Final Results -22-
March 17 2009 - 3:00AM
UK Regulatory
Derivative financial instruments include amounts denominated in the following
major currencies:
+----------------------------------+----------+----------+----------+---------+
| Currency | Group | Company |
+----------------------------------+---------------------+--------------------+
| | 2008 | 2007 | 2008 | 2007 |
| | GBP'000 | GBP'000 | GBP'000 | GBP'000 |
+----------------------------------+----------+----------+----------+---------+
| | | | | |
+----------------------------------+----------+----------+----------+---------+
| USD | 42,842 | (42,498) | - | - |
+----------------------------------+----------+----------+----------+---------+
| GBP | (7,158) | (24,995) | (5,753) | 498 |
+----------------------------------+----------+----------+----------+---------+
| Total derivative financial | 35,684 | (67,493) | (5,753) | 498 |
| instruments | | | | |
+----------------------------------+----------+----------+----------+---------+
+----------------------------------+----------+----------+----------+---------+
| Included in current assets | 21,712 | 498 | - | 498 |
+----------------------------------+----------+----------+----------+---------+
| Included in current liabilities | (13,386) | (36,992) | (5,753) | - |
+----------------------------------+----------+----------+----------+---------+
| Included in non-current assets | 27,358 | - | - | - |
+----------------------------------+----------+----------+----------+---------+
| Included in non-current | - | (30,999) | - | - |
| liabilities | | | | |
+----------------------------------+----------+----------+----------+---------+
| Total | 35,684 | (67,493) | (5,753) | 498 |
+----------------------------------+----------+----------+----------+---------+
All of the derivative instruments used for the purposes of hedging the oil and
gas prices are effective for hedge accounting purposes.
Derivatives for foreign exchange are not hedge accounted and are marked to
market through the income statement.
All of the hedging instruments used for anticipated transactions mature during
2009 and 2010, and were contracted with the intention of hedging anticipated
transactions which are expected to occur in 2009 and 2010. The instruments are
intended to hedge the commodity price risk arising from the highly probable
forecast transactions.
The gain or loss relating to the effective portion of the derivative
instruments, previously deferred in equity, is recognised in the income
statement within revenue when the hedged item affects profit or loss.
There has been no charge recognised in the year relating to the ineffectiveness
of derivatives that are hedge accounted (2007: nil).
The maximum exposure to credit risk at the reporting date is the fair value of
derivative financial instruments.
Market values have been used to determine the fair value of derivative financial
instruments based on estimated amounts the Group would receive or pay to
terminate the agreements, taking into account the forward commodity prices and
forward foreign exchange rates at 31 December 2008.
Forward Oil Price Contracts
At 31 December 2008, the Group had a number of forward oil price contracts in
place to hedge cash flows from oil production in accordance with the Group's
hedging strategy. These contracts were all forward swaps.
The fair value assets of GBP42,842,000 relating to the forward oil price
contracts, which are deferred in the cash flow reserve at 31 December 2008, will
reverse in the income statement over the term of the contracts. At 31 December
2008, the forward oil price contracts covered the period January 2009 to
December 2010.
Forward Gas Price Contracts
At 31 December 2008, the Group had a number of forward gas price contracts in
place. These contracts comprised forward swaps, put and call options and forward
sales.
The fair value liabilities of GBP1,405,000 relating to the forward gas price
contracts, which are deferred in the cash flow reserve at 31 December 2008, will
reverse in the income statement over the term of the contracts. At 31 December
2008, the forward gas price contracts covered the period January 2009 to
December 2010.
Forward Foreign Currency Contracts
The notional principal amount of the Group's outstanding forward foreign
currency contracts at 31 December 2008 was $30,000,000 (2007: $228,000,000).
These contracts hedge foreign exchange exposure of forecast net US dollar income
by fixing the forward exchange rate on a monthly basis.
At 31 December 2008, the forward contracts covered the period January 2009 to
March 2009 at an exchange rate varying between $1.9575 and $2.0025 to GBP1.
The fair value liability for forward foreign currency contracts at 31 December
2008 is GBP5,753,000.
Changes in the fair value of derivative financial instruments that do not
qualify for, or are not designated in hedging relationships, are recognised
immediately in the current period income statement when they occur as shown
below:
+-----------------------------------------------------------------------+--------------+------------+
| | 2008 | 2007 |
+-----------------------------------------------------------------------+--------------+------------+
| | GBP'000 | GBP'000 |
+-----------------------------------------------------------------------+--------------+------------+
| Loss in the income statement | (6,253) | (1,903) |
+-----------------------------------------------------------------------+--------------+------------+
Fair Value of Non-Derivative Financial Assets and Financial Liabilities
The following table provides a comparison by category of the book values and the
fair values of the Group's financial assets and financial liabilities at the
balance sheet date.
+----------------------------------+-----------+-----------+-----------+-----------+
| Group | Book | Fair | Book | Fair |
| | value | value | value | value |
+----------------------------------+-----------+-----------+-----------+-----------+
| | 2008 | 2008 | 2007 | 2007 |
| | GBP'000 | GBP'000 | GBP'000 | GBP'000 |
+----------------------------------+-----------+-----------+-----------+-----------+
| Fair value of non-current | | | | |
| financial assets and financial | | | | |
| liabilities held or issued to | | | | |
| finance the Group's operations: | | | | |
+----------------------------------+-----------+-----------+-----------+-----------+
| Convertible bonds (Note 18) | (142,511) | (134,222) | (167,612) | (170,150) |
+----------------------------------+-----------+-----------+-----------+-----------+
| USD and GBP loan notes (Note 18) | (313,934) | (287,941) | (230,710) | (254,046) |
+----------------------------------+-----------+-----------+-----------+-----------+
| Loan notes receivable (Note 15) | 7,528 | 7,528 | 5,383 | 5,383 |
+----------------------------------+-----------+-----------+-----------+-----------+
| Deferred acquisition liability | (14,113) | (14,113) | (9,392) | (9,392) |
| (Note 20) | | | | |
+----------------------------------+-----------+-----------+-----------+-----------+
| Fair value of other financial | | | | |
| assets and financial liabilities | | | | |
| held or issued to finance the | | | | |
| Group's operations: | | | | |
+----------------------------------+-----------+-----------+-----------+-----------+
| Trade and other payables (Note | (151,600) | (151,600) | (115,724) | (115,724) |
| 17) | | | | |
+----------------------------------+-----------+-----------+-----------+-----------+
| Deferred acquisition liability | (1,350) | (1,350) | (3,100) | (3,100) |
| (Note 17) | | | | |
+----------------------------------+-----------+-----------+-----------+-----------+
| Trade and other receivables | 118,916 | 118,916 | 107,324 | 107,324 |
| (Note 15) | | | | |
+----------------------------------+-----------+-----------+-----------+-----------+
| (Bank overdraft)/Cash at bank | (9,017) | (9,017) | 3,825 | 3,825 |
| and in hand (Note 16) | | | | |
+----------------------------------+-----------+-----------+-----------+-----------+
| Cash on short term deposit (Note | 24,704 | 24,704 | 154,620 | 154,620 |
| 16) | | | | |
+----------------------------------+-----------+-----------+-----------+-----------+
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