighted average
remaining contractual life of 5.75 years.

The options are exercisable at prices ranging between €0.0339 and €1.78 in accordance with the option agreement. No
options were granted in 2010 or 2009.

4
2

Petrel Resources Annual Report & Accounts 2010

Notes to the Financial Statements
for the year ended 31 December 2010

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
€836,052 (2009: €6,526,075).

23. NON-CASH TRANSACTIONS

During 2009 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 signiﬁ cant non-
cash transactions during 2010 except as reﬂ ected in Note 20.

24. CAPITAL COMMITMENTS

There were no capital commitments at the balance sheet date.

25. POST BALANCE SHEET EVENTS

There were no material post balance sheet events.

26. CONTINGENT LIABILITIES

There are no contingent liabilities (2009:€Nil).

Petrel Resources Annual Report & Accounts 2010

3
4

Notice of Annual General Meeting

Notice is hereby given that an Annual General Meeting of Petrel Resources plc will be held on 28 July 2011 in
Westbury Hotel, Grafton Street, 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, 2010.

2. To re-elect Director:

Guy Delbes 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

27 June 2011

Registered Ofﬁ ce: 162 Clontarf Road, Dublin 3.

Note: 1. 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.

2. To be effective, the Form of Proxy duly signed, together with the power of attorney (if any) under which it is signed,
must be depositied at the Company’s Registrars, Computershare Investor Services (Ireland) Ltd., Heron House,
Corrig Road, Sandyford Industrial Estate, Dublin 18, not less than forty eight hours before the time appointed for the
Meeting or any adjournment thereof at which the person named in the Form of Proxy is to vote.

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Petrel Resources Annual Report & Accounts 2010