Annual Report 2010 - Ophir Energy

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Ophir energy plc | 2010 ANNUAL REPORT
BUsiness review | fiNANCiAL REviEw
Business Review
Financial Review
Overview
During the year under review, the development of the Group’s
exploration assets continued to be financed by funds raised
through equity issues in 2008 and 2009 and a convertible
bond issued in 2007 and converted into shares in May 2008.
There were no fresh issues of shares in 2010.
The Group’s projects are all in the exploration stage and, other
than interest revenue and funds derived by the farm out of its
Tanzanian Blocks to BG, the Group did not derive any revenues
in 2010.
result for the year
The audited Financial Statements for the year ended
31 December 2010 are set out in the Financial Statement
section of this Annual Report on pages 38 to 71.
The Group recorded a loss for the year after taxation of
US$19.278 million (2009: US$43.266 million). No dividends
were paid or declared by the Company during the financial
year (2009: nil) and the Directors do not propose to pay a
dividend for the year ended 31 December 2010.
The loss for the year includes US$11.344 million of exploration
expenditure expensed (net of recoveries), general and
administrative costs of US$7.272 million, finance costs of
US$0.429 million and other costs of US$0.766 million
Exploration Expenditure
Exploration expenditure comprises pre-licence exploration costs
of US$2.030 million charged directly to the Income Statement,
as well as unsuccessful exploration expenditure written off in
accordance with the Group’s accounting policy (refer note 2.5
to the Financial Statements) of US$13.308 million. This was
offset by the recoupment of expenditure previously written
off of US$4.009 million arising on farm out of the Group’s
Tanzanian interests to BG.
Pre-licence exploration expenses include costs that are incurred
in respect of exploration activities prior to the time that a
licence to explore the area has been obtained. They are written
off in the period they are incurred in accordance with
International Financial Reporting Standards (“IFRS”).
Unsuccessful Exploration Expenditure
The carrying value of exploration and evaluation assets are
reviewed for impairment when events or changes in
circumstances indicate the carrying value may not be
recoverable. Unsuccessful Exploration Expenditure written
off at 31 December 2010 comprised:
(a) Expenditure on licences in Gabon (the Manga PSC,
US$0.439 million) and Somaliland (the Berbera PSA,
US$5.276 million) where the Group is negotiating with
authorities to extend expired exploration terms and where
such negotiations were incomplete at 31 December 2010.
(b) Costs relating to exploration licences in Congo (Brazzaville)
(US$1.031 million) and the JDZ (US$0.167 million) where it is
likely that the Group will relinquish such licences at the end
of their current licence terms.
(c) Costs of US$6.339 million relating to the Gnondo PSC
in Gabon.
General & Administrative Expenses
General & Administrative expenses; which include personnel
costs, administration costs (of the Group’s London and Perth
offices), professional and corporate costs (audit, legal and other
professional advisors’ costs, directors’ fees, board meeting costs,
corporate travel and promotion), share-based payments, charges
and general and administration costs totalled US$7.272 million
(2009: US$6.870 million).
Finance Costs
Finance costs for the year of US$0.429 million relate to foreign
exchange gains arising on the fluctuation of the Group’s
functional currency, the US Dollar, against other currencies
(mainly Pounds Sterling and the Australian Dollar in which some
of the Company’s expenses and costs are incurred). The prior
year comparative of US$11.031 million includes a loss on close
out of a forward exchange contract relating to a capital raising
completed in that year.
Other Expenses
Other expenses of US$0.766 million (2009: US$4.090 million)
primarily consist of depreciation and amortisation and relate to
the write down of the Company’s furniture and equipment and
geological databases over their estimated useful lives.
cash Flow
Overall, the Group expended US$12.754 million in operating
activities including the US$2.030 million of pre-exploration
licence activities. A further US$44.595million was expended on
exploration. The farm out of the Group’s Tanzanian licence
interests to BG generated a cash inflow of funds of US$11.268
million on the completion of the transaction (and the US$4.009
million write back to the Income Statement referred to previously).
(Refer to Group Statement of Cash Flows on page 43.)
The net cash outflow of the Group for the year ended
31 December 2010 was US$45.386 million, leaving cash and cash
equivalents held by the Group at year end totalling US$89.925
million. The Group had exploration commitments of US$39.077
million at 31 December 2010 of which US$37.211 million is due
within one year. (Refer note 23(b) to the Financial Statements.)
Future Developments
The pace of activity is expected to increase in 2011 and this
will require the Company to seek additional sources of finance.
Major expenditure will comprise the Kora-1 well to be drilled in
the AGC in the second quarter of 2011 and expected, but yet
uncommitted, further appraisal and exploration drilling