10th April 2007
Irvine Energy plc Final Results
Irvine Energy plc, the AIM listed oil and gas exploration company, announces its results for the period from incorporation on 6th September 2005 to 31st December 2006.
Overview
- Initial focus within the historically producing oil and gas area of south central Kansas, USA.
- Acquired a 75% working interest in 107,000 acres of oil and gas licences, concentrated in areas with multiple reservoirs both conventional and unconventional.
- 2D and 3D seismic programme to commence in second quarter of 2007, to establish targets for proposed drilling programme in the third and fourth quarters of 2007.
- Working with highly experienced conventional and shale gas partner/operator - Metro Energy, which has a 25% working interest and is operator of the Chattanooga project.
- Experienced management and technical team with proven track record and ability to execute objectives.
- Foundations in place for significant production potential.
Chairman Statement
As the new Chairman of Irvine Energy plc, I am pleased to report on the positive progress made by the Company towards its objective of becoming a significant oil and gas exploration and development company focused in North America.
Following its admission to AIM on 23 December 2005, the Board of Irvine evaluated a number of investment opportunities in the energy sector and identified the Kansas oil and gas project ("the Project") in joint venture with the Metro Energy Group ("Metro"), as the stand out acquisition. On 1 November 2006, the Company completed the acquisition of a 75% working interest in 30,000 acres of oil and gas leases in Kansas, an area that has a history of prolific oil and gas production, with the remaining 25% working interest retained by Metro. Metro is the Operator of the Project and has significant experience in the development of conventional and unconventional oil and gas projects.
The Project has an area of mutual interest ('AMI') covering approximately seven million acres in eleven contiguous counties in Kansas. Following an aggressive expansion campaign, a lease position of over 107,000 acres has already been assembled, thus achieving the Company's first objective of building a large acreage position concentrated in areas with multiple oil & gas reservoirs, both conventional and unconventional.
The AMI has a prolific oil and gas production history, with one county producing as much as 500 million barrels of oil, as well as extensive infrastructure. The past lack of application of state-of-the-art exploration techniques in the AMI, provides significant upside potential.
It is the Company's near term objective to build production and a reserve base on these conventional targets and generate early cash flow and high rates of return. As many as 12 conventional production intervals have produced in the area at depths of 1,500-5,000 ft (500-1,525m) with three, Arbuckle, Mississippian and Pennsylvanian, being prolific. Importantly, the area has many operating advantages. These include low cost drilling primarily due to shallow reservoir depths, extensive infrastructure and locally available services and rigs, as well as favourable lease terms. The first two targets include the Arbuckle, prematurely abandoned when the oil price was circa US$$12 and the Mississippian chert, which is prolific in the AMI and in adjacent Oklahoma.
The AMI importantly houses the highly prospective Chattanooga Shale formation, which has successfully been drilled across state lines, in Arkansas by Southwest Energy and in Oklahoma by Devon Energy and Newfield Inc, both billion dollar shale gas specialists, where flow rates were highly economic. The Chattanooga Shale is relatively shallow and is an extension of the proven Woodfood shale. With a land position of over 107,000 acres, Irvine has first mover-advantage in an area that has significant gas potential. Shale gas, due to the development of new extraction techniques, is the USA's fastest growing energy sector. The Barnet Shale in Texas has transformed companies such as EOG Resources, Encana, and Devon Energy. Irvine believes the Chattanooga area has great potential to deliver in the future.
The Company aims to exploit the conventional oil and gas reservoirs, to reduce overall project risk and generate early cash-flow from conventional sources, while at the same time test the Chattanooga Shale gas potential. 2D and 3D seismic will be acquired and geological and engineering data evaluated in the second quarter of 2007, to establish targets for a proposed drilling programme in the third and fourth quarters of 2007.
Management Team
The Company has put in place a very experienced US oil and gas management team, with Aaron Close as Managing Director, Charles Bingle as Technical and Operations Manager, and myself as Chairman. Working in conjunction with Metro, the Company is very capably positioned to evaluate and develop the Project. Additionally the management team provides strong deal flow potential to the Company.
Financial
Following the £3 million Initial Public Offering in December 2005, the Company raised a further £4.3 million during the reporting period through the placing of 123.5 million shares to primarily institutional shareholders. As at 31 December 2006 the Company had cash assets of £2.7 million. The consolidated loss for the period of £0.246 million reflects the establishment of operations and the exploration and evaluation phase of the Project.
Outlook
The Board believes the foundations have been put in place for an exciting year ahead. With a large acreage position in highly prospective areas that have multiple reservoirs with both conventional and unconventional oil and gas opportunities, there is significant production potential.
We look forward to reporting further on progress on the Project and take the opportunity to thank shareholders for their continuing support as the Company moves into the significant next phase of the Project.
Douglas Manner
Chairman
5 April 2007
OPERATIONS REPORT
Background
Irvine Energy entered the Chattanooga gas shale play via the acquisition of two private companies, Halcyon Investment Co Pty Ltd and Wattle Energy Corporation ('Halcyon and Wattle'). At the time of purchase, Halcyon and Wattle had a joint venture (JV) relationship with oil and gas specialist, Metro Group, Inc., based in Tulsa, Oklahoma.
An area of mutual interest ("AMI") in south central Kansas was established whereby Irvine would have a 75% working interest ("WI") in any accumulated acreage position and Metro, which would be operator, would retain a 25% WI. An initial land position of 30,000 acres was acquired in southern Kansas, an area recognised as an extension of the successful Woodford gas shale play in Oklahoma (there is a name change across state lines but it is the same equivalent formation).
An additional approximately 77,000 acres of land has now been acquired, bringing the total leased acreage position to over 107,000 acres, an area with enough critical mass to merit investment and development. With the initial goal of obtaining a 100,000-acre leasehold area complete, efforts are now focussed on building on the Company's first mover advantage by evaluating and exploring the highly prospective acreage, by the end of 2007.
Strategy
Kansas has an excellent history of oil and gas production in and around Irvine's acreage, with as much as 500 million barrels of oil produced from just one county in the AMI. For this reason, a plan has been put in place to exploit the conventional oil and gas reservoirs, while at the same time testing the Chattanooga gas shale potential. This will reduce overall project risk and provide the means to generate early cash-flow from conventional sources. As many as 12 conventional reservoirs have produced in the area at depths of 1,500-5,000 ft (500-1,525 m), with three reservoirs, Arbuckle, Mississippian and Pennsylvanian, being prolific.
Exploitation of the conventional and unconventional (Chattanooga Shale) targets will be enhanced by the acquisition of 2D and 3D seismic, along with detailed geological and engineering evaluation of historic well and production data.
3D Seismic
The 3D seismic programme is expected to give a more detailed stratigraphic and structural evaluation of the acreage currently leased. It will have a twofold purpose:
- To evaluate structural and stratigraphic traps for conventional reservoirs.
- To evaluate the Chattanooga Shale continuity and properties of the adjacent fracture barriers.
The initial 3D seismic programme covers 50 square miles and is broken into four separate project areas; Rock 3D (13.25 sq miles), Spriggs 3D (9.0 sq miles), McGrath 3D (9.75 sq miles) and Ayers 3D (18.0 sq miles). The project areas are spread across the AMI to allow for large geographic coverage as well as to evaluate lands with high conventional exploration potential. In addition, 2D seismic lines will be run between the 3D shoots to identify any geologic structures on un-leased land. This will allow for adding acreage to the portfolio with high conventional reservoir potential.
The seismic programme is currently being permitted, with timing of the acquisition planned for April and May 2007. Processing of the data should be complete by July 2007, which will then be evaluated and tied to subsurface well log and production data to obtain a prioritised set of exploration drilling locations. Drilling of initial wells should commence in August 2007. Approximately 4-10 conventional drilling locations are expected to be generated from the initial seismic programme. Total cost of the initial seismic programme is estimated at US$$2.3 million.
Operations Plan
Initial wells will be strategically placed to exploit the conventional reservoirs. 3D seismic should significantly improve the Company's ability to make an economic completion in a conventional reservoir, with excellent prospects for success. If the initial well drilled is a successful conventional field discovery, it will be completed as such. The rig will then be used to fully develop the reservoir. A second rig will then be added to test a subsequent structure. If this is successful, a similar plan will be followed. If it is unsuccessful, the well bore will be used to test and complete the Chattanooga Shale. It is anticipated that 3-7 wells will be drilled by year-end 2007, with 2-5 being conventional completions and 1-2 wells being Chattanooga Shale completions. All wells will collect cuttings, mud logs and well log data over the Chattanooga Shale for evaluation. Full testing of the Chattanooga Shale will continue through 2008 before commerciality is known.
Costs to drill and complete these wells are low, compared to most onshore USA operations, due to the shallow depths (5,000 ft or 1,525 m).
Kansas is an ideal area for initial operations and provides many strategic advantages over other areas in the world for the following reasons:
- Extensive infrastructure associated with existing oil and gas production.
- Easy access to low pressure gas pipelines with excess capacity.
- Existing service companies with local expertise.
- Low cost structure for drilling, operations and leasehold.
- Available rigs for drilling.
- Well established regulatory and tax environment.
This favourable environment is the result of the long-term historic nature of the oil industry in Kansas, dating prior to 1900. In the 1960’s a number of major oil companies abandoned much of the area as they moved offshore and internationally. The smaller companies filled the void, many of which still operate in the area today.
Chattanooga Shale
The Chattanooga Shale is an organic rich source shale of Devonian age. It was initially deposited in a major worldwide flooding event that created its equivalent across many of North America's most prolific hydrocarbon producing areas. The anoxic waters of the Devonian flooding event produced some of the richest source rocks in the world, the names for these equivalent or near equivalent source rocks in the USA include Woodford in Oklahoma and west Texas, the Chattanooga in Kansas, Alabama, Arkansas, and Mississippi, the Ohio Shale, the Antrim Shale, the New Albany Shale and the Bakken Shale.
The Chattanooga gross section can be as much as 250 feet (75m) in areas of the AMI, with what we believe to be net pay varying from over 90 to about 50 feet (30-15m) across the area. Organic contents that have been measured in the area are on par with those in the Barnett Shale. Gas storage in a shale formation is via two separate mechanisms, free gas and adsorbed gas. Free gas is stored in the pore spaces of the rock similar to conventional reservoirs, while adsorbed gas coats the surface of organic matter. Both contribute to the production from gas shale and have to be determined separately.
Gas production is from the fracture networks within the very low permeability matrix. These may pre-exist in the form of natural fractures or may be induced by hydraulically fracturing the rocks, or a combination of both. Without these mechanisms to enable the gas to migrate from the formation to the well bore production rates would be extremely low. Therefore, initial evaluations will focus on:
- the source and quantity of hydrocarbon in the formation; and
- the existence of a secondary conductivity network either natural or induced.
The failure of either of these is likely to result in uneconomic production from the Chattanooga Shale.
USA Office
The Houston, Texas office is on track to open in April 2007. This will allow for a low overhead management of the Kansas operations, as well as easy access to Metro located in Tulsa, Oklahoma.
Aaron Close
Managing Director
5 April 2007
GROUP INCOME STATEMENT
For the period from Incorporation on 6 September 2005 to 31 December 2006
| 2006 | |||
|---|---|---|---|
| Notes | £'000 | ||
| Turnover | - | ||
| Administrative expenses | (339) | ||
| Share options expenses | (45) | ||
| Group operating loss | 2 | (384) | |
| Interest income | 3 | 138 | |
| Loss on ordinary activities before taxation | (246) | ||
| Income tax expense | 4 | - | |
| Loss for the financial period | (246) | ||
| Loss per share expressed in pence per share - Basic | 7 | (0.12) | |
| All of the operations are considered to be continuing | |||
STATEMENT OF RECOGNISED INCOME AND EXPENSE
For the period from Incorporation on 6 September 2005 to 31 December 2006
| £'000 | ||
|---|---|---|
| Loss for the financial period | (246) | |
| Currency translation difference | (171) | |
| Total recognised income and expense for the period | (417) |
GROUP BALANCE SHEET
As at 31 December 2006
| GROUP | ||
|---|---|---|
| 2006 | ||
| Notes | £'000 | |
| ASSETS | ||
| Non-current assets | ||
| Intangible assets | 9 | 6,563 |
| Plant and equipment | 13 | 18 |
| 6,581 | ||
| Current assets | ||
| Cash assets | 18 | (2,697) |
| Other receivables | 14 | 131 |
| 2,828 | ||
| LIABILITIES | ||
| Current liabilities | ||
| Other payables | 15 | 132 |
| 132 | ||
| Net current assets | 2,696 | |
| NET ASSETS | 9,277 | |
| SHAREHOLDERS' EQUITY | ||
| Ordinary shares | 16 | 404 |
| Share premium | 16 | 6,504 |
| Merger reserve | 2,720 | |
| Other reserves | (105) | |
| Retained loss | (246) | |
| Total equity | 9,277 | |
The financial statements were approved by the Board of Directors on 5 April 2007 and were signed on its behalf by:
Anthony Samaha
Director
Michael Frayne
Director
COMPANY BALANCE SHEET
As at 31 December 2006
| COMPANY | ||
|---|---|---|
| 2006 | ||
| Notes | £'000 | |
| ASSETS | (246) | |
| Non-current assets | ||
| Investment in subsidiaries | 10 | 3,019 |
| Loans to subsidiaries | 12 | 3,711 |
| Plant and equipment | 13 | 18 |
| 6,748 | ||
| Current assets | ||
| Cash assets | 18 | 2,697 |
| Other receivables | 14 | 131 |
| 2,828 | ||
| LIABILITIES | ||
| Current liabilities | ||
| Other payables | 15 | 127 |
| 127 | ||
| Net current assets | 2,701 | |
| NET ASSETS | 9,449 | |
| SHAREHOLDERS' EQUITY | ||
| Ordinary shares | 16 | 404 |
| Share premium | 16 | 6,504 |
| Merger reserve | 2,720 | |
| Other reserves | 66 | |
| Retained loss | (245) | |
| Total equity | 9,449 | |
The financial statements were approved by the Board of Directors on 5 April 2007 and were signed on its behalf by:
Anthony Samaha
Director
Michael Frayne
Director
GROUP CASH FLOW STATEMENT
For the period from Incorporation on 6 September 2005 to 31 December 2006
| 2006 | ||
|---|---|---|
| Notes | £'000 | |
| Cash flows from operating activities | ||
| Operating Loss | (384) | |
| (Increase) in trade and other receivables | (122) | |
| Increase in trade and other payables | 43 | |
| Depreciation | 2 | |
| Share Based Payment | 17 | 45 |
| Foreign exchange translation | 171 | |
| Net cash outflow from operating activities | (587) | |
| Cash flows from investing activities | ||
| Interest Received | 129 | |
| Net cash inflow from investing activities | 129 | |
| Cash flows from investing activities | ||
| Payments to acquire intangible assets | (3,755) | |
| Payments to acquire tangible assets | (6) | |
| Net cash outflow from in investing activities | (3,761) | |
| Cash flows from financing activities | ||
| Issue of ordinary share capital | 7,473 | |
| Share issue costs | (557) | |
| Net cash inflow from financing activities | 6,916 | |
| Net increase in cash and cash equivalents | 18 | 2,697 |
| Cash and cash equivalents at beginning of period | - | |
| Cash and cash equivalents at end of period | 2,697 | |
STATEMENT OF CHANGES IN EQUITY
For the period from Incorporation on 6 September 2005 to 31 December 2006
| Called up share capital | Share premium reserve | Foreign currency translation reserve | Merger Reserve | Share based payment reserve | Retained earnings | Total equity | |
|---|---|---|---|---|---|---|---|
| Group | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 |
| As at 6 September 2005 | - | - | - | - | - | - | - |
| Share capital issued | 404 | 7,149 | 7,553 | ||||
| Cost of share issue | (645) | (645) | |||||
| Loss for the year | (246) | (246) | |||||
| Merger Reserve | 2,720 | 2,720 | |||||
| Share based payments | 66 | 66 | |||||
| (note 17) | |||||||
| Currency translation differences | (171) | (171) | |||||
| As at 31 December 2006 | 404 | 6,504 | (171) | 2,720 | 66 | (246) | 9,277 |
| Company | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 |
| As at 6 September 2005 | - | - | - | - | - | - | - |
| Share capital issued | 404 | 7,149 | 7,553 | ||||
| Cost of share issue | (645) | (645) | |||||
| Loss for the year | (245) | (245) | |||||
| Merger Reserve | 2,720 | 2,720 | |||||
| Share based payments | 66 | 66 | |||||
| Currency translation differences | - | ||||||
| As at 31 December 2006 | 404 | 6,504 | 2,720 | 66 | (245) | 9,449 | |
Statement of Accounting Policies
For the period from Incorporation on 6 September 2005 to 31 December 2006
The principal accounting policies are summarised below. They have all been applied consistently throughout the period.
Basis of accounting
These financial statements have been prepared under the historical cost convention in accordance with International Financial Reporting Standards and IFRIC interpretations and with those parts of the Companies Act, 1985 applicable to companies reporting under IFRS.
Basis of consolidation
The consolidated financial information incorporates the results of the Company and its subsidiaries ("the Group") using the purchase method. The Group consists of all 100% owned subsidiaries.
In the consolidated balance sheet, the acquiree's identifiable assets, liabilities are initially recognised at their fair values at the acquisition date. The results of acquired operations are included in the consolidated income statement from the date on which control is obtained. Inter-company transactions and balances between Group companies are eliminated in full.
Turnover
The Company had no turnover during the period.
Foreign currencies
The consolidated financial statements are stated in thousands of Sterling (£), which is the reporting currency of the Group and the Company. Each entity in the Group determines its own functional currency and items included in the financial statements of each entity are measured using that functional currency. As at the reporting date the assets and liabilities of these subsidiaries are translated into the presentation currency of the Company at the rate of exchange ruling at the balance sheet date and their income statements are translated at the average exchange rate for the year. The exchange differences arising on the translation are taken directly to a separate component of equity. All other differences are taken to the income statement.
Cash and cash equivalents
Cash and short-term deposits in the balance sheet comprise cash at bank and in hand and short-term deposits. For the purposes of the Cash Flow Statement, cash and cash equivalents consist of cash and cash equivalents as defined above.Intangible assets - Oil and gas exploration
and evaluation assets
The Group applies the full cost method of accounting for Exploration and Evaluation ("E&E") costs, where costs of exploring for and evaluating oil and gas properties are accumulated and capitalised by reference to appropriate cost pools. Such cost pools are based on geographic areas and are not larger than a segment. The Group currently has one cost pool being the Kansas, USA, region.
E&E costs are capitalised until the results of the projects are known. The E&E costs may include costs of licence acquisition, technical services and studies, seismic acquisition, exploration drilling and testing. E&E costs include an allocation of administrative and salary costs as determined by management.
Tangible assets acquired for use in E&E activities are classified as property, plant and equipment. However, to the extent that such a tangible asset is consumed in developing an intangible E&E asset, the amount reflecting that consumption is recorded as part of the cost of the intangible asset.
Intangible E&E assets related to each exploration lease/prospect are not depreciated and are carried forward until the existence (or otherwise) of commercial reserves has been determined. The Group's definition of commercial reserves for such purpose is proven and probable reserves on an entitlement basis.
If commercial reserves have been discovered, the related E&E assets are assessed for impairment on a cost pool basis as set out below and any impairment loss is recognised in the income statement. The carrying value, after any impairment loss, of the relevant E&E assets is then reclassified as development and production assets within property, plant and equipment.
Intangible E&E assets that relate to E&E activities that are determined not to have resulted in the discovery of commercial reserves remain capitalised as intangible E&E assets at cost less accumulated amortisation, subject to meeting a poolwide impairment test as set out below. Such E&E assets are amortised on a unit of production basis over the life of the commercial reserves of the pool to which they relate.
E&E assets are assessed for impairment when facts and circumstances suggest that the carrying amount may exceed its recoverable amount. Such indicators include the point at which a determination is made as to whether or not commercial reserves exist. Where the E&E assets concerned fall within the scope of an established full cost pool, the E&E assets are tested for impairment together with all development and production assets associated with that cost pool, as a single cash generating unit. The aggregate carrying value is compared against the expected recoverable amount of the pool, generally by reference to the present value of the future net cash flows expected to be derived from production of commercial reserves. Where the E&E assets to be tested fall outside the scope of any established cost pool, there will generally be no commercial reserves and the &assets concerned will generally be written off in full. Any impairment loss is recognised in the income statement as additional depreciation and separately disclosed.
Impairment of non-financial assets
Non-financial assets and identifiable intangibles, other than oil and gas assets, are reviewed for impairment each reporting date and whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. If the expected undiscounted future cash flow from the use of the assets and their eventual disposition is less than the carrying amount of the assets, an impairment loss is recognised and measured using the asset's fair value or discounted cash flows.
Property, Plant and Equipment other than oil and gas assets
Plant and equipment is stated at cost less accumulated depreciation and any accumulated impairment losses. Depreciation is provided on all plant and equipment to write off the cost less estimated residual value of each asset over its expected useful economic life on a straight-line basis at the following annual rates:Plant and Equipment - between 25% and 33%
Taxation
The tax expense represents the sum of the tax currently payable and deferred tax. The tax currently payable is based on taxable profit for the period. The Group's liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the Balance Sheet date.
Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases in used in the computation of taxable profit and is accounted for using the balance sheet liability method. 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.
Share-based payments
The Group has applied the requirements of IFRS 2 Share-based Payments.
The Group issues equity-settled share-based payments to certain employees. Equity-settled share-based payments are measured at fair value at the date of grant. The fair value is determined using a Black-Scholes model.
Where equity instruments are granted to persons other than employees, the income statement is charged with the fair value of goods and services received, except where it is in respect to costs associated with the issue of securities, in which case it is charged to the share premium account.
Financial Instruments
The Group's financial assets consist of cash and trade and other receivables.
Cash consists of cash on hand and cash held on current account or on short-term deposits at variable interest rates. Any interest earned is accrued monthly and classified as interest.
Trade and other receivables are stated at cost less impairment losses.
The Group's financial liabilities consist of trade and other payables, which are stated at their cost. All interest and other borrowing costs incurred in connection with the above are expenses as incurred and reported as part of net financing costs in the income statement.
Going concern
The financial statements have been prepared on a going concern basis.
NOTES TO THE FINANCIAL STATEMENTS
For the period from Incorporation on 6 September 2005 to 31 December 2006
1. Turnover and Segmental Analysis
The Group had no turnover during the period.
The Group operates in one business segment, the exploration for oil and gas. The Group has material interests in two geographical segments, the United States of America and the United Kingdom. The Group assets are substantially attributable to the exploration for oil and gas activities in the United States of America. The parent Company operates a head office based in the United Kingdom which incurs certain administration costs.
| By geographical area | United Kingdom | United States of America | Total |
| £’000 | £’000 | £’000 | |
| Loss for the period ended 31 December 2006 | (245) | (1) | (246) |
| Other segment information: | |||
| Segment assets | 2,846 | 6,563 | 9,409 |
2. Operating Loss
The operating loss is stated after charging:
| 2006 £’000 | ||
| Auditors’ remuneration | – audit services | 8 |
| – other services | 1 | |
| Depreciation (note 9) | 2 | |
| Directors’ emoluments (note 6) | 134 | |
Auditors’ remuneration for non-audit services provided during the period amounting to £15,000 relating to the provision of an accountant’s report for the purpose of the Company’s AIM Admission Document and the Re-admission Document has been charged to the share premium account.
3. Interest Income
| 2006 £’000 | |
| Bank interest received | 121 |
| Bank interest receivable | 8 |
| Other interest receivable | 9 |
| 138 |
4. Taxation
| 2006 £’000 | |
| Current year taxation | |
| UK corporation tax at 30% on results for the period | - |
| Factors affecting the tax charge for the period | |
| Loss on ordinary activities before tax | (246) |
| Loss on ordinary activities at the UK standard rate of 30% | (74) |
| Effects of: | |
| Non deductible expenses | 1 |
| Future tax benefit not brought to account | 73 |
| Current tax charge for period | - |
No deferred tax asset has been recognised because there is insufficient evidence of the timing of suitable future profits against which the losses can be recovered.
5. Staff Costs (including Directors)
| 2006 £’000 | |
| Salaries | 147 |
| Social security costs | 8 |
| Total | 155 |
6. Directors’ Emoluments
| £’000 | £’000 | £’000 | |
| Directors Fees | Options | Total | |
| Non-Executive Directors: | |||
| Michael Frayne1 | 24 | 15 | 39 |
| Anthony Samaha | 39 | 15 | 54 |
| Ross Warner | 39 | 15 | 54 |
| Total | 102 | 45 | 147 |
1. Services provided by Adelise Services Ltd
No pension benefits are provided for any Director.
Included in Director Fees is an amount of £12,500 for services in respect of the Admission which has been charged to the Share Premium account.
7. Loss Per Share
The basic loss per share is derived by dividing the loss for the period attributable to ordinary shareholders by the weighted average number of shares in issue.
As inclusion of the potential Ordinary shares would result in a decrease in the loss per share they are considered to be anti-dilutive, as such, a diluted earnings per share is not included.
| 2006 £’000 | |
| Loss for the period | (246) |
| Weighted average number of Ordinary shares of £0.001 in issue | 199.61 million |
| Loss per share – basic expressed in pence | (0.12p) |
8. Financial Instruments
The Group’s financial instruments, other than its investments, comprise cash and items arising directly from its operation such as trade receivables and trade payables, finance leases, and provisions.
The Group seeks to obtain a favourable interest rate on its cash balances through the use of bank treasury deposits.
At the period end the Group had a cash balance of £2.696 million, made up as follows:
| 2006 £’000 | |
| British pounds | 1,363 |
| US dollars | 1,333 |
There is no material difference between the book value and fair value of the Group’s cash.
The Group has two overseas subsidiaries which operate in the United States of America and whose expenditure is primarily denominated in US dollars. Foreign exchange risk is inherent in the Group’s activities and is accepted as such.
The majority of parent Company expenses are denominated in British pounds.
Management review the Group and Company’s exposure to currency risk, interest rate risk, liquidity risk and credit risk on a regular basis and consider that through this review they manage the exposure of the Group and Company.
No formal policies have been put in place in order to hedge the Group and Company’s activities to the exposure to currency risk or interest risk.
The Group and Company manage the interest rate risk associated with the Group cash assets by ensuring that interests rates are as favourable as possible, whether this is through investment in floating or fixed interest rate deposits, whilst managing the access the Group requires to the funds for working capital purposes.
9. Intangible Assets
Oil and gas exploration and evaluation assets
| Group £’000 | |
| Cost | |
| Arising on acquisition of shares in subsidiaries | 5,946 |
| Costs of acquisition | 219 |
| Additions | 478 |
| Currency translation adjustment | (80) |
| At 31 December 2006 | 6,563 |
| Amortisation | - |
| Net Book Value at 31 December 2006 | 6,563 |
The Directors undertook an impairment review as at 31 December 2006 and as a result of this review no provision was required.
10. Investments
Unlisted Investments
| Company £’000 | |
| Cost | |
| Acquisition of shares in subsidiaries: | |
| Share consideration allotted and issued | 2,800 |
| Associated costs of acquisition | 219 |
| At 31 December 2006 | 3,019 |
Holdings of more than 20%
The parent company of the Group holds more than 20% of the share capital of the following companies:
| Company | Country of Registration | Proportion held | Nature of business |
| Direct | |||
| Wattle Energy Inc | USA | 100% | Oil & gas exploration |
| Halcyon Investment Co Pty Ltd | Australia | 100% | Holding Company |
| Indirect | |||
| Via Halcyon Investment Co Pty Ltd | |||
| Halcyon Nominees Pty Ltd | Australia | 100% | Holding Company |
| Halcyon Nominees (USA) Inc | USA | 100% | Oil & gas exploration |
11. Business Combinations
On 1st November 2006 the Company completed the acquisition of the entire share capital of Wattle Energy Inc (“Wattle”) and Halcyon Investment Co Pty Ltd and its subsidiaries (“Halcyon Group”) for the total share consideration of 80 million ordinary shares in Irvine upon completion (“Completion Consideration”), and up to an additional 110 million Irvine ordinary shares upon achievement of two performance milestones (“Performance Consideration”). Of the total Completion Consideration, 40 million shares are in respect of the acquisition of Wattle and 40 million shares are in respect of the acquisition of the Halcyon Group.
Under the first performance milestone, an additional 72.5 million Irvine ordinary shares will be issued upon acquisition of leases covering a total of 100,000 acres within the AMI, and the weighted average price of Irvine shares over any subsequent consecutive 20 trading days being 6 pence or greater. Under the second performance milestone, an additional 37.5 million Irvine ordinary shares will be issued upon acquisition of leases covering a total of 150,000 acres within the AMI, and the weighted average price of Irvine shares being 8 pence or greater over any 20 consecutive trading days after achievement of the first performance milestone.
The nominal value of the Completion Consideration is £80,000. The transaction was subject to the merger relief provisions of the Companies Act 1985 and accordingly no share premium was set up. The difference between the fair value of the Completion Consideration and the nominal value of the shares allotted has been credited to a merger reserve account.
As the achievement of the two performance milestones is inherently uncertain, no present value has been ascribed to the Performance Consideration.
The assessed fair value of the ordinary shares issued in respect of the acquisition of Wattle and the Halcyon Group is 3.5p per share, equating to a consideration of £1,400,000 for the acquisition of Wattle and £1,400,000 for the acquisition of the Halcyon Group.
The fair value of the assets and liabilities of Wattle and the Halcyon Group on completion of the acquisition were:
| Wattle £’000 | Halcyon Group £’000 | Fair Value Adjustment £’000 | Total £’000 | |
| Intangible Assets | 1,049 | 2,098 | 2,800 | 5,946 |
| Loans | (1,049) | (2,098) | - | (3,146) |
| Net Assets | - | - | 2,800 | 2,800 |
| Consideration | 1,400 | 1,400 | - | 2,800 |
The fair value adjustment above arises from a revaluation of the assets of the subsidiaries on acquisition.
12. Loans to Subsidiaries
| Company 2006 £’000 | |
| Wattle | 1,049 |
| Halcyon Group | 2,662 |
| Total | 3,711 |
The loans from subsidiaries are interest free and have no fixed repayment date. They are denominated in US Dollars
13. Property, Plant and Equipment
Plant and Equipment
|
Group 2006 £’000 |
Company 2006 £’000 | |
| Cost | ||
| Additions | 20 | 20 |
| At 31 December 2006 | 20 | 20 |
| Depreciation | ||
| Charge for the period | (2) | (2) |
| At 31 December 2006 | (2) | (2) |
| Net Book Value | ||
| At 31 December 2006 | 18 | 18 |
14. Trade and Other Receivables
| Group 2006 £’000 | Company 2006 £’000 | |
| Other receivables | 36 | 36 |
| VAT receivable | 88 | 88 |
| Prepayments | 7 | 7 |
| 131 | 131 |
15. Trade and Other Payables
| Group 2006 £’000 | Company 2006 £’000 | |
| Accruals | 89 | 84 |
| Non-trade payables | 43 | 43 |
| 132 | 127 |
16. Share Capital
| Authorised | £’000 | |
| 1,000,000,000 Ordinary shares of 0.1p each | 1,000 |
| Called up, allotted, issued and fully paid | Number of shares | Nominal value £’000 | |
| 6 September 2005 | Issued on Incorporation | 2 | - |
| 24 November 2005 | Placing at a price of 0.15p per share | 68,499,998 | 68 |
| 16 December 2005 | Placing at a price of 0.15p per share | 31,500,000 | 32 |
| 23 December 2005 | Placing at a price of 3.0p per share on Admission to AIM | 100,000,000 | 100 |
| 30 August 2006 | Placing at a price of 3.5p per share | 99,928,398 | 100 |
| 12 October 2006 | Placing at a price of 3.5p per share | 23,571,428 | 24 |
| 1 November 2006 | Initial Consideration Shares on completion of the acquisition of Wattle and the Halcyon Group | 80,000,000 | 80 |
| As at 31 December 2006 | 403,499,826 | 404 | |
Contingent share issues
Pursuant to the terms of the acquisition of Wattle and the Halcyon Group up to an additional 110 million Irvine ordinary shares are to be issued upon achievement of two performance milestones. Under the first performance milestone, an additional 72.5 million Irvine ordinary shares will be issued upon acquisition of leases covering a total of 100,000 acres within the AMI, and the weighted average price of Irvine shares over any subsequent consecutive 20 trading days being 6 pence or greater. Under the second performance milestone, an additional 37.5 million Irvine ordinary shares will be issued upon acquisition of leases covering a total of 150,000 acres within the AMI, and the weighted average price of Irvine shares being 8 pence or greater over any 20 consecutive trading days after achievement of the first performance milestone.
Share Options
During the period, 18,000,000 options to subscribe for ordinary shares in the Company were issued.
As at 31 December 2006 the options in issue were:
| Exercise Price | Expiry Date | Options in Issue 31 December 2006 |
| 3.0p | 23 December 2010 | 3,000,000 |
| 3.5p | 1 November 2011 | 15,000,000 |
| 18,000,000 |
No options lapsed or were cancelled and no options were exercised during the period.
17. Share Based Payments
Director Options
Under IFRS 2 'Share Based Payments', the Company determines the fair value of options issued to Directors and Employees as remuneration and recognises the amount as an expense in the income statement with a corresponding increase in equity.
| Name | Date Granted | Number | Exercise Price | Expiry Date | Fair Value Grant Date per Option | Fair Value Grant Date Total £’000 |
| Michael Frayne | 1 Nov. 2006 | 5,000,000 | 3.5p | 1 Nov. 2011 | 0.3p | 15 |
| Anthony Samaha | 1 Nov. 2006 | 5,000,000 | 3.5p | 1 Nov. 2011 | 0.3p | 15 |
| Ross Warner | 1 Nov. 2006 | 5,000,000 | 3.5p | 1 Nov. 2011 | 0.3p | 15 |
| Total | 15,000,000 | 45 |
The fair value of the options granted to Directors during the period was £45,000. The assessed fair value at the grant date was determined using the Black-Scholes Model that takes into account the exercise price, the term of the option, the share price at grant date, the expected price volatility of the underlying share, the expected dividend yield and the risk-free interest rate for the term of the option.
The key inputs applied to the Black-Scholes Model included: the closing share price on 1 November 2007 of 2.0p; risk-free interest rate of 4.68%; and expected volatility of 0.40. In assessing the fair value of the options, a discount of 40% has been applied to the theoretical value calculated by the Black-Scholes Model to take into account the lack of marketability of the options and the inherent limitations of the Black-Scholes Model.
Options to NWCF LLP
The Company granted options to NWCF LLP to subscribe for 3,000,000 ordinary shares at 3.0p per share at any time up to the fifth anniversary of Admission to AIM on 23 December 2005. The expense in respect to these options was charged to the share premium account.
| Name | Date Granted | Number | Exercise Price | Expiry Date | Fair Value Grant Date per Option | Fair Value Grant Date Total £’000 |
| NWCF LLP | 23 Dec. 2006 | 3,000,000 | 3.0p | 23 Dec.2011 | 0.7p | 21 |
| Total | 3,000,000 | 21 |
The fair value of the options granted to NWCF LLP during the period was £21,000. The assessed fair value at the grant date was determined using the Black-Scholes Model that takes into account the exercise price, the term of the option, the share price at grant date, the expected price volatility of the underlying share, the expected dividend yield and the risk-free interest rate for the term of the option.
The key inputs applied to the Black-Scholes Model included: the AIM Admission placing price of 3.0p; risk-free interest rate of 4.16%; and expected volatility of 0.40. In assessing the fair value of the options, a discount of 40% has been applied to the theoretical value calculated by the Black-Scholes Model to take into account the lack of marketability of the options and the inherent limitations of the Black-Scholes Model.
18. Analysis of changes in net funds
| 2006 £’000 | |
| Balance at beginning of period | - |
| Change during the period | 2,697 |
| Balance at the end of the period | 2,697 |
19. Material Non-Cash Transactions
On 1 November 2006 the Company issued 80 million ordinary shares as consideration in respect to the completion of the acquisition of Wattle and the Halcyon Group.
20. Commitments
As at 31 December 2006, the Company had entered into the following material commitments:
Exploration commitments
The Company will fund the first US$$1.5 million in 3-D seismic studies in respect to the Project.
21. Related Party Transactions
There were no related party transactions during the period other than those disclosed in note 6.
22. Post Balance Date Events
On 31 January 2007, the Company's subsidiary, Wattle, acquired a 75% working interest in a further 46,577 acres of oil and gas leases in Barber, Butler, Cowley, Harper, Sedgwick and Sumner counties, Kansas, USA, for a cash consideration of US$$1.233 million.23. Profit and loss account of the parent company
As permitted by section 230 of the Companies Act 1985, the profit and loss account of the parent company has not been separately presented in these accounts. The parent company loss for the period was £0.246 million.
***ENDS***
For further information please visit
www.irvineenergy.com or contact:
Irvine Energy plc
Michael Frayne, Tel: +44 (0) 207 016 9579
Irvine Energy plc
Aaron Close, Tel: +1 281 647 7770
Nabarro Wells & Co Ltd
Hugh Oram, Tel: +44 (0) 207 710 7400
St Brides Media & Finance
Hugo de Salis, Tel: +44 (0) 207 242 4477
St Brides Media & Finance
Felicity Edwards, Tel: +44 (0) 207 242 4477
Irvine Energy is website compliant under AIM Rule 26