RNS Number:2987Q
Venture Production PLC
18 March 2008
18th March 2008
Venture Production plc
('Venture', 'the Company' or 'the Group')
Preliminary Results for the year ended 31st December 2007
Venture is a British independent oil and gas company focused on the UK and Dutch
sectors of the North Sea. Venture's strategy is to acquire, develop and bring
into production discovered but undeveloped oil and gas fields, collectively
known as 'stranded' reserves.
2007 was a year of steady financial performance, with strong commodity prices
offsetting reduced production volumes due to a number of short term timing
issues.
Financial Highlights
Solid financial performance and strong cash flow generation:
* The second half of 2007 delivered the strongest underlying (1)
financial performance in the Company's history - EBITDA of �163.2 million
(23.0% higher than 2H 2006)
* Revenue of �358.3 million (2006: �360.3 million) - higher commodity
prices offsetting lower production volumes
* Operating profit down 35.9% to �116.6 million (2006: �181.9 million) -
impacted by non-cash impairment and exploration charges totalling �62.8 million
* Underlying (1) operating profit �179.5 million (2006: �185.8 million)
down 3.4%
* Cashflow from operating activities of �240.2 million (2006: �273.5 million)
* Profit on ordinary activities after tax down 40.9% to �48.2 million
(2006: �81.6 million)
* 20% increase in Ordinary Dividend to 12p for the year
(1) 'Underlying' excludes the impact of asset impairments and write off of
exploration/development costs
Operational Highlights
Solid underlying progress across the business:
* Average production decreased 7.7% to 41,228 boepd (2006: 44,706 boepd):
- Project related timing delays impacted production volumes
- Overall production performance from existing reservoirs ahead of
expectations
* Largest and most complex development programme in Venture's history
successfully completed:
- Two new fields on stream
- 11 wells drilled setting up 2008/9 development programme
* Year-end proven and probable ("2P") reserves of 203 MMboe (2006: 221.5
MMboe) - five year reserves' replacement ratio of 391%
* 2008 drilling programme off to an excellent start
Strategic Highlights
Business positioned for the next phase of growth:
* Seven acquisitions since the start of 2007 - including five already in 2008
* Over 20 MMboe of P50 resources in discoveries acquired plus up to 150
MMboe of contingent/prospective resources
* �600 million long term debt financing completed
* �151 million convertible bond issued bringing in two strategic investors -
3i Group plc and ArcLight Capital Partners
Commenting on the results, Mike Wagstaff, Chief Executive of Venture said:
"Whilst significant progress was made across our business, 2007 was a year of
contrasts for Venture during which the strong underlying performance of our
asset base was impacted by a small number of exceptional project and operational
timing issues. As we go into 2008 these issues are now largely behind us and we
have substantially reduced the risk on many of our core assets and development
projects. In addition, the high prices currently being achieved for both oil and
gas mean the Company's cash flow generation is stronger than ever and during the
second half of 2007 we delivered the strongest period of underlying financial
performance in the Company's history.
In other respects, 2007 was an exciting year of operational and strategic
progress for Venture and we successfully completed the largest and most complex
engineering and field development projects ever undertaken by the Company. We
have also positioned the Company to take advantage of its established North Sea
position. We substantially strengthened our funding position and brought two new
strategic investors into the Company ahead of what we anticipate will be an
increasingly active period of corporate expansion and industry consolidation.
Already in 2008 we have seen increased acquisition activity in both the UK and
the Dutch sectors. This, together with the strong current financial performance
should make 2008 an exciting period in Venture's growth."
Enquiries:
VENTURE PRODUCTION plc 01224 619 000
Mike Wagstaff, Chief Executive
Peter Turner, Finance Director
BRUNSWICK GROUP LLP 020 7404 5959
Patrick Handley
Chris Blundell
WEBER SHANDWICK 01224 806600
John MacDonald
Chairman and Chief Executive's Review
During 2007, Venture continued the development of its North Sea business,
participating in the drilling of 11 new wells, bringing two new fields on stream
and completing some of the largest and most complex projects in the Company's
history. In addition, we have either completed or reached important milestones
in the development of a number of key assets which, in aggregate, have
substantially de-risked our business.
Average net daily production for 2007 was 41,228 barrels of oil equivalent per
day ("boepd"), a fall of 7.7% over 2006. During 2007, the benefit of Venture's
strong underlying reservoir and well performance was outweighed by a small
number of exceptional operational events and unexpected project related delays.
Our southern North Sea ("SNS") gas fields contributed 60% of total 2007 Group
production, slightly higher than expectations, with the balance from Venture's
central North Sea ("CNS") oil fields.
During 2007, Venture has continued to build its business through continued
execution of our proven strategy, summarised as follows:
*The acquisition, development and production of proved but under-exploited
oil and gas fields, known as 'stranded' reserves;
*Geographic focus as a North Sea development and production company;
*Continual development of our portfolio of interests in over 40 North Sea
oil and gas fields, less than half of which are currently in production;
*Leveraging of Venture's substantial operational and development expertise
we believe gives us a real and sustainable competitive advantage as an
efficient and focused low cost operator; and
*Continued enhancement of our very valuable long term strategic
relationships with our core contractors which help to ensure the
availability of key equipment and services in a tight market.
At 31st December 2007, net proven and probable reserves were estimated to total
203 million barrels of oil equivalent ("MMboe"). This represents a modest 8.4%
fall from the end of 2006, which is the first time in the Company's history that
annual production has not been replaced several times over. This pause in the
growth of Venture's reserves base is principally the result of the 2007
re-categorisation of probable reserves from the Pilot field to contingent
resources and also reflects the absence of any significant completed
acquisitions during the year.
During the year, Venture has positioned itself strategically and financially for
the next phase of its growth. As planned, we successfully completed a major
refinancing of the Company ahead of the current difficult capital markets
conditions, including raising �151 million in new capital from two new strategic
investors which will better enable Venture to move quickly to take advantage of
material acquisition opportunities in the North Sea.
Financial Results
The average realised sales price of �25.91/boe represented a 7.2% increase over
the prior year (2006: �24.18/boe). This higher overall average realised price
was the result of substantially higher oil and gas prices in the second half of
the year offsetting weaker prices particularly for UK gas during the first half.
As discussed above, lower production and sales volumes offset higher realised
prices and as a result, turnover for the year was essentially flat at �358.3
million (2006: �360.3 million).
Group profitability for the year as a whole was impacted by non-cash exploration
charges of �18.1 million (2006: �3.9 million) and non-cash impairment charges
and development costs written off of �44.7 million (2006: nil). As a result,
pre-tax profit decreased to �101.2 million (2006: �176.7 million). Venture
recorded a net profit after tax of �48.2 million (2006: �81.6 million).
During 2007 Venture's operating cashflow decreased by 12.2% to �240.2 million
(2006: �273.5 million). As in 2006, Venture's operating cashflow has exceeded
cash used in investing activities.
As a result of the debt refinancing and convertible bond issue completed during
2007 Venture has a strong balance sheet with a cash balance of �158.4 million
and a substantially unutilised �365.0 million credit facility at year end which
positions the Company well to take advantage of corporate and asset acquisition
opportunities.
The second half of 2007 was a period of very strong underlying financial
performance. Revenue was up 16.2% to �203.3 million (2006: �174.9 million) and
earnings before interest, tax, depreciation and amortisation was up 23.0% to
�163.2 million (2006: �132.7 million), the highest for a six month period in the
Company's history.
Operational Overview
During 2007, Venture continued the development of its North Sea asset base,
participating in the drilling of 11 new wells and bringing two new fields on
stream, Chiswick and Mimas. In addition, we have either completed or reached
important milestones on a number of key projects which, in aggregate, have
substantially de-risked a number of our core assets.
Average net daily production for 2007 was 41,228 barrels of oil equivalent per
day ("boepd"), a decrease of 7.7% over 2006. During 2007, the benefit of
Venture's strong underlying reservoir and well performance was impacted by
certain exceptional operational events and project delays which included higher
than anticipated downtime on GKA, delay in the start-up of production from the
Chiswick field, delay in start-up of production from Chestnut and the continued
delay in the anticipated gas 'blow down' within the Birch reservoir. In contrast
to these disappointing timing impacts, elsewhere in the portfolio the 'A' Fields
and Goosander both outperformed expectations. Particularly encouraging
individual field production performances came from both Annabel and Saturn which
both continued to exceed expectations.
'A' Fields
The Noble Julie Robertson ("NJR") jack-up drilling rig continued to operate for
Venture in the SNS under a long term contract. In light of Venture's active SNS
drilling campaign this contract has recently been extended for a further 12
months through to late 2009.
During 2007, two appraisal wells were drilled on the Ensign gas field. The
first, completed in January 2007, was drilled and completed and tested at rates
of 12-15 million cubic feet per day ("MMcfpd"). The second well drilled towards
the end of the year was subsequently hydraulically fractured utilising the boat
and equipment developed for the Chiswick field development. This second well
tested at flow rates of 42 MMcfpd, towards the top end of our pre-drill
expectations. The results of this well will enable Venture to commit to the
development of the Ensign field during 2008, with a target of first gas during
late 2009.
During the first half of 2007, Venture sidetracked the Amanda discovery well
originally drilled in 2003. This appraisal well was completed and tested at
rates below expectations and is not economic on a stand-alone basis. The well
was suspended awaiting the results of the Agatha exploration well, which is
expected to be drilled in 2009. As a result, Venture decided to take a non-cash
write off of historic development cost of �11.2 million against the cost of the
well drilled in 2003.
In the third quarter of 2007 the Channon exploration well successfully drilled
and tested. Stabilised gas flow at rates of up to 55 MMcfpd gross were achieved
and the well has been suspended for future completion as a producer. Estimated
net recoverable reserves from the Channon reservoir are 30 to 40 billion cubic
feet ("Bcf"), which is at the top end of pre-drill expectations. Discovery of
gas at Channon creates the potential for a joint development with the Barbarossa
gas discovery located in Block 47/9c, a sub-sea tie-back to nearby
infrastructure. Venture will earn its 90% interest in Barbarossa once the
appraisal/development well which was spudded in late February 2008 is drilled.
Expected reserves from this well are around 30 Bcf net to Venture.
Greater Markham Area ("GMA")
During 2007, production from the Greater Markham Area ("GMA") hub was in line
with expectations and delivery rates benefited from the impact of the Markham
Compression Tower which was installed during late 2006.
On GMA, the highlight of 2007 was the start-up of production from the Chiswick
field at the end of September. While first gas production was some six months
later than originally planned due to the unexpected and unavoidable lack of an
available well stimulation vessel in the North Sea, Venture's ability to recover
through the development of an innovative solution utilising a pumping spread on
the back of a large supply boat is testament to our operational capability.
Initial production was somewhat lower than anticipated due to a slower than
expected clean up of the first production well although this is not expected to
impact longer term production performance. In addition, Venture has now
successfully drilled, fractured and tested the second Chiswick production well
which, as recently announced, tested at higher than forecast rates. The well was
successfully brought on stream in February 2008 and Chiswick will be a major
contributor to Group production in 2008 and beyond.
Greater Kittiwake Area ("GKA")
During 2007, production from the GKA hub was adversely affected by poor uptime
availability of the tanker loading and export system. This loss of productive
capacity continued into the fourth quarter but was partially offset by continued
strong reservoir performance, particularly from Goosander. Development activity
on GKA in 2007 was focused on the construction and installation of the new
export pipeline between the Kittiwake platform and the Forties Pipeline System.
The new pipeline was successfully installed and brought on stream in November
and is already contributing to substantially improve operational uptime and is
expected to lower overall operating costs and allow GKA field life to be
extended.
In addition, during the fourth quarter Venture successfully drilled an appraisal
well on the Grouse oil field. This was successful and will lead to a fast track
development of the field as a sub-sea tie back to the Kittiwake platform. The
Grouse production well is expected to come on stream in the first half of 2009.
Looking further forward, the recently announced acquisition of an additional
interest in and operatorship of the Bligh gas/condensate field will, together
with the nearby Christian field, form the core for the next phase of the
development of the GKA hub beyond 2010.
'Trees'
'Trees' production was stable during 2007. The Birch oil field has produced
steadily but the anticipated gas 'blow-down' of the reservoir has not yet
occurred. It is expected that this natural change in production characteristics
will happen at some point and when it does more associated gas will start to be
produced, thus raising the overall field production rate. Whilst reducing
reported production volumes, the financial impact of this was limited as the gas
produced from Trees is sold offshore at a large discount to benchmark market
prices.
During 2007, Venture commenced a major seismic reprocessing and interpretation
study on the entire 'Trees' production hub, which will be completed during 2008.
Whilst the analysis of the remaining potential in the southern part of the
Sycamore development has not yet been completed, preliminary results of this
study suggest that in the central part of the Sycamore field there is limited
re-investment opportunity. This has led to the Company taking a non-cash
impairment charge in 2007 of �24.5 million against the value of our historic
investment in Sycamore.
Other CNS
Field development activity on our other oil assets in the CNS during 2007 was
focused on the Chestnut field. Installation of the production and support
facilities on the new Sevan 300 floating production unit, the Hummingbird, was
completed in December in Rotterdam. The Hummingbird was installed in the
Chestnut field at the end of the year and offshore hook-up and commissioning
work and sub-sea tie in activity is ongoing although progress on these
activities have been slower than anticipated for a variety of reasons, including
winter weather related issues. First oil is currently anticipated during the
third quarter.
Ongoing subsurface studies using new data on the Chestnut reservoir have
identified the potential to drill an additional production well in the field.
This is expected to significantly increase recoverable reserves from the field
and it is anticipated that this project will be sanctioned during the first half
of the year leading to the well being drilled towards the end of 2008.
During the fourth quarter of 2007, drilling continued on the Selkirk appraisal
well. The well was sidetracked into the crest of the reservoir structure but has
been suspended due to operational difficulties. The well has, however, proved up
commercial reserves and the operator has commenced development planning.
An appraisal well on Pilot field in Block 21/27a was drilled during the third
quarter. Oil samples recovered from the Pilot well are somewhat heavier and more
viscous than those from previously drilled Pilot wells and this new data is
being evaluated to better determine the extent of the commercially recoverable
oil. Based on the well result, the probable reserves associated with Pilot have
been moved to the contingent resources category and an impairment charge of �9.0
million against the carrying value of the asset has been taken.
To the south of Pilot, the appraisal well drilled adjacent to the Narwhal
discovery failed to encounter hydrocarbons and the well was plugged and
abandoned. The appraisal well drilled on Millburn discovery encountered 12 feet
of oil-bearing sandstone which is considered sub-economic and the appraisal well
was also plugged and abandoned.
Trinidad
Venture retains a 40% shareholding in Ten Degrees North Energy Limited (TDN), an
oil and gas production company based and registered in Trinidad. TDN produced an
average of 1,522 boepd (609 boepd net) during 2007.
Corporate and Business Development
Over the last three years, Venture has focused on becoming an efficient
acquisition, development and production operator and today, following a series
of almost 50 acquisitions, it ranks as the sixth largest independent operator in
the UK sector of the North Sea by gross operated production. In a mature basin
such as the North Sea, Venture believes that its operating capability, size,
scale and strategic and geographic focus give it a strong competitive position
and a positioning that Venture believes would be difficult to replicate.
In terms of completed transactions, 2007 represented a quiet year for both
Venture and the North Sea oil and gas industry. In recent months, driven by the
fundamentals in the global energy market, Venture has seen a significant
increase in levels of asset trading activity in the North Sea although this has
yet to be translated into completed transactions. This activity is consistent
with historical patterns seen in other mature producing regions such as the US
Gulf of Mexico where, as the basin matures, ownership of substantial proportions
of the basin's oil and gas reserves has migrated from larger international oil
companies to more regionally focused independents. Venture believes that it is
well positioned competitively to capitalise on this consolidation trend, which
it believes will create significant opportunities for the Company to expand its
business.
To position itself financially for this anticipated phase of consolidation in
the short to medium term, in July Venture announced that it has entered into
agreements with 3i Group plc and its affiliates ("3i") and ArcLight Capital
Partners, LLC and its co-investors ("ArcLight"), to make a significant strategic
investment in Venture. In aggregate, when their subscription for a new
convertible bond and shares purchased in the open market are taken together, 3i
and ArcLight have made a total new investment of over �200 million in Venture.
3i and ArcLight's investments consist of a number of elements as follows:
*�151 million in newly issued 3.25% convertible bonds ("CBs") due 2010
which are convertible into 16.5 million newly issued Venture ordinary
shares;
*Conversion of ArcLight's existing North Sea Gas Partners ("NSGP")
interest into 6.0 million new Venture ordinary shares;
*3i's existing investment in Venture of 2.6 million shares; and
*Both 3i and ArcLight made additional market purchases of Venture shares
to take their total stakes to approximately 10% on a fully diluted basis.
As part of this strategic investment, 3i and ArcLight are each entitled to
nominate a Non-Executive Director to Venture's Board.
In addition, during the second half of 2007 Venture completed a �600 million
refinancing of its debt facilities. This consists of two elements, a �365
million new corporate credit facility and a total of approximately �235 million
in privately placed institutional loan notes with final maturities of 10 and 15
years. Combined with the strategic investment from 3i and ArcLight, Venture now
has strengthened financing sources from which to deliver its growth strategy.
Business Development
In 2007, Venture made two acquisitions. Firstly, in January Venture announced it
had farmed into the Barbarossa gas discovery to acquire a 90% interest by
funding the drilling of an appraisal well on the field. Barbarossa is adjacent
to the recently announced Venture operated Channon gas discovery and it is
intended that the two fields will be developed jointly. The Barbarossa appraisal
well was spudded in February, 2008.
Venture also acquired WHAM Energy plc ("WHAM"), an AIM listed UK independent
with interests in a total of 23 blocks in the SNS. The consideration for the
acquisition totals �13.9 million in cash and newly issued Venture shares. The
acquisition brings a broad portfolio of acreage in the SNS and significantly
increases Venture's drilling inventory with some high potential opportunities
and we anticipate drilling two wells on acreage acquired during 2008.
In January 2008, Venture increased its working interest in the Bligh gas
condensate discovery from 20.7% to 30.5% and took over operatorship. The
Company's working interest in Bligh has increased. Recent detailed technical
work has increased the expected recoverable volumes from the field.
In January 2008, Venture reached agreement to farm-in to 60% the Marram gas
discovery in the East Irish Sea. Venture's equity will be earned when an
appraisal well is drilled, probably during 2009. Marram is estimated to contain
gross recoverable gas reserves of between 50 - 90 Bcf and lies close to a number
of potential offtake routes.
Also in January, the Company completed a farm-in and equity swap in the Carna
exploration prospect. Venture will increase its equity interest in Carna from
40% to 56% upon drilling of a well planned for late 2008. Venture will also
assume operatorship of the prospect and take control of well planning and
design. Venture estimates that Carna contains between 85 and 200 Bcf of gross
recoverable reserves.
As separately announced today, Venture has increased its equity in the Chiswick
gas field to 100% through the acquisition of the remaining 5% interest in Block
49/4a that it did not own.
Venture also today announced the acquisition of an estimated 58% operated
interest in the F3-FA gas discovery for a royalty based consideration. Base case
gross recoverable reserves are estimated to be around 60 Bcf from a single
sub-sea horizontal well tied-back to nearby host infrastructure. The F3-FA
acquisition marks our first expansion deal in the Dutch sector.
In order to improve Venture's ability to pursue opportunities through the UKCS
licensing rounds, in early 2008 Venture formed two partnerships with two small
UK exploration focused independents to pursue opportunities in the SNS and CNS
as part of the 25th UK Licensing Round which was recently announced.
Board and Management
During 2007 and 2008 there have been a number of changes to Venture's Board and
senior management which has strengthened the Company for its next phase of
growth.
In May, it was announced that Marie-Louise Clayton, Venture's Finance Director,
had given notice of her resignation in order to pursue her career outside the
Group. Marie-Louise made a substantial contribution to Venture since joining in
February 2005. The Board wishes her every success in her future career.
In November we announced the appointment of Peter Turner as Finance Director.
Peter was previously at The BOC Group plc. He held a number of senior financial
positions including Director of Taxation and Treasury and Finance Director of
the Industrial and Special Products division. Peter qualified as a chartered
accountant and has a proven track record of achievement throughout his career
and brings a breadth of experience that will complement Venture's management
team.
In June, Rod Begbie was appointed to the Board as Corporate Development
Director, having previously been with Venture as Corporate Development Manager
since August 2002. Over the five and a half years that Rod has been with Venture
he has made a very significant contribution to our success and his appointment
to the Board reflects the anticipated importance of corporate and business
development to the next phase of Venture's growth.
In conjunction with their strategic investments in August, we announced the
appointment of two new Non-Executive Directors representing 3i and ArcLight.
Graeme Sword is a partner in 3i's Oil, Gas and Power business unit based in
Aberdeen, and Robb Turner is a co-founder of ArcLight. Both Graeme and Robb
bring many years of energy industry investment experience, which will be
extremely valuable as we continue to build Venture.
In March, 2008 we announced the appointment of Andrew Carr-Locke as a new
independent Non-Executive Director. Andrew was formerly Group Finance Director
of George Wimpey plc for six years until June 2007 when the Company merged with
Taylor Woodrow. A Fellow of the Chartered Institute of Cost and Management
Accountants, Andrew has extensive experience of working at a senior level in a
number of high profile roles including Group Finance Director of Courtaulds
Textiles plc, prior to which he was European Finance Director at United
Distillers and Vintners. Andrew will also serve on the Audit Committee.
Staff and Contractors
2007 was a demanding period due to the scale and complexity of our development
programme and the unanticipated challenges thrown up during the year. Once
again, our people have excelled in delivering an extremely ambitious drilling
and development programme, while at the same time maintaining very high levels
of operational, health, safety and environmental performance. The Board would
like to thank all of the Venture team for rising to the challenges we faced and
their critical contribution to our continued success.
Capital Return Policy
As an oil and gas production company, Venture is required to maintain high and
sustained levels of capital reinvestment into its business. 2006 represented a
turning point whereby for the first time since founding Venture generated
operating cashflow in excess of its development capital expenditures. As a
result of its cashflow generation momentum, this development continued in 2007,
despite the continuation of an active drilling and field development programme.
In utilising free cashflow generated by the business, the Board has determined
the following priorities: firstly, re-investment back into its business through
acquisitions or other internally generated business development opportunities;
second, management of the Company's outstanding debt to sustainable long term
levels and third, the return of surplus capital to shareholders over anticipated
near term requirements through dividends or other mechanisms.
In keeping with these priorities and in view of the business' performance during
2007, the Directors have recommended paying an ordinary dividend of 12 pence per
share, a 20% increase over last year.
If approved at the forthcoming Annual General Meeting the final dividend will be
paid on 28th May 2008 to shareholders on the register at the close of business
on 25th April 2008, with an ex-dividend date of 23rd April 2008.
Going forward, Venture's capital return policy will continue to reflect the
principal uncertainties in its business namely commodity price volatility,
variable capital expenditure requirements and the unpredictable timing of
acquisition opportunities.
Annual General Meeting
The Company will be holding its Annual General Meeting at the Copthorne Hotel,
Huntly Street, Aberdeen AB10 1SU on Wednesday 14th May 2008 at 2.00pm and 2007
Annual Report & Accounts, Notice of Meeting and Form of Proxy will be issued to
all shareholders in early April 2008.
Current Trading and Outlook
Operationally, we have had a good start to 2008 with the majority of operational
issues which impacted 2007 production performance now behind us. Our 2008
drilling programme has had an excellent start with results ahead of expectations
seen on both the Ensign and Chiswick wells. 2008 is also proving to be a much
more active year than 2007 from a business development perspective with five
acquisitions already announced to date.
In looking forward to the rest of the year we note that Venture's 2008/9
development programme consists of a number of projects which are individually
subject to the everyday risks this industry faces; some of which are beyond our
direct control and most of which impact timing of production rather than the
intrinsic value of our assets. We believe this year's development programme is
somewhat lower risk than 2007 in that there are fewer new production additions
coming on stream earlier in the year which contribute to the growth in
production in 2008. The two most significant are the second Chiswick gas well,
which, as recently announced, has now been successfully brought on stream and
start up of production from the Chestnut oil field.
Venture's production guidance for 2008, set around the end of 2007, assumed a
start-up of production from Chestnut during the second quarter and we now expect
first oil production during the third quarter. The impact of each one month
delay in the start-up of production from the field represents a reduction in
annual average production for 2008 of approximately 1,000 boepd. Notwithstanding
this we still continue to expect 2008 production to be within our guidance range
of 50,000 boepd +/- 10%.
The success of Venture's business depends on the sustained delivery of our
acquire, develop and produce strategy leading to continued growth in reserves,
production and cashflow over a sustained period. Between now and the end of
2009, Venture anticipates bringing a total of eight significant new projects on
stream which are expected to boost net production significantly from today's
levels.
In summary, as a result of the strong operating performance of our business
combined with favourable commodity prices and increased activity in the
acquisitions market, the Board remains very confident of the outlook for
Venture's business in 2008 and beyond.
18th March 2008
John Morgan Mike Wagstaff
Chairman Chief Executive
Group Income Statement
For the year ended 31 December 2007
Restated
2007 2006
Notes �'000 �'000
------------------------- ------ -------- ---------
Revenue 2 358,295 360,251
Cost of sales (171,703) (169,673)
Development costs written off 4 (11,207) -
Impairment of assets 4 (33,463) -
------------------------- ------ -------- ---------
Gross profit 4 141,922 190,578
Exploration costs written off (18,144) (3,872)
Administrative expenses (8,815) (5,684)
Gain/(loss) on foreign exchange 496 (2,465)
Gain on disposal of subsidiary 5 251 -
Other operating income 6 929 3,363
------------------------- ------ -------- ---------
Operating profit 4 116,639 181,920
Finance income 7 4,442 2,547
Finance expense 7 (19,122) (10,737)
Change in fair value of derivative financial
instruments 25 (1,903) 2,401
Share of profit of associates 15 1,151 604
------------------------- ------ -------- ---------
Profit before tax 101,207 176,735
Income tax expense 8 (53,032) (95,142)
------------------------- ------ -------- ---------
Profit for the financial year 48,175 81,593
------------------------- ------ -------- ---------
Earnings per ordinary share
Basic earnings per share 9 35.6p 64.5p
Diluted earnings per share 9 33.9p 59.0p
Dividends paid per ordinary share
Special Dividend paid per share 10 40.0p -
Ordinary Dividend paid per share 10 10.0p -
------------------------- ------ -------- ---------
All items dealt with in arriving at the profit for the year relate to continuing
activities.
Prior year comparatives have been restated, an explanation of which is included
in Note 1.
Statement of Recognised Income and Expense
For the year ended 31 December 2007
Group Company
2007 2006 2007 2006
�'000 �'000 �'000 �'000
--------------------- -------- ------- ------- --------
Profit for the financial year 48,175 81,593 105,527 15,149
Cash flow hedges:
- Fair value (losses)/gains net of tax
(Note 29) (42,453) 19,862 - -
- Reclassified and reported in net
profit (Note 29) (3,427) 14,051 - -
--------------------- -------- ------- ------- --------
Total recognised income for the year 2,295 115,506 105,527 15,149
--------------------- -------- ------- ------- --------
Group Balance Sheet
As at 31 December 2007
Restated
2007 2006
Notes �'000 �'000
------------------------- ------ ---------- ----------
Assets
Non-current assets
Property, plant and equipment 12 818,648 664,634
Intangible assets 13 53,291 47,945
Investments accounted for using the equity 15 16,341 11,098
method
Convertible loan notes receivable 18 5,383 5,376
Derivative financial instruments 25 - 6,093
------------------------- ------ ---------- ----------
893,663 735,146
------------------------- ------ ---------- ----------
Current assets
Inventories 17 1,721 3,183
Trade and other receivables 18 107,324 90,427
Derivative financial instruments 25 498 19,916
Cash and cash equivalents 19 158,445 59,167
------------------------- ------ ---------- ----------
267,988 172,693
------------------------- ------ ---------- ----------
Assets classified as held for sale 14 - 3,391
------------------------- ------ ---------- ----------
Total assets 1,161,651 911,230
------------------------- ------ ---------- ----------
Liabilities
Current liabilities
Trade and other payables 20 (118,824) (81,589)
Derivative financial instruments 25 (36,992) -
Income taxes payable (15,062) (16,848)
------------------------- ------ ---------- ----------
(170,878) (98,437)
------------------------- ------ ---------- ----------
Net current assets 97,110 77,647
------------------------- ------ ---------- ----------
Non-current liabilities
Financial liabilities - borrowings 21 (398,322) (245,921)
Derivative financial instruments 25 (30,999) -
Deferred income tax liabilities 22 (200,445) (193,415)
Other non-current liabilities 23 (9,392) (5,158)
Provisions 24 (70,425) (61,831)
------------------------- ------ ---------- ----------
(709,583) (506,325)
------------------------- ------ ---------- ----------
Liabilities of subsidiary held for sale 14 - (1,093)
------------------------- ------ ---------- ----------
Total liabilities (880,461) (605,855)
------------------------- ------ ---------- ----------
Net assets 281,190 305,375
------------------------- ------ ---------- ----------
Shareholders' equity
Called up share capital 26 573 534
Share premium 27 107,207 105,084
Other reserves 29 105,070 86,622
Retained earnings 28 68,340 113,135
------------------------- ------ ---------- ----------
Total shareholders' equity 281,190 305,375
------------------------- ------ ---------- ----------
The financial statements on pages 11 to 55 were approved by the Board of
Directors on 17 March 2008 and were signed on its behalf by:
M J Wagstaff P A Turner
Chief Executive Finance Director
Company Balance Sheet
As at 31 December 2007
2007 2006
Notes �'000 �'000
------------------------ ------ ---------- ----------
Assets
Non-current assets
Property, plant and equipment 12 457 736
Investments in subsidiaries 15 427,269 158,771
Investments accounted for using the equity
method 15 - 6,120
Amounts due from subsidiary undertakings 18 153,247 227,995
Convertible loan notes receivable 18 - 5,376
Derivative financial instruments 25 - 725
------------------------ ------ ---------- ----------
580,973 399,723
Current assets
Trade and other receivables 18 346 2,773
Deferred tax assets 22 1,019 13,365
Cash and cash equivalents 19 104,134 44,100
Derivative financial instruments 25 498 1,676
------------------------ ------ ---------- ----------
105,997 61,914
------------------------ ------ ---------- ----------
Liabilities
Current liabilities
Trade and other payables 20 (15,828) (21,943)
------------------------ ------ ---------- ----------
(15,828) (21,943)
------------------------ ------ ---------- ----------
Net current assets 90,169 39,971
------------------------ ------ ---------- ----------
Non-current liabilities
Financial liabilities - borrowings 21 (398,322) (245,921)
------------------------ ------ ---------- ----------
(398,322) (245,921)
------------------------ ------ ---------- ----------
Net assets 272,820 193,773
------------------------ ------ ---------- ----------
Shareholders' equity
Called up share capital 26 573 534
Share premium 27 107,207 105,084
Other reserves 29 139,146 74,818
Retained earnings 28 25,894 13,337
------------------------ ------ ---------- ----------
Total shareholders' equity 272,820 193,773
------------------------ ------ ---------- ----------
The financial statements on pages 11 to 55 were approved by the Board of
Directors on 17 March 2008 and were signed on its behalf by:
M J Wagstaff P A Turner
Chief Executive Finance Director
Group Cash flow Statement
For the year ended 31 December 2007
2007 2006
Notes �'000 �'000
------------------------- ------ ---------- ----------
Cash flows from operating activities
Operating cash flow 30 263,610 284,410
Interest received 4,174 2,278
Interest paid (11,534) (13,187)
Income tax paid (16,006) -
------------------------- ------ ---------- ----------
Net cash generated from operating activities 240,244 273,501
------------------------- ------ ---------- ----------
Cash flows from investing activities
Purchase of property, plant and equipment (242,033) (174,027)
Acquisition of subsidiary (net of cash acquired) 3 14,166 (73,952)
Sale of subsidiary (net of cash disposed) 5 1,800 -
Proceeds from disposal of property, plant and
equipment 2,494 9,956
Investments in joint ventures and associates - (6,408)
------------------------- ------ ---------- ----------
Net cash used in investing activities (223,573) (244,431)
------------------------- ------ ---------- ----------
Cash flows from financing activities
Shares acquired by employee benefit trust 29 (7,920) (14,100)
Purchase of treasury shares 28 (15,817) (12,033)
Disposal of treasury shares 28 348 -
Proceeds from borrowings 386,161 83,419
Repayments of borrowings (216,120) (40,000)
Dividends paid to shareholders 10 (67,566) -
Proceeds from issuance of ordinary shares 2,132 212
Proceeds from exercise of share options 386 449
------------------------- ------ ---------- ----------
Net cash from financing activities 81,604 17,947
------------------------- ------ ---------- ----------
Net increase in cash and cash equivalents 98,275 47,017
Opening cash and cash equivalents 60,170 13,153
------------------------- ------ ---------- ----------
Closing cash and cash equivalents 19 158,445 60,170
------------------------- ------ ---------- ----------
The principal non-cash transactions occurring during the year were the issue of
shares as consideration for the acquisition of NSGP (�46,582,000) and WHAM
(�7,629,000) (Note 3).
Company Cash flow Statement
For the year ended 31 December 2007
2007 2006
Notes �'000 �'000
-------------------------- ------- --------- ---------
Cash flows from operating activities
Operating cash (outflow)/inflow 30 (12,796) 17,519
Interest received 4,147 20,215
Interest paid (10,437) (6,756)
-------------------------- ------- --------- ---------
Net cash (used in)/generated from operating (19,086) 30,978
activities
-------------------------- ------- --------- ---------
Cash flows from investing activities
Purchase of property, plant and equipment (60) (458)
Acquisition of subsidiary - (73,952)
Disposal of investment in associate 15 11,496 -
Investments in subsidiaries 15 (226,019) (4,295)
Repayments of loans to subsidiaries 212,099 58,341
-------------------------- ------- --------- ---------
Net cash used in investing activities (2,484) (20,364)
-------------------------- ------- --------- ---------
Cash flows from financing activities
Shares acquired by employee benefit trust 29 (7,920) (14,100)
Purchase of treasury shares 28 (15,817) (12,033)
Disposal of treasury shares 28 348 -
Proceeds from borrowings 386,161 83,419
Repayments of borrowings (216,120) (40,000)
Dividends paid to shareholders 10 (67,566) -
Proceeds from issuance of ordinary shares 2,132 212
Proceeds from exercise of share options 386 449
-------------------------- ------- --------- ---------
Net cash from financing activities 81,604 17,947
-------------------------- ------- --------- ---------
Net increase in cash and cash equivalents 60,034 28,561
Opening cash and cash equivalents 44,100 15,539
-------------------------- ------- --------- ---------
Closing cash and cash equivalents 19 104,134 44,100
-------------------------- ------- --------- ---------
Notes to the Financial Statements
1. Accounting policies for the year ended 31 December 2007
Basis of preparation
These financial statements have been prepared in accordance with IFRS and IFRIC
interpretations endorsed by the European Union ('EU') and with those parts of
the Companies Act, 1985, applicable to companies reporting under IFRS. The
financial statements have been prepared under the historical cost convention as
modified by the revaluation of certain financial assets and liabilities
(including derivative instruments). A summary of the more important Group
accounting policies is set out below, together with an explanation of where
changes have been made to previous policies on the adoption of new accounting
standards in the year.
The preparation of financial statements requires the use of estimates and
assumptions that affect the reported amount of assets and liabilities at the
date of the financial statements and the reporting amount of income and expenses
during the year. Although these estimates are based on management's best
knowledge of the amount, event or actions, actual results ultimately may differ
from those estimates.
During the year, the Group has reclassified all costs relating to unsuccessful
exploration activities to a separate line item on the face of the income
statement. Comparative figures have been restated as a result of this
reclassification. Additionally, the fair values provisionally accounted for on
the acquisition of CH4 during 2006 have been finalised in the year and this has
resulted in a restatement of prior year comparatives.
Consolidation
Subsidiaries
Subsidiaries are entities over which the Group has the power to govern the
financial and operating policies, generally accompanying a shareholding of more
than one half of the voting rights. The existence and effect of potential voting
rights that are currently exercisable or convertible are considered when
assessing whether the Group controls another entity. Subsidiaries are fully
consolidated from the date on which control is transferred to the Group. They
are de-consolidated from the date on which control ceases.
The purchase method of accounting is used to account for the acquisition of
subsidiaries by the Group. The cost of an acquisition is measured as the fair
value of the assets given, equity instruments issued and liabilities incurred or
assumed at the date of exchange, plus costs directly attributable to the
acquisition. Identifiable assets acquired, liabilities and contingent
liabilities assumed in a business combination are measured initially at their
fair values at the acquisition date. The excess of the cost of acquisition over
the fair value of the Group's share of the identifiable net assets acquired is
recorded as goodwill. If the cost of acquisition is less than the fair value of
the net assets of the subsidiary acquired, the difference is recognised directly
in the income statement.
Inter-company transactions, balances and unrealised gains on transactions
between group companies are eliminated as part of the consolidation process.
Unrealised losses are also eliminated unless the transaction provides evidence
of an impairment of the asset transferred. Accounting policies of subsidiaries
have been changed where necessary to ensure consistency with the policies
adopted by the Group.
Critical estimates and judgements
The main estimates made by the Group included decommissioning estimates,
estimates of future capital expenditures used in the calculation of
depreciation, depletion and amortisation ('DD&A'), and hydrocarbon reserve
estimates. See accounting policy on each item for further information.
1. Accounting Policies for the year ended 31 December 2007 (continued)
The main judgements made by the Group included the forecasts and assumptions
used in the impairment review of non-financial assets, tax provisioning and
deferred tax asset recognition. See accounting policy on these items for further
information.
Investments in associates
The Group's investments in its associates are accounted for under the equity
method of accounting. These are entities in which the Group has significant
influence and which are neither a subsidiary nor a joint venture. The financial
statements of the associates are used by the Group to apply the equity
accounting method. The reporting dates of the associates and the Group are
identical and all use consistent accounting policies.
The investments in associates are carried in the balance sheet at cost plus
post-acquisition changes in the Group's share of net assets of the associates,
less any impairment in value. The income statement reflects the share of the
results of operations of the associates.
Joint ventures
The Group is engaged in oil and gas development and production through
incorporated and unincorporated joint ventures. The Group accounts for its share
of the results and net assets of these joint ventures as jointly controlled
assets.
In addition where the Group acts as operator to the joint venture, the gross
liabilities and receivables (including amounts due to or from non-operating
partners) of the joint venture are included in the Group consolidated balance
sheet.
Revenue recognition
Revenue from sales of oil and natural gas is recognised when the significant
risks and rewards of ownership have been transferred, which is when title passes
to the customer. For oil and natural gas, this generally occurs when product is
physically transferred into a vessel, pipe or other delivery mechanism.
Revenue resulting from the production of oil and natural gas properties in which
Venture has an interest with other producers is recognised on the basis of
Venture's working interest (entitlement method). Consequently for sales in
respect of oil liftings sold, adjustments for overlift (liftings greater than
production entitlement) and underlift (production entitlement greater than
liftings) are recorded against cost of sales at market value.
Tariff revenue from the use of the Group's platform and pipeline facilities is
recognised when products are physically transferred into a vessel, pipe or other
delivery mechanism.
Segmental reporting
Segmental reporting follows the Group's internal reporting structure, and
accordingly its primary segment reporting is by business segment. A business
segment is engaged in providing products within a particular economic
environment that is subject to risks and returns that are different from those
segments operating in other economic environments. In the opinion of the
directors the operations of the Group comprise two classes of business, oil
production and gas production.
Foreign currency translation
(a) Functional and presentation currency
Items included in the financial statements of each of the Group's entities are
measured using the currency of the primary economic environment in which the
entity operates ('the functional currency'). The consolidated financial
statements are presented in pounds sterling, the Company's functional and
presentation currency.
(b) Transactions and balances
Foreign currency transactions are translated into the functional currency using
the exchange rates prevailing at the dates of the transactions. Foreign currency
gains and losses resulting from the settlement of such transactions and from the
translation at year-end exchange rates of monetary assets and liabilities
denominated in foreign currencies are recognised in the income statement, except
when deferred in equity as qualifying cash flow hedges.
Goodwill and fair value adjustments arising on the acquisition of a foreign
entity are treated as assets and liabilities of the foreign entity and
translated at the closing rate.
Goodwill
Goodwill represents the excess of the cost of an acquisition over the fair value
of the Group's share of the net identifiable assets of the acquired subsidiary
at the date of acquisition. Goodwill on acquisition of subsidiaries is included
in 'intangible assets'. Separately recognised goodwill is tested annually for
impairment and carried at cost less accumulated impairment losses. Impairment
losses on goodwill are not reversed. Gains and losses on the disposal of an
entity include the carrying amount of goodwill relating to the entity sold.
Goodwill is allocated to cash-generating units (CGUs) for the purpose of
impairment testing. The allocation is made to those CGUs or groups of CGUs that
are expected to benefit from the business combination in which the goodwill
arose.
Oil and gas exploration and development expenditure
Oil and gas exploration and development expenditure is accounted for using the
successful efforts method of accounting.
Expenditure incurred prior to obtaining the legal rights to explore an area is
expensed immediately to the Income Statement.
Expenditure directly associated with an exploration well is capitalised on a
licence by licence basis. Costs are held, un-depleted, on the balance sheet
under Exploration Assets, until the success or otherwise of the well has been
established. Costs will continue to be held as an asset if the results indicate
that hydrocarbon reserves exist and there is a reasonable prospect that these
reserves are commercial. All such carried costs are subject to technical,
commercial and management review at least once a year to confirm the intent to
develop or otherwise extract value from the discovery. When this is no longer
the case, the costs are written off. When proved reserves are determined and
development is sanctioned, the relevant costs are transferred to Development and
Producing Assets.
Expenditure on the construction, installation or completion of infrastructure
facilities such as platforms, pipelines and the drilling of development wells,
is capitalised within Development and Producing Assets on a field by field
basis.
Upon commencement of production these costs are amortised on a unit of
production basis that is calculated on budgeted capital expenditure and proven
and probable reserves.
Property, plant and equipment
All property, plant and equipment is shown at cost less subsequent depreciation
and impairment.
The initial cost of an asset comprises its purchase price or construction cost,
any costs directly attributable to bringing the asset into operation, the
initial estimate of any decommissioning obligation, if any, and, for qualifying
assets, borrowing costs. The purchase price or construction cost is the
aggregate amount paid and the fair value of any other consideration given to
acquire the asset.
Subsequent costs are included in the asset's carrying amount or recognised as a
separate asset, as appropriate, only when it is probable that future economic
benefits associated with the item will flow to the Group and the cost of the
item can be measured reliably. All other repairs and maintenance are charged to
the income statement during the financial period in which they are incurred.
Depreciation on other assets is calculated using the straight-line method to
allocate their cost less their residual values over their estimated useful
lives, as follows:
Plant and machinery 10-33%
Office equipment 25%
Motor vehicles 25%
Buildings 5%
The assets' residual values and useful lives are reviewed, and adjusted if
appropriate, at each balance sheet date. An asset's carrying amount is written
down immediately to its recoverable amount if the asset's carrying amount is
greater than its estimated recoverable amount.
Impairment of non-financial assets
Assets that have an indefinite useful life are not subject to amortisation and
are tested annually for impairment. Assets that are subject to amortisation are
reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount may not be recoverable. An impairment loss is
recognised for the amount by which the asset's carrying amount exceeds its
recoverable amount. The recoverable amount is the higher of an asset's net
realisable value less costs to sell and value in use. For the purposes of
assessing impairment, assets are grouped at the lowest levels for which there
are separately identifiable cash flows. These CGUs are aligned to the business
unit and sub-business unit structure that the Group uses to manage its business.
Cash flows are discounted in determining the value in use.
Exploration/appraisal assets are reviewed regularly for indicators of impairment
and costs are written off where circumstances indicate that the carrying value
might not be recoverable. In such circumstances the exploration asset is
allocated to development/producing assets within the same field and tested for
impairment. Any such impairment arising is recognised in the Income Statement
for the period. Where there are no development/producing assets within a
business unit, the exploration/appraisal costs are charged immediately to the
Income Statement.
Impairment reviews on development/producing assets are carried out on each
cash-generating unit identified in accordance with IAS 36 'Impairment of
Assets'. Venture's cash generating units are those assets which generate largely
independent cash flows and are normally, but not always, single development
areas.
At each reporting date, where there are indicators of impairment, the net book
value of the cash generating unit is compared with the associated expected
discounted future post tax net cash flows. If the net book value is higher, then
the difference is written off to the Income Statement as impairment. Discounted
future net cash flows for IAS 36 purposes are calculated using forward curve
pricing for the first 5 years and management's view of the long term price
thereafter. Cash flows are discounted to present value using a discount rate of
8%. Forecasted production profiles are determined on an asset by asset basis,
using appropriate petroleum engineering techniques.
Where there has been an impairment charge in an earlier period, that charge will
be reversed in a later period where there has been a change in circumstances to
the extent that the discounted future net cash flows are higher than the net
book value at the time. In reversing impairment losses, the carrying amount of
the asset will be increased to the lower of its original carrying value or the
carrying value that would have been determined (net of depletion) had no
impairment loss been recognised in prior periods.
Deferred consideration
Deferred consideration relates to the future cash consideration payable in
respect of acquisitions which is contingent on the outcome of future events.
When an acquisition agreement provides for an adjustment to the consideration
contingent on future events, provision is made for that amount if the adjustment
is probable and can be measured reliably. The amount provided is included in the
cost of the acquisition. When the final amount payable is determined or when
revised estimates are made the acquisition cost and provision are adjusted
accordingly. Deferred consideration is recorded at its fair value.
Inventories
Inventories are stated at the lower of cost and net realisable value and
comprise oil in tanks and pipelines and materials. Cost values for stocks of oil
are calculated using a weighted average cost for the year.
Under/Overlift
Lifting or offtake arrangements for oil and gas produced in certain of the
Group's jointly owned operations are such that each participant may not receive
and sell its precise share of the overall production in each period. The
resulting imbalance between cumulative entitlement and cumulative production
less stock is 'underlift' or 'overlift'. Underlift and overlift are valued at
market value and included within debtors and creditors respectively. Movements
during an accounting period are adjusted through Cost of Sales such that Gross
Profit is recognised on an entitlement basis. The Group's share of any physical
stock is accounted for at the lower of cost and net realisable value.
Assets held for sale
Assets held for sale are stated at fair value on the basis that they are
available for immediate sale in their present condition, subject only to terms
that are usual and customary for sales of such assets and that the sale is
highly probable at the balance sheet date.
Trade receivables
Trade receivables are recognised and carried at original invoice amount less any
provision for impairment. A provision for impairment of trade receivables is
established when there is objective evidence that the Group will not be able to
collect all amounts due according to the original terms of the receivables.
Cash and cash equivalents
Cash and cash equivalents includes cash in hand, bank overdrafts and deposits
held at call with banks with maturity dates of less than three months.
Share capital
Ordinary shares are classified as equity. Incremental costs directly
attributable to the issue of new shares or options are shown in equity as a
deduction, net of tax, from the proceeds. Incremental costs directly
attributable to the issue of new shares or options, for the acquisition of a
business are included in the cost of acquisition as part of the purchase
consideration.
Dividends on ordinary shares are not recognised as a liability or charged to
equity until they have been declared.
Where any Group company purchases the Company's equity share capital (Treasury
shares), the consideration paid, including any directly attributable incremental
costs (net of income taxes), is deducted from equity attributable to the
Company's equity holders until the shares are cancelled, reissued or disposed
of. Where such shares are subsequently sold or reissued, any consideration
received, net of any directly attributable incremental transaction costs and the
related income tax effects, is included in equity attributable to the Company's
equity holders.
The Group is deemed to have control of the assets, liabilities, income and costs
of its employee share benefit trusts ('EBTs'). They have therefore been
consolidated in the financial statements of the Group. Shares acquired by and
disposed of by the EBT are recorded at cost. The cost of shares held by the EBTs
is deducted from shareholders' equity.
Borrowings
Borrowings are recognised initially at fair value, net of transaction costs
incurred. Borrowings are subsequently stated at amortised cost; any difference
between the proceeds (net of transaction costs) and the redemption value is
recognised in the income statement over the period of the borrowings using the
effective interest method.
Borrowings are classified as current liabilities unless the Group has an
unconditional right to defer settlement of the liability for at least 12 months
after the balance sheet date.
Convertible bonds
The fair value of the liability component of a convertible bond is determined
using a market interest rate for an equivalent non-convertible bond. This amount
is recorded as a liability on an amortised cost basis until extinguished on
conversion or maturity. The remainder of the proceeds of the convertible bond
represents the value of the equity conversion option and this component of the
bond is recognised in shareholders' equity.
Capitalised interest
Interest is capitalised gross of related tax relief during the period of
construction, where it relates either to the financing of major projects with
long periods of development, or to dedicated financing of other projects. All
other interest is charged against income.
Derivative financial instruments and hedging
Derivatives are initially recognised at fair value on the date a derivative
contract is entered into and are subsequently re-measured at their fair value.
The method of recognising the resulting gain or loss depends on whether the
derivative is designated as a hedging instrument and, if so, the nature of the
item being hedged. The Group designates derivatives as hedges of highly probable
forecast transactions (cash flow hedge).
The Group documents at the inception of the transaction the relationship between
hedging instruments and hedged items, as well as its risk management objective
and strategy for undertaking various hedge transactions. The Group also
documents its assessment, both at hedge inception and on an ongoing basis, of
whether the derivatives that are used in hedging transactions are highly
effective in offsetting changes in cash flows of hedged items. At the point of
settlement, any payments or receipts relating to hedge transactions are included
in revenue.
Cash flow hedge
The effective portion of changes in the fair value of derivatives that are
designated and qualify as cash flow hedges, are recognised in equity net of
deferred income tax. The gain or loss relating to the ineffective portion is
recognised immediately in the income statement.
Amounts accumulated in equity, including the associated deferred income taxes,
are recycled in the income statement in the periods when the hedged item will
affect profit or loss (for example, when the forecast sale that is hedged takes
place).
When a hedging instrument expires or is sold, or when a hedge no longer meets
the criteria for hedge accounting, any cumulative gain or loss existing in
equity at that time remains in equity and is recognised when the forecast
transaction is ultimately recognised in the income statement. When a forecast
transaction is no longer expected to occur, the cumulative gain or loss that was
reported in equity is immediately transferred to the income statement.
Derivatives that do not qualify for hedge accounting
Certain derivative instruments do not qualify for hedge accounting. Such
derivatives are classified as at fair value through profit or loss, and changes
in the fair value of any derivative instruments that do not qualify for hedge
accounting are recognised immediately in the income statement.
Fair value estimation
Fair value is the amount at which a financial instrument could be exchanged in
an arm's length transaction between informed and willing parties, other than a
forced or liquidation sale and excludes accrued interest. Where available,
market values are used to determine fair values. Where market values are not
available, fair values are calculated by discounting expected cash flows at
prevailing interest and exchange rates.
Taxation
The tax charge, including UK corporation tax and overseas corporate tax,
represents the sum of tax currently payable and deferred tax. Tax currently
payable is based on the taxable profit for the year. Taxable profit differs from
the profit reported in the income statement due to items that are not taxable or
deductible in any period and also due to items that are taxable or deductible in
a different period. The Group's liability for current tax is calculated using
tax rates enacted or substantively enacted at the balance sheet date.
Current UK Petroleum Revenue Tax (PRT) is charged as a tax expense on chargeable
field profits included in the profit and loss account and is deductible for UK
corporation tax. Deferred PRT is provided for in full, using the effective PRT
rate method.
Deferred income tax is provided in full, using the liability method, on
temporary differences arising between the tax bases of assets and liabilities
and their carrying amounts in the consolidated financial statements. However, if
the deferred income tax arises from initial recognition of an asset or liability
in a transaction other than a business combination, that at the time of the
transaction effects neither accounting nor taxable profit or loss, it is not
accounted for. Deferred income tax is determined using tax rates (and laws) that
have been enacted, or substantially enacted, by the balance sheet date and are
expected to apply when the related deferred income tax asset is realised or the
deferred income tax liability is settled.
Deferred income tax assets are recognised to the extent that it is probable that
future taxable profit will be available against which the temporary differences
can be utilised.
Deferred income tax is provided on temporary differences arising on investments
in subsidiaries and associates, except where the timing of the reversal of the
temporary difference is controlled by the Group and it is probable that the
temporary difference will not reverse in the foreseeable future.
Operating leases
Rentals payable under operating leases are charged to the income statement on a
straight-line basis.
Pension costs
The Group pays contributions to personal pension schemes of employees, which are
administered independently of the Group. The Group has no further payment
obligations once the contributions have been paid. The contributions are
recognised as an employee benefit expense when they are due.
Share-based payments
The Group currently has various share based payment schemes for its employees
and Directors, details of which are given in the Directors' Remuneration Report.
The fair value of share-based awards is determined at the date of grant of the
award allowing for the effect of any market-based performance conditions. This
fair value, adjusted by the Group's estimate of the number of awards that will
eventually vest as a result of key performance measures, is expensed uniformly
over the vesting period. The corresponding credit is taken to the employee
benefit reserve. The proceeds on exercise of share options are credited to share
capital and share premium.
The fair values are calculated using a binomial option pricing model with
suitable modifications to allow for employee turnover after vesting and early
exercise. The inputs to the model include the share price at date of grant,
exercise price, expected volatility, expected dividends, risk free rate of
interest and patterns of early exercise of the plan participants.
Decommissioning
Provision for decommissioning is recognised in full at the commencement of oil
and natural gas production. The amount recognised is the present value of the
estimated future expenditure determined in accordance with local conditions and
requirements. A corresponding tangible 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 and transportation facilities. Any change in the
present value of the estimated expenditure is reflected as an adjustment to the
provision and the fixed asset. Unwinding of discount is treated as a finance
cost.
Disclosure of impact of new and future accounting standards
The following standards, amendments and interpretations to published standards
were mandatory for the year ended 31 December 2007:
* IFRS 7 Financial Instruments disclosures
The application of IFRS 7 has resulted in additional disclosures in the Group
accounts in notes 18 and 25. The application of IFRS 7 has not had a material
impact on the Group's income statement, balance sheet or cash flow statement.
* Amendment to IAS 1
The amendment to IAS 1 introduces disclosures about the level of an entity's
capital and how it manages its capital.
* IFRIC 8 Scope of IFRS 2
* IFRIC 9 Reassessment of embedded derivatives
* IFRIC 10 Interim financial reporting and impairment
The application of IFRIC 8, IFRIC 9 and IFRIC 10 did not have a material
impact on the financial statements.
The Group has not yet adopted the following standards, amendments and
interpretations which are only effective for periods commencing on or after 1
January 2009.
* IFRS 8 Operating Segments
This standard replaces IAS 14 'Segment Reporting' and proposes that entities
adopt a 'management approach' to reporting financial performance. We do not
anticipate that this standard will have any material impact on the Group's
financial statements.
* IFRS 3 (revised) Business Combinations
This standard includes some significant changes to IFRS 3 in respect of
business combinations with all payments made to purchase a business recorded
at fair value at acquisition date. This standard is effective from 1 July 2009
and will have an impact on any acquisitions the Group makes from that date.
* IAS 1 Presentation of Financial Statements
This standard prescribes the basis for presentation of financial statements
and aims to ensure comparability both with the entity's financial statements
of previous periods and with the financial statements of other entities.
* IAS 23 (revised) Borrowing Costs
The revised standard removes the option of immediately recognising an expense
on borrowing costs that relate to assets that take a substantial period of
time to get ready for use.
* IFRIC 11 Group and Treasury Share Transactions
This interpretation addresses how to apply IFRS 2 to share based payment
arrangements involving an entity's own equity instruments or instruments of
another entity in the same group.
Other standards, amendments and IFRIC's were considered but specifically
excluded as they were not expected to impact the group.
2. Segmental reporting
Primary segment - business segments
Oil business segment
The oil segment consists of all activities connected with the Group's oil
assets, currently the Trees and GKA hubs.
Gas business segment
The gas segment consists of all activities connected with the Group's gas
assets, currently the 'A' Fields and the GMA hubs.
Segment results
Oil Gas Unallocated Total
�'000 �'000 Corporate �'000
�'000
----------------- --------- --------- ---------- ---------
At 31 December 2007:
Revenues 172,760 185,535 - 358,295
Exploration costs written off (18,144) - - (18,144)
Development costs written off - (11,207) - (11,207)
Impairment of assets (33,463) - - (33,463)
Other Expenses (69,832) (100,728) (8,282) (178,842)
----------------- --------- --------- ---------- ---------
Operating profit 51,321 73,600 (8,282) 116,639
----------------- --------- --------- ---------- ---------
----------------- --------- --------- ---------- ---------
31 December 2006:
Revenues 127,188 233,063 - 360,251
Exploration costs written off (3,872) - - (3,872)
Development costs written off - - - -
Impairment of assets - - - -
Other Expenses (55,530) (110,952) (7,977) (174,459)
----------------- --------- --------- ---------- ---------
Operating profit 67,786 122,111 (7,977) 181,920
----------------- --------- --------- ---------- ---------
Segment assets and liabilities
Oil Gas Unallocated Total
�'000 �'000 Corporate �'000
�'000
----------------- --------- --------- ---------- ---------
At 31 December 2007
Segment assets 249,138 731,016 181,497 1,161,651
Segment liabilities (106,596) (131,272) (642,593) (880,461)
----------------- --------- --------- ---------- ---------
Net assets / (liabilities) 142,542 599,744 (461,096) 281,190
----------------- --------- --------- ---------- ---------
At 31 December 2006
Segment assets 294,640 526,139 90,451 911,230
Segment liabilities (55,202) (73,321) (477,332) (605,855)
----------------- --------- --------- ---------- ---------
Net assets / (liabilities) 239,438 452,818 (386,881) 305,375
----------------- --------- --------- ---------- ---------
Segment assets and liabilities are presented before the elimination of
inter-segment trading balances.
Segment assets and liabilities are reconciled to group assets and liabilities as
follows:
Assets Liabilities
�'000 �'000
-------------------------------- -------- -----------
Segment assets/(liabilities) 980,154 (237,868)
Unallocated:
Fixed assets 830 -
Cash at bank and in hand 158,445 -
Investments 16,341 -
Convertible loan notes 5,383 -
Deferred income tax - (200,445)
Income taxes payable - (15,062)
Current liabilities - (28,764)
Non current borrowings - (398,322)
Derivative financial instruments 498 -
-------------------------------- -------- -----------
Total 1,161,651 (880,461)
-------------------------------- -------- -----------
Other segment items
Oil Gas Unallocated Total
�'000 �'000 Corporate �'000
�'000
----------------- --------- --------- ---------- ---------
At 31 December 2007
Capital expenditure
- Property, plant and equipment 86,938 168,240 433 255,611
- Acquisitions - 47,944 - 47,944
- Depreciation (25,439) (56,685) (339) (82,463)
- Impairment of assets (33,463) - - (33,463)
- Development costs written off - (11,207) - (11,207)
- Exploration costs written off (18,144) - - (18,144)
- Disposals (1,247) (3,017) - (4,264)
----------------- --------- --------- ---------- ---------
8,645 145,275 94 154,014
----------------- --------- --------- ---------- ---------
At 31 December 2006
Capital expenditure
- Property, plant and equipment 64,835 102,281 470 167,586
- Acquisitions - 157,715 - 157,715
- Depreciation (26,246) (61,482) (514) (88,242)
- Exploration costs written off (3,872) - - (3,872)
- Disposals - (9,956) - (9,956)
----------------- --------- --------- ---------- ---------
34,717 188,558 (44) 223,231
----------------- --------- --------- ---------- ---------
Secondary segment - geographic segments
All of the Group's activities are in the UK and Dutch sector of the North Sea,
which is considered to be one geographic segment.
3. Business combinations
Acquisitions in 2007
Acquisition of WHAM Energy plc.
On 12 November 2007 the Group acquired 100% of the voting shares of WHAM Energy
plc (WHAM), a listed company based in the United Kingdom.
The total cost of the combination was �15,600,000 and comprised cash and an
issue of equity instruments. The Group issued 1,065,464 ordinary shares with a
fair value of �7.16 each, being the published price of the shares of Venture
Production plc at the date of exchange.
The fair value of the identifiable assets and liabilities of WHAM as at the date
of acquisition and the corresponding carrying amounts immediately before the
acquisition are shown below. The fair value adjustments relate primarily to the
recognition at fair value of the acquired interests in oil and gas assets and
the impact of the adoption of Venture accounting policies. The impact of
recognising deferred tax on the fair value of the assets and liabilities is to
reduce the value of the net assets acquired and thereby increase the goodwill on
acquisition.
Acquiree's Adjustments Provisional
carrying amount fair value
�'000 �'000 �'000
---------------------- ----------- --------- ---------
Property, plant and equipment 2,492 7,928 10,420
Trade receivables 76 - 76
Cash and cash equivalents 5,795 - 5,795
---------------------- ----------- --------- ---------
8,363 7,928 16,291
---------------------- ----------- --------- ---------
Trade payables (697) - (697)
Deferred income tax liabilities - (4,400) (4,400)
---------------------- ----------- --------- ---------
Net assets 7,666 3,528 11,194
Goodwill arising on acquisition 4,406
---------------------- ----------- --------- ---------
Total consideration 15,600
---------------------- ----------- --------- ---------
Cost: �'000
---------------------- ---------
Cash paid 6,254
Shares issued, at fair value 7,629
Costs associated with the acquisition 1,717
---------------------- ---------
Total consideration 15,600
---------------------- ---------
Cash outflow on acquisition: �'000
---------------------- ---------
Net cash acquired with subsidiary 5,795
Cash paid (6,254)
Costs associated with the acquisition (1,717)
---------------------- ---------
Net cash outflow (2,176)
---------------------- ---------
The results of the Group, as if the above acquisition had been made at the
beginning of the year, would have been as follows:
�'000
---------------------- ---------
Revenue 358,295
Profit for the year 46,499
---------------------- ---------
The acquired business earned no revenue from the beginning of the year to the
acquisition date. From the date of acquisition to 31 December 2007, the business
generated no revenues and earned profits of �25,000 in respect of bank interest.
Acquisition of North Sea Gas Partners Limited
During 2006 the Group held a 33.3% shareholding in North Sea Gas Partners
Limited (NSGP). On 19 July 2007 the Group acquired the remaining 66.7% of the
voting shares of North Sea Gas Partners Limited, an unlisted company based in
the United Kingdom and registered in Jersey.
The total cost of the combination was �46,582,000 and wholly comprised an issue
of equity instruments. The Group issued 6,033,906 ordinary shares with a value
of �7.72 each, being the published price of the shares of Venture Production plc
at the date of exchange.
The fair value of the identifiable assets and liabilities of NSGP as at the date
of acquisition and the corresponding carrying amounts immediately before the
acquisition are shown below. No fair value adjustments were recorded at the date
of acquisition as the book values were assessed as equalling the fair values on
this date.
Acquiree's Adjustments Provisional
carrying amount fair value
�'000 �'000 �'000
---------------------- ----------- --------- ---------
Property, plant and equipment 56,291 - 56,291
Trade receivables 584 - 584
Cash and cash equivalents 24,513 - 24,513
---------------------- ----------- --------- ---------
81,388 - 81,388
---------------------- ----------- --------- ---------
Trade payables (9,945) - (9,945)
Deferred income and consideration (2,974) - (2,974)
---------------------- ----------- --------- ---------
Net assets 68,469 - 68,469
Less net assets previously
consolidated (22,827)
Goodwill arising on acquisition 940
---------------------- ----------- --------- ---------
Total consideration 46,582
---------------------- ----------- --------- ---------
Cost: �'000
---------------------- ---------
Shares issued, at fair value 46,582
---------------------- ---------
Total consideration 46,582
---------------------- ---------
Cash inflow on acquisition: �'000
---------------------- ---------
Net cash acquired with subsidiary 16,342
---------------------- ---------
Net cash inflow 16,342
---------------------- ---------
The results of the Group, as if the above acquisition had been made at the
beginning of the year would have been as follows:
�'000
---------------------- ---------
Revenue 358,295
Profit for the year 48,053
---------------------- ---------
The acquired business earned no revenues from the beginning of the year to the
acquisition date. From the date of acquisition to 31 December 2007, the business
generated no revenues and earned profits of �467,000.
4. Operating profit
The following items have been charged/(credited) in arriving at operating
profit:
Restated
2007 2006
�'000 �'000
-------------------------- ---------- ---------
Over/(Underlift) 2,848 (1,791)
Operating expenses 76,269 74,288
Well workover expenses 9,693 7,706
Exploration costs written off 18,144 3,872
Development costs written off 11,207 -
Impairment of assets 33,463 -
Depreciation, depletion and amortisation 82,463 88,242
Employee expenses (Note 31) 14,275 8,282
Share based payments (Note 16) 4,981 10,169
Operating lease rentals:
- Land and buildings 629 384
Foreign currency (gain)/loss (496) 2,465
-------------------------- ---------- ---------
Exploration costs written off relate to unsuccessful exploration activities
where hydrocarbons were not encountered.
Development costs written off reflects the write off of the original drilling
investment in the Amanda field in 2003.
During 2007, Venture commenced a major seismic reprocessing and interpretation
study on the entire 'Trees' production hub, which will be completed during 2008.
Whilst the analysis of the remaining potential in the southern part of the
Sycamore development has not yet been completed, preliminary results of this
study suggest that in the central part of the Sycamore field there is limited
re-investment opportunity. Accordingly, an impairment charge of �24,500,000 has
been made, reducing the carrying value of the Sycamore field to its value in
use. Analysis will be finalised upon completion of further technical work on
this development during 2008. Impairment of assets also includes a write down of
�8,963,000 of the appraisal oil well on the Pilot field, which was drilled in
2007 and produced heavy oil with higher viscosity than expected.
Services provided by the Group's auditor and network firms
During the year the Group obtained the following services from the Group's
auditor at costs as detailed below:
2007 2006
�'000 �'000
----------------------------- --------- ---------
Audit services:
- fees payable to company auditor for the audit of
Parent Company and consolidated accounts 196 182
Non-audit services:
- fees payable to the company auditor for the audit of
company subsidiaries pursuant to legislation 82 63
- other services pursuant to legislation 25 15
- tax service s 18 74
----------------------------- --------- ---------
321 334
----------------------------- --------- ---------
5. Gain on disposal of subsidiary
The sale of NSIP (ETS) Limited was completed on 22 January 2007. Details of the
book values of the major classes of assets and liabilities of the company
measured at the date of disposal and of the consideration were as follows:
2007
�'000
----------------------------- ---------
Property, plant and equipment 1,891
Trade and other receivables 440
Cash and cash equivalents 582
Provisions (782)
----------------------------- ---------
Net assets disposed of 2,131
----------------------------- ---------
Consideration
Cash 2,382
----------------------------- ---------
Total consideration 2,382
----------------------------- ---------
Gain on disposal of NSIP (ETS) Limited 251
----------------------------- ---------
The total consideration of �2,382,000 was satisfied by NSIP by way of cash.
Reconciliation of net proceeds to cash inflow from disposal of subsidiary
2007
�'000
----------------------------- ---------
Net cash consideration 2,382
Cash disposed of (582)
----------------------------- ---------
Cash inflow from disposal of subsidiary 1,800
----------------------------- ---------
6. Other operating income
Other operating income of �929,000 (2006: �3,363,000) consists of �186,000
proceeds from an insurance claim (2006: �2,316,000) relating to lost revenue on
the Mallard field (2006: Mallard field) and the remainder relates to the
disposal of excess equipment.
7. Finance income and expense
2007 2006
Finance income �'000 �'000
--------------------------- --------- ---------
Bank interest 4,174 2,277
Interest receivable on convertible loan notes 268 270
--------------------------- --------- ---------
4,442 2,547
--------------------------- --------- ---------
2007 2006
Finance expense �'000 �'000
--------------------------- --------- ---------
Capitalised interest (9,955) (6,192)
Interest payable on loans 12,593 10,668
Interest payable and unwinding of discount on convertible
bonds (Note 21) 5,690 531
Unwinding charge for decommissioning provision (Note 24) 4,636 3,991
Amortisation of loan facility expenses 4,521 1,638
Other interest 1,637 101
--------------------------- --------- ---------
19,122 10,737
--------------------------- --------- ---------
8. Income tax expense
Analysis of charge for the year
2007 2006
�'000 �'000
--------------------------- --------- ---------
Current tax - current tax charge - UK 10,520 45
Current tax - adjustments in respect of prior years 151 15,914
Current tax - current tax charge - Overseas 2,442 711
--------------------------- --------- ---------
13,113 16,670
--------------------------- --------- ---------
Deferred tax - relating to origination and reversal of
timing differences 39,961 86,289
Deferred tax - adjustments in respect of prior years (42) (7,817)
--------------------------- --------- ---------
39,919 78,472
--------------------------- --------- ---------
Tax charge for the year 53,032 95,142
--------------------------- --------- ---------
The deferred tax movement includes amounts relating to the restatement of the
closing deferred tax balances for group companies not engaged in oil and gas
activities from 30% to 28% in line with the substantially enacted tax rate
applicable from April 2008.
The tax rate for the period is higher (2006: higher) than the standard rate of
corporation tax in the UK (30%). The differences are explained below:
2007 2006
�'000 �'000
--------------------------- --------- ---------
Profit on ordinary activities before tax 101,207 176,735
--------------------------- --------- ---------
Tax @ 30% 30,362 53,021
Effects of:
Supplementary tax charge 24,058 37,122
Adjustments to tax in respect of prior periods 109 8,097
Unrecognised deferred tax asset 982 -
Expenses not deductible for tax purposes 545 1,315
Share options exercised (5,098) (1,328)
Prior year losses not recognised utilised in period - (3,085)
Effects of changes in tax rates 1,377 -
Other 697 -
--------------------------- --------- ---------
Total taxation 53,032 95,142
--------------------------- --------- ---------
Disallowable items mainly represent capital acquisition costs that are
depreciated but are not eligible for capital allowances.
9. Earnings per ordinary share
Basic earnings per share is calculated by dividing the profit attributable to
equity holders of the Company by the weighted average number of ordinary shares
in issue during the year, excluding ordinary shares purchased by EBTs and
treasury shares.
2007 2006
Profit attributable to equity holders of the Company
(�'000) 48,175 81,593
Weighted average number of ordinary shares in issue
(thousands) 135,479 126,565
--------------------------- --------- ---------
Basic earnings per share (pence per share) 35.6 64.5
--------------------------- --------- ---------
Diluted earnings per share is calculated by adjusting the weighted average
number of ordinary shares outstanding to assume conversion of all dilutive
potential ordinary shares. The Company has two categories of dilutive potential
ordinary shares: convertible debt and share options.
The convertible debt is assumed to have been converted into ordinary shares and
the net profit is adjusted to eliminate the interest expense and the unwinding
of discount on convertible debt less the tax effect. For the share options a
calculation is performed to determine the number of shares that could have been
acquired at fair value (determined as the average annual market share price of
the Company's shares) based on the monetary value of the subscription rights
attached to outstanding share options.
The number of shares calculated as above is deducted from the number of
outstanding share options to give the number of share options with dilutive
effect.
2007 2006
Profit attributable to equity holders of the Company
(�'000) 48,175 81,593
Interest expense and unwinding of discount on convertible
debt (net of tax) (�'000) 2,616 265
--------------------------- --------- ---------
Profit used to determine diluted earnings per share
(�'000) 50,791 81,858
Weighted average number of ordinary shares in issue
(thousands) 135,479 126,565
- Adjustments for: 12,994 6,118
- assumed conversion of convertible debt (thousands) 1,181 5,971
- share options (thousands)
Weighted average number of ordinary shares for diluted
earnings per share (thousands) 149,654 138,654
--------------------------- --------- ---------
- Diluted earnings per share (pence per share) 33.9 59.0
--------------------------- --------- ---------
10. Dividends
Dividends paid relate to an ordinary dividend of �0.10 per share and a special
dividend of �0.40 per share that were approved at the Company's AGM on 6 June
2007.
A total dividend of �67,566,000 was paid on 24 July 2007 (2006: nil).
A further dividend of �0.12 per share has been proposed for approval at the
company's AGM.
11. Profit for the financial year
As permitted by section 230 of the Companies Act 1985, the Company's income
statement has not been included in these financial statements. The Company's
profit after tax for the financial year was �105,527,000 (2006: profit -
�15,149,000), and included �110,000,000 of dividends received from subsidiary
undertakings (2006: nil).
12. Property, plant and equipment
Group Exploration Development & Buildings Office Total
assets producing assets equipment
�'000 �'000 �'000 �'000 �'000
------------ ------- --------- ------- ------- --------
Cost
At 1 January
2007 7,998 830,769 373 2,250 841,390
Additions 38,829 216,294 - 488 255,611
Acquisitions 10,420 37,524 - - 47,944
Transfers to
development
and &
producing
assets (12,098) 12,098 - - -
Costs written
off (18,144) (11,207) - - (29,351)
Disposals - (6,049) - - (6,049)
------------ ------- --------- ------- ------- --------
At 31
December 2007 27,005 1,079,429 373 2,738 1,109,545
------------ ------- --------- ------- ------- --------
Depreciation
At 1 January
2007 - 174,869 80 1,807 176,756
Impairment of
assets - 33,463 - - 33,463
Charge for
the year - 82,065 19 379 82,463
Disposals - (1,785) - - (1,785)
------------ ------- --------- ------- ------- --------
At 31
December 2007 - 288,612 99 2,186 290,897
------------ ------- --------- ------- ------- --------
Net book amount
At 31
December 2007 27,005 790,817 274 552 818,648
Group Exploration Development & Buildings Office Total
assets producing equipment
assets
�'000 �'000 �'000 �'000 �'000
------------ ------- --------- ------- ------- --------
Cost
At 1 January
2006 2,718 525,046 324 1,829 529,917
Additions 5,280 157,964 49 421 163,714
Acquisitions - 157,715 - - 157,715
Disposals - (9,956) - - (9,956)
------------ ------- --------- ------- ------- --------
At 31 December 2006 7,998 830,769 373 2,250 841,390
------------ ------- --------- ------- ------- --------
Depreciation
At 1 January 2006 - 87,141 62 1,311 88,514
Charge for the year - 87,728 18 496 88,242
------------ ------- --------- ------- ------- --------
At 31 December 2006 - 174,869 80 1,807 176,756
------------ ------- --------- ------- ------- --------
Net book amount
At 31 December 2006 7,998 655,900 293 443 664,634
------------ ------- --------- ------- ------- --------
Included in property, plant and equipment at 31 December 2007 is an amount of
�257,723,000 (2006: �199,817,000) relating to expenditure for assets under
construction.
Additions within producing assets include capitalised interest of �9,955,000
(2006: �6,192,000). Interest for the year has been charged at a weighted average
of 6.16% (2006: 5.77%) on that proportion of Group loan balances drawn down to
finance assets during their development phase.
Company Buildings Office Total
equipment
�'000 �'000 �'000
--------------------- -------- -------- -------
Cost
At 1 January 2007 373 2,250 2,623
Additions - 60 60
--------------------- -------- -------- -------
At 31 December 2007 373 2,310 2,683
--------------------- -------- -------- -------
Depreciation
At 1 January 2007 80 1,807 1,887
Charge for the year 19 320 339
--------------------- -------- -------- -------
At 31 December 2007 99 2,127 2,226
--------------------- -------- -------- -------
Net book amount
At 31 December 2007 274 183 457
--------------------- -------- -------- -------
Company Buildings Office Total
equipment
�'000 �'000 �'000
--------------------- -------- -------- -------
Cost
At 1 January 2006 324 1,829 2,153
Additions 49 421 470
--------------------- -------- -------- -------
At 31 December 2006 373 2,250 2,623
--------------------- -------- -------- -------
Depreciation
At 1 January 2006 62 1,311 1,373
Charge for the year 18 496 514
--------------------- -------- -------- -------
At 31 December 2006 80 1,807 1,887
--------------------- -------- -------- -------
Net book amount
--------------------- -------- -------- -------
At 31 December 2006 293 443 736
--------------------- -------- -------- -------
13. Intangible assets
Group Company
. Restated
2007 2006 2007 2006
Goodwill �'000 �'000 �'000 �'000
------------------- -------- -------- -------- --------
Cost
At 1 January 47,945 - - -
Additions 5,346 47,945 - -
------------------- -------- -------- -------- --------
At 31 December 53,291 47,945 - -
------------------- -------- -------- -------- --------
Aggregate impairment
At 1 January - - - -
Impairment for the year - - - -
------------------- -------- -------- -------- --------
At 31 December - - - -
------------------- -------- -------- -------- --------
Net carrying amount
At 31 December 53,291 47,945 - -
------------------- -------- -------- -------- --------
Additions during the year relate to goodwill arising on the acquisition of WHAM
(�4,406,000), and on the acquisition of NSGP (�940,000).
During the year the fair values of the assets and liabilities acquired as part
of the CH4 acquisition were finalised. This has resulted in the recognition of a
deferred PRT liability of �1,141,000 and an additional deferred income tax
liability of �3,589,000. The impact of the above was to increase goodwill
arising on the acquisition by �4,730,000 to �46,517,000. The 2006 comparatives
have been restated to reflect this.
The Group tests goodwill annually for impairment, or more frequently, if there
are any indications that goodwill may be impaired. Goodwill acquired through
business combinations is allocated, at acquisition, to CGUs, that are expected
to benefit from that business combination.
As noted above, the main element of goodwill relates to the acquisition in 2006
of CH4. Impairment tests for CH4 are carried out based on future cash flows of
the Greater Markham Area.
The recoverable amounts of the CGUs are determined from value in use
calculations. These calculations are based on the life of field models for the
CGU. The key assumptions for the value in use calculations are those regarding
future production, oil and gas prices and operating costs. The discount rate
used for the calculation was 8%.
14. Assets classified as held for sale and disposal groups
On completion of the acquisition of CH4, the Group decided to dispose of its
interest in CH4 Pipelines Limited to its associate company, North Sea
Infrastructure Partners Limited. The disposal of the Group's interest in the
Company occurred on 22 January 2007 (Note 5).
The net assets of CH4 Pipelines Limited classified as held for sale as at 31
December 2006 totalled �2,928,000 consisting of assets of �3,391,000 (including
cash of �1,003,000) and liabilities of �1,093,000.
15. Investments
Associates
Group Company
2007 2006 2007 2006
�'000 �'000 �'000 �'000
------------------- -------- -------- -------- --------
At 1 January 11,098 5,516 6,120 5,516
Intercompany loan reclassified as 4,092 - - -
investment
Acquisition of associate - 4,978 - -
Transfer of investment in associated
undertaking - - (6,120) -
Share of profit of associate 1,151 604 - 604
------------------- -------- -------- -------- --------
At 31 December 16,341 11,098 - 6,120
------------------- -------- -------- -------- --------
The intercompany loan reclassified to investments in associates during the year
relates to an investment in Sevan Production General Partnership (�4,092,000).
During the year, the Company transferred its investment in Ten Degrees North
Energy Limited to a subsidiary undertaking.
Subsidiaries and joint ventures
Group Company
2007 2006 2007 2006
�'000 �'000 �'000 �'000
------------------- -------- -------- -------- --------
At 1 January - - 158,771 15
Investment reclassified as intercompany - - (4,069) -
loan
Additional investment in subsidiaries - - 272,567 158,756
------------------- -------- -------- -------- --------
At 31 December - - 427,269 158,771
------------------- -------- -------- -------- --------
Additional investment in subsidiaries during the year relates to further
capitalisations of Venture North Sea Gas Limited (�191,185,000) and Venture
Investment Holdings (�34,800,000) and the acquisition of North Sea Gas Partners
Limited (�46,582,000). Additionally, part of the investment in Hummingbird Oil
Pte Limited was reclassified to an intercompany loan (�4,069,000).
The Company's principal subsidiaries and joint venture undertakings at 31
December 2007 were as follows:
-------------------- -------------- --------- ----------
Percentage of
Country of nominal
registration/ share capital &
Name Nature of business incorporation voting rights
-------------------- -------------- --------- ----------
Venture North Sea Oil Oil and natural gas Scotland 100%
Limited production
Venture North Sea Gas Oil and natural gas Scotland 100%
Limited production
Venture Production Services Scotland 100%
(Services) Limited
Venture Infrastructure Investment Scotland 100%
Limited
Venture Investment Investment Scotland 100%
Holdings Limited
North Sea Gas Partners Natural gas production Jersey 100%
Limited
Venture Production GMA Oil and natural gas England 100%
Limited production
Hummingbird Oil PTE Investment Singapore 100%
Limited
Venture North Sea Gas Oil and natural gas England 100%
Exploration Limited exploration
All subsidiary undertakings are consolidated in the Group financial statements.
In the financial statements of the Company shares in subsidiary undertakings are
stated at cost.
The gross result of the Group's associates, all of which are unlisted, and their
gross assets (including liabilities) are as follows:
Country of Assets Liabilities Revenues Profit/(loss)Interest
Name incorporation �'000 �'000 �'000 �'000
------------ --------- ------ ------- ------- -------- ------
2007
------------ --------- ------ ------- ------- -------- ------
Ten Degrees
North Energy
Limited Trinidad 32,762 (18,734) 15,653 2,021 40%
North Sea
Infrastructure
Partners
Limited Scotland 89,791 (78,273) 4,114 1,138 49.9%
Sevan
Production
General
Partnership Singapore 176,341 (157,947) - (1,127) 20%
------------ --------- ------ ------- ------- -------- ------
2006
------------ --------- ------ ------- ------- -------- ------
Ten Degrees
North Energy
Limited Trinidad 22,874 (9,577) 11,833 1,510 40%
North Sea
Infrastructure
Partners
Limited Scotland 19,076 (9,088) - - 49.9%
Sevan
Production
General
Partnership Singapore 35,951 (15,840) - (296) 20%
North Sea Gas
Partners
Limited* Jersey 37,261 (11,081) - (407) 33.3%
------------ --------- ------ ------- ------- -------- ------
16. Share based payments
The Group currently has various share based payment schemes for its employees,
details of which are given in the Directors' Remuneration Report.
The charge in the Group and Company income statement for these schemes is
�4,981,000 (2006: �10,169,000) of which �373,000 (2006: �5,612,000) related to
the 2003 Long Term Incentive Plan, �535,000 (2006: �679,000) related to the Long
Term Share Incentive Plan 2006, �430,000 (2006: nil) related to the Long Term
Share Incentive Plan 2007, �2,452,000 (2006: �1,718,000) related to the Annual
Deferred Share Bonus Plan, �692,000 (2006: �614,000) related to the Employee
Annual Bonus Plan and �499,000 (2006: �1,546,000) related to other schemes.
2003 Long Term Share Incentive Plan
5,303,771 shares were awarded under this scheme on 30 May 2007.
2006 Long Term Share Incentive Plan
There are currently 14 employees participating in this scheme.
The weighted average of the Group's estimate of the proportion of awards that
will vest under the three performance targets in 2007 is 75% (2006: 75%). This
does not allow for failure to satisfy market-based performance conditions, as
these are built into the fair value. Awards are provisional because they are
dependent on the performance targets being met and also on continuing employment
of the participants. All outstanding awards under the LTIP will vest after 31
December 2010 subject to all performance targets being met and the individuals
remaining in employment.
In 2006, 828,323 awards were made under the 2006 LTIP with an average fair value
of �5.03.
2007 Long Term Share Incentive Plan
There are currently 14 employees participating in this scheme. For the purposes
of calculating the fair value of the awards subject to market based performance
conditions a Monte Carlo pricing model has been used. The share price volatility
of 34% is based on the historical data of the Group. All outstanding awards
under the LTIP will vest after 31 December 2011 subject to all performance
targets being met and the individuals remaining in employment.
The risk free rate of return of 5.4% is based on the implied yield available on
zero coupon gilts with a term remaining equal to the expected lifetime of the
awards. A dividend yield of 0% is used in the calculation.
627,624 awards were made under the 2007 LTIP during the year, with an average
fair value of �5.06.
Annual Deferred Share Bonus Plan
16 Executive Directors and Senior Managers are members of the 2007 ADSBP (2006:
14) which was first introduced in 2005. The scheme comprises both share and cash
awards as individuals awarded grants under the ADSBP can elect to take a
proportion of the bonus in cash and the remaining awards as deferred shares.
Shares in respect of the 2007 award will be released on 1 January 2010 (2006: 1
January 2009). If the individual leaves before 1 January 2010 then the shares
are forfeited. The estimated proportion of awards to be taken as shares and cash
are 70% and 30% respectively (2006: 70% shares 30% cash).
For the purposes of calculating the fair value of the share based awards a
binomial pricing model has been used. The share price volatility used of 34%
(2006: 31%), the risk free rate of return of 5.6% (2006: 4.4%) and the dividend
yield of 0% (2006: 0%) are derived in a consistent manner to those used for the
2007 LTIP. The charge for awards to be taken in shares is calculated using a
fair value of �103 per �100 of bonus to be taken as shares (2006: �105 per �100
of bonus).
Employee Annual Bonus Plan
All staff excluded from participation in the ADSBP are eligible to participate
in the EABP. The scheme comprises both share and cash awards as individuals
awarded grants under the EABP can elect to take a proportion of the bonus in
cash and the remaining awards as deferred shares.
Shares in respect of the 2007 award will be released on 1 January 2010 (2006: 1
January 2009). The estimated proportion of awards to be taken as shares and cash
are 50% and 50% respectively (2006: 30% shares 70% cash).
For the purposes of calculating the fair value of the share based awards a
binomial pricing model has been used. The share price volatility used of 34%
(2006: 31%), the risk free rate of return of 5.6% (2006: 4.4%) and the dividend
yield of 0% (2006: 0%) are derived in a consistent manner to those used for the
2007 LTIP. The charge for awards to be taken in shares is calculated using a
fair value of �103 per �100 of bonus to be taken as shares (2006: �105 per �100
of bonus).
Other Schemes
Details of the Group's other share based plans are included in the Directors'
Remuneration Report.
In respect of these plans 61,110 shares were granted during the year with a
weighted average fair value of �6.92.
2,696,220 options were exercised during the year (2006: 630,342) and 4,250
options lapsed during the year (2006: 450). The weighted average price of
options exercised during the year was �0.74 (2006: �1.70). The number of options
to subscribe for shares outstanding at 31 December was 202,130 (2006:
2,821,300). The range of exercise prices for options outstanding at 31 December
was �0.44 to �5.88 (2006: �0.44 to �5.88). The weighted average remaining
contractual life of outstanding share options is 4.5 years (2006: 5.5 years).
The charge in the Group income statement for these schemes is �280,000 (2006:
�520,000).
National Insurance credit relating to these schemes totalled �9,000 (2006:
�1,025,000 charge).
17. Inventories
Group Company
2007 2006 2007 2006
�'000 �'000 �'000 �'000
----------------------- ------- ------- ------- --------
Crude oil - 1,385 - -
Materials and supplies 1,721 1,798 - -
----------------------- ------- ------- ------- --------
1,721 3,183 - -
----------------------- ------- ------- ------- --------
18. Trade and other receivables
The fair value of trade and other receivables are as follows:
Group Company
----------------------- ------- ------- ------- --------
2007 2006 2007 2006
�'000 �'000 �'000 �'000
----------------------- ------- ------- ------- --------
Amounts falling due within one year:
Trade receivables - net 49,690 25,822 - -
Other debtors and accrued income 48,636 53,108 346 2,724
Prepayments 8,998 11,497 - 49
----------------------- ------- ------- ------- --------
107,324 90,427 346 2,773
----------------------- ------- ------- ------- --------
Falling due after one year:
Amounts due from subsidiary - - 153,247 227,995
undertakings
Convertible loan notes receivable 5,383 5,376 - 5,376
----------------------- ------- ------- ------- --------
5,383 5,376 153,247 233,371
----------------------- ------- ------- ------- --------
The Company has confirmed that amounts due from subsidiary undertakings will not
be repayable within one year.
During the year the convertible loan notes held by the Company were transferred
to Venture Investment Holdings Limited.
The convertible loan notes receivable of $10,000,000 were issued by Ten Degrees
North Energy Limited (TDNEL) on 19 December 2005 as part consideration in
respect of the disposal of Venture Production Trinidad Ltd (VPT). The notes are
denominated in US Dollar and are redeemable by TDNEL in $500,000 tranches in
each year from 2010 to the final redemption date in 2014. TDNEL may redeem
$5,000,000 of the notes at par value at any time in the first 24 months after
issue. The notes accrue interest at rates of 2% in the period to 31 December
2006, 3% from 1 January 2007 to 31 December 2009 and 9% from 1 January 2010 to
the final redemption date. During the year, the Group's interest in TDNEL
transferred from Venture Production plc to Venture Investment Holdings Limited.
A conversion event is a sale or qualifying IPO or private placement of TDNEL.
Upon a conversion event and subject to the valuation of TDNEL meeting certain
criteria at that time, the Company can convert up to $5,000,000 of the notes
into ordinary share capital of TDNEL at a conversion price of $1,500 per share.
The loan notes are valued at the year end at �5,383,000 using year-end exchange
rates.
Trade and other receivables is made up of 99% (2006: 88%) of balances that are
not overdue as the payment terms established with the Group's customers have not
been exceeded. The remaining overdue balance is not considered to be impaired.
Included within trade and other receivables are balances due from the following
related parties, none of which were overdue:
Group Company
---------------------- -------- ------- -------- -------
2007 2006 2007 2006
�'000 �'000 �'000 �'000
---------------------- -------- ------- -------- -------
NSGP (Ensign) Limited - 1,218 - -
NSGP (Amanda Agatha) Limited - - - -
NSIP (GKA) Limited 3,498 1,876 - -
---------------------- -------- ------- -------- -------
3,498 3,094 - -
---------------------- -------- ------- -------- -------
Trade receivables and other receivables include amounts denominated in the
following major currencies:
Group Company
2007 2006 2007 2006
�'000 �'000 �'000 �'000
---------------------- -------- ------- -------- -------
USD 31,844 26,577 - -
GBP 59,896 56,254 346 2,773
Euro 15,584 7,596 - -
---------------------- -------- ------- -------- -------
Total trade and other receivables 107,324 90,427 346 2,773
---------------------- -------- ------- -------- -------
The maximum exposure to credit risk at the reporting date is the fair value of
each class of receivable mentioned above. The Group does not hold any collateral
as security.
19. Cash and cash equivalents
Group Company
2007 2006 2007 2006
�'000 �'000 �'000 �'000
---------------------- -------- ------- -------- -------
Cash in hand and at bank 3,825 19,342 - 7,608
Short term deposits 154,620 39,825 154,620 36,492
Overdraft - - (50,486) -
---------------------- -------- ------- -------- -------
158,445 59,167 104,134 44,100
---------------------- -------- ------- -------- -------
The effective interest rate on short term deposits was 4.4% and these deposits
have an average maturity of 10 days.
For the purposes of the cash flow statements, cash and cash equivalents comprise
the following at 31 December:
Group Company
2007 2006 2007 2006
�'000 �'000 �'000 �'000
-------------------- -------- -------- -------- --------
Cash in hand and at bank 3,825 19,342 (50,486) 7,608
Short term deposits 154,620 39,825 154,620 36,492
Net cash in hand and at bank of
disposal group held for sale - 1,003 - -
-------------------- -------- -------- -------- --------
158,445 60,170 104,134 44,100
-------------------- -------- -------- -------- --------
This information is provided by RNS
The company news service from the London Stock Exchange
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