RNS Number:2139Y
Petrolatina Energy PLC
12 June 2007
PetroLatina Energy plc
Final results for the year ended 31 December 2006
Chief Executive's Statement
The past year has seen some large steps forward in the development of
PetroLatina but we have also experienced disappointments.
Operations Review
In April 2006 the Group acquired interests in two exploration blocks in Colombia
with a 70% interest in Midas and an indirect 65% interest in La Paloma. On 16
June 2006 PetroLatina subsequently acquired Petroleos Del Norte ("PDN"), a small
operating company with production from three licences in the Middle Magdalena
Valley, a prolific oil and gas region of Colombia. The Group holds 50% and 25%
interests in the Los Angeles and Santa Lucia fields respectively on the
Tisquirama licence and a 100% interest in the Dona Maria field on the Lebrija
licence, which together provided daily crude oil production of approximately 500
barrels of oil per day ("bopd") in 2006. PetroLatina acquired PDN for $32
million, $13 million of which is payable on the successful extension of the
Tisquirama licence from 2009 to 2025, being the technical life of the fields.
PDN also owns the Rio Zulia - Ayacucho ("RZA") pipeline which transports crude
oil from the Tibu and Rio Zulia fields in the Catatumbo Basin of east-central
Colombia. Daily post acquisition crude throughput was 2,742 bopd in 2006.
Through these acquisitions PetroLatina has established a core operational base
in Colombia, an established oil and gas country with increasingly favourable
investment opportunities and reduced political risk.
At the same time the Group have experienced discouraging drilling results in
Guatemala. Guatemala has continued to prove to be both geologically challenging
and a difficult environment to work in. Having proven high quality oil to be in
place through the drilling of the 3X well and the 1X sidetrack on the 6-93
acreage, a combination of lack of reservoir pressure and geological complexity
rendered production from these wells uneconomic. Also, a three well work-over
programme on the A7-2005 Atzam / Tortugas licence was hindered by the local
Municipality, which controls the Tortugas salt dome and the surrounding area,
who refused the Company access to this area of the licence which PetroLatina
believe to hold the best potential for early production from Guatemala.
Outlook
I do not, however, wish to dwell on the past but look to the future. Since my
appointment in March 2007 I have thoroughly reviewed the operational and
financial structure of the Group with a view to increasing financial efficiency
whilst enhancing the value inherent in the oil and gas assets therein.
Colombia holds the potential of both immediate and sustained future growth. We
have a small but stable production from the PDN operating subsidiary which
offers some development potential, plus some exciting exploration acreage in the
La Paloma and Midas blocks.
To realise this upside PetroLatina needs firstly to secure the extension of the
Tisquirama licence, where PDN holds the majority of its producing interests, to
2025. I can report to you that discussions are proceeding to find mutually
beneficial terms with our partners Ecopetrol and PetroSantander to secure this
extension. The Group is also finalising the logistics necessary to bring the
Serafin gas well into production in August 2007, which will provide additional
revenue to the Company. Serafin was successfully worked over in the first
quarter 2007,
Secondly, the La Paloma and Midas exploration blocks provide the Group with the
potential to substantially increase reserves. The newly acquired seismic data on
the La Paloma block shows a well defined four way dip closure at base Tertiary /
Cretaceous level and the Midas block also has interesting prospects. PetroLatina
has successfully negotiated a reduction in the carried interests of the local
partners in both blocks, resulting in the Group now holding a working interest
of 80% in both. The Group is now proceeding with the next phase on both blocks
and is currently considering a farm out of Midas.
Financial
I know it has been a concern of some shareholders as to the financial
underpinning of the Group going forward. I can report that PetroLatina is
currently in discussion with Macquarie Bank in relation to the terms of a $20
million debt facility to provide funds for the second stage payment for PDN and
the further development on the PDN fields. This funding is intimately tied to
the securing of the licence extension. Macquarie also has a separate mandate to
provide finance for the second phase commitment on the La Paloma licence, being
the re-entry of an existing well or the drilling of one new exploration well. In
addition, PetroLatina has taken steps to materially reduce overhead and in doing
so will centralise its operational and technical management in Colombia and
reduce its London office to a small representative presence.
Regarding Guatemala, the decision has been made by the Board of Directors to
farm out PetroLatina's interests. PetroLatina has signed a $175,000 four month
option contract with a potential local buyer to acquire all the interests for $
4 million. Under this agreement the Group shall retain a 20% carried interest in
the first three wells. Following this decision, the Directors have reviewed the
carrying value of all PetroLatina's Guatemalan assets in the financial
statements. As a result of this review, an impairment has been made to
historical exploration expenditure of $30 million and fixed assets and drilling
materials inventory have been written down by $0.35 and $1.1 million
respectively. Additionally, due to some uncertainty as to the recoverability of
purchase VAT on materials and equipment, a further charge of $1.3 million has
been charged against 2006 income.
Due primarily to the above one off charges, PetroLatina is reporting an
operating loss in the 2006 financials of $42 million.
Technical
The Group has also taken a different approach to last year in reporting oil and
gas reserves. Colombian reserves show proven reserves only and represent
production to the end of the current licence term only, being 1 March 2009. This
approach is consistent with international reserve reporting standards.
Guatemalan reserves represent the A7-2005 licence / Tortugas reserves only,
following unsuccessful drilling at Las Casas in 2006.
In summary, I believe that the recent restructuring of PetroLatina will
significantly enhance the efficiency of the business going forward and sets
foundations to realise our goal of providing shareholders with the growth
potential they deserve.
I would like to thank you for your continued support and I look forward to
bringing you good news during 2007 and beyond.
Rudolph Berends
President and Chief Executive Officer
PetroLatina Energy Plc
Consolidated profit and loss account for the year ended 31 December 2006
________________________________________________________________________________
31 December 31 December 31 December 31 December
2006 2006 2006 2005
Continuing Acquisitions Total (Restated)
Operations
$'000 $'000 $'000 $'000
Turnover
Revenue from
oil sales - 3,277 3,277 -
Pipeline
income - 897 897 -
_______ _______ _______ _______
- 4,174 4,174 -
Cost of sales: -
Field and
pipeline
operating
costs - (1,177) (1,177) -
Depletion and
depreciation
of oil and gas
assets (31) (979) (1,010) -
_______ _______ _______ _______
Gross profit (31) 2,018 1,987 -
Administrative expenses:
Exceptional -
impairment
items (34,029) (1,276) (35,305) (2,014)
Exceptional -
deferred share
costs (3,216) - (3,216) -
Other general
and
administrative
expenses (3,682) (1,720) (5,402) (5,010)
_______ _______ _______ _______
Total
administrative
expenses (40,927) (2,996) (43,923) (7,024)
_______ _______ _______ _______
Operating loss (40,958) (978) (41,936) (7,024)
Interest
payable (445) (78) (523) (40)
Interest
receivable 383 6 389 217
_______ _______ _______ _______
Loss on
ordinary
activities
before
taxation (41,020) (1,050) (42,070) (6,847)
Current tax
charge for the
year - (353) (353) -
_______ _______ _______ _______
Loss for the
year (41,020) (1,403) (42,423) (6,847)
_______ _______ _______ _______
Loss per share
Basic and diluted loss per (49c) (15c)
ordinary share
All recognised gains and losses in the current year are included in the profit
and loss account.
Consolidated balance sheet at 31 December 2006
31 December 2006 31 December 2005
(Restated)
$'000 $'000
Fixed assets
Tangible oil and gas assets 19,395 1,412
Intangible oil and gas assets 2,905 19,870
Investments 41 -
________ ________
22,341 21,282
Current assets
Stocks 54 1,363
Debtors 1,244 1,056
Deferred share costs due within one year - 1,773
Deferred share costs due after one year - 1,443
Cash at bank and in hand 5,652 1,294
________ ________
6,950 6,929
Current liabilities
Creditors falling due within one year (2,246) (3,659)
Short term loans (7,658) -
________ ________
Net current (liabilities) / assets (2,954) 3,270
________ ________
Total assets less current liabilities 19,387 24,552
Provisions for liabilities and charges (857) (300)
________ ________
Total net assets 18,530 24,252
________ ________
Capital and reserves
Called up share capital 11,077 5,496
Share premium 55,357 25,164
Warrant reserve 1,051 140
Stock option reserve 315 299
Profit and loss account (49,270) (6,847)
________ ________
Shareholders' funds 18,530 24,252
________ ________
Consolidated cash flow statement for the year ended 31 December 2006
31 December 2006 31 December 2005 (Restated)
$'000 $'000 $'000 $'000
Net cash outflow from (2,523) (5,166)
operating activities
Returns on investments and
servicing of finance
Interest received 388 217
Interest paid (468) -
_______ _______
Net cash (outflow) / inflow from returns (80) 217
on investments and servicing of
finance
Taxation (353) -
Capital expenditure and financial
Investment
Purchase of tangible fixed assets (1,696) (1,175)
Exploration costs (13,554) (12,665)
_______ _______
(15,250) (13,840)
Acquisitions and disposals
Acquisition of subsidiary (19,586) (3,352)
Cash acquired with subsidiary 227 30
_______ _______
(19,359) (3,322)
_______ _______
Cash outflow before use of liquid (37,565) (22,111)
resources and financing
Management of liquid resources
Other liquid funds (934) (967)
Financing
Issue of ordinary share capital (net of
issue 35,429 22,405
costs)
Exercise of share warrants 125 1,000
Short term loan 7,000 -
Repayment of convertible loan (350) -
Repayment of short term loan (281) -
_______ _______
41,923 23,405
_______ _______
Increase in cash 3,424 327
_______ _______
Notes (selected)
1 Accounting policies
Basis of preparation
The financial statements have been prepared in US dollars ($) under the
historical cost convention, and in accordance with guidance in the Statement of
Recommended Practice " Accounting for oil and gas, exploration, development
productions and decommissioning activities", and in accordance with applicable
accounting standards.
In preparing these financial statements the Group has adopted for the first time
FRS 20 'Share based payments' (see policy below).
Going concern
The Directors are currently seeking to extend the term of the Tisquirama licence
in Colombia which currently expires in 2009 until 2025. Under the terms of the
acquisition of PDN, contingent consideration of $13m is payable should the
licence term be extended. Additional development capital of approximately $4m
would also be required at this point.
The Directors are currently in advanced negotiations with an International bank
for a long term debt facility which would fund the additional consideration and
the development costs. The Directors believe that the licence will be extended
and are therefore confident of being able to secure the relevant funding.
However, whilst negotiations with the debt provider are at an advanced stage
there can be no guarantee that this will be successfully concluded.
If the licence extension is not granted the Directors will be forced to dispose
of the Group's assets and interests in licences in order to settle the Group's
liabilities.
These financial statements have been prepared on a going concern basis, as based
upon the above, the Directors believe this to be appropriate. The financial
statements do not include the adjustments that would result if the Group was
unable to continue as a going concern.
The following principal accounting policies have been applied:
Basis of consolidation
The consolidated financial statements incorporate the results of PetroLatina
Energy Plc and all of its subsidiary undertakings as at 31 December 2006 using
the acquisition method of accounting. Under the acquisition method, the results
of subsidiary undertakings are included from the date of acquisition.
Turnover
Oil sales revenue includes the sales value, net of sales taxes and overriding
royalties.
Pipeline revenue consists of pipeline throughput tariffs.
Oil and gas assets and pipeline
Oil and gas expenditures have been accounted for under the full cost method of
accounting.
For evaluation properties, all lease and licence acquisition costs, geological
and geophysical costs and other direct costs of exploration appraisal and
development are capitalised as intangible fixed assets in appropriate cost
pools. Costs relating to unevaluated properties are held outside the relevant
cost pool, and are not amortised until such time as the related property has
been fully appraised. When a pool cost reaches an evaluated and bankable
feasibility stage, the assets are transferred from intangible to tangible
assets.
Costs relating to evaluated properties within each pool are depleted on a unit
of production method based on the commercial proven and provable reserves for
the pool. The amortisation calculation takes account of the estimated future
costs of development of recognised proved and probable reserves, based on
current price levels. Changes in reserve quantities and cost estimates are
recognised prospectively.
Proceeds from the disposal of oil and gas assets accounted for in the pool are
deducted from capitalised costs with no gain or loss being recognised.
A review is performed each year for any indication that the value of oil and gas
properties may be subject to impairment. Where there are such indications, an
impairment test is carried out and if necessary additional depletion is charged
if the capitalised costs of evaluated properties exceed the estimated value of
the related commercial reserves of oil and gas within the pools. The value is
based on the higher of anticipated future costs and revenues (discounted)
attributable to such reserves.
Depreciation
Depreciation is provided to write off the cost, less estimated residual values,
of all tangible fixed assets over their expected useful lives. It is calculated
at the following rates:
Pipeline - 5% per annum
Fixtures, fittings and office equipment - 20 - 33% per annum
Field plant and machinery - 10 - 20% per annum
Motor vehicles - 20% per annum
Depletion of oil and gas assets
Oil and gas assets are depleted under a unit of production method on the proven
reserves over the term of the licences.
Decommissioning
Provision for plug and abandonment costs is recognised in full at the
commencement of drilling. The amount recognised is the present value of the
estimated future expenditure determined in accordance with local conditions and
requirements. A corresponding fixed asset of an amount equivalent to the
provision is also created. This is subsequently depreciated as part of the
capital costs of the production. Any change in the present value of the
estimated expenditure is reflected as an adjustment to the provision and the
fixed assets.
Stock
Stock, which comprises oil in tanks and pipelines as well as materials, are
stated at the lower of cost and net realisable value.
Deferred share costs
Where shares are issued in exchange for services the fair value of the
consideration is calculated by reference to the market value of shares issued.
Where there is no readily available market price the fair value is assessed by
reference to shares issued for cash and the Directors' estimates of fair value
at the date of the agreement. The fair value of the consideration is then
amortised over the period of the agreement or until such time when services are
no longer required.
Investments
Fixed assets investments are stated at cost less provision for diminution in
value.
Current asset investments are stated at the lower of cost and net realisable
value.
Foreign currency
Foreign currency transactions of individual companies are translated at the
rates ruling when they occurred. Foreign currency monetary assets and
liabilities are translated at the rates ruling at the balance sheet dates. Any
differences are taken to the profit and loss account.
The results of overseas operations are translated at the average rates of
exchange during the period and their balance sheets translated into US dollars
at the rates of exchange ruling on the balance sheet date. Exchange differences
which arise from translation of the opening net assets and results of foreign
subsidiary undertakings and from translating the profit and loss account at an
average rate are taken to reserves.
All other differences are taken to the profit and loss account with the
exception of differences on foreign currency borrowings, which, to the extent
that they are used to finance or provide a hedge against foreign equity
investments, are taken directly to reserves to the extent of the exchange
difference arising on the net investment in these enterprises. Tax charges or
credits that are directly and solely attributable to such exchange differences
are also taken to reserves.
The Group used the following exchange rates within these accounts:
$
Sterling (average) 1.84
Sterling (year end) 1.96
Financial instruments
The Group's financial instruments comprise short-term borrowings, cash at bank
and various items such as trade debtors and creditors that arise directly from
its operations. The main purpose of these instruments is to raise finance for
operations. The Group has not entered into derivative transactions and does not
trade in financial instruments as a matter of policy. The main risks arising
from the Group's financial instruments are liquidity risk, and currency risk.
Currency risk arises as the Company's main operations are in Guatemala and
Colombia.
Operations to date have been financed through placing of shares and it is Board
policy to keep borrowings to a minimum. The Group has no long-term borrowings.
Short-term flexibility is achieved by overdraft facilities.
The Group has taken advantage of the exemption in FRS 13 in respect of
short-term debtors and creditors.
Deferred taxation
Deferred tax balances are recognised in respect of all timing differences that
have originated but not reversed by the balance sheet date except that the
recognition of deferred tax assets is limited to the extent that the Company
anticipates to make sufficient taxable profits in the future to absorb the
reversal of the underlying timing differences.
Deferred tax balance are not discounted.
Operating leases
All leases included in the financial statements are treated as operating leases.
There are no financial or hire purchase leases.
Share-based payments
During the year, the Group adopted FRS 20 (share based payments) for the first
time. Details of the impact of this adoption on the current year and prior
period's accounts are included in the annual report. Where share options are
awarded to employees, the fair value of the options at the date of grant is
charged to the income statement over the vesting period. Non-market vesting
conditions are taken into account by adjusting the number of equity instruments
expected to vest at each balance sheet date so that, ultimately, the cumulative
amount recognised over the vesting period is based on the number of options that
eventually vest. As long as all other vesting conditions are satisfied, a charge
is made irrespective of whether the market vesting conditions are satisfied. The
cumulative expense is not adjusted for failure to achieve a market vesting
condition.
Where equity instruments are granted to persons other than employees, the income
statement is charged with the fair value of goods and services received.
Pension costs
Pension contributions paid by the Group are charged to the profit and loss
account in the period in which they become payable.
Liquid resources
For the purposes of the cash flow statement, liquid resources are defined as
current asset investments and short term deposits.
Finance costs
Finance costs are charged to profit over the term of the debt so that the amount
charged is at a constant rate on the carrying value. Finance costs include issue
costs, which are initially recognised as a reduction in the proceeds of the
associated capital instrument.
2. Exceptional items
2006 2005
Exceptional - impairment $'000 $'000
Impairment of Guatemalan exploration expenditure 29,969 -
Write down of plant and equipment in Guatemala 350 -
Provision for lower value of inventory in Guatemala 1,142 -
Write down of irrecoverable VAT in Guatemala 1,280 -
Exploration costs written off 2,564 -
_______ _______
35,305 -
_______ _______
Exceptional - other
Amortisation of deferred share costs 3,216 2,014
_______ _______
38,521 2,014
_______ _______
Following the decision to farm out the Guatemalan assets, it was necessary to
write down exploration expenditure and fixed assets (plant and equipment) and to
make a full provision against supplies inventory. Charges against income were
$29,969,121, $350,000 and $1,141,643 respectively. In addition, there is some
doubt as to the recoverability of VAT on asset and material purchases in
Guatemala and hence a 100% write down of $1,279,772 against this receivable has
been included in the financial statements.
Exploration costs relate to historical expenditure by the Company on potential
acquisitions of oil and gas assets and other business development costs. Several
of the related projects undertaken were unsuccessful and consequently it was
necessary to write off $2,564,254 during the year.
Deferred share costs relate to shares issued on flotation of the Company to
Directors and under service agreements. Initially these costs were amortised
over a 5 year period but the Directors have deemed it necessary to write them
off fully during the year as the services provided therein have been completed.
The charge against income during the year was $3,215,667 (2005 - $2,014,333).
3. Loss per share
The calculation of the loss earnings per share is based on the loss after tax of
$42,422,962 (2005 - $6,846,523 restated) and on 86,976,013 (2005 - 44,832,917)
ordinary shares being the weighted average number of ordinary shares in issue
during the period.
In the current period the Group has made a loss therefore the effect of the
options is considered to be anti-dilutive.
4 Tangible assets
Group Fixtures, Field plant Motor Pipeline Proven Total
fittings and and vehicles oil and
office machinery gas
equipment assets
$'000 $'000 $'000 $'000 $'000 $'000
Cost
At 1 January
2006 313 1,206 164 - - 1,683
Acquisition of
subsidiaries 169 1,734 10 10,000 6,077 17,990
Additions 21 951 105 - 619 1,696
_______ _______ _______ _______ _______ _______
At 31 December
2006 503 3,891 279 10,000 6,696 21,369
_______ _______ _______ _______ _______ _______
Depreciation
At 1 January
2006 84 156 31 - - 271
Provided for
in the year:
Charged to
profit and
loss 128 285 23 271 430 1,137
Charged to
deferred
exploration 7 184 25 - - 216
Impairment
provision - 350 - - - 350
_______ _______ _______ _______ _______ _______
At 31 December
2006 219 975 79 271 430 1,974
_______ _______ _______ _______ _______ _______
Net book
value
At 31 December
2006 284 2,916 200 9,729 6,266 19,395
_______ _______ _______ _______ _______ _______
31 December
2005 229 1,050 133 - - 1,412
_______ _______ _______ _______ _______ _______
The pipeline asset refers to the Rio Zulia - Ayacucho pipeline in Colombia. The
carrying value of this asset is based on an independent report, commissioned by
the Group prior to the acquisition of PetroLeos Del Norte in June 2006, that
includes certain values attributed from future crude throughput volumes and
subsequent revenue increases from third party owned oil and gas fields adjacent
to the pipeline. There is uncertainty as to the timing and the amount of
production from these fields and also whether any additional crude production
will utilise the Groups Rio Zulia - Ayacucho pipeline. Should the adjacent
fields not prove to be economically viable or if the field development plan does
not utilise the pipeline the carrying value of the pipeline could be reduced by
as much as $9 million.
5. Acquisition of Petroleos del Norte S.A.
The Company has agreed to pay US $32 million for Petroleos del Norte S.A.
("PDN"), payable in two installments. The first installment of US $19 million
was paid on 16 June 2006. The second installment is for US $13 million and is
payable when the Tisquirama licence (containing the Los Angeles and Santa Lucia
fields) has been extended. The second installment may be reduced should the
terms under which the Tisquirama licence is extended change beyond those
specified in the sale and purchase agreement. In addition, a commission of $1.25
million is payable to a third party 5 days following licence extension. Due to
uncertainty as to the length of negotiations related to the extension of the
Tisquirama licence and the exact amount that will be paid on extension,
management has not accounted or provided for the second installment or the
commission in these financial statements.
In exchange for the payment of the first installment, PetroLatina has acquired a
controlling interest of 77.76% of the issued and outstanding share capital of
PDN. The remaining 22.24% of the issued and outstanding shares of PDN are held
in a trust in Colombia and their release from such trust is subject to the
resolution of pending litigation. Based on the advice of counsel in Colombia,
PetroLatina believes that the litigation will ultimately result in the shares
held in trust being returned to PDN for cancellation, which would result in
PetroLatina holding 100% of the issued and outstanding shares of PDN.
No minority interest has been accounted for as it is believed the Company owns,
in effect, 100% of PDN.
As stated above, on 16 June 2006, the Company acquired control of PDN for a
consideration of US $19,113,229, which includes an adjustment of US $113,229 for
certain working capital but excludes professional fees.
In calculating the goodwill arising on acquisition, the fair market value of net
assets of PDN have been assessed and adjustments from book value have been made
as necessary. These adjustments are summarised in the following table.
Book value Fair value Fair value on
adjustments acquisition
$ $ $
Fixed Assets
- Pipeline 620,430 9,379,570 10,000,000
- Oil and Gas
assets 4,672,669 3,317,783 7,990,452
- Intangible
assets 1,276,467 - 1,276,467
- Other Long
term
Investments 262,397 (146,754) 115,643
6,831,963 12,550,599 19,382,562
Current Assets
- Debtors 1,373,740 (39,925) 1,333,815
- Inventory 48,905 - 48,905
- Cash 226,512 - 226,512
Total Assets 8,481,120 12,510,674 20,991,794
- Creditors (466,110) - (466,110)
- Loans (940,021) - (940,021)
Net Assets 7,074,989 12,510,674 19,585,663
The Consideration for acquisition was made up as follows:
$
Cash 12,113,229
Proceeds of loan 7,000,000
Professional Fees 472,434
----------
Total consideration 19,585,663
Fair value of nets assets acquired (above) 19,585,663
----------
Goodwill arising on acquisition -
==========
The fair value adjustment to the carrying cost of the pipeline was determined by
the Directors based on a Gaffney Cline report commissioned as part of the due
diligence work.
The fair value of all the other non oil and gas assets and liabilities relates
to the assessed fair value of these balances on acquisition.
For the period prior to acquisition, being 1 January to 15 June 2006, PDN
recorded a loss of $318,347 as summarised below:
$
Revenue 3,575,329
----------
Profit from operations 109,172
Finance costs (79,018)
Finance income 4,489
----------
Profit before taxation 34,643
Taxation (352,990)
----------
Loss for the period (318,347)
==========
In the post acquisition period, PDN recorded a net loss of $1,403,559. This loss
has been consolidated into the Group's net earnings.
For the previous financial period, being 1 January to 31 December 2005, PDN
recorded a net profit of $868,553.
6. Contingent liabilities
a) On 12 August 2002, Cadex Peroleo Guatemala Inc. ("Cadex") promoted a lawsuit
against PetroLatina Corporation. The claim is quantified at US$150,000. The
claim relates to a deed pursuant to which PetroLatina sold to Petdegua S.A.
certain machinery which was part of the drilling tower. According to Petdegua
S.A., this machinery was never delivered.
On 12 August 2002, Cadex issued another lawsuit in the Third Civil Court of
First Instance against PetroLatina. This claim is based on an agreement for the
purchase of shares and other assets owned by PetroLatina. executed on 31 May
1997. Cadex is demanding the return of US$325,000 that it had paid as part of
consideration under the agreement.
Petdegua also issued another claim in the Civil Court of First Instance and
Execution Court of the Municipality of Ixcan in Guatemala on 18 October 2002
requiring the fulfilment of the acquisition contract and the seizure of the
machinery naming Cadex as its depository.
A legal opinion obtained from A.D. Sosa & Soto of Guatemala, the Company's
Guatemalan counsel, states that a motion to declare the claim process abandoned
was presented, and if Cadex does not respond to the lawsuit it will be
dismissed. A D Sosa & Soto have also confirmed that the worst case scenario
would entitle Cadex to a judgement of $325,000 plus legal costs and interest.
b) On 16 June 2006, PetroLatina acquired a controlling interest of 77.76% of the
issued and outstanding share capital of PDN. The remaining 22.24% of the issued
and outstanding shares of PDN are held in a trust in Colombia and their release
from such trust is subject to the resolution of pending litigation. Based on the
advice of counsel in Colombia, PetroLatina believes that the litigation will
ultimately result in the shares held in trust being returned to PDN for
cancellation, which would result in PetroLatina holding 100% of the issued and
outstanding shares of PDN. However should the litigation not go in the Group's
favour then the Group's ownership would remain at 77.76%.
c) As of 31 December 2006 work on the Tortugas area of the A7-2005 licence in
Guatemala has been suspended pending a force majeur application on 8 December
2006 to the Ministry of Energy and Mines. The application was filed after the
Municipality of Coban denied PetroLatina access to the Tortugas area to work
over two existing wells. The application requested a one year deferral of all
work programme obligations on the A7-2005 licence and exemption from all
obligations from the two existing wells situated in the Tortugas area of the
licence. The implications of this contingency, subject to confirmation from the
Ministry of Energy, is that firstly no further work can be carried out on the
Tortugas area of the licence for the short term and secondly that all
obligations related to this area of the licence will be deferred. However, if
the force majeur application is rejected then current commitments of $11.85
million remain valid.
7. Related party transactions
Joseph Strubel is portfolio manager for Millennium Global High Yield Fund which
owns 12,012,853 ordinary shares in the Company as at 31 December 2006.
Millennium Global High Yield Fund received $73,708 during the year for Mr.
Strubels services in 2005 and 2006.
Jim Guiang is portfolio manager for Millennium Global Natural Resources Fund
which owns 5,283,400 ordinary shares in the Company as at 31 December 2006. As a
non executive director, Mr. Guiang received $36,854 for his services in 2006.
8. Post balance sheet events
On 1 February 2007 the Millennium Global High Yield Fund, a company of which
Joseph Strubel, a non-executive director of the Company, is portfolio manager,
assigned 12,012,853 ordinary shares in the Company at 24p per share to
Continental Capital SPC, a company of which the Millennium Global High Yield
Fund is currently the majority shareholder. Following this transaction, the
Millennium Global High Yield Fund no longer holds any shares in the capital of
the Company.
On 10 May 2007 the Company entered into an agreement with Quetzal Energy Inc.
whereby on payment of $175,000, Quetzal Energy Inc., on completion of
satisfactory due diligence on all the Guatemalan assets held by the Company over
a four month period, have the option to purchase 100% of those assets for a
purchase price of $4 million.
On 11 May 2007 the Company entered into an agreement that increased its interest
from 70% to 85% in the Midas exploration block in Colombia. At the same time,
and under the terms of a prior verbal agreement, the Company has agreed to the
5% future participation of Apex Energy Inc. in the Midas project. Additionally,
on 11 May 2007 the Company entered into an agreement that increased its indirect
interest in the La Paloma exploration block in Colombia from 65% to 80%.
On 5 June 2007 the Company issued 830,000 new ordinary shares to Macquarie Bank
Limited as partial consideration for the agreement with Macquarie to make
available an extension of $1.7 million to the Company's existing loan facility
to fund the second exploration phase of the La Paloma block in Colombia.
9. Availablilty of report and accounts
The report and accounts of the Company for the year ended 31 December 2006 will
be posted to shareholders shortly and copies will be available for collection,
free of charge, from the offices of Seymour Pierce Limited, 20 Old Bailey,
London EC4M 7EN.
Supplementary oil and gas information (unaudited)
Proven, probable and possible reserves are estimated quantities of commercially
producible hydrocarbons which the existing geological, geophysical and
engineering data show to be recoverable in future years from known reservoirs.
The proved reserves included herein conform to the definition approved by the
Society of Petroleum Engineers (SPE) and the World Petroleum Congress (WPC). The
probable and possible reserves included herein conform to definitions of
probable and possible reserves approved by the SPE/WPC using the deterministic
methodology.
The following tables show estimates of the Group's net proved, probable and
possible reserves of crude oil and natural gas at 1 January and 31 December 2006
.
(Sources: Colombia - Ryder Scott Petroleum Consultants, Guatemala - Oilfield
Development Specialists)
Estimated net proved and probable reserves of crude oil
2006 Proved Proved Probable Possible Total
Colombia Guatemala Guatemala Guatemala All
barrels barrels barrels barrels Barrels
(000's) (000's) (000's) (000's)
(000's)
Subsidiary
undertakings
At 1 January 2006
Developed - - - - -
Undeveloped - 405 1,347 23,087 24,839
_______ _______ _______ _______ _______
405 1,347 23,087 24,839
Changes in year
attributable to:
Acquisitions 622 - - - 622
Revision of
previous
estimates - (96) (1,060) (19,811) (20,967)
Production (177) - - - (177)
At 31 December
2006 445 309 287 3,276 4,317
_______ _______ _______ _______ _______
Developed 445 - - - 445
Undeveloped - 309 287 3,276 3,872
_______ _______ _______ _______ _______
Estimated net proved and probable reserves of natural gas
Proved Proved Probable Possible Total
Colombia Guatemala Guatemala Guatemala All
cu ft cu ft cu ft cu ft cu ft
(millions) (millions) (millions) (millions) (millions)
2006
Subsidiary
undertakings
At 1 January 2006
Developed - - - - -
Undeveloped - - - - -
_______ _______ _______ _______ _______
- - - - -
Changes in year
attributable to:
Acquisitions 1,258 - - - 1,258
Revision of previous
estimates - - - - -
Production - - - - -
At 31 December
2006 1,258 - - - 1,258
_______ _______ _______ _______ _______
Developed - - - - -
Undeveloped 1,258 - - - 1,258
_______ _______ _______ _______ _______
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR UUAORBKRNAAR
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