Annual Report 2004 - Global Energy Development

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Annual Report 2004 - Global Energy Development

Global Energy Development PLC Annual Report & Accounts 2004Identifying and exploiting potentialGlobal Energy Development PLCAnnual Report & Accounts 2004


1 Highlights – 2004-20052 Chairman’s statement4 Latin America – Operations overview6 Managing Director’s review14 Corporate Governance16 Directors’ report18 Biographical information of Directors19 Statement of Directors’ responsibilitiesin respect of the financial statements20 Report of the independent auditors21 Group profit and loss account22 Group balance sheet23 Company balance sheet24 Group cash flow statement25 Notes to the financial statements36 Supplementary oil and gasinformation (unaudited)37 Corporate directoryGlobal Energy Development PLC is a petroleumexploration and production company focused onLatin America, an area where the managementteam have decades of operating experience andhave pursued a long-term strategy of findingand developing reserves.Company Strategy Continue to aggregate high potential acreageunder contract and/or Technical EvaluationAgreement in Latin America – particularlyin Colombia, Peru and Panama. Escalate cashflow from current andnear-term production to allow an increasingcapital expenditure budget directed at furtherworkovers and development drilling and,increasingly, exploration activities.


Highlights 2004–20055,3493,1278,7003,2391,890002 03 04Group gross profit($’000)7970-1,90102 03 04Group profit before tax($’000)4,4212,825002 03 04Capital expenditure($’000)Financial Highlights(for the year ended 31 December 2004) Revenues up 28% to $10,974,000 (2003: $8,556,000) Gross profit up 65% to $5,349,000 (2003: $3,239,000) Profit before tax up 292% to $3,127,000 (2003: $797,000) No debt as at 31 December 2004Finding and development cost of approximately $5 perbarrel in the three years ending 31 December 2004 107% increase in Capital Expenditure budget for 2005(2004: $8,700,000) fully funded from cash available and cashflowfrom productionOperational HighlightsTwo exclusive contracts signed in Colombia in 2004 andanother exclusive contract in Peru added post the year endPortfolio now much enlarged and prospect rich – trend towardsexploration against backdrop of established production Six contracts 100% ownership of all contractsProduction widened to 10 wells from four contracts as at31 December 2004Multiple exploration prospects within enlarged portfolioalready independently reported on First exploration expenditure since flotation on propertiesheld under contract to occur in 2005Global Energy Development PLC Annual Report & Accounts 2004 1


Chairman’s statementMIKEL FAULKNER“2004 produced record financial results for Global continuingthe positive year on year financial trends since Global floatedon the Alternative Investment Market of the London StockExchange (“AIM”) over three years ago.”2004 produced record financial results for Global continuingthe positive year on year financial trends since Global floatedon the Alternative Investment Market of the London StockExchange (“AIM”) over three years ago.Operationally, we have consistently demonstrated our abilityto source, negotiate and execute contracts and TechnicalEvaluation Agreements (“TEAs”) in Latin America, our longtermgeographical focus and where the management teamhave decades of operating experience.Global’s Bogotá officeOur portfolio is now much enlarged and diversified comprisingsix contracts, namely Association, Concession and Exploration/Exploitation Licence contracts (with production currently fromfour of them) and one contract pending following a concludedTEA, with 100% ownership by Global of all contracts.The portfolio spans three countries – Colombia, Peru andPanama. Recent favourable oil policy reforms in bothColombia and Peru have led to even more compelling contractterms providing us with even greater upside. Alongside this,Latin America is independently reported to be second onlyto the Middle East in terms of undiscovered conventionaland heavy oil.Global’s 2005 capital expenditure budget, expected to be fullyfunded by cash available and cashflow, will be committed notonly to further, already identified, workovers and developmentdrilling within several of our contract areas – in order to2 Global Energy Development PLC Annual Report & Accounts 2004


Latin AmericaOPERATIONS OVERVIEWThe Company holds contracts and rights to explore for and/orproduce oil and gas from a geographically diversified portfolioof prospective acreage in Colombia, Peru and Panama.The Company has current and near-term production in Colombia and whatthe management consider high potential exploration projects in Panama,Peru and Colombia..........................................PANAMAECUADORCOLOMBIAPERU....................................L ATINA M E RICAGUYANAVENEZUELA SURINAMEFRENCH GUIANABRAZILBOLIVIAPARAGUAYARGENTINACHILEURUGUAYTOTAL ACREAGE = c. 3,000,000■ 1,275,000 Peru■ 1,400,000 Panama■ 290,000 ColombiaPanama–GarachineGlobalField OfficeAlcaravan–PaloBlanco/AnteojosBolivar-ButuramaBocachico-TorcazRio VerdeLos HatosPeru-Bretaña Fieldand Block 95“100% ownershipof all contracts”Six contracts (Colombia & Peru) and one pendingcontract following a Technical EvaluationAgreement (Panama)• Alcaravan (Colombia)• Bolivar (Colombia)• Bocachico (Colombia)• Rio Verde (Colombia)• Los Hatos (Colombia)• Bretaña Field & Block 95 (Peru)• Garachine (Panama)4 Global Energy Development PLC Annual Report & Accounts 2004


3 contracts in Colombia in production(Alcaravan, Bolivar and Bocachico;130,000 acres);2 Exclusive contracts in Colombia inexploration phase (Rio Verde and LosHatos; 160,000 acres) – with one of thetwo producing in the exploration phase(Rio Verde);1 Exclusive contract in Peru in explorationphase (Block 95; 1,275,000 acres); and1 concluded Exclusive TechnicalEvaluation Agreement in final stagesof being converted into an Exclusivecontract in Panama (Garachine;1,400,000 acres).31 December 2004, Global had proved and probable reservesof approximately 2.65 million net barrels related to itsBocachico contract.The Rio Verde contract grants Global exclusive explorationand production rights to approximately 75,000 acreslocated in the Central Llanos region and approximately40 kilometres north of the Palo Blanco field within theAlcaravan contract area. The contract is subject only toan initial 10.5% royalty with the size of the royalty to bedetermined by future production levels. As at 31 December2004, Global had proved and probable reserves ofapproximately 0.28 million net barrels related to itsRio Verde contract.The Los Hatos contract grants Global exclusive explorationand production rights to 85,000 acres which are located in thecentral Llanos region and adjoined to the Palo Blanco fieldwithin the Alcaravan contract area. The contract is subjectonly to an initial 8% royalty with the size of the royaltyto be determined by future production levels.COLOMBIAGlobal holds three Association contracts with Ecopetrol, thestate owned Colombian oil company - the Alcaravan, Bolivarand Bocachico contracts - with these three being subject topotential back-in by Ecopetrol under certain terms andconditions. Global has proved and probable reserves inrelation to all three contracts.In addition, Global holds two exclusive Explorationand Production Concession contracts with the NationalHydrocarbons Agency of the Republic of Colombia, (“ANH”)– the Rio Verde Contract and Los Hatos contracts.The Alcaravan contract gives Global the right to explore for,develop and produce oil and gas throughout approximately24,000 acres in the Alcaravan area of Colombia, which islocated in the Llanos Basin approximately 140 miles eastof Santafe de Bogotà. Within the Alcaravan contract areaare the Palo Blanco and Anteojos fields. The contract issubject to an approximate 20% royalty on production. As at31 December 2004, Global had proved and probable reservesof approximately 1.54 million net barrels related to itsAlcaravan contract.The Bolivar contract gives Global the right to conductexploration and production activities and drilling throughoutapproximately 55,000 acres in the Northern MiddleMagdalena Valley of Central Colombia. Within the Bolivarcontract area is the Buturama field. The contract is subject toan approximate 20% royalty on production which will declineto 8% should Global undertake improved recoverytechniques. As at 31 December 2004, Global had proved andprobable reserves of approximately 8.08 million net barrelsrelated to its Bolivar contract.The Bocachico contract gives Global the right to conductexploration and production activities and drilling on an areawhich covers approximately 54,700 acres in the MiddleMagdalena Valley of Central Colombia. Within the Bocachicocontract area is the Torcaz field. The contract is subjectto an approximate 20% royalty on production. As atPERUGlobal holds a Licence contract with Perupetro S.A.(“Perupetro”) the national oil company of Peru, for theExploration/Exploitation of Hydrocarbons in the Block 95Area located in the Marañon Basin in Northeastern Peru.The contract which was officially executed and becameeffective on 11 April 2005 covers approximately 1,275,000acres and includes the Bretaña field and is subject only to aninitial 5% royalty with the size of the royalty to be determinedby future production levels. Terms of the contract requireGlobal during Phase 1 to complete within 12 monthsenvironmental impact studies and plans for the drilling of awell in the Bretaña field. As at 31 December 2004, Globalhad probable reserves of approximately 3.91 million netbarrels related to its Block 95/Bretaña contract.PANAMAIn September 2001, Global signed a Technical EvaluationAgreement (“TEA”) with the Ministry of Commerce andIndustry for the Republic of Panama (the ‘‘Ministry’’). Theconcluded TEA covered an area of approximately 1.4 milliongrossacres divided into three blocks in and offshore Panamaincluding the Garachiné Block Area.The Garachiné Block Area is less than 100 miles away fromthe Panama Canal, a major transit centre for oil shipments,and was first identified in the 1920s when several shallowwells were drilled onshore encountering good oil shows in theMid Miocene rock section. More recent offshore explorationin the eastern Gulf substantiated Miocene source rockpotential and outlined the regional basin structure with areconnaissance grid of seismic data.During the TEA term the Company conducted an extensivestudy of the contract area which included the review andre-interpretation of all available geologic data, re-interpretationof offshore seismic data, geochemical analyses of seep oil andpotential source rocks, and the thermal maturation / expulsionmodelling of potential oil generation zones.The Company has decided to exercise its exclusive optionto enter into an exclusive contract with the Ministry.Global Energy Development PLC Annual Report & Accounts 2004 5


Managing Director’s reviewSTEPHEN VOSS“We have significantly enlarged our portfolio since our flotationthree years ago and now have a much diversified portfoliooffering multiple prospect opportunities in addition toestablished production.”OVERVIEWIn 2004 we signed two further exclusive Concession contractsin Colombia and post the year end have added an exclusiveExploration/Exploitation Licence contract in Peru therebydramatically increasing the acreage under (non TEA) contractto approximately 1,565,000 acres. This is against the 130,000acres held under (non TEA) contract as at 31 December 2003.When taking into account the pending contract in Panamafollowing an extensive TEA period, the Company’s acreageposition jumps to approximately 3 million acres.Reflecting our focus of amassing exploration opportunitieswithin our portfolio, of the 1,565,000 acres currently under(non TEA) contract over 85% is exploratory in nature.Drilling and workover activity in 2004 led to production as at31 December 2004 coming from a widened base of 10 wellswithin four contracts against six wells from three contractsas at 31 December 2003 and two wells from one contract inMarch 2002, the time of our flotation on AIM.FINANCIALSRevenues for the year ended 31 December 2004 were$10,974,000, a 28% increase against the prior year (2003:$8,556,000). Gross profit increased by 65% to $5,349,000(2003: $3,239,000). General and administrative costscontinued their year on year decline since the Company’sflotation on AIM and totalled just $2,241,000 in 2004, a 10%drop against 2003.6 Global Energy Development PLC Annual Report & Accounts 2004


Profit before tax increased by 292% to $3,127,000 (2003:$797,000) with profit after tax up 148% to $2,566,000 (2003:$1,034,000). As at 31 December 2004, Global had no debt.Production for the year was 365,527 barrels of oil (2003:394,000 barrels of oil) and daily production was 1084 bopd asat 31 December 2004. As at 31 December 2004, independentengineers reported that proved and probable reserves totalled16.5 million BOE (31 December 2003: 19.7 million BOE) withproved reserves stable against the prior year.LATIN AMERICALatin America has long been the management team’sgeographical region of choice. It is characterised by one of thelowest finding and development costs worldwide with Globalhaving an approximate $5 per barrel finding and developmentcost in the three years ended 31 December 2004.Colombia, Peru and Panama are all characterised by privatetreaty negotiations and recent oil policy reforms in Colombiaand Peru have led to them being independently acknowledgedas now having the two best contract terms in Latin America.Peru, for example, now offers contract stability, no signaturebonus, international arbitration, a new flexible contract model,seismic information free of charge and lower production-basedroyalties. In Colombia in July 2003 the state-owned NationalHydrocarbons Agency of the Republic of Colombia (“ANH”)was created under reforms to boost exploration activities andsplit the dual roles Ecopetrol, the state-owned Colombian oilcompany, had as an administrator of hydrocarbon resourcesand a for-profit oil and gas company. In addition, lowerproduction-based royalties and extended exploration,evaluation and production periods have been introduced. Inthe management’s opinion, Panama’s emerging oil industry isexpected to be closely aligned with that of Colombia.Competition has long been limited with few independent oilcompanies active throughout Latin America and with thosewho do operate there mostly being relatively new entrantstherefore allowing Global the opportunity to rapidly amasshighly attractive acreage through utilising establishedcontacts and long-standing knowledge.OPERATIONSCOLOMBIAGlobal currently holds three Association contracts withEcopetrol – Alcaravan, Bolivar and Bocachico – as well as twoexclusive Exploration and Production Concession contractswith ANH – Rio Verde and Los Hatos – both signed in 2004.Rio VerdeIn September 2004, we signed a new Exploration andProduction Concession contract with ANH for the Rio Verdearea covering 75,000 acres in the central Llanos region withGlobal owning 100% of the contract subject only to an initial10.5% royalty.Global Energy Development PLC Annual Report & Accounts 2004 7


Colombia“Global currently holds three Association contracts withEcopetrol – Alcaravan, Bolivar and Bocachico – as well as twoexclusive Exploration and Production Concession contractswith ANH – Rio Verde and Los Hatos – both signed in 2004.”........................................................................Managing Director’s review CONTINUEDTwo existing wells located in the contract area, Tilodiran 1 andMacarenas 1, were both successfully recompleted and broughton production in December 2004 and January 2005respectively, ahead of management’s initial expectations. Thisin turn represented the shortest interval in Global’s historybetween contract signing and production and also gave Globalthe accolade of being the first company to produce oil from acontract signed with the newly formed ANH.We anticipate drilling our first development well, Tilodiran 2,at the end of 2005 or early 2006 and look to acquiredevelopment and exploratory seismic over the next 18 to 20months in order to develop our development and explorationplans for the remaining acreage.Los HatosWe much enlarged our established, producing Palo Blancofield located within our Alcaravan contract area through theaddition in November 2004 of the 85,000 acre Los HatosExploration and Production Concession contract signedwith ANH. Los Hatos, located in the central Llanos region, iscontiguous southwards to our Palo Blanco field. Global owns a100% working interest in the contract subject only to an initial8% royalty payable to the Colombian Ministry of Energy.We propose drilling our first exploratory well, Los Hatos 1,within the fourth quarter of this year and our expectations arehigh owing to its close proximity to the established Cajaro 1well within the Palo Blanco field. Cajaro 1 was placed onto8 Global Energy Development PLC Annual Report & Accounts 2004


Peru“Global holds a Licence contract with Perupetro S.A. (“Perupetro”)the national oil company of Peru, for the Exploration/Exploitationof Hydrocarbons in the Block 95 Area located in the MarañonBasin in Northeastern Peru. The contract covers approximately1,275,000 acres subject only to an initial 5% royalty.”ECUADORCOLOMBIAPERUBlock 95........................................................................BRAZILManaging Director’s review CONTINUEDPANAMAIn September 2001, Global signed a TEA with the Ministry ofCommerce and Industry for the Republic of Panama. Theconcluded TEA covered an area of approximately 1.4 milliongross acres divided into three blocks in and offshore Panamaincluding the Garachiné Block Area.The Garachiné Block Area is less than 100 miles away from thePanama Canal, a major transit centre for oil shipments, andwas first identified in the 1920s when several shallow wellswere drilled onshore encountering good oil shows in the MidMiocene rock section. More recent offshore exploration in theeastern Gulf substantiated Miocene source potential andoutlined the regional basin structure with a reconnaissancegrid of seismic data.During the TEA term the Company conducted an extensivestudy of the contract area which included the review andre-interpretation of all available geologic data, re-interpretationof offshore seismic data, geochemical analyses of seep oil andpotential source rocks, and the thermal maturation/expulsionmodelling of potential oil generation zones.On the basis of what the management considered strongfindings from the study, the Company decided to exercise itsoption to enter into a contract with the Ministry. Currentindications received by the management are that the contractwill be signed and effective by the end of the first half orbeginning of the second half of this year.10 Global Energy Development PLC Annual Report & Accounts 2004


........................................................................EXPLORATIONOf the approximate $18 million capital expenditure budgetfor 2005 which is expected to be fully funded by cashavailable and cash flow, roughly $1 million is earmarked forexpenditure on exploration on properties held under contract,the first expenditure on non-TEA exploration since theCompany’s flotation.The $1 million will go towards geophysical and geologicalactivities, namely the reprocessing and revaluation of existingdata in Panama and Colombia. In addition, in Peru there will beacquisition of new micro-magnetic geophysical data in andaround the identified Bretaña field and elsewhere throughoutthe Block 95 Area.Expenditure on exploration is expected to trend-updramatically going forward with capital expenditure onexploration activities expected to equal that of developmentwithin the next two to three years, with this being fully fundedunder current plans from cashflow from escalating production.ADDITIONAL CONTRACTS AND STRATEGYWe anticipate signing at least two further contracts or TEAsduring the remainder of 2005.We will continue to evaluate areas of acreage for potentialcontracts and/or TEAs throughout Latin America, but morespecifically in Colombia, Peru and Panama for the reasonsdetailed above.Cashflow from current and near-term production shouldcontinue to allow an increasing annual capital expenditurebudget which in turn will go towards further workovers anddevelopment drilling and, increasingly, exploration activities.INDUSTRY OUTLOOKAs a company we have been optimistic about the future of theinternational petroleum industry since we floated on AIM inearly 2002. At that time, we indicated oil prices would increasebecause of diminishing surplus production capacity in bothnon-OPEC and OPEC countries. By the end of 2004, it waswidely acknowledged that only a small amount of surpluscapacity existed in Saudi Arabia. Most of this surplus was heavyoil and not the widely used light oil important in most refineryoperations. In addition to the inability of the industry toincrease its surplus producing capacity, the Asian economiesof India and China continued their rapid economic growththroughout 2004 and consequently the demand for oilproducts in these countries reached much higher levels thanhad been anticipated only one to two years previously.Furthermore, costs to add an incremental barrel of dailycapacity have continued to rise because of the inability of theindustry to find sufficient volumes of new supplies to offsetproduction declines from older fields. Macro economic trendsin the USA have also contributed to higher oil prices due to adecline in the value of the dollar against almost all majorcurrencies. As a result, although oil prices have increased indollar terms for many importing countries these prices have inGlobal Energy Development PLC Annual Report & Accounts 2004 11


Panama“In September 2001, Global signed a Technical EvaluationAgreement (“TEA”) with the Ministry of Commerce and Industryfor the Republic of Panama. The concluded TEA covered an areaof approximately 1.4 million gross acres divided into three blocksin and offshore Panama including the Garachine Contract Area.”El PorvenirPANAMALa PalmaTEA areaCOLOMBIA........................................................................Managing Director’s review CONTINUEDfact declined when measured in their own currency. So, thequestion now is not if prices will continue to rise but only howfar will they go before curtailing economic activity throughoutthe world. If the cost of oil experienced in the early 1980s is anyindication, prices need to reach over $90 per barrel to causesignificant economic distress. We believe that the economicenvironment and outlook for the industry over the next severalyears is precisely the same as we originally envisaged in 2002.That is, we remain firmly convinced of the outstandingopportunities that exist in the oil industry especially forestablished independent operators.CONCLUSIONWe are very optimistic about Global’s position within the oilindustry. We identified many years ago three pre-eminentcountries in which to operate – Colombia, Peru and Panama –that have continually offered improved industry terms andeconomic and political stability. All three continue to have fewindependents operating in them and as a consequence Globalcontinues to maintain its first mover advantage and theopportunity to acquire additional attractive acreage.We have significantly enlarged our portfolio since our flotationthree years ago and now have a much diversified portfoliooffering multiple prospect opportunities in addition toestablished production. This production throughout 2004against historically high oil prices resulted in record financialresults for the year.12 Global Energy Development PLC Annual Report & Accounts 2004


........................................................................Our production and strong-pipeline of near-term productionallows the Company to continue to build on a solid financialbase whilst beginning to pursue the considerable explorationprospects under contract and pending contract which themanagement believe are capable of significantly enlarging andtransforming the Company going forward.Stephen C. VossManaging Director7 April 2005Global Energy Development PLC Annual Report & Accounts 2004 13


Corporate GovernanceSTATEMENT BY THE DIRECTORS ON COMPLIANCE WITH THE COMBINED CODEThe Board acknowledges that adhering to rules of good corporate governance is in the best interests of the Company and itsshareholders. Although the Company is not required to comply with the Combined Code, all the Directors remain committed to highstandards of corporate governance and intend to comply with its main provisions as far as possible having regard to the size of theGroup. The following sections describe how the Board has applied the principles of the Combined Code.THE WORKINGS OF THE BOARD AND ITS COMMITTEESThe Board The Board comprises two non-executive Directors and two executive Directors. The executive directors are Mikel Faulkner,who serves as the Chairman of the Company, and Stephen Voss, who serves as the Company’s Managing Director. There is a cleardivision of responsibility between the Chairman and the Managing Director, with the Chairman being charged with the running ofthe Board, and the Managing Director the running of the Company’s business, thus ensuring a balance of power and authority. Thetwo non-executive Directors are Alan Henderson and David Quint. The combined Board provides the Company with a wide range ofexpertise on issues relating to the Company’s mission, operations, strategies and most importantly, its standards of conduct.The Board is responsible to the shareholders for the leadership and control of the Company. The Board meets formally four times ayear and on an ad hoc basis as required. In compliance with the Combined Code, the Board considers and monitors all such mattersas are specifically reserved to it under the Company’s articles of association (the “Articles”). The Company’s management providesappropriate and timely information to the Board to enable the Board to carry out its duties. The Company’s Articles provided forformal and transparent procedures to appoint new Board members. The Articles further provide for re-election of all directors atregular intervals. The Board has considered the formation of a Nomination Committee but does not consider it to be appropriate forthe recurrent nature and size of the Board and Company. The Board will continue to monitor this issue.The following committees deal with specific aspects of the Group’s affairs:Audit Committee The Audit Committee, which is chaired by Mr. Henderson, comprises only the non-executive Directors and meetsas required and at least twice a year. The Audit Committee provides a forum for reporting by the Group’s external auditors. Meetingsare also attended, at the committee invitations, by the Finance Director.The responsibilities of the Audit Committee comprise recommending to the Board the appointment and remuneration of theauditors, co-coordinating with the auditors on any problems or reservations they may have and reviewing with them themanagement reports prepared as a result of audits carried out, review of the Company’s policy on internal controls and review ofinterim and annual financial statements before submission to the Board.Remuneration Committee The Remuneration Committee is responsible for recommending to the Board the remuneration of theexecutive Directors and the ongoing review of the remuneration and other benefits of the executive Directors and seniorexecutives, recommending from time to time the introduction, variation or discontinuance of any benefits, including bonuses andshare options. The Remuneration Committee comprises only non-executive Directors and is chaired by Mr. Quint.Relations with Shareholders Communication with shareholders is conducted through correspondence, meetings, pressannouncements, stock exchange releases and Global’s website, www.globalenergyplc.com.Internal Controls The Board acknowledges that it is responsible for establishing and maintaining the Group’s system of internalcontrol, the effectiveness of which is reviewed on a regular basis. The internal control system is an ongoing process for identifying,evaluating and managing the significant risks faced by the Company and is designed to meet particular needs of the Group and therisks to which it is exposed, and by its nature can provide reasonably but not absolute assurance against material misstatement orloss. In view of the size of the Company, the Board does not consider that an internal audit function is required at present; however,the Board intends to keep this under review. The key procedures, which the Directors have established with a view to providingeffective internal control, are as follows:Management Structure The Board has overall responsibility, for the Group and there is a formal schedule of matters specificallyreserved for decision by the Board. Each executive has been given responsibility for specific aspects of the Group’s affairs.Corporate Accounting and Procedures Manual Responsibility levels are communicated throughout the Group as part of thecorporate accounting and procedures manual which sets out, inter-alia, the general ethos of the Group, delegation of authority andauthorisation levels, segregation of duties and control procedures together with accounting policies and procedures. The manual isreviewed regularly and updated as required.14 Global Energy Development PLC Annual Report & Accounts 2004


Quality and Integrity of Personnel The integrity and competence of personnel is ensured through supervision and training. Highquality personnel are seen as an essential part of the control environment and the ethical standards expected are communicatedthrough the corporate accounting and procedures manual.Identification of Business Risks The Board is responsible for identifying the major business risks faced by the Group and fordetermining the appropriate course of action to manage those risks.Budgetary Process Each year the Board approves the annual budget. Key risk areas are identified. Performance is monitored andrelevant actions taken throughout the year through the monthly reporting to the Board of variances from the budget, updatedforecasts for the year together with information on the key risk areas.Investment Appraisal The budgetary process and authorisation levels regulate capital expenditures. For expenditure beyondspecified levels, detailed written proposals have to be submitted to the Board. Reviews are carried out after the acquisition iscomplete and, for some projects, during the acquisition period, to monitor expenditure. Major overruns are investigated.The Directors continue to monitor and review the Group’s procedures and policies on internal controls on an annual basis. Theinternal controls situation is reported to the Audit Committee, which has reviewed the effectiveness of the system of internalcontrols as it operated during the year.Global Energy Development PLC Annual Report & Accounts 2004 15


Directors’ reportThe Directors present their report and the Group accounts for the year ended 31 December 2004.PRINCIPAL ACTIVITIESThe principal activities of the Group are oil and gas exploration and production in Latin America.Most of Global’s consolidated revenues were generated from sales to Ecopetrol, the state-owned Colombian oil company. Thecountry of Colombia has experienced security issues in recent years which could affect Global’s Colombian operations as well as thestrength and operations of Ecopetrol. Global’s Colombian operations could also be directly affected by guerrilla activity or otherinstances or threats of violence, preventing or interrupting Global from producing, transporting or delivering future productionvolumes. The current political position is stable however the Directors continue to closely monitor the situation.RESULTS AND DIVIDENDSThe Group’s profit for the year amounted to $2,566,000 (2003: $1,034,000). The Directors do not recommend payment ofa dividend.EVENTS SINCE THE BALANCE SHEET DATEThe Cajaro #1 well declared commercial by Ecopetrol in November 2004 (resulting in Ecopetrol holding a 50% working interest inCajaro #1 subject to Global’s recovery of 50% of costs as contractually defined) is draining oil from both the Alcaravan and Los Hatoscontracts requiring that a unitization agreement be entered into by Global, Ecopetrol, Agencia Nacional de Hidrocarburos (“ANH”)and the Ministry of Mines.DIRECTORSThe following were Directors throughout the year:Mikel Faulkner (Chairman)Stephen Voss (Managing Director)Alan Henderson (Non-Executive)David Quint (Non-Executive)Stephen C. Voss stood for re-election and was re-elected at the Annual General Meeting of the Company which took place on28 July 2004.The Directors holding office at 31 December 2004 had the following interests in the ordinary shares, options and warrants of theCompany:31 December 2004 1 January 2004OrdinaryOrdinaryShares Options Warrants (2) Shares Options WarrantsMikel Faulkner (1) 78,029 1,580,000 19,647 78,029 1,400,000 97,535Stephen Voss (1) 17,465 990,000 4,506 17,465 840,000 21,830Alan Henderson – 60,000 – – 30,000 –David Quint 21,127 60,000 5,105 21,127 30,000 25,528All the holdings are beneficially held unless otherwise indicated.(1) Includes shares that are beneficially owned through Andean Corporation, a US private company owned 29% by Mr Voss andMr Faulkner as well as other Global management members.(2) Warrants to subscribe for ordinary shares at an exercise price of 60p per share. The warrants expire on 8 August 2005.No Director had any interest in the shares of subsidiary undertakings or any other Group undertakings. Director’s interests in theshares of the ultimate parent company, Harken Energy Corporation, are disclosed in the financial statements of that company.16 Global Energy Development PLC Annual Report & Accounts 2004


SUBSTANTIAL SHAREHOLDERSAt 31 December 2004 the Company had been notified of the following interests of 3% or more in the nominal value of theCompany’s ordinary shares.Number of %of sharesGlobal Energy Development Ltd. 23,949,930 85.35DONATIONSDuring the period the Group made donations to The Children’s Vision International, a non-profit foundation in Colombia of $11,000(2003: $10,000).CREDITORS PAYMENT POLICYIt is the Company’s policy that payments to suppliers are made in accordance with those terms and conditions agreed between theCompany and its individual suppliers, provided that all trading terms and conditions have been complied with. At 31 December 2004,the Group had an average of 45 days (2003: 45 days) purchases outstanding in trade creditors.AUDITORSBDO Stoy Hayward LLP have expressed their willingness to continue in office and a resolution to re-appoint them will be proposed atthe Annual General Meeting.On behalf of the Board,Mikel D. FaulknerStephen C. VossChairmanManaging Director7 April 2005 7 April 2005Global Energy Development PLC Annual Report & Accounts 2004 17


Biographical information of DirectorsMikel Faulkner Chairman (55)Mikel Faulkner holds a Bachelor’s degree in Mathematics andPhysics and a Master’s degree in Business Administration. Hisemployment experience includes service as an officer in theUnited States Naval Nuclear Power Program, a member of theaudit staff at Arthur Andersen & Co., a financial officer forAmerican Quasar Petroleum, and at Harken EnergyCorporation, where he served as Chairman from 1991 to 2003and Chief Executive Officer since 1982.Stephen Voss Managing Director (56)Stephen Voss received a Master’s degree in BusinessAdministration from Harvard University in June 1976 and aBachelor of Science degree in Petroleum Engineering fromTexas A&M in May 1971. From 1972 to 1974, he was employed byBurmah Oil and Gas Company in Lafayette, Louisiana as adrilling engineer. From 1976 to 1981, he worked for GoldrusDrilling Company as Executive Vice President and ChiefOperating Officer. In 1981, Stephen founded Reliant DrillingCompany as CEO. Stephen is a Member of SPE-AIME (Society ofPetroleum Engineers – American Institute of Mine Engineers)and is a Registered Petroleum Engineer in Texas.Alan Henderson Non-executive Director (71)Alan Henderson is Chairman of Aberdeen New Thai InvestmentTrust plc, Energy Capital Investment Company plc and aDirector of Aberdeen New Dawn Investment Trust plc. He alsoserves as Chairman, Director or trustee of various charitableorganisations. He was previously Chairman of Ranger Oil UKLtd and a Director of Ranger Oil Ltd.David Quint Non-executive Director (54)David Quint is a graduate of the University of Notre Dame fromwhich he received a Bachelor’s degree in Modern Languages in1972 and a Juris Doctorate in 1975. From 1975 until 1982, hewas an attorney with Arter & Hadden in Cleveland, Ohio andWashington D.C. and from 1983 until 1992, he served as theManaging Director of the London-based international financingarm of a US oil and gas company. In 1992, David founded RP&CInternational, Inc., an investment banking firm with offices inLondon and New York. He currently serves as the ChiefExecutive Officer of RP&C International, Inc. and of RP&CInternational Limited, which is the Company’s NominatedAdviser. Following the recent amendments to the AIM Ruleswhich became effective on 1 April 2005 no partner, Director,employee of a Nominated Adviser may hold the position of aDirector of an AIM company for which the firm acts asNominated Adviser. Accordingly the Company has determinedto designate a new Nominated Adviser and expects to do soduring the second quarter of 2005.18 Global Energy Development PLC Annual Report & Accounts 2004


Statement of Directors’ responsibilitiesin respect of the financial statementsCompany law requires the Directors to prepare financial statements for each financial year, which give a true and fair view of thestate of affairs of the Company and of the Group and of the profit or loss of the Group for that period. In preparing those financialstatements, the Directors are required to: select suitable accounting policies and then apply them consistently; make judgements and estimates that are reasonable and prudent; state whether applicable accounting standards have been followed, subject to any material departures disclosed andexplained in the accounts; and prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Group willcontinue in business.The Directors are responsible for keeping proper accounting records which disclose with reasonable accuracy at any time thefinancial position of the Company and to enable them to ensure that the financial statements comply with the Companies Act 1985.They are also responsible for safeguarding the assets of the Group and hence for taking reasonable steps for the prevention anddetection of fraud and other irregularities.Global Energy Development PLC Annual Report & Accounts 2004 19


Report of the independent auditorsTO THE SHAREHOLDERS OF GLOBAL ENERGY DEVELOPMENT PLCWe have audited the financial statements of Global Energy Development PLC for the year ended 31 December 2004 on pages 21 to35, which have been prepared under the accounting policies set out on pages 25 to 27.RESPECTIVE RESPONSIBILITIES OF DIRECTORS AND AUDITORSThe Directors’ responsibilities for preparing the annual report and the financial statements in accordance with applicable law andUnited Kingdom Accounting Standards are set out in the Statement of Directors’ Responsibilities.Our responsibility is to audit the financial statements in accordance with relevant legal and regulatory requirements and UnitedKingdom Auditing Standards.We report to you our opinion as to whether the financial statements give a true and fair view and are properly prepared inaccordance with the Companies Act 1985. We also report to you if, in our opinion, the Directors’ Report is not consistent withthe financial statements, if the Company has not kept proper accounting records, if we have not received all the information andexplanations we require for our audit, or if information specified by law regarding Directors’ remuneration and transactions withthe Company and other members of the Group is not disclosed.We read other information contained in the annual report, and consider whether it is consistent with the audited financialstatements. This other information comprises only the Proved and Probable Reserves Summary, and the Report of the Directors.We consider the implications for our report if we become aware of any apparent misstatements or material inconsistencies with thefinancial statements. Our responsibilities do not extend to any other information.Our report has been prepared pursuant to the requirements of the Companies Act 1985 and for no other purpose. No person isentitled to rely on this report unless such person is a person entitled to rely upon this report by virtue of and for the purpose of theCompanies Act 1985 or has been expressly authorised to do so by our prior written consent. Save as above, we do not acceptresponsibility for this report to any other person or for any other purpose and we hereby expressly disclaim any and all such liability.BASIS OF AUDIT OPINIONWe conducted our audit in accordance with United Kingdom Auditing Standards issued by the Auditing Practices Board. An auditincludes examination, on a test basis, of evidence relevant to the amounts and disclosures in the financial statements. It also includesan assessment of the significant estimates and judgements made by the Directors in the preparation of the financial statements, andof whether the accounting policies are appropriate to the Group’s circumstances, consistently applied and adequately disclosed.We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order toprovide us with sufficient evidence to give reasonable assurance that the financial statements are free from material misstatement,whether caused by fraud or other irregularity or error. In forming our opinion we also evaluated the overall adequacy of thepresentation of information in the financial statements.OPINIONIn our opinion the financial statements give a true and fair view of the state of affairs of the Company and the Group at31 December 2004 and of the profit of the Group for the year then ended and have been properly prepared in accordancewith the Companies Act 1985.BDO STOY HAYWARD LLPRegistered AuditorsLondon7 April 200420 Global Energy Development PLC Annual Report & Accounts 2004


Group profit and loss accountFOR THE YEAR ENDED 31 DECEMBER 20042004 2003Notes $000 $000TURNOVER 10,974 8,556Cost of sales 3 (5,625) (5,317)GROSS PROFIT 5,349 3,239Administrative expenses 3 (2,241) (2,499)Other income 42 75OPERATING PROFIT 3,150 815Net interest payable 7 (23) (18)PROFIT ON ORDINARY ACTIVITIES BEFORE TAXATION 3,127 797Taxation on profit from ordinary activities 8 (561) 237PROFIT ON ORDINARY ACTIVITIES AFTER TAXATION 2,566 1,034TRANSFER TO RESERVES 2,566 1,034EARNINGS PER ORDINARY SHARE– Basic and diluted 10 0.09 0.04There are no recognised gains and losses other than the profit of $2,566,000 (2003: $1,034,000) for the year ended31 December 2004.All amounts relate to continuing operations.The notes on pages 25 to 35 form part of these financial statements.Global Energy Development PLC Annual Report & Accounts 2004 21


Group balance sheetAT 31 DECEMBER 2004FIXED ASSETS2004 2003Notes $000 $000Intangible assets 11 1,222 1,181Tangible assets 12 57,170 51,512CURRENT ASSETS58,392 52,693Stocks 14 473 538Debtors 15 2,005 413Cash at bank and in hand 16 2,857 3,1785,335 4,129Creditors: amounts falling due within one year 17 (5,107) (843)NET CURRENT ASSETS 228 3,286TOTAL ASSETS LESS CURRENT LIABILITIES 58,620 55,979Provision for liabilities and charges 20 (529) (459)58,091 55,520CAPITAL AND RESERVESCalled up share capital 21 406 405Capital reserve 22 210,844 210,844Share premium account 22 18,740 18,736Profit and loss account 22 (171,899) (174,465)58,091 55,520Approved by the Board on 7 April 2005Mikel D. FaulknerChairmanStephen C. VossManaging DirectorThe notes on pages 25 to 35 form part of these financial statements.22 Global Energy Development PLC Annual Report & Accounts 2004


Company balance sheetAT 31 DECEMBER 2004FIXED ASSETS2004 2003Notes $000 $000Tangible assets 12 293 300Investments 13 21,836 17,315CURRENT ASSETS22,129 17,615Debtors 15 305 114Cash at bank and in hand 16 250 64555 178Creditors: amounts falling due within one year 17 (10,708) (3,366)NET CURRENT LIABILITIES (10,153) (3,188)TOTAL ASSETS LESS CURRENT LIABILITIES 11,976 14,427CAPITAL AND RESERVESCalled up share capital 21 406 405Share premium account 22 18,740 18,736Profit and loss account (7,170) (4,714)11,976 14,427Approved by the Board on 7 April 2005Mikel D. FaulknerChairmanStephen C. VossManaging DirectorThe notes on pages 25 to 35 form part of these financial statements.Global Energy Development PLC Annual Report & Accounts 2004 23


Group cash flow statementYEAR ENDED 31 DECEMBER 20042004 2003Note $000 $000Net cash inflow from operating activities 23 8,196 3,651RETURNS ON INVESTMENT AND SERVICING OF FINANCEInterest received 18 18TAXATION (65) 237CAPITAL EXPENDITURE AND FINANCIAL INVESTMENTExpenditure on intangible and tangible fixed assets (8,700) (4,421)Proceeds from disposal of fixed assets – 124NET CASH OUTFLOW BEFORE FINANCING (551) (391)FINANCINGCapital contributions – 7New shares issued 5 –DECREASE IN CASH (546) (384)CASH AT BEGINNING OF YEAR 3,178 3,562CASH AT END OF YEAR 2,632 3,178The notes on pages 25 to 35 form part of these financial statements.24 Global Energy Development PLC Annual Report & Accounts 2004


Notes to the financial statements1. ACCOUNTING POLICIESBASIS OF PREPARATIONThe financial statements have been prepared under the historical cost convention and are in accordance with applicable accountingstandards and the Statement of Recommended Practice “Accounting for Oil and Gas Exploration, Development andDecommissioning Activities” (the “SORP”).The financial statements are presented in US dollars as this is the principal currency in which the Group’s activities are conducted.The following principal accounting polices have been applied and remain unchanged from the previous year:BASIS OF CONSOLIDATIONThe consolidated financial statements incorporate the results of Global Energy Development PLC and all of its subsidiaryundertakings as at 31 December 2004 using the merger method of accounting.MERGER ACCOUNTINGWhere merger accounting is used, the investment is recorded in the Company’s balance sheet at the nominal value of the sharesissued together with the fair value of any additional consideration paid.In the Group financial statements, merged subsidiary undertakings are treated as if they had always been a member of the Group.The results of such a subsidiary are included for the whole period in the year it joins the Group. The corresponding figures for theprevious year include its results for that period, the assets and liabilities at the previous balance sheet date and the shares issued bythe Company as consideration as if they had always been in issue. Any difference between the nominal value of the shares acquiredby the Company and those issued by the Company to acquire them is taken to reserves.FIXED ASSETS(a) Intangible assets The Group capitalises costs associated with certain new areas of exploration interest. These costs are assessedfor recoverability on at least an annual basis or when there has been an indication that impairment in value may have occurred, suchas for a relinquishment of the acreage.Impairment of unevaluated prospects is assessed based on management’s intention with regard to future exploration anddevelopment of individually significant properties and the ability of the Group to obtain funds to finance such explorationand development.When it is determined that such costs will be recouped through successful development and exploitation or alternatively by sale ofthe interest, expenditure will be transferred to tangible assets and depleted over the expected productive life of the asset. Whenevera project is not considered viable, the associated exploration expenditure is transferred to the relevant tangible cost pool. Wherethere are no development and producing assets within the cost pool, the transferred exploration expenditure is charged directly tothe profit and loss account.(b) Tangible oil and gas assets The Group follows the “full cost” method of accounting for the costs associated with exploration,appraisal, development and production of oil and gas reserves. The Group’s evaluated oil and gas assets are held in a separatelydesignated geographical cost pool, which is Latin America. The costs of acquisition of property (including rights and concessions),geological and geophysical costs, cost of field production facilities, pipelines and plant and equipment are classified as tangible fixedassets if they relate to proved and probable oil and gas properties.All costs associated with property acquisition, exploration and development are capitalised regardless of whether they result incommercial discoveries or not. Proceeds from the disposal of oil and gas assets are credited to the cost pools. Producing oil and gasassets are depleted by pool on a unit of production method in the proportion of actual production for the period to the totalremaining commercial reserves. Reserves are those estimated at the end of the period plus production during the period. Fordepletion purposes only, the cost base includes costs of capital assets and anticipated future development expenditure expected tobe incurred to access these reserves.Global Energy Development PLC Annual Report & Accounts 2004 25


Notes to the financial statements continued1. ACCOUNTING POLICIES CONTINUEDFIXED ASSETS CONTINUED(c) Other tangible fixed assets Other tangible fixed assets are depreciated on a straight-line basis so as to write off the cost less anyestimated residual value of each asset evenly over its estimated useful economic life as follows: Facilities and pipeline – units of production Office equipment – between five to seven years(d) Impairment of fixed assets The carrying values of fixed assets are reviewed for impairment in the periods when events orchanges in circumstances indicate that the carrying value may not be recoverable. An impairment loss is provided for in the currentperiod Profit and Loss Account when the carrying value of the assets exceeds their estimated recoverable amount. The estimatedrecoverable amount is defined as the higher of the net realisable value and the value in use. The value in use is determined byreference to estimated future discounted cash flows.DECOMMISSIONING PROVISIONProvision for decommissioning of oil and gas production facilities is recognised in the accounts on commencement of fielddevelopment on the basis of costs estimated at the balance sheet date in accordance with the local conditions and requirements.Such provision represents the Company’s share of the estimated liability for costs, which will be incurred in removing productionplatforms and facilities at the end of the commercial production from the field.Where the time value of money is material, the provision made in the accounts is for the present value of the estimated futurecosts. A corresponding tangible fixed asset is also created for the amount equal to the provision when it is first made in theaccounts. Any change in the value of estimated expenditure is reflected as an adjustment to the provision and fixed asset.This asset is subsequently depreciated as part of oil and gas assets in accordance with the depreciation policy appliedto such assets.Where the provision is discounted, the carrying value of the provision increases each year to reflect the passage of time. Thisincrease is recognised as an annual charge to the current year Profit and Loss Account and is included within interest expense.INVESTMENTSFixed asset investments in subsidiaries, joint ventures and associates are included in the accounts at cost less provisionfor impairment.STOCKSStocks, which comprise oil in tanks and pipelines as well as materials, are stated at the lower of cost or net realisable value.FOREIGN CURRENCIES(a) Company Transactions in foreign currencies are recorded at the rate ruling at the date of the transaction. Monetary assets andliabilities denominated in foreign currencies are retranslated at the rate of exchange ruling at the balance sheet date. All differencesare taken to the Profit and Loss Account.(b) Group The accounts of the overseas subsidiary undertakings and Group’s operations conducted through a foreign branchare translated at the rate of exchange ruling at the balance sheet date. All translation differences are taken to the Profit andLoss Account.PENSION COSTSThe Group contributes to a defined contribution scheme. Contributions are charged to the Profit and Loss Account as theybecome payable.LEASING COMMITMENTSRentals payable under operating leases are charged in the Profit and Loss Account on a straight-line basis over the lease term.DEFERRED TAXDeferred tax is recognised in respect of all timing differences that have originated but not reversed at the balance sheet date wheretransactions or events have occurred at that date that will result in an obligation to pay more, or a right to pay less or to receivemore, tax, with the following exceptions:26 Global Energy Development PLC Annual Report & Accounts 2004


Provision is made for deferred tax that would arise on remittance of the retained earnings of overseas subsidiaries, associatesand joint ventures only to the extent that, at the balance sheet date, dividends have been accrued as receivable. Deferred tax assets are recognised only to the extent that the Directors consider that it is more likely than not that there will besuitable taxable profits from which the future reversal of the underlying timing differences can be deducted.Deferred tax is measured on an undiscounted basis at the tax rates that are expected to apply in the periods in which timingdifferences reverse, based on the tax rates and laws enacted or substantively enacted at the balance sheet date.2. TURNOVER AND SEGMENTAL ANALYSISTurnover represents the amounts invoiced by the Group to third parties in the ordinary course of business, in respect of the Group’scrude oil production, and is stated net of royalties and applicable taxes. Turnover is recognised on delivery of products.Turnover and profit on ordinary activities before taxation is attributable to one continuing activity, which is oil production from theHarken de Colombia Ltd. branch located in Colombia, South America.3. COST OF SALES AND OPERATING EXPENSES2004 2003$000 $000Production costs 2,538 2,398Depletion of oil properties 2,664 2,304Depletion of other tangible fixed assets 423 615Total cost of sales 5,625 5,317General and administrative expenses 2,241 2,499Total cost of sales and administration 7,866 7,8164. OPERATING PROFITThis is stated after charging:Auditors’ remuneration, under accrual basisAudit services2004 2003$000 $000– Current auditor 137 85– Predecessor auditor – 15Non–audit services 82 18The non-audit services include tax compliance services and services provided in relation to corporate transactions.219 1182004 2003$000 $000Operating lease expense (rent) 198 205Loss in disposal of tangible fixed assets 34 205. STAFF COSTSStaff costs, including executive Directors, were as follows:2004 2003$000 $000Wages and salaries 698 798Insurance and other benefits 59 45Payroll taxes 66 66Pension contribution 36 24859 933Global Energy Development PLC Annual Report & Accounts 2004 27


Notes to the financial statements continued5. STAFF COSTS CONTINUEDThe average monthly number of employees during the year was made up as follows:2004 2003Number NumberManagement and administration 7 6Technical and operational 3 310 96. DIRECTORS’ EMOLUMENTSDetails of remuneration, pension contributions, compensation for loss of office and interests in shares, warrants and share optionsfor each Director are set out in the Directors’ Report.ExecutivesPension Total TotalBonus Salary Benefits contributions Fees 2004 2003$ $ $ $ $ $ $Mikel D. Faulkner – – – – 75,000 75,000 39,000Stephen C. Voss 61,000 175,000 13,890 14,662 – 264,552 193,000Non-executivesAlan Henderson – – – – 18,700 18,700 16,500David Quint – – – – 18,700 18,700 16,50061,000 175,000 13,890 14,662 112,400 376,952 265,000There were two (2003: two) Directors in the Company’s defined contribution scheme. Included in the total for 2003 are pensioncontributions of $9,000.7. INTEREST PAYABLE AND SIMILAR CHARGES2004 2003$000 $000Interest receivable 18 18Unwinding of discount on decommissioning (41) (36)Net interest payable (23) (18)8. TAXES ON PROFIT ON ORDINARY ACTIVITIESThe taxation charge is made up as follows:2004 2003$000 $000UK corporation tax – –Foreign taxPresumptive income tax for the year 561 264Adjustment in respect to previous periods – (501)Total tax 561 (237)The tax assessed on the loss on ordinary activities for the period is lower than the standard rate of taxation in the UK.The differences are explained below:2004 2003$000 $000Profit on ordinary activities before taxes 3,127 797Profit on ordinary activities multiplied by standard rateof corporation tax in the UK of 30% (2003: 30%) 938 239Effects of:Over provision in prior years – (501)Disallowed expenses and non-taxable income – –Asset based tax rates on overseas earnings (see below) (377) 25Total tax 561 (237)28 Global Energy Development PLC Annual Report & Accounts 2004


8. TAXES ON PROFIT ON ORDINARY ACTIVITIES CONTINUEDGlobal pays taxes in Colombia through its subsidiary Harken de Colombia, Ltd. The current tax included represents the minimum taxpayable under Colombian legislation called Presumptive Income Tax (“PIT”). The PIT calculation is based upon a presumptive incomeequivalent to 6% of the previous year taxable net equity. The tax rate on the presumptive income is 38.5%. The 2004 income taxprovision was for $561,000.FACTORS AFFECTING FUTURE TAX RATESNo provision has been made for a deferred tax asset arising on Colombian tax losses carried forward of $134,000,000 (2003:$111,000,000) as it is unlikely there will be sufficient taxable profits from which the asset can be recovered. These carried forwardlosses will expire between 2005 and 2007. Also, for the same reason, no deferred tax asset has been recognised in relation to the UKtax losses of $2,456,000 (2003: $1,407,000).9. PROFIT AND LOSS ACCOUNT FOR THE PARENT COMPANYAs permitted by S.230 (1) of the Companies Act 1985, the profit and loss account of the parent company is not presented as part ofthese financial statements. The loss of the parent company for the year was $2,456,000 (2003: $1,407,000)10. EARNINGS PER SHAREThe calculation of basic and diluted earnings per ordinary share is based on the net income for the year of $2,566,000(2003: $1,034,000). The weighted average number of shares used in calculating basic earnings per share in 2004 is28,012,817 and 2003 is 27,971,832.The effect of all potential ordinary shares in 2003 and 2004 is not material.11. INTANGIBLE ASSETSCost:CompanyGroup$000 $000At 1 January 2004 – 1,181Additions – 41At 31 December 2004 – 1,222The above assets relate to certain new areas of exploration interest.12. TANGIBLE FIXED ASSETSFacilitiesOfficeOil and gas and equipmentproperties pipelines and other Total$000 $000 $000 $000GroupCost:At 1 January 2004 174,349 15,461 1,041 190,851Additions 8,324 279 176 8,779Disposals – – (35) (35)At 31 December 2004 182,673 15,740 1,182 199,595Depreciation:At 1 January 2004 (133,636) (5,074) (629) (139,339)Provided during the year (2,664) (275) (148) (3,087)Disposals – – 1 1At 31 December 2004 (136,300) (5,349) (776) (142,425)Net book value at 31 December 2004 46,373 10,391 406 57,170Net book value at 1 January 2004 40,713 10,387 412 51,512Global Energy Development PLC Annual Report & Accounts 2004 29


Notes to the financial statements continued12. TANGIBLE FIXED ASSETS CONTINUEDCompanyCost:Officeequipmentand other$000At 1 January 2004 525Additions 113At 31 December 2004 638Depreciation:At 1 January 2004 (225)Provided during the year (120)At 31 December 2004 (345)Net book value at 31 December 2004 293Net book value at 1 January 2004 30013. GROUP INVESTMENTSCompanyCosts:At 1 January 2004 17,315Additions 4,521At 31 December 2004 21,836All investments relate to subsidiary undertakings.GroupThe Group’s subsidiaries at 31 December 2004 are listed below.Country of Class of share Proportion heldHeld directly Incorporation Capital held by the CompanyHarken de Colombia Ltd. Cayman Islands Ordinary 100%Harken de Colombia Holdings, Ltd. Cayman Islands Ordinary 100%Harken de Colombia II, Ltd. Cayman Islands Ordinary 100%Harken de Colombia III, Ltd. Cayman Islands Ordinary 100%Harken South America, Ltd. Cayman Islands Ordinary 100%Harken de Peru Holdings, Ltd. Cayman Islands Ordinary 100%Harken del Peru Limitada Cayman Islands Ordinary 100%Harken de Panama Holdings, Ltd. British Virgin Islands Ordinary 100%Harken de Panama, Ltd. British Virgin Islands Ordinary 100%Global Management Resources British Virgin Islands Ordinary 100%2004$000The following branches are included in the subsidiaries listed above:Harken de Colombia Ltd. Colombian Branch Indirect holding 100%Harken de Colombia Ltd. II Colombian Branch Indirect holding 100%Harken del Peru Limitada Peruvian Branch Indirect holding 100%Harken de Panama, Ltd. Panamanian Branch Indirect holding 100%All of the above companies/branches are engaged in oil and gas exploration.30 Global Energy Development PLC Annual Report & Accounts 2004


14. STOCKSGroup2004 2003$000 $000Crude stock 67 42Yard stock 406 496Total stocks 473 538Stocks include oil in tanks and pipelines located in Colombia, and yard stock, which includes casing, tubing and other materials forthe operation of the production facilities and for exploratory drilling. Stocks are stated at the lower of cost or net realisable value.15. DEBTORS: AMOUNTS FALLING DUE WITHIN ONE YEARCompany Company Group Group2004 2003 2004 2003$000 $000 $000 $000Trade debtors – – 1,387 39Other debtors 39 – 233 102Prepayments and accrued income 266 114 385 27216. CASH AT BANK AND IN HANDAt 31 December 2004 and 2003, there were no restrictions on cash balances.17. CREDITORS: AMOUNTS FALLING DUE WITHIN ONE YEAR305 114 2,005 413Company Company Group Group2004 2003 2004 2003$000 $000 $000 $000Bank overdraft – – 225 –Trade creditors 41 20 3,468 598Taxation and social security – – 176 73Other creditors – – 285 39Amount owed to parent companies 440 – 440 –Amounts owed to subsidiary undertakings 9,785 3,228 – –Accruals and deferred income 442 118 513 13310,708 3,366 5,107 84318. FINANCIAL INSTRUMENTSFOREIGN CURRENCYInternational operations consist of oil and gas exploration and development efforts in certain Latin American countries pursuant tocertain contracts. Latin American activities are accounted for using the United States dollar as the functional currency; thereforethe Group is not exposed to currency risk except for immaterial balances in monetary accounts in Colombia. Also the Group does notengage in a policy of hedging oil prices.CURRENCY EXPOSURESThe monetary assets and liabilities of the Group that are not denominated in the functional currency of the operating unit concernedare shown below:At 31 December 2004Functional currency of group operations:Colombian Peso Sterling Total$000 $000 $000US dollar 289 13 302At 31 December 2003Functional currency of group operations:US dollar 142 – 142INTEREST RATESFloating rate financial assets of $2,857,000 (2003: $3,178,000) comprise US dollars, Colombian peso, and sterling cash deposits onmoney market and bank deposits at call. These are no fixed rate financial assets.Global Energy Development PLC Annual Report & Accounts 2004 31


Notes to the financial statements continued19. OBLIGATIONS UNDER OPERATING LEASESAnnual commitments under non-cancellable operating leases are as follows:Operating leases, which expire:Company Company Group Group2004 2003 2004 2003$000 $000 $000 $000Within one year 9 178 56 203In two to five years 188 354 188 354197 532 244 557All commitments relate to land and buildings.20. PROVISIONS FOR LIABILITIES AND CHARGESDecommissioningprovision$000At 1 January 2004 459Unwinding of discount factor 41Revision of estimates 29At 31 December 2004 529The decommissioning provision relates to the future costs of decommissioning of the Group’s oil and gas assets expected to beincurred over the next 14 years according to the estimates provided by the field operators. The provision has been estimated atcurrent prices and discounted using a discount rate of 10% per annum.21. SHARE CAPITALAuthorised31 December 31 December 31 December 31 December2004 2003 2004 2003Number Number $000 $000Ordinary shares of 1p each 75,000,000 60,000,000 1,163 775Allotted, called up and fully paidOrdinary shares of 1p each 28,060,348 27,971,832 406 405During the year, 83,111 shares were issued under the terms of the Group share option scheme. No consideration was received inrelation to the exercise. During the year the rules of the option scheme were valued such that option holders could elect to settlethe exercise value by foregoing further options of an equivalent market value.During the year, 5,406 shares were issued under the terms of the Groups warrants at an exercise price of 60p.SENIOR EXECUTIVE SHARE OPTION SCHEMEAt 31 December 2004 the following share options were outstanding in respect of the ordinary shares:Exercise PeriodYear of grant Number of shares Start date End date Price per share2002 3,183,000 31.1.2002 31.1.2012 50.0p2002 60,000 8.8.2002 12.8.2012 54.5p2004 780,000 3.12.2004 3.12.2014 151.1pTotal 4,023,00032 Global Energy Development PLC Annual Report & Accounts 2004


21. SHARE CAPITAL CONTINUEDAt 31 December 2004 the following warrants were outstanding in respect to the ordinary shares:Exercise PeriodYear of Grant Number of shares Start date End date Price per share2002 6,987,542 8.7.2002 8.8.2005 60pThe Company’s share price at 31 December 2004 was 153p. The highest and lowest share prices during the year were 191.5pand 45p respectively.22. GROUP MOVEMENT ON RESERVESFor the year ended 31 December 2004Capital Share Profit andReserve Premium LossAccount Account Account$000 $000 $000At 1 January 2003 210,844 18,729 (175,499)Placement of new share capital – 7 –Profit/(loss) for the period – – 1,034At 1 January 2004 210,844 18,736 (174,465)Placement of new share capital – 4 –Profit for the period – – 2,566At 31 December 2004 210,844 18,740 (171,899)23. RECONCILIATION OF SHAREHOLDERS’ FUNDSFor the year ended 31 December 2004Group Company Group Company2004 2004 2003 2003$000 $000 $000 $000Total recognised gains and losses 2,566 (2,456) 1,034 (1,407)New share capital subscribed less issue costs 5 5 – –Capital contribution – – 7 7Total movements during the year 2,571 (2,451) 1,041 (1,400)Shareholders’ funds at 1 January 55,520 14,427 54,479 15,827Shareholders’ funds at 31 December 2004 58,091 11,976 55,520 14,42724. NOTES TO THE STATEMENT OF CASH FLOWSReconciliation of operating profit to net cash inflow from operating activities2004 2003$000 $000Operating profit 3,150 815Depreciation and decommissioning 3,087 2,919Decrease in debtors and prepayments (2,088) 28Increase/(decrease) in creditors 4,039 (345)Loss on sale of fixed assets 34 20(Increase)/decrease in inventory (26) 214Net cash inflow from operating activities 8,196 3,651Global Energy Development PLC Annual Report & Accounts 2004 33


Notes to the financial statements continued25. RECONCILIATION OF NET CASH OUTFLOW TO MOVEMENTS IN NET FUNDS2004 2003$000 $000Decrease in cash in the year (546) (384)Change in net funds resulting from cash flows and movementIn net funds in the year (546) (384)Operating net funds 3,178 3,562Closing net funds 2,632 3,17826. ANALYSIS OF NET FUNDSAtAt1 January Net cash 31 December2004 flows 2004$000 $000 $000Cash at bank and in hand 3,178 (321) 2,857Bank overdrafts – (225) (225)3,178 (546) 2,63227. PENSION COMMITMENTSAt 31 December 2004, Global had an obligation of $36,616 (2003: $23,830) for funding of the Company’s defined contributionpension plan (401K plan). The Global board in December 2003 approved a 50% contribution match for all full-time employees at31 December 2003. The obligation of $23,830 was accrued in December 2003 and paid in March 2004.28. PARENT UNDERTAKING AND CONTROLLING PARTYThe Company’s immediate parent undertaking is Global Energy Development Ltd, a company incorporated in the United States.Harken Energy Corporation (“Harken”), a company incorporated in the United States, is the immediate parent undertaking of GlobalEnergy Development Ltd. Harken is the parent of both the smallest and largest groups of which the Company is a member.Harken has included the Company and its subsidiary undertakings in its consolidated financial statements, copies of which areavailable from its registered office: 580 Westlake Park Blvd., Suite 650, Houston, Texas, 77079.29. RELATED PARTY TRANSACTIONSDavid Quint is a Director of the Company and a Director of RP&C International Ltd. RP&C International Ltd. acts as NominatedAdviser (Nomad) to the Company and provides certain corporate finance services. The Directors believe these services are madeon terms at least as favourable as those that could be secured with an unrelated party (see details below).The Company receives certain administrative and management services from Harken Energy Corporation, the ultimate parentcompany. These costs are recharged to the Company (see details below).Ultimate parent:AmountsAmountsowedowedfrom/(to)from/(to)Services related Services relatedprovided parties provided partiesYear ended As at Year ended As at31 December 31 December 31 December 31 December2004 2004 2003 2003$000 $000 $000 $000Harken Energy Corporation 244 (440) – –OtherRP&C International Inc. 71 18* 67 16(*)*Represents an accrued portion of biannual prepayment for nominated advisory services.34 Global Energy Development PLC Annual Report & Accounts 2004


30. CONTINGENT LIABILITIESThe tax authorities in Colombia have claimed additional tax liabilities of approximately $975,000 relating to the 2001 fiscal year. Theclaim centres on the Group’s asset base that forms the basis for Colombian Presumptive Income Tax. The Directors believe the claimis without merit and have previously defended a similar claim relating to the 2000 fiscal year. As a result no provision has been madefor this claim as in the opinion of the Directors, after taking appropriate professional advice, the likelihood of a material liabilityarising is remote.31. EVENTS SINCE THE BALANCE SHEET DATEOn 30 March 2005, the Company gave the 30 day notice required by contract to Ecopetrol regarding termination of the crude saleagreement. The Company is entering into a contract with Petrobras to sell most of its crude effective 1 May 2005.Global Energy Development PLC Annual Report & Accounts 2004 35


Supplementary oil and gas information (unaudited)OIL AND GAS RESERVESProven and probable oil and gas reserves are estimated quantities of commercially producible hydrocarbons which the existinggeological, geophysical and engineering data show to be recoverable in future years from known reservoirs. The proved reservesincluded herein conform to the definition approved by the Society of Petroleum Engineers (SPE) and the World Petroleum Congress(WPC). The probable reserves included herein conform to definitions of probable reserves approved by the SPE/WPC using thedeterministic methodology.The following tables show estimates of the Group’s net proved and probable reserves of crude oil and natural gas at 1 January and31 December 2004.(Source: Ryder Scott Petroleum Consultants)ESTIMATED NET PROVED AND PROBABLE RESERVES OF CRUDE OIL2004Subsidiary undertakingsAt 1 JanuaryProved ProbableLatinLatinAmerica America Total(thousands of barrels)allDeveloped 1,178 – 1,178Undeveloped 3,199 13,901 17,100Changes in year attributable to4,377 13,901 18,278Revision of previous estimates 267 (2,834) (2,567)Production (444) – (444)At 31 December 2004 (177) (2,834) (3,011)Developed 1,582 514 2,096Undeveloped 2,618 10,553 13,171ESTIMATED NET PROVED AND PROBABLE RESERVES OF NATURAL GAS2004Subsidiary undertakingsAt 1 January4,200 11,067 15,267Proved ProbableLatinLatinAmerica America Total(millions of cubic feet)allDeveloped – – –Undeveloped – 8,559 8,559Changes in year attributable to– 8,559 8,559Production – (1,182) (1,182)At 31 December 2004 – (1,182) (1,182)Developed – – –Undeveloped – 7,377 7,377– 7,377 7,37736 Global Energy Development PLC Annual Report & Accounts 2004


Corporate directoryDIRECTORSMikel Faulkner (Chairman)Alan Henderson (Non-Executive Director)David Quint (Non-Executive Director)Stephen Voss (Managing Director)SECRETARYCatherine MilesREGISTERED OFFICE3 Catherine PlaceLondon SW1E 6DXUNITED STATES OFFICE580 Westlake Park Blvd,Suite 650, Houston,Texas 77079USAAUDITORSBDO Stoy Hayward LLP8 Baker StreetLondon W1U 3LLNOMINATED ADVISORR P & C International Limited31a St. James’s SquareLondon SW1Y 4JRSOLICITORSNorton RoseKempson HouseCamomile StreetLondon EC3A 7ANBROKERTeather & GreenwoodBeaufort House15 St. Botolph StreetLondon EC3A 7QRWEBPAGEwww.globalenergyplc.comGlobal Energy Development PLC Annual Report & Accounts 2004 37


United Kingdom Office/Registered OfficeGlobal Energy Development PLC3 Catherine PlaceLondon SW1E 6DXTel: +44 (0)207 808 5550Fax: +44 (0)207 808 5552United States OfficeGlobal Energy Development PLC580 Westlake Park BlvdSuite 650, HoustonTexas 77079USAwww.globalenergyplc.com

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