DECA

Final Results

RNS Number : 5174K
White Nile Limited
19 December 2008
 



White Nile Ltd / Ticker: WNL / Index: AIM / Sector: Oil & Gas

19th December 2009

White Nile Ltd ('White Nile' or 'the Company')

Final Results


White Nile Ltd, the AIM listed oil and gas exploration company, announces its results for the year ended 30 June 2008


Overview:


  • During the period under review, the strategy continued to be centred on building an oil and gas exploration company focussing on Southern Sudan and the immediate region

  • Post year end, due to the fluctuating political situation in Southern Sudan and the current global economic downturn, a change of strategy has been proposed

  • Agricultural sector identified in Africa as being an area of activity which the Directors believe is resilient enough to generate returns on investment even in this current economic environment

  • Proposed change of name to Agriterra Limited to reflect new strategy

  • Results reflect impairment of oil and gas assets on change of strategy

  • Remain supportive and in contact with the Government of Southern Sudan with regards to Block Ba


Chairman's Statement


As shareholders, you will be aware that much has happened at your Company since the year end, including a proposed change in strategy, so I believe that it is prudent to focus both on these events as well as our activities during the reporting period. 


Oil & Gas Exploration


At the beginning of the period, the oil and gas exploration sector remained buoyant and we were actively implementing our strategy of building an oil and gas exploration company focussing on Southern Sudan and the immediate region. 


However, the clarity of title issue in Southern Sudan with regards to Block Ba was an on-going feature, with political uncertainty continuing in Sudan and the implementation of the protocols agreed on the signing of the comprehensive peace accord proving, in many cases, difficult to effect. As reported, our exploration operations on Block Ba were suspended pending clarification of title. The Company had been assured by the Government of Southern Sudan (the 'GOSS') and its representatives that the original agreement signed for the development of Block Ba was valid. Subsequently, the Company was informed that if White Nile was not going to be the sole developer of Block Ba, it would be included in a consortium that would explore and develop the enlarged Block B, which would include Block Ba as well as Blocks Bb and Bc.  


Indeed, when a delegation of Southern Sudanese government officials, headed by His Excellency the Vice President of the Government of Southern Sudan, Dr Riek Machar, came to London in September 2007, they met with the Board, the Company's Nominated Adviser and certain shareholders, and reiterated that if White Nile was not to be the sole developer of Block Ba, the Company would receive a 22.5% interest in the aforementioned consortium put together to develop the enlarged Block B.


Notwithstanding these assurances, the confirmation of the consortium and White Nile's participation therein remains outstanding. With this ongoing uncertainty and lack of clarity regarding title to Block Ba, the Company and GOSS agreed that the GOSS' shares in White Nile, held through Nile Petroleum, the state owned oil company of Southern Sudan, should be converted into non-voting deferred shares until complete clarity of title can be given as to the Company's position within Block Ba or an acceptable position within a consortium to develop the aforementioned enlarged Block B is granted. On receipt of positive clarity, the GOSS' share holding will revert back to ordinary shares. The resolution was passed at the EGM held on 11th November 2008.


In Ethiopia, we signed a Production Sharing Agreement with the Government of Ethiopia for a 29,000 sq km block in the Southern Rift Basin in south-western Ethiopia, following a two year Joint Study Agreement with the Ethiopian Government's Petroleum Operations Department of the Ministry of Mines. A seismic operation was planned for Q4 although this has been postponed pending the completion of an Environmental Impact Study and the assessment of the direction the Company is taking. 


In line with our expansion strategy, we also acquired PA Energy Africa Limited ('PAEA'), a private oil company which operates in Nigeria. PAEA holds service contracts for the development of two Nigerian marginal fields: the Dawes Island Field in Oil Mining Lease 54 (OML 54) and the Tsekelewu Field in Oil Mining Lease 40 (OML 40), both carve outs under the Nigerian Government's indigenisation programme. There are currently stability issues in the area and as a result we have declared force majeure which means that operations on the ground are not progressing. With a strategy shift, we will be looking to dispose of these assets to a third party. 


With regards to our Kenyan activities, we had the right to take up a 49% stake in Block 11 in return for satisfying various spending commitments. We have now decided that, in view of our proposed change in strategy, it is no longer prudent to carry this any further.


Strategy Change


Due to certain situations beyond the control of the Board, including the fluctuating political situation in Southern Sudan and the current global economic downturn, it has not been possible, to date, to capitalise upon the initial perceived value of the Company's oil & gas portfolio. Taking into account the current economic environment, which is not conducive to the continued funding of non-producing early stage oil & gas exploration assets, combined with the current political position in Southern Sudan, we decided that the Company's original strategy of concentrating on oil & gas exploration was no longer in the best interest of shareholders.  


Following an extensive review of alternative strategies, we identified the agricultural sector in Africa as being an area of activity which we believe is resilient enough to generate returns on investment even in this current economic environment. Accordingly, we proposed that the Company should adopt an investing strategy to acquire or invest in businesses or projects operating in the agricultural and associated civil engineering industries in Africa. In light of this decision, we proposed a change of name to "Agriterra Limited". The EGM for these proposals is being held on 6th January 2009.


Results


In view of our proposed change in strategy, the Board believes that it is appropriate and prudent for us to fully impair our oil and gas assets. With regards to Southern Sudan, notwithstanding that we remain positive about the eventual outcome, if clarity of title is not received with regards to Block Ba, we have informed the GOSS that based on our bona fide agreement with them, we would be seeking relevant compensation with regards to our investments in evaluating the hydrocarbon potential of Block Ba and for the implementation of extensive social initiatives.  


For the period under review, the Company is reporting a pre-tax loss of £44.7 million which included the impairment of £43.7 million for the Company's oil and gas assets (2007: loss of £1.4 million). Cash balances at the period end were £6.5 million.


Conclusion


With the proposed change of strategy, I believe we can utilise our cash balances to generate shareholder value. We are obviously disappointed that we haven't been able, to date, to truly demonstrate the value of our oil & gas portfolio, but believe we can, following our shift in strategy, build a successful agricultural orientated company. I would like to reiterate our support for the GOSS and look forward to a resolution of the situation in Sudan. Finally I'd like to thank everyone for their tireless work and you, as shareholders, for your support and understanding of what we all recognise as difficult times.



Phil Edmonds

Chairman



Copies of the Report and Accounts for the period ended 30 June 2008 are being sent to shareholders. Further copies will be available from the Company Secretary's office, which is Salans, Millennium Bridge House, 2 Lambeth Hill, London, EC4V 4AJ and the report can be viewed on the Company's website at www.whitenile-ltd.com.


For further information please visit www.whitenile-ltd.com or contact:

Phil Edmonds                                    White Nile Ltd                                           Tel: 0845 108 6060

Jonathan Wright                                Seymour Pierce Ltd                                    Tel: 020 7107 8000

Hugo de Salis                                    St Brides Media & Finance Ltd                  Tel: 020 7242 4477



CONSOLIDATED INCOME STATEMENT

For the year ended 30 June 2008




2008


2007


Note


£'000


£'000







Revenue



-


-







Operating expenses



(1,554)


(1,664)







Operating loss



(1,554)


(1,664)







Finance income 

8


565


245

Finance expenses

8


(3)


(5)

Net financing income



562


240







Impairment of Oil & Gas interests



(43,671)


-

Share of loss of associate



(80)


-

Loss before taxation



(44,743)


(1,424)







Income tax expense

9


-


-

Loss for the year attributable to equity holders

of the company


22



(44,743)



(1,424)







Loss per share 






- Basic and diluted (pence)

10


(12.88p)


(0.44p)


All financial results presented are from continuing operations.




CONSOLIDATED STATEMENT OF RECOGNISED INCOME AND EXPENSE

For the year ended 30 June 2008



2008


2007



£'000


£'000






Foreign exchange translation differences


(8)


-

Net income recognised directly in equity


(8)


-

Loss for the year


(44,743)


(1,424)






Total recognised income and expense for the year

attributable to the equity holders of the company



(44,751)



(1,424)







CONSOLIDATED BALANCE SHEET

As at 30 June 2008




2008


2007


Note


£'000


£'000







ASSETS






Non-current assets






Exploration and evaluation costs

11


-


30,414

Property, plant and equipment

12


-


1,224

Interest in associate

14


-


-

Total non-current assets



-


31,638







Current assets






Inventories 

15


-


-

Trade and other receivables

16


44


3,556

Cash and cash equivalents

16


6,539


16,729

Total current assets



6,583


20,285







TOTAL ASSETS 



6,583


51,923







LIABILITIES 






Current liabilities






Trade and other payables 

17


340


1,698







NET ASSETS



6,243


50,225







EQUITY






Issued capital

18


350


347

Share premium

19


53,219


52,464

Share based payment reserve

20


660


650

Translation reserve

21


(7)


-

Retained earnings

22


(47,979)


(3,236)







TOTAL EQUITY attributable to equity holders of the parent


6,243


50,225


COMPANY BALANCE SHEET

As at 30 June 2008




2008


2007


Note


£'000


£'000







ASSETS






Non-current assets






Exploration and evaluation costs

11


-


30,414

Property, plant and equipment

12


-


1,224

Investment in subsidiaries

13


-


-

Interest in associate

14


-


-

Total non-current assets



-


31,638







Current assets






Inventories 

15


-


-

Trade and other receivables

16


44


3,556

Cash and cash equivalents

16


6,536


16,729

Total current assets



6,580


20,285







TOTAL ASSETS 



6,580


51,923







LIABILITIES 






Current liabilities






Trade and other payables 

17


212


1,698







NET ASSETS



6,368


50,225







EQUITY






Issued capital

18


350


347

Share premium

19


53,219


52,464

Share based payment reserve

20


660


650

Translation reserve

21


(4)


-

Retained earnings

22


(47,857)


(3,236)







TOTAL EQUITY attributable to equity holders of the parent


6,368


50,225


CONSOLIDATED CASH FLOW STATEMENT

For the year ended 30 June 2008




2008


2007




£'000


£'000







OPERATING ACTIVITIES






Loss before tax 



(44,743)


(1,424)

Adjustments for: 






- Impairment of Oil & Gas Interests



43,671


-

- Depreciation of property, plant and equipment



84


135

- Loss on sale of property, plant and equipment



4


-

- Loss on foreign exchange



(56)


-

- Share based payment charge



10


-

- Net interest income 



(562)


(240)

- Share of loss of associate



80


-

Operating cash flow before movements in working capital



(1,512)


(1,529)

Working capital adjustments:






- Decrease / (increase) in receivables    



283


(60)

-(Decrease) / increase in payables



(1,562)


723

Cash used in operations



(2,791)


(866)

Finance charges



(3)


(5)

Interest received



565


245

Net cash used in operating activities



(2,229)


(626)







INVESTING ACTIVITIES






Purchase of intangible assets



(8,148)


(12,909)

Purchase of property, plant and equipment



(416)


(1,131)

Sale of property, plant and equipment



2


-

Purchase of subsidiaries net of cash acquired



(965)


-

Investment in associate



(1,410)


-

Net cash used in investing activities



(10,937)


(14,040)







FINANCING ACTIVITIES






Proceeds from issue of share capital



3,156


26,844

Share issue costs



(180)


(1,498)

Net cash flow from financing activities



2,976


25,346







Net (decrease) / increase in cash and cash equivalents



(10,190)


10,680







Cash and cash equivalents at start of the year



16,729


6,049

Cash and cash equivalents at end of the year 



6,539


16,729


COMPANY CASH FLOW STATEMENT

For the year ended 30 June 2008








2008


2007




£'000


£'000







OPERATING ACTIVITIES






Loss before tax 



(44,604)


(1,424)

Adjustments for: 






- Impairment of Oil & Gas Interests



43,706


-

- Depreciation of property, plant and equipment



84


135

- Loss on sale of property, plant and equipment



4


-

- Profit on foreign exchange



(105)


-

- Share based payment charge



10


-

- Net interest income 



(562)


(240)

Operating cash flow before movements in working capital



(1,467)


(1,529)

Working capital adjustments:






- Decrease / (increase) in receivables    



161


(60)

-(Decrease) / increase in payables



(1,486)


723

Cash used in operations



(2,792)


(866)

Finance charges



(3)


(5)

Interest received



565


245

Net cash used in operating activities



(2,230)


(626)







INVESTING ACTIVITIES






Purchase of intangible assets



(8,148)


(12,909)

Purchase of property, plant and equipment



(416)


(1,131)

Sale of property, plant and equipment



2


-

Purchase of subsidiaries 



(967)


-

Investment in associate



(1,410)


-

Net cash used in investing activities



(10,939)


(14,040)







FINANCING ACTIVITIES






Proceeds from issue of share capital



3,156


26,844

Share issue costs



(180)


(1,498)

Net cash flow from financing activities



2,976


25,346







Net (decrease) / increase in cash and cash equivalents



(10,193)


10,680







Cash and cash equivalents at start of the year



16,729


6,049

Cash and cash equivalents at end of the year 



6,536


16,729


NOTES TO THE FINANCIAL STATEMENTS

For the year ended 30 June 2008


1.     General Information 


White Nile Limited is incorporated in Guernsey under the Companies (Guernsey) Law 1994 to 1996(as amended). The address of the registered office is given on page 4. The nature of the Group's operations and its principal activities are set out in the chairman's statement on pages 1 to 3.


These financial statements have been presented in pounds sterling because this is the currency of the primary economic environment in which the group operates. Foreign operations are included in accordance with the policies set out in note 2.


The financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRS").  


At the date of authorisation of these financial statements, the following Standards and Interpretations that have not been applied in these financial statements were in issue but not yet effective or endorsed (unless otherwise stated):


IFRS 2

Share Based Payment - Amendments relating to vesting conditions and cancellations

IFRS 3

Business Combinations - Amendments

IFRS 7

Financial Instruments: Disclosures - consequential amendments arising from amendments to IAS 32

IFRS 8

Operating Segments (endorsed)

IAS 1

Presentation of Financial Statements - Revised

IAS 1 

Presentation of Financial Statements - Amendments relating to Puttable Financial Instruments and obligations arising on liquidation

IAS 23

Borrowing costs - Amendment

IAS 27

Consolidated and Separate Financial Statements - Consequential amendments arising from amendments from IFRS 3

IAS 28

Investments in Associates - Consequential amendments arising from amendments to IFRS 3

IAS 31

Interest in Joint Ventures - Consequential amendments arising from amendments to IFRS 3

IAS 32

Financial Instruments: Presentation - Amendments relating to Puttable Financial Instruments and obligations arising on liquidation

IAS 39

Financial Instruments: Recognition and Measurement - Consequential amendments arising from amendments to IAS 32

IFRIC 2

Members' Shares in Co-operative Entities and Similar Instruments - Consequential Amendments arising from amendments to IAS 32

IFRIC 11

IFRS 2 - Group and treasury share transactions (endorsed)

IFRIC 12

Service Concession Arrangements

IFRIC 13

Customer Loyalty Programmes

IFRIC 14

IAS 19 - The limit on a defined benefit asset, minimum funding requirements and their interaction

IFRIC 15

Agreements for the construction of real estate

IFRIC 16

Hedges of net investment in a foreign operation


The directors anticipate that the adoption of these Standards and Interpretations in future periods will have no material impact on the financial statements of the Group, except for some additional segment disclosures when IFRS 8 comes into effect for periods commencing on or after 1 January 2009.


2.     Significant accounting policies


Basis of accounting

The financial statements have been prepared on the historical cost basis. The principal accounting policies adopted are set out below.


Basis of consolidation

(i)    Subsidiaries

The consolidated financial statements incorporate the financial statements of the Company and entities controlled by the Company (its subsidiaries) made up to 30 June each year. Control is recognised where the Company has the power to govern the financial and operating policies of an investee entity so as to obtain benefits from its activities. 


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


(ii)    Associates

Associates are those entities in which the Group has significant influence, but not control, over the financial and operating policies. The consolidated financial statements include the Group's share of the total recognised income and expenses of associates on an equity accounted basis, from the date that significant influence commences until the date that significant influence ceases. When the Group's share of losses exceeds its interest in an associate, the Group's carrying amount is reduced to nil and recognition of further losses is discontinued except to the extent that the Group has a binding obligation to make payments on behalf of an associate.


(iii)    Transactions eliminated on consolidation 

Intra-group transactions, balances and unrealised gains on transactions between group companies are eliminated. Unrealised losses are eliminated in the same way as unrealised gains, but only to the extent that there is no evidence of impairment.


Business combinations 

The acquisition of subsidiaries is accounted for using the purchase method. The cost of acquisition is measured at the aggregate of the fair values, at the date of acquisition, of assets given, liabilities incurred or assumed and equity instruments issued by the group in exchange for control of the acquiree, plus any costs directly attributable to the business combination.


The assets, liabilities and contingent liabilities of the acquiree are measured at their fair value at the date of acquisition. Any excess of the fair value of the consideration paid over the fair value of the identifiable net assets acquired is recognised as goodwill. If the fair value of the consideration is less than the fair value of the identifiable net assets acquired, the difference is recognised directly in the income statement.


Foreign currency translation

(i)    Functional and presentation currency 

The individual financial statements of each Group company are presented in the currency of the primary economic environment in which it operates ("the functional currency"). The consolidated financial statements are presented in Pounds Sterling. The functional currency of the Company is US dollars 


(ii)    Transactions and balances 

Foreign currency transactions are translated into the functional currency of the entity using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation of monetary assets and liabilities denominated in foreign currencies at period end exchange rates are recognised in the income statement.


(iii)    Consolidation

For the purpose of presenting consolidated financial statements, the assets and liabilities of the group's foreign operations are translated at exchange rates prevailing at the balance sheet date. Income and expense items are translated at the average exchange rates for the period, unless exchange rates fluctuate significantly during the period, in which exchange rates at the date of transactions are used. Exchange differences arising from the translation of the net investment in foreign operations are recognised in the Group's translation reserve, a separate component of equity. Such translation differences are recognised as income or expense in the period in which the operation is disposed of. In accordance with the transitional provisions of IFRS 1, the cumulative foreign currency gain or loss has been deemed to be zero as at the date of transition, being 1 June 2006.


Taxation

The Company is presently exempt from liability to income tax. The charge for taxation is based on the profit or loss for the year and takes into account deferred tax. Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit or loss, and is accounted for using the balance sheet method.


Deferred tax is provided on temporary differences arising on acquisitions that are categorised as Business Combinations.


Deferred tax assets are only recognised to the extent that it is probable that future taxable profit will be available in the foreseeable future against which the temporary differences can be utilised.


Deferred exploration and evaluation costs

The Group follows the full cost method of accounting under which all costs relating to the exploration for, and development of, oil and gas interests, whether productive or not, are capitalised.


All costs incurred prior to obtaining the legal right to undertake exploration and evaluation activities on a project are written-off as incurred.


Exploration and evaluation costs arising following the acquisition of an exploration licence are capitalised on project-by-project basis, pending determination of the technical feasibility and commercial viability of the project. Costs incurred include seismic data, technical expenses, license acquisition costs, exploration and appraisal drilling, general technical support and directly attributable administrative overheads. These costs are initially classified as intangible assets and are only carried forward to the extent that they are expected to be recouped through the successful development of the area, or where activities have not yet reached a stage which permits a reasonable assessment of the existence of economically recoverable reserves.


Deferred exploration costs are carried at historical cost less any impairment losses recognised. An impairment review is carried out at each balance sheet date. Upon cessation of exploration on a license or if an area of interest is determined to be non-commercial, deferred exploration costs are written off. Any proceeds from farm-out of assets is deducted from the relevant cost pool.


If an exploration project is successful and it is confirmed to be commercially viable, the costs will be transferred to depreciable pools within property, plant and equipment and amortised over the expected life of the area according to the rate of depletion of the economically recoverable reserves.  


The recoverability of deferred exploration and evaluation costs is dependent upon the discovery of economically recoverable reserves, the ability of the Group to obtain the necessary financing to complete the development of the reserves and future profitable production or proceeds from the disposal thereof.


Property, plant and equipment

All items of property, plant and equipment are stated at historical cost less depreciation (see below) and impairment. Historical cost includes expenditure that is directly attributable to the acquisition. 


Depreciation is charged to the income statement on a straight-line basis over the estimated useful lives of each item, as follows:


Leasehold improvements

25%

Plant and equipment

20% - 25% 

Motor vehicles

25%

Office furniture and equipment

12.5% - 33.3%


The assets' residual values and useful lives are reviewed, and adjusted if appropriate, at each balance sheet date. Gains and losses on disposals are determined by comparing proceeds with carrying amount and are included in the income statement.


Impairment of property, plant and equipment and intangible assets excluding goodwill

Whenever events or changes in circumstance indicate that the carrying amount of an asset may not be recoverable an asset is reviewed for impairment. An asset's carrying value is written down to its estimated recoverable amount (being the higher of the fair value less costs to sell and value in use) if that is less than the asset's carrying amount.  


Impairment reviews for deferred exploration and evaluation costs are carried out on a project by project basis, with each project representing a potential single cash generating unit. An impairment review is undertaken when indicators of impairment arise but typically when one of the following circumstances apply:


  • unexpected geological occurrences that render the resource uneconomic;

  • title to the asset is compromised;

  • variations in oil and gas prices that render the project uneconomic;

  • variations in the currency of operation; and

  • the Group determines that it no longer wishes to continue to evaluate or develop the property.


Inventories

Inventories are stated at the lower of cost and net realisable value. Net realisable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and selling expenses. The cost of inventories is based on the FIFO principle and includes expenditure incurred in acquiring the inventories and bringing them to their existing location and condition.


Trade and other receivables

Trade and other receivables are not interest bearing and are initially recognised at their fair value and are subsequently stated at amortised cost using the effective interest method as reduced by appropriate allowances for estimated irrecoverable amounts.


Cash and cash equivalents

Cash and cash equivalents includes cash in hand, deposits held at call with banks, other short-term highly liquid investments with original maturities of three months or less which are subject to an insignificant risk of changes in value. Certain cash balances are held as security for bank guarantees and other facilities. These are designated as restricted cash.


Trade and other payables and accruals

Trade and other payables are initially measured at fair value and are subsequently measured at amortised cost, using the effective interest rate method.


Provisions

Provisions are recognised when, the Group has a legal or constructive obligation as a result of past events, it is probable that an outflow of the resources will be required to settle the obligation and the amount can be reliably estimated.


Share based payment

The Group has applied IFRS2 Share-based payment. In accordance with the transitional provisions, IFRS 2 has been applied to all grants of options after 7 November 2002 that were unvested at 1 July 2006.


Certain Group employees are rewarded with share based instruments. These are stated at fair value at the date of grant and either expensed to the income statement or capitalised to deferred exploration costs, based on the activity of the employee, over the vesting period of the instrument.


Fair value is estimated using the Black Scholes option pricing model. The estimated life of the instrument used in the model is adjusted for management's best estimate of the effects of non-transferability, exercise restrictions and behavioural considerations. 



3.     Financial risk factors


The Group's principal financial instruments comprise cash, and short-term deposits. Together with the issue of equity share capital, the main purpose of these is to finance the Group operations and expansion. The Group has other financial instruments such as trade receivables and trade payables which arise directly from normal trading.


The Group has not entered into any derivative or other hedging instruments. 


The main risks arising from the Group's financial instruments are credit risk, liquidity risk and market risk (including interest rate risk and currency risk ). The Board reviews and agrees policies for managing each of these risks and these are summarised below. The interest receivable relates to interest earned on bank deposits. Interest payable relates to bank overdraft interest.


Credit risk

Credit risk arises from cash and cash equivalents, and deposits with banks and financial institutions, as well as outstanding receivables. The Group's principal deposits are held with one major Bank giving rise to a concentration of credit risk. The board regularly reviews the credit rating of the bank. Receivables are regularly monitored and assessed for recoverability.  


The fair value of financial assets and liabilities is not materially different to the carrying values presented.


Liquidity risk

The Group's policy throughout the year has been to ensure that it has adequate liquidity by careful management of its working capital. At 30 June 2008 the Group's held cash deposits of £7.2m (2007: £16.7m)


Market risk

The significant market risk exposures to which the Group is exposed are currency risk, and interest rate risk. These are discussed further below:


    Interest rate risk

The Company finances its operations through the use of cash deposits at variable rates of interest for a variety of short term periods, depending on cash requirements. The rates are reviewed regularly and the best rate obtained in the context of the Group's need. The weighted average interest rate on deposits was 4.95% (2007: 4.84%).


The exposure of the Group's financial assets to interest rate risk is as follows:



2008


2007


£'000


£'000





Financial assets at floating rates

7,308


17,121


    Currency risk

The Group conducts its operations in other jurisdictions that its reporting currency and therefore is subject to fluctuations in exchange rates. These risks are monitored by the board on a regular basis. The Group does not hedge against the effects of exchange rates.  


The exposure of the group's financial assets and liabilities to currency risk is as follows:


 

Sterling

US$

Other

Total


£'000

£'000

£'000

£'000

Cash and cash equivalents

6,227

239

73

6,539

Trade and other receivables

7

26

11

44

Total financial assets at 30 June 2008

6,234

265

84

6,583






Cash and cash equivalents

16,660

5

64

16,729

Trade and other receivables

3,156

327

73

3,556

Total financial assets at 30 June 2007

19,816

332

137

20,285






Trade payables

87

32

-

119

Other payables

74

135

12

221

Total financial liabilities at 30 June 2008

161

167

12

340






Trade payables

397

-

78

475

Other payables

1,214

-

9

1,223

Total financial liabilities at 30 June 2007

1,611

-

87

1,698







Fair values

The Directors have reviewed the financial statements and have concluded that there is no significant difference between the book values and the fair values of the assets and liabilities of the Group as at 30 June 2008 and 2007.


Capital risk management

The Group's objectives when managing capital is to safeguard the Group's ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders. The Group places funds which are not required in the short term, on deposit at the best interest rates it is able to secure from its bankers.


The Group plans its capital requirements regularly. The requirement for capital is satisfied by the issue of shares.  


The Group has no short term borrowings and does not currently have any borrowing facilities. 


The Group is under no obligation to meet any externally imposed capital requirements.


Sensitivity analysis

Financial instruments affected by market risk include cash and cash equivalents, trade and other receivables and payables. The following analysis, required by IFRS 7, is intended to illustrate the sensitivity of the Group's financial instruments (at year end) to changes in market variables, being exchange rates and interest rates.


The following assumptions were made in calculating the sensitivity analysis:


  • all income statement sensitivities also impact equity

  • all financial instruments are carried at amortised cost and therefore carrying value does not change as interest rates move

  • translation of foreign subsidiaries and operations into the Group's presentation currency have been excluded from this sensitivity.


Exchange rates:


Income Statement


Equity

2008

£'000


£'000

+ 5% USSterling

5


5

- 5% USSterling

(5)


(5)

+ 5% US$ Kenyan Shilling

(8)


(8)

- 5% US$ Kenyan Shilling

8


8





2007




+ 5% USSterling

-


-

- 5% USSterling

-


-

+ 5% US$ Kenyan Shilling

-


-

- 5% US$ Kenyan Shilling

-


-


Interest Rates: The group does not hold any financial derivatives other than cash whose value is affected by changes in interest rates


Income Statement


Equity

2008

£'000


£'000

+ 20 bp increase in interest rates

14


14

+ 50 bp increase in interest rates

36


36

- 20 bp increase in interest rates

(14)


(14)

- 50 bp increase in interest rates

(36)


(36)





2007




+ 20 bp increase in interest rates

33


33

+ 50 bp increase in interest rates

84


84

- 20 bp increase in interest rates

(33)


(33)

- 50 bp increase in interest rates

(84)


(84)


The above sensitivities are calculated with reference to a single moment in time and will change due to a number of factors including:

  • fluctuating trade receivable and trade payable balances

  • fluctuating cash balances

  • changes in currency mix



4.     Critical accounting estimates and judgements


The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the group's accounting policies. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below.


Capitalised exploration and evaluation expenditure

In making decisions about whether to continue to capitalise exploration and evaluation expenditure, it is necessary to make judgements about the probable commercial reserves and the level of activities that constitute on-going appraisal determination process. 


As outlined in the Chairman's statement on pages 1 to 3 the directors have decided that, in light of the current economic environment, which is not conducive to the continued funding of non-producing early stage oil & gas exploration assets, combined with the current political situation in Southern Sudan, it is not possible to be confident that the Company can raise sufficient funds to meet its future expenditure plans to exploit its exploration licenses.


The directors have therefore decided to suspend exploration activities and reduce expenditure to the minimum required in order to retain exploration licenses. Negotiations continue with the Governments of Ethiopia, Kenya and the license holders in Nigeria, to revise the terms of these licenses. Until the Company successfully resolves these and the uncertainties concerning its exploration rights in Southern Sudan and its ability to secure further funds, the directors consider that the value of exploration and evaluation and other related assets at 30 June 2008 is impaired. The impairment charge comprises:





£'000





Impairment of exploration and evaluation assets (note 11)



40,786

Impairment of property, plant and equipment (note 12)



1,125

Impairment of investment in associate (note 14)



1,329

Impairment of inventory (note 15)



331

Impairment of amounts due from associate (note 25)



100




43,671


5.     Segment reporting


The directors consider that the Group's oil and gas exploration activities in Africa are one business segment.


6.     Loss from operations


Loss from operations has been arrived at after charging/(crediting):


2008


2007


£'000


£'000





Impairment of Oil & Gas interests (note 4)

43,671


-

Depreciation of property, plant and equipment

84


135

Loss on disposal of property, plant and equipment

4


-

Net foreign exchange (gains)/ losses

(122)


95

Operating lease rentals: land & buildings

42


38

Staff costs (see note 7)

545


447


Amounts payable to Baker Tilly UK Audit LLP and their associates in respect of both audit and non-audit services as follows:


2008


2007


£'000


£'000





Audit services




UK statutory audit of parent and consolidated accounts

54


35

- other services

-


-


54


35


7.     Staff costs


The average monthly number of employees (including executive directors) employed by the group for the year was as follows:


2008


2007


Number


Number





Office and Management

14


10

Operational

3


5


17


15


The aggregate remuneration comprised:



2008


2007


£'000


£'000





Wages and salaries

535


447

Social security costs

-


-

Share based payment charge

10


-


545


447


Directors' remuneration:


 
 
2008
 
2007
 
 
£’000
 
£’000
 
 
 
 
 
P H Edmonds
director’s services
150
 
150
A S Groves
director’s services
150
 
150
 
fundraising fees
-
 
250
B Moritz
 
10
 
-
 
 
310
 
550

The fundraising costs have been charged to the share premium account.


8.     Finance income and expenses


2008


2007


£'000


£'000

Finance income: 




- Interest income on short-term bank deposits

512


211

- Other interest

53


34

Finance income

565


245





Interest expense: 




Bank borrowings

1


5

- Related party loan

2


-

Finance expenses

3


5

Net finance income

562


240


9.     Income tax expense 


The Group has operations in a number of overseas jurisdictions where it has incurred taxable losses. To date no deferred tax asset has been recognised as the requirements of IAS 12 have not been met.  


The Income Tax (Guernsey) Law 1975 was amended by the Income Tax (Zero 10) (Guernsey) Law,2007 and the Income Tax (Zero 10) (Guernsey) (No. 2) Law,2007. These amendments took effect from 1 January 2008 and in summary imply that the standard rate of income tax will move from 20% to 0%. There is a zero tax on profits of companies, with a 10% rate of tax applying to certain types of regulated finance business hence a "zero-10 regime".


The Company is subject to Guernsey income tax on its profits at a rate of 0%. No tax is payable for the year due to losses incurred. Deferred tax has not been provided for, as brought forward tax losses are not recoverable under the Income Tax (Zero 10) (Guernsey) Law, 2007.


10.     Earnings per share


The calculation of the basic and diluted earnings per share is based on the following data:


2008


2007


£'000


£'000





Loss for the purposes of basic earnings per share (loss for the year attributable to equity holders of the parent)

44,743


1,424





Number of shares








Weighted average number of ordinary shares for the purposes of basic and diluted loss per share 

347,386,222


324,627,397





Loss per share

(12.88p)


(0.44p)


Due to the loss incurred in the period, there is no dilutive effect of share options.


11.     Exploration and evaluation costs


Group


Company


£'000


£'000

COST 




At 1 July 2006

17,343


17,343

Additions

12,909


12,909

Share option charge

162


162

At 1 July 2007

30,414


30,414

Exchange rate adjustment

46


82

On acquisition of subsidiary

2,107


-

Transfer to inventory

(1,523)


(1,523)

Additions

9,742


9,116

At 30 June 2008

40,786


38,089

 




AMORTISATION AND IMPAIRMENT

-


-

At 1 July 2006 and 1 July 2007

-


-

Impairment loss (note 4)

(40,786)


(38,089)

At 30 June 2008

(40,786)


(38,089)





CARRYING AMOUNT




At 1 April 2006

17,343


17,343

At 30 June 2007

30,414


30,414

At 30 June 2008

-


-


Drilling equipment, spares and consumables amounting to £1,523,000 have been reclassified as inventory (see note 15)


The Company has committed to future exploration costs amounting to £7,000,000 (2007: £2,150,000). As outlined in note 4, due to current market conditions it may not be possible to raise funds in order to meet these commitments. A full impairment charge of £40,786,000 (2007; £Nil) has been taken.


12.     Property, plant and equipment

Group and Company

Motor

Plant and

Other

Total


Vehicles

machinery

assets



£'000

£'000

£'000

£'000

COST





1 July 2006

84

31

142

257

Additions

366

679

86

1,131

1 July 2007

450

710

228

1,388

Exchange rate adjustment

3

2

1

6

Additions

394

9

13

416

Disposals

(5)

-

(10)

(15)

30 June 2008

842

721

232

1,795






DEPRECIATION





1 July 2006

19

1

9

29

Charge for the year

45

51

39

135

1 July 2007

64

52

48

164

Exchange rate adjustment

1

1

1

3

Charge for the year

353

107

52

512

Disposals

(3)

-

(6)

(9)

Impairment charge (note 4)

427

561

137

1,125

30 June 2008

842

721

232

1,795






Net book value





30 June 2008

-

-

-

-

30 June 2007

386

658

180

1,224


Other assets comprise leasehold improvements, office furniture and equipment.


A depreciation charge of £84,000 (2007: £135,000) has been included in operating expenses in the income statement for the current and comparative years. Depreciation of assets used in exploration activities amounting to £428,000 (2007: £nil) has been capitalised as exploration and evaluation expenditure.


All the Group's fixed assets relate to exploration and evaluation activities. As set out in note 4, the directors have decided that all related assets are impaired.


13.     Subsidiaries

Company

2008


2007


£'000


£'000

COST




1 July 2007

-


-

Additions

1,905


-

At 30 June 2008

1,905


-





Impairment




1 July 2007

-


-

Impairment Charge (note 4)

1,905


-

At 30 June 2008

1,905


-





Net book value at 30 June 2008

-


-


As at 30 June 2008, the Company held equity in the following principal undertakings:

Subsidiary undertakings

Proportion held

Country of incorporation

Nature of business





P A Energy Africa Limited

100%

British Virgin Islands

Oil exploration


On 16 May the Company acquired PA Energy Africa Limited and its dormant subsidiaries (note 24).


As set out in note 4, the directors have decided to suspend further expenditure on all oil and gas exploration and evaluation projects. The company considers this investment to be impaired and full provision has been made.


14.     Interest in associate


Group


Company


£'000


£'000

1 June 2007 

-


-

Debt funding provided

1,410


1,410

Share of losses 

(80)


-

Impairment charge (note 4)

(1,329)


(1,410)

Exchange differences

(1)


-

30 June 2008

-


-


On 28th March 2008, the Company agreed to acquire a 49% interest in CAMEC Kenya Limited a Kenyan subsidiary of Central African Mining and Exploration Company PLC in return for funding 49% of past and future costs. As set out in note 4, the directors have decided to suspend further expenditure on exploration and evaluation activities. Consequently the Company will not continue to fund its share of future exploration activities and considers its investment to be impaired and full provision has been made.


The group's share of the results of its associate, which is unlisted, and its aggregated assets and liabilities are as follows:



2008


2007


£'000


£'000

Total assets 

2,820


-

Total liabilities

(108)


-

Revenue 

-


-

Profit / (loss) 

(80)


-


Details of the Company's associate at 30 June 2008 is as follows:


Indirect associate undertaking  

Proportion held

Country of incorporation

Nature of business





Camec Kenya Limited

49%

Kenya

Oil and Gas exploration


Camec Kenya limited have committed to future exploration costs amounting to £6,200,000 in the next 7 years, of which the Company's share is £3,000,000.


15.     Inventories


Group and Company

2008


2007


£'000


£'000





Consumables and spares

331


-

Impairment provision

(331)




-


-


Drilling equipment, spares and consumables amounting to £1,523,000 were classified as other intangible assets at 30 June 2007(see note 11).


During the year inventory amounting to £26,000 was transferred to CAMEC Kenya Limited at book value and £1,166,000 was consumed in drilling operations and therefore capitalised and included in exploration and evaluation costs (note 11)


As set out in note 4, the directors have suspended further exploration and evaluation activities. The company considers inventories to be impaired and full provision has been made.


16.     Other Financial Assets


Trade and other receivables


Group

Company


2008

2007

2008

2007


£'000

£'000

£'000

£'000






Amounts due from subsidiaries

-

-

-

-

Other receivables

44

400

44

400

Unpaid share capital

-

3,156

-

3,156


44

3,556

44

3,556


Cash and cash equivalents



Group

Company


2008

2007

2008

2007


£'000

£'000

£'000

£'000






Cash and cash equivalents

6,384

16,574

6,381

16,574

Restricted cash 

155

155

155

155


6,539

16,729

6,536

16,729


Restricted cash relates to cash held on deposit as security for certain bank guarantees.


The directors consider that the carrying amount of other financial assets approximates their fair value.


17.     Other financial liabilities.


Trade and other payables


Group

Company


2008

2007

2008

2007


£'000

£'000

£'000

£'000






Trade payables

119

475

87

475

Other payables

-

990

-

990

Accruals and deferred income

221

233

125

233


340

1,698

212

1,698


The directors consider that the carrying amount of other financial liabilities approximates their fair value.


18.     Share capital


Ordinary shares of 0.1p each

Group and company

Authorised

Allotted and fully paid


Number

Number

£'000





At 1 July 2006

1,000,000,000

317,000,000

317

Issue of shares

-

30,000,000

30

At 1 July 2007

1,000,000,000

347,000,000

347

Issue of shares

-

3,132,688

3

At 30 June 2008

1,000,000,000

350,132,688

350


On 4 December 2006 the Company issued 12,000,000 0rdinary shares of 0.1p each for cash at £1 per share raising gross cash proceeds of £12million to provide funding for drilling and development of the Company's Block Ba concession in Southern Sudan.


On 21 June 2007 the Company issued 18,000,000 0rdinary shares of 0.1p each for cash at £1 per share to provide funding for the development of the Company's operations in Southern Sudan and Ethiopia, as well as to develop its activities within the region as a whole.


On 16 May 2008, the company allotted 3,132,688 ordinary shares of 0.1p each as part of the consideration for the acquisition of PA Energy Africa Limited (see note 24).


The Company has one class of ordinary share which carries no right to fixed income.


At the Extraordinary General Meeting held on 11 November 2008, resolutions were passed to amend Article 4 of the Company's Articles of Incorporation to divide the authorised share capital of £1,000,000 into 845,000,000 Ordinary Shares of 0.1p each and 155,000,000 Deferred Shares of 0.1p each. The deferred shares carry no right to any dividend; no right to receive notice, attend, speak or vote at any general meeting of the Company; and on a return of capital on liquidation or otherwise, the holders of the deferred shares are entitled to receive the nominal amount paid up after the repayment of £1,000,000 per ordinary share. The 155,000,000 Ordinary Shares of 0.1p each held by Nile Petroleum Corporation Limited were converted into 155,000,000 Deferred shares of 0.1p each (See Note 26).


Share Options:

At 30 June 2008, the following options over ordinary shares of 0.1p each have been granted to directors and employees and remain unexercised:


Date of grant

Number of shares

Exercise price

Exercise period

4 February 2005

10,000,000

10p

8 February 2005 to 7 February 2010

3 October 2005

1,000,000

90p

3 October 2006 to 2 October 2010


Nile Petroleum Corporation Limited has the right, exercisable at any time, to transfer the remaining interest in Block Ba to the Company in exchange for the issue of 206,666,667 ordinary shares of 0.1p each.


19.     Share premium 


Group and company



£'000





At 1 July 2006



23,992

Premium on shares issued



29,970

Expenses of issue



(1,498)

At 1 July 2007



52,464

Premium on shares issued



935

Expenses of issue



(180)

At 30 June 2008 



53,219











20.     Share based payment reserve 


Group and company



£'000





At 1 July 2006



488

Share based payment charge for the year



162

At 1 July 2007



650

Share based payment charge for the year



10

At 30 June 2008 



660










21.     Translation reserve


Group


Company


£'000


£'000





1 July 2006 and 1 July 2007

-


-

Exchange difference on overseas operations

(7)


(4)

30 June 2008

(7)


(4)


As permitted under IFRS 1: First time adoption of IFRS, the cumulative translation differences for all overseas operations have been deemed to be zero at the transition date, 1 July 2006.


22.     Retained earnings


Group


Company


£'000


£'000





1 July 2006

(1,812)


(1,812)

Loss for the year

(1,424)


(1,424)

1 July 2007 

(3,236)


(3,236)

Loss for the year

(44,743)


(44,621)

30 June 2008

(47,979)


(47,857)






23.     Share based payments


Equity - settled share option plan


The Group unapproved share option scheme was established to provide equity incentives to the directors of, employees of and consultants to the company. The scheme rules provide that the board shall determine the exercise price. The vesting period is generally 1 year. If options remain unexercised after a period of 4 or 5 years from the date of grant, the options expire. Furthermore, options are forfeited if the employee leaves the Group before the options vest.



2008 

Options Number

Weighted average exercise price 

2007 

Options Number

Weighted average exercise price 






Options at the beginning of the period

11,000,000

17.3p

11,000,000

17.3p

Allocated from Ely Place Nominees

50,000

10.0p

-

-

Exercised

(50,000)

10.0p

-

-

Options at the end of the period

11,000,000

17.3p

11,000,000

17.3p






Exercisable at 30 June

11,000,000

17.3p

11,000,000

17.3p


At 30 June 2008 the weighted average remaining contractual life of the options outstanding was 1.6 years (2007 2.6 years). 


The fair value of the options was determined using the Black-Scholes option pricing model. No options were granted during the year ending 30 June 2007



On 1 February 2005, 5 million shares were issued at par to Ely Place Nominees Limited to be held on Trust to facilitate the payment or part payment in options, with an exercise price of 10p, to third parties for products or services. During the year the company allocated 50,000 options from this reserve. These were exercised immediately and the company has recognised their intrinsic value as share based payment expenses of £10,000 (2007: £162,000 which was capitalised within exploration and evaluation costs).


Allocated from Ely Place Nominees

50,000

10.0p

-

-

Exercised

(50,000)

10.0p

-

-


24.     Acquisition of subsidiary


On 16 May 2008, the Company acquired 100 per cent of the issued share capital of PA Energy Africa Limited. PA Energy Africa limited holds service contracts to develop oil and gas fields in Nigeria. The transaction has been accounted for as an acquisition of assets.





Fair Value




£'000





Intangible assets acquired



2,107





Satisfied by:




Cash consideration plus costs of acquisition



967

Issue of equity



938

Liabilities assumed



205

Cash acquired



(3)




2,107


Between the date of acquisition and the balance sheet date, PA Energy Africa Limited has incurred administrative costs of £48,000.


25.     Related party disclosures


PH Edmonds and AS Groves, directors of the Company, are also directors and shareholders of Central African Mining and Exploration Company Plc ("CAMEC"). During the year CAMEC provided office services to the company for a management fee of £61,000 (2007: £75,900). As at 30 June 2008 CAMEC owed the Company £7,259 (2007: due to CAMEC £4,203). This balance has been settled since the year end.


On 28 March 2008, the Company acquired 49% of CAMEC Kenya Limited (see note 14) from CAMEC. During the period, the Company provided management services to CAMEC Kenya Limited amounting to £276,000. As at 30 June 2008, Camec Kenya Limited owed the Company £100,000. As set out in note 4, the Company has suspended further expenditure on exploration activities and considers its investment in, and balance due from, CAMEC Kenya limited to be impaired and a full provision has been made.


Remuneration of key management personnel

The remuneration of the directors, who are the key management personnel of the Group, is set out below in aggregate for each of the categories specified in IAS 24 'Related Party Disclosures'. Further information about the remuneration of individual directors is provided in note 7.



2008


2007


£'000


£'000





Short-term employee benefits

310


550

Post-employment benefits

-


-

Other long-term benefits

-


-

Termination benefits

-


-

Share-based payment

-


-


310


550


26.     Post balance sheet events


At the Extraordinary General Meeting held on 11 November 2008, resolutions were passed to amend Article 4 of the Company's Articles of Incorporation to divide the authorised share capital of £1,000,000 into 845,000,000 Ordinary Shares of 0.1p each and 155,000,000 Deferred Shares of 0.1p each (see note 18). The 155,000,000 Ordinary Shares of 0.1p each held by Nile Petroleum Corporation Limited were converted into 155,000,000 Deferred shares of 0.1p each (see note 11).


On 5 December 2008, the Company announced that its current strategy of concentrating on oil and gas exploration is not now in the best interests of shareholders as the directors believe that the current economic environment is not conducive to the continued funding of non-producing early stage oil and gas exploration assets. The directors are making a proposal at an Extraordinary General Meeting to be held on 6 January 2009 to change its investing strategy to focus on agricultural and associated civil engineering industries in Africa.


27.     Operating Leases


The Group as a lessee has rentals payable under non cancellable operating leases as follows:


2008


2007


£'000


£'000

Less than one year

30


32

Between one and five years

84


84

After five years

138


159


The lease rentals are in respect of group office premises. Terms of leases vary from 12 months to 12 years.


28.     Explanation of transition to IFRS


The financial statements have been prepared in accordance with IFRS for the first time.


The Group and Company have adopted the following transitional exemptions permitted under IFRS 1 First-time Adoption of International Financial Reporting Standards:


  • Fair value or revaluation at deemed cost: The Group and Company have not elected to restate items of property, plant and equipment to fair value at transition date.


(b)    Cumulative translation differences: The Group and Company have elected to set the accumulated currency translation difference to zero at the date of transition.


Effect of the adoption of IFRS on the Group's and Company's accounting policies


Based on a review of the Group's and Company's accounting policies, there are no changes required that would result in a change to amounts previously recognised under UK GAAP. Therefore the reported equity at the date of transition, 1 July 2006, the reported loss for the year to 30 June 2007 and the reported equity at 30 June 2007 are not affected by the adoption of IFRS 1. Any changes are limited to presentation of the financial statements in line with the formats adopted for the year ended 30 June 2008.


Effect of the adoption of IFRS on the cash flow statement


Under IFRS, amounts previously classified as liquid resources under UK GAAP as a component of net debt have been classified as cash equivalents. Accordingly, cash flows attributable to liquid resources form part of the net increase or decrease in cash on restatement. There are no other significant changes to cash flows other than presentational changes to comply with the disclosure requirements of IAS 7 "Cash flow statements".



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