RNS Number:2411G
Equator Exploration Limited
23 October 2007
For Immediate Release 24 October 2007
Equator Exploration Limited
("Equator")
Set out below is the full text of Equator's Report and Accounts for the year
ended 31 December 2006 which have been posted to shareholders; and is available
on the Company's website: www.equatorexploration.com
ANNUAL REPORT AND
FINANCIAL STATEMENT 2006
Chief Executive's Statement
Events during 2006
Early in the year, we took steps to increase and diversify our portfolio with
the acquisition of interests in three additional offshore blocks. In March 2006,
Equator signed two Production Sharing Contracts ('PSC') with the Nigeria
National Petroleum Corporation and was awarded 30% interests in both blocks OPL
323 and OPL 321, offshore Nigeria. The Company also signed a PSC with the
Nigeria/Sao Tome e Principe Joint Development Authority and was awarded a 6%
interest in Block 2 of the Joint Development Zone, which was subsequently
increased to 9%.
In order to enable the Company to fund these investments and to support the
exploration, appraisal and development programme for OML 122, in February 2006
we placed 41,050,900 new common shares with institutional investors at a price
per share of 350p (US$6.09) for total proceeds of #143.7million (US$250million).
In August, the Company raised US$65million of debt from a syndicate of
shareholders to provide further funding for the capital development of the
Bilabri Field.
The Company continued the development of the Bilabri Field on OML 122, offshore
Nigeria, ordering long lead items and contracting a Floating Production, Storage
and Offtake Vessel ('FPSO') with BW Offshore. Drilling continued with the
Owanare AX-1 exploration well and then three Bilabri appraisal/development
wells. However, as a result of these activities, the volumes of oil in the
Bilabri Field and of the new gas reserves discovered in the Bilabri and Owanare
Fields turned out to be less than originally anticipated.
During 2006, the Company took steps to add expertise to the Board and
Management. In May, Dr Kenneth Seymour was appointed General Manager in
Nigeria, in August, Jeffrey Auld was appointed as Chief Financial Officer and,
in September, Russ Guyatt was appointed Vice President, Technical. However, at
the December Annual General Meeting, James Ladner resigned as a director and
Jean-Luc Vermeulen also stepped down as an advisor to the Board.
Events during 2007
In February 2007, Alexander Dembitz retired unexpectedly from the Board due to
personal reasons. In March, Jeffrey Auld resigned as Chief Financial Officer
and director and Martin Adams and Tony Renton were appointed non-executive
directors. Also in March, Philip Rand was appointed Chief Financial Officer and
a director. In July, our Chairman, Sam Jonah, resigned and, at the end of
September, Baroness Chalker also resigned from the Board.
The Company's operations on the Bilabri Field development suffered from ongoing
security issues including another kidnapping of rig personnel which resulted in
protracted inactivity and culminated in the termination of both the drilling rig
contract and the FPSO contract. This has put sole funding of the remainder of
the project by Equator in some doubt. In September, Equator transferred the
responsibility of completing the project to Peak, while retaining a smaller
interest in future oil and gas production. Consequently, your Board considers
it prudent to make a provision of US$200million, equal to the cumulative
expenditure in OML 122 to the end of 2006, to ensure that the likely value is
represented conservatively in the financial statements.
On 11 June, the Company announced that it had entered into a conditional Merger
Agreement relating to a proposed merger, by reverse takeover, of Equator and
Camac Energy Holdings Limited, a wholly owned subsidiary of Camac International
Limited. The merger negotiations were terminated in August when it became clear
that it was not going to be possible to produce the admission document required
under the rules of the Alternative Investment Market.
Finally, we are encouraged with the farm-out of a 20% interest in OPL 323 to BG
Exploration and Production Nigeria Limited. The proceeds, together with recently
arranged short-term loans of US$22.5million and the further farm-outs
contemplated in the near future, are expected to provide the Company with
required working capital for the near to mid term.
Results and dividend
The Company made a loss of US$235.7million in the year, an increase of
US$229.7million over the 2005 loss of US$6.0million. This result reflects both
the provision of US$200million against potential recoveries from OML 122 and the
write down of pre-license costs incurred during the year of US$23.9million. In
addition, a charge of US$4.0million was recorded in the 2006 accounts (2005:
US$4.1million) in respect of share based payments. The underlying loss of
US$7.7million reflects the significant increase in operating and investing
activities during the year. Whilst 2005 costs are for a part year only, the
costs in 2006 include a full year of both additional staffing in Nigeria and
additional costs relating to offices, systems and infrastructure.
The Company has not paid a dividend during the year and no dividend is proposed
for 2006 (2005: US$Nil).
Future prospects
West Africa is one of the most prolific deep water exploration and production
regions in the world. The Company remains very positive about the inherent value
of its exploration assets and its access to the prolific hydrocarbon
prospectivity in the region. We will continue to accelerate cash flow from our
deep water assets, while reducing risk, by farming-out a part of our interests
in these blocks. The farm-out to BG confirms wider industry interest in our
exploration assets.
The Board acknowledges and wishes to express its gratitude for the commitment
and determination of our staff, particularly during some challenging months for
the Company. Also, the directors wish to recognize the extensive support of
shareholders, business partners and suppliers.
Wade Cherwayko
Chief Executive
23 October 2007
Enquiries:
Equator +44 (0)207 235 2555
Philip Rand
Chief Financial Officer
Beaumont Cornish Limited (Nominated Adviser to +44 (0)207 628 3396
Equator)
Roland Cornish
Fox-Davies Capital Limited (Broker to Equator) +44 (0)207 936 5234
Richard Hail
Buchanan Communications +44 (0)207 466 5000
Bobby Morse/Ben Willey
Asset Review
During 2006, the Company set up offices in Lagos and Port Harcourt and built an
operations team of some 20 high quality, motivated staff, both employees and
contractors. Many of the staff have been seconded to the joint operations team
established to manage the exploration and development activities in OML 122,
offshore Nigeria, with the operator and sole lessee of the block, Peak Petroleum
Industries Nigeria Limited ('Peak').
Equator intends to continue to operate with the highest ethical standards,
partnering with first class companies that have shown themselves to be excellent
in their field.
Nigeria - OML 122
OML 122 is located 25 to 60km offshore in water depths of 40 to 300 metres. It
covers an area of 1,295 square km on the Western Niger Delta, east of the giant
Bonga Field on OML 118 and southwest of the EA Field on OML 79, both operated by
Shell.
In April 2005, Equator signed a Finance and Service Agreement with Peak. In
return for providing funds and supplying technical services for an appraisal
well on each of two discoveries and for a selected exploration well, Equator was
entitled to a share of the revenues from the oil and gas production of
subsequent developments. The Company's objective was to work jointly with Peak
to prove significant volumes of gas to supply the gas utilisation projects being
developed or planned in close proximity to the lease. In addition, it had a
near term objective of developing the oil reservoir discovered in the Bilabri
field.
In September 2005, Equator and Peak signed a contract to lease the services of
the 'Bulford Dolphin' semi-submersible drilling rig and, in November 2005,
commenced drilling their first well, Bilabri DX-1, on a discovery made in the
1970's. The extent of the existing hydrocarbon reservoirs exceeded expectations
and, furthermore, the well discovered additional gas reservoirs. On test, the
21 metre oil column in the C2 sand flowed crude oil with a specific gravity of
39 degrees API at a rate of 7,188 barrels per day and the gas reservoir in the
overlying C1 sand flowed at a rate of 26 million standard cubic feet per day.
The flow testing, combined with the well logs, confirmed that the reservoir
properties and crude oil quality of Bilabri were excellent. In addition,
pressure data suggested that the C1 and C2 sands were in communication, with the
oil leg extending from the C2 sand into the overlying C1 sand. Initial
independent analysis of the field indicated that it held Proved plus Probable
reserves of 42 million barrels of oil. Based on this interpretation, Equator
and Peak initiated a development programme consisting of 6 wells. A contract
for the supply of an ('FPSO') was signed with BW Offshore on 17 October 2006.
Following the DX-1 well, the Owanare prospect was selected for the exploration
well and the AX-1 well was drilled. Gas was discovered in three reservoirs and
the well suspended for a future development.
The Bilabri field was then further appraised with wells D2, D3 and D4. During
the drilling programme, operations were disrupted on three occasions when the
field was invaded by militants from the Niger Delta. On two occasions, crew
members were taken as hostages. Also, Peak defaulted on the cash calls for its
share of project expenditure.
The three additional appraisal wells established that the aerial extent of the
C2 sand was larger than expected but determined that the C1 sand contained gas
only. Netherland, Sewell and Associates, Inc ('NSAI'), Independent Competent
Person to the Company, assessed the Proved plus Probable reserves as 13.2
million barrels (see table 1 below). In terms of gas, the Best Estimate of
Gross Contingent Resources by NSAI was 395 billion standard cubic feet for the
Bilabri Field and 106 billion standard cubic feet for the Owanare discovery,
giving a total Gross Contingent Gas Resource of 500 billion standard cubic feet
discovered by wells funded by Equator in OML 122.
Based on the results from the appraisal drilling, the scope of the Bilabri oil
development was reduced from six to three wells, comprising two horizontal
completions of the existing D2 and D4 wells plus a vertical completion of the
existing DX-1 well. The FPSO entered the Sembawang shipyard in Singapore on 22
January 2007 for upgrade and delivery in Nigeria in fourth quarter 2007. All of
the sub-sea equipment was ordered, scheduled for installation during fourth
quarter 2007. To 30 June 2007, Equator funded 100% of the cost of developing
Bilabri, with expenditure on OML 122 totalling US$270million. It was estimated
that an additional US$100million was required to get to first production.
However, during 2007 the project was beset with considerable operational and
security problems, including yet another kidnapping, which caused the shut down
of drilling operations. The contract for the Bulford Dolphin drilling rig was
terminated for prolonged force majeure on 11 May 2007. Subsequently, BW
Offshore terminated the contract for the FPSO.
In September 2007, Equator agreed terms with Peak for it to take over the
remaining development of the Bilabri oil project with finance made available by
a third party. Under the terms of the settlement agreement, Equator is to
receive an upfront payment and Peak will take over the current and future
project liabilities. Equator will also retain a carried interest of 5% in the
oil project and a paying interest of 12.5% in any gas development. Equator and
Peak continue to actively pursue development of the gas reserves and discussions
continue with third parties interested in purchasing the gas.
The Equator net values for reserves in the following Table 1 are yet to be
calculated by NSAI post the settlement agreement.
Table 1 - Bilabri Field
Oil Reserves1
As at 1 April 2007
Oil Reserves
Thousand Barrels
Category Gross Net2
Proved (1P) 10,280.0 tbc
Proved + Probable (2P) 13,160.0 tbc
Proved + Probable + Possible (3P) 16,450.0 tbc
(1) See Statement on Reserves and Resources by Competent Person;
(2) The Equator net values for reserves are yet to be calculated post the
settlement agreement.
Nigeria - OPL 323 and OPL 321
Equator's efforts in the Nigerian 2005 bid round were rewarded on 10 March 2006
when the Company signed two PSC's with the Nigeria National Petroleum
Corporation ('NNPC') for a 30% interest in each of the highly prospective deep
water blocks, OPL 323 and OPL 321. Having exercised their right of first
refusal, the Korean National Oil Corporation ('KNOC') was awarded a 60% interest
in the blocks and appointed operator. The remaining 10% was awarded to Local
Content Vehicles ('LCV's'), Tulip Energy Resources Nigeria Limited for OPL 321
and NJ Exploration Limited for OPL 323. Equator and KNOC carry the costs of the
two LCV's in proportion to their participating interests
The total signature bonus paid by Equator for the two PSC's was US$161.7million.
The Company granted carried interests, amounting to 4.00% in each block, to
bidding partners who, because of KNOC's right of first refusal, were prevented
from entering the PSC's directly.
Under the terms of the PSC's, Equator was obliged to provide performance bonds
of US$42million each to cover its share of the minimum work programmes of two
wells on each of the blocks. Equator has negotiated with a Nigerian bank to
provide the performance guarantees without the need for cash collateral.
Instead, the bank has accepted security over the wholly-owned subsidiaries that
hold the PSC's.
During 2006, KNOC established an operating office in Lagos, and on 7 June 2007,
Equator and its partners signed the Joint Operating Agreements. Equator
enhanced its interpretation of the 3D seismic survey, previously licensed from
Petroleum Geo-Services ASA ('PGS'), and then transferred the interpretation to
KNOC. In turn, KNOC is further refining the prospect evaluation in order to
identify the four exploration well locations. It is also negotiating with a
drilling contractor for the supply of a fifth generation deep water drilling rig
to commence drilling in 2009.
OPL 323
OPL 323 is located 80 kilometres offshore and lies in water depths of between
890 metres and 2,080 metres. Four large structures have been identified by
interpretation of the 3D seismic survey. Within each of the geological
structures there are several prospective horizons. Many of the prospect
horizons are supported by seismic amplitude anomalies. Furthermore, the
proximity of the block to large oil fields in the surrounding blocks supports
the presence of source rocks and abundant reservoir sands. OPL 323 is to the
west of the Abo Field in OML 125, operated by Agip, and immediately to the north
of the Bosi and Erha Fields in OML 133, operated by ExxonMobil. Erha has proved
reserves reported by ExxonMobil to be in excess of 500 million barrels and 5
trillion cubic feet of gas and, with its satellite development Erha North,
produces in excess of 200,000 barrels of oil per day. Bosi, the second field
development on OML 133, is expected to produce 135,000 barrels of oil per day.
NSAI has made a Best Estimate of Unrisked Prospective Resources lying within the
block of nearly 2 billion barrels of oil and nearly 9 trillion standard cubic
feet of gas (see table 2 below).
During 2006, Agip made a discovery of both oil and gas in the Okodo-1 well on
OML 125. This discovery had a direct impact on the prospectivity of the largest
prospect on OPL 323, located only 7 kilometres away. This prospect alone has
Best Estimate Unrisked Prospective Recoverable Resources of nearly 1 billion
barrels of oil and 6 trillion standard cubic feet of gas. It appears to lie in
the same channel as the Okodo discovery, which proved that the hanging wall of
the common major bounding fault forms a trap for hydrocarbons and that the
immediate area has sources of oil and gas and migration paths.
In August 2007, the Company announced the farm-out of two thirds of its 30%
interest in OPL 323 to BG Exploration and Production Nigeria Limited ('BG'), for
a total consideration of up to US$75million in cash and carry of the future
exploration work programme. The Company has applied to NNPC for approval of the
assignment of the interest in the PSC.
OPL 321
OPL 321 is located immediately to the west of OPL 323, lying in deeper water in
the range 1,900 to 2,600 metres. The block lies on trend with block OPL 322 to
the south, where Shell's recent discovery well Bobo-1 encountered a significant
column of hydrocarbons. It has access to the same hydrocarbon kitchens as the
giant Bosi and Erha Fields located nearby to the southeast. Assessment of the
block by NSAI confirms the presence of a very large prospect, which could
contain Unrisked Prospective Resources of 1.0 billion barrels of oil and 1.3
trillion standard cubic feet of gas at the Best Estimate level (see table 2
below).
The Company will seek to accelerate cash flow and reduce risk by farming-out a
portion of its interest the block in a deal similar to that achieved for OPL
323. Such a structure will limit the exposure by securing a carry on the
exploration costs of its remaining interest.
Table 2 - OPL 321 & OPL 323
Best Estimate Prospective Resources1
As at 1 October 2006
Unrisked Risked
Gross Equator Gross Equator Net
(100 Percent) Net Interest (100 Percent) Interest
(30 Percent)2 (30 Percent)2
Prospect Oil Gas Oil Gas Oil Gas Oil Gas
Cluster MMBBL BCF MMBBL BCF MMBBL BCF MMBBL BCF
323-G 992 6,392 298 1,918 361 1,840 108 552
323-O 265 1,431 80 429 65 362 20 109
323-W 401 524 120 157 138 187 41 56
323-L 261 449 78 135 79 150 24 45
321-E 1,005 1,351 302 405 275 369 83 111
Total 2,924 10,147 877 3,044 918 2,908 275 872
Totals may not add due to rounding
(1) See Statement on Reserves and Resources by Competent Person;
(2) The Equator net interest for OPL 323 is stated pre the farm-in at
30%. After approval of the assignment of an interest to BG by NNPC, the Equator
net interest in the PSC will be reduced to 10%.
Joint Development Zone - Block 2
The Joint Development Zone ('JDZ') lies between the Republic of Nigeria and the
Republic of Sao Tome e Principe. Under a treaty signed in 2001, the rights
to resources extracted from the JDZ are shared between the two countries in the
ratio 60 to 40 respectively. The JDZ is administered by the Joint Development
Authority ('JDA') which is staffed by officials from both countries. Following
the bidding round in 2005, Equator and one of its bidding partners, ONGC Videsh
Limited ('OVL'), were jointly awarded a 15% interest in the highly sought after
Block 2, of which Equator received a 6% interest.
Equator subsequently purchased an additional 3% interest from one of the other
participants in the block, A & Hatman Limited, increasing its total
participating interest to 9%. From this, the Company granted a bidding partner
an economic interest equivalent to a 0.25% carried interest in the block. The
result is that Equator acquired a net economic interest of 8.75% in Block 2 for
a total entry cost of US$9.05million, with an obligation to carry a combined
interest of 1.25% during the initial exploration phase. Deferred consideration
payments, to a maximum of US$6million depending on the level of oil reserves,
may become payable upon approval of a field development.
The PSC was signed with the JDA on 17 March 2006. The participants and their
interests are shown in the following table 3:
Table 3 - Participants in Block 2, JDZ
Participants Participating Working
Share share
% %
Sinopec (operator) 28.67 43.34
EHRC 22.00 0.00
Addax 14.33 21.66
OVL 13.50 15.00
Equator 9.00 10.00
Amber Petroleum 5.00 5.00
Foby Engineering 5.00 5.00
A & Hatman 2.50 0.00
100.00 100.00
JDZ Block 2 lies in a prospective area of the deep water Niger basin. It is
adjacent to Nigerian Block OML 130, which hosts the 600 million barrel/1 TCF
Akpo field (Total 2007) and series of significant discoveries.
During Q2 2006, Chevron and Exxon encountered reservoir sands and discovered oil
and gas in the Obo-1 well drilled in the adjoining Block 1. This has improved
the Company's chances for success on Block 2 and has also improved the
prospectivity of the Exclusive Economic Zone of Sao Tome e Principe, where
Equator has an option on two blocks.
Based on a 3D seismic survey acquired in 2003 by PGS and partially funded by
Equator, NSAI has made a Best Estimate of Unrisked Prospective Resources of 1.3
billion barrels of oil and 1.8 trillion standard cubic feet of gas in total in
the 10 identified prospects (see table 4 below).
Table 4 - JDZ Block 2
Best Estimate Prospective Resources 1
As at 1 October 2006
Unrisked Risked
Gross Equator Net Gross Equator Net
(100 Percent) Interest (100 Percent) Interest
(9 Percent) (9 Percent)
Prospect Oil Gas Oil Gas Oil Gas Oil Gas
Cluster MMBBL BCF MMBBL BCF MMBBL BCF MMBBL BCF
Central 369 403 33 36 100 109 9 10
North 410 807 37 73 111 282 10 25
South 440 501 40 45 111 126 10 11
Subthrust 130 158 12 14 30 36 3 3
Total 1,349 1,869 121 168 352 553 32 50
Totals may not add due to rounding
(1) See Statement on Reserves and Resources by Competent Person
Sinopec, the operator, has established its team and office in Lagos. On behalf
of the participants, it has engaged a specialist Shanghai firm, Sino Geophysical
Co. Ltd, to reprocess the 3D seismic survey using Pre-Stack Time Migration and
state-of-art Common Reflection Surface stack processing. Sinopec has proceeded
to interpret the reprocessed data, evaluate the prospects and rank them for
drilling.
In March 2007, Sinopec and Addax Petroleum entered into a drilling services
agreement with Aban Abraham Pte Ltd. for the provision of the Aban Abraham deep
water drillship to drill up to ten wells. The rig sharing agreement between
Sinopec and Addax allocates a firm well slot to Sinopec which will be used to
drill a well in Block 2 in the second half of 2008. This will fulfil the sole
well commitment under the PSC. The rig sharing agreement also allows Sinopec to
access more slots for appraisal drilling and for the exploration of more
prospects in Block 2. In the conditions of today's tight market for drilling
rigs, the maximum day rate of US$410,000 per day is considered attractive.
Exclusive Economic Zone of Sao Tome e Principe
The maritime boundaries of Sao Tome e Principe encompass an area of
approximately 160,000 square kilometres. The close proximity of Sao Tome e
Principe's offshore waters to the proven hydrocarbon systems in the adjacent
waters of Nigeria, Cameroon, Equatorial Guinea and Gabon suggests the potential
for hydrocarbons, which is further supported by regional seismic data.
In a joint venture with PGS, Equator funded the acquisition in 2001 and 2005 of
ten thousand kilometres of 2D seismic data and interpreted more than twenty
thousand kilometres within the Exclusive Economic Zone of Sao Tome e Principe
('EEZ'). It was agreed with the government that licences for the seismic data
will be sold to oil companies to promote an oil exploration licensing round. In
return, Equator gained the right to acquire a 100% interest in two blocks of its
choice. In addition, the Company has an option to take up to a 15% share in any
eventual back-in participation that the government may secure in other blocks.
During 2006, the Company prepared for its choice of blocks by enhancing its
interpretation of the 2D seismic surveys and by ranking the prospectivity of the
various areas of the EEZ. During 2007, the government has continued to work
with its legal and technical advisers on the delineation of blocks and on
drafting new petroleum legislation, including a model PSC. Equator expects to
commence formal negotiations for the PSC's for the two option blocks early in
2008.
Equator intends to enhance the value of its opportunity in the EEZ by seeking a
farm out to an acknowledged deep water operator.
Statement on Reserves and Resources by Competent Person
October 19, 2007
The Directors
Equator Exploration Limited
192 Sloane Street, Third Floor
London SW1X 9QX
United Kingdom
Re: Technical Reports of Netherland, Sewell & Associates, Inc.
Dear Sirs:
In accordance with the request of Equator Exploration Limited (Equator),
Netherland, Sewell & Associates, Inc. (NSAI) has evaluated the holdings of
Equator in Oil Mining Lease 122, as of April 1, 2007, and Oil Prospecting
Licenses (OPLs) 321 and 323 and Block 2 of the Joint Development Zone of Nigeria
and Sao Tome and Principe, as of October 1, 2006. These assets include
reserves, contingent resources, and prospective resources. We have been asked to
provide an updated comment on the reserves and resources estimates prepared on
behalf of Equator.
We draw your attention to the following points:
* The recoverable oil volumes in Bilabri Field are classified as
reserves based on assurance that the field will be developed within a reasonable
time frame, which we take to be a maximum of five years from the date of
evaluation. Significant delays to development planning would require these
volumes to be reclassified as contingent resources.
* The Equator net interest for OPL 323, as stated in our report dated
December 14, 2006, is 30 percent. This interest may be reduced to 10 percent
pending approval by Nigerian National Petroleum Corporation for Equator's
farmout of 20 percent of its interest to BG Exploration and Production Nigeria
Limited.
Our work was undertaken by a team of professional petroleum engineers and
geoscientists based on data supplied by Equator. Equator has made available to
NSAI a data set of technical information including geological, geophysical, and
engineering data and reports together with financial data pertaining to the
fiscal terms applicable to the assets. We have relied on this information in
carrying out our evaluation. In estimating petroleum in place, reserves, and
resources we have used standard petroleum engineering techniques. The estimates
in our reports have been prepared in accordance with the 1997 joint definitions
of the Society of Petroleum Engineers, the World Petroleum Council, and the
American Association of Petroleum Geologists.
Qualifications
NSAI performs consulting petroleum engineering services under Texas Board of
Professional Engineers Registration No. F-002699 and has conducted reserves and
resources certifications, technical studies, economic evaluations, and advisory
work throughout the world. In preparation of its reports, NSAI has maintained,
and continues to maintain, a professional consultant-client relationship with
Equator. We are independent petroleum engineers, geologists, geophysicists, and
petrophysicists; we do not own an interest in these properties and are not
employed on a contingent basis.
Consent of NSAI
October 19, 2007
Page 2
Correct Extraction
NSAI has reviewed the Annual Report and Financial Statement 2006 (Annual Report)
of Equator and confirms that the information contained therein, which relates to
information contained in its reports, is accurate, balanced, and complete and
not inconsistent with such reports. In particular, NSAI confirms that the
information in the Annual Report, where extracted from its reports, is extracted
directly and presented in a manner that does not affect its import in this
report for the purposes of the AIM Rules for Companies, AIM Rules for Nominated
Advisers, and the Guidance Note for Mining, Oil and Gas Companies.
Consent
We hereby give our written consent for the inclusion of our reports and to
references to our reports contained in the Annual Report and to our name in the
Annual Report in the form and context in which they appear.
Basis of Opinion
The evaluations presented in our reports reflect our informed judgment based on
accepted standards of professional investigation but are subject to generally
recognized uncertainties associated with the interpretation of geological,
geophysical, and engineering data. The evaluations have been conducted within
our understanding of petroleum legislation, taxation, and other regulations that
currently apply to these interests.
In particular, it should be noted that the technical reports relate to three
different categories of assets:
Reserves are those quantities of petroleum which are anticipated to be
commercially recovered from known accumulations from a given date forward. Their
estimated value can be expressed in terms of Net Present Value (NPV). The
relative degree of uncertainty may be conveyed by placing reserves into one of
two principal classifications, either proved or unproved. Unproved reserves are
less certain to be recovered than proved reserves and may be further
sub-classified as probable and possible reserves to denote progressively
increasing uncertainty in their recoverability.
Proved Reserves are those quantities of petroleum which, by analysis of
geological and engineering data, can be estimated with reasonable certainty to
be commercially recoverable, from a given date forward, from known reservoirs
and under current economic conditions, operating methods, and government
regulations.
Probable Reserves are those unproved reserves which analysis of geological and
engineering data suggests are more likely than not to be recoverable.
Possible Reserves are those unproved reserves which analysis of geological and
engineering data suggests are less likely to be recoverable than probable
reserves.
Contingent Resources are defined as those quantities of petroleum estimated, as
of a given date, to be potentially recoverable from known accumulations but for
which the applied project(s) are not yet considered to be mature enough for
commercial development because of one or more contingencies. Development of the
discovered resources is contingent upon both regulatory and commercial
considerations.
Consent of NSAI
October 19, 2007
Page 3
Prospective Resources are those quantities of petroleum which are estimated, on
a given date, to be potentially recoverable from undiscovered accumulations.
Prospective Resources indicate exploration opportunities and development
potential in the event a commercial discovery is made and should not be
construed as reserves or contingent resources.
It should also be understood that any evaluation, particularly one involving
exploration and future petroleum developments, may be subject to significant
variations over short periods of time as new information becomes available.
Sincerely,
NETHERLAND, SEWELL & ASSOCIATES, INC.
By: ___________________________________
C.H. (Scott) Rees III, P.E.
President and Chief Operating Officer
Board of Directors and Senior Executives
Wade Cherwayko
President & Chief Executive Officer
Over the last fourteen years, Mr. Cherwayko has been active in negotiating,
developing and financing a number of projects in West and North Africa. Such
projects have included the acquisition, financing, exploration and development
of several onshore and offshore oil and gas assets for Mart Resources Inc.,
Abacan Resource Corporation, Centurion Energy International Inc. and Yinka
Folawiyo Petroleum Company Ltd. He is also a director of Mart Resources Inc.
Philip Dimmock
Chief Operating Officer
Prior to joining Equator, Mr. Dimmock served as general manager of operations of
Houston-based Vanco where he oversaw the company's exploration activities in
Africa, including the drilling of deepwater wells in Morocco and Cote d'Ivoire.
Prior thereto, he was Vice President International for Ranger Oil, directing
business development and operations in the United Kingdom and a number of West
African countries. Mr. Dimmock began his career at British Petroleum where he
spent 26 years and held a number of senior positions. He also serves as a
non-executive director of Nautical Petroleum PLC.
Philip Rand
Chief Financial Officer and Company Secretary
Mr. Rand has over thirty years of financial experience of which seventeen have
been in the upstream energy sector. Prior to joining Equator, he was chief
financial officer of Burren Energy, group treasurer of Monument Oil & Gas and
held senior financial roles at Deminex and Louisiana Land & Exploration. Mr.
Rand was also finance director of Utilyx and group treasurer of both Sema Group
and CMG. Mr. Rand is a Fellow of the Association of Corporate Treasurers.
Tony Renton
Non-executive Director
Mr Renton is currently Chief Executive of Oil Experience Ltd, an oil and gas
consultancy based in London. Prior to this he spent 34 years with BP in a number
of technical, commercial and management roles across Europe, the US, West
Africa, the Far East, Australasia and most recently as Commercial Director
responsible for business development across the Middle East. He is also a
Director of Berkshire Aviation Services Limited.
Martin Adams
Non-executive Director
An independent specialist in the management and reorganisation of closed end
funds and investments in emerging markets, Mr Adams has over 25 years investment
and banking experience in Asia and Europe. During the past five years, he has
focused particularly on representing and protecting shareholder interests in
listed and unlisted funds and companies in a number of different countries.
Among his current non-executive positions, Mr Adams is chairman of funds in
India and Hungary and a director of investment companies specializing in China,
in global emerging markets and in smaller companies the US and UK. He is also
chairman of Mekong Capital, the investment manager of three private equity funds
in Vietnam.
Dr Kenneth Seymour
Managing Director - Nigeria
Prior to joining Equator in June 2006, Dr. Seymour was an independent consultant
and served Roc Oil as their General Manager in Angola. Previously, he developed
his career in Ranger Oil in positions ranging from senior drilling engineer to
general manager. He was the Director of Business Development when Ranger was
sold to Canadian Natural Resources. His started his career with BP as a
drilling engineer in the North Sea and China followed by a spell with Danbury
Drilling as a consulting engineer.
Russ Guyatt
Vice President - Technical
Russ Guyatt has over 25 years experience working for Operating Oil Companies
over a broad range of engineering disciplines. Specifically has been involved in
and project managed a number of FPSO and subsea projects in West Africa and the
North Sea. Prior to joining Equator he spent 5 years as Vice President,
Engineering for PanOcean Energy and 17 years with Ranger Oil, latterly Canadian
Natural Resources in a number of senior engineering roles, having started his
career with British Gas as a Reservoir Engineer.
Stacey Kivel,
Vice President - Business Development, Legal Affairs
Prior to joining Equator, Ms. Kivel represented major US and European
corporations regarding legal and business development in more than thirty
African countries; working at presidential or ministerial levels. Her experience
included heading the Africa / Middle East Government Relations and Business
Development Division of Institutional Investor Inc. Prior to her involvement in
Africa, Ms. Kivel was in-house legal council and head of acquisitions
consecutively for Cinequanon International and Image Organisation in Los
Angeles, specialising in negotiating international licensing and finance
agreements. She is a California qualified attorney at law.
Corporate Governance
Corporate Governance Statement
The directors are committed to applying the Combined Code applicable to listed
Companies. As an AIM quoted company, the Company is complying with all the
recommendations applicable to a company of its current size. The Company has a
Governance Handbook, which covers Board and general Corporate Governance.
Board Structure
The Board is accountable to shareholders for the effective management of the
Company.
During 2006, the Board consisted of four executive directors and three
non-executive directors. The Board met quarterly for full meetings and, on
several other occasions, to give attention to individual issues immediately they
arose. The Board has a schedule of matters specifically referred to it for
decision. These include strategy and policy, risk management, structure and
capital, financial reporting and controls and major capital projects,
investments, acquisitions, divestments and contracts.
Board Committees
The Board has established the following Committees:
Audit Committee
This Committee provides the link between the auditors and the Board,
independently of the Company's executives. It assists the Board in fulfilling
its responsibilities in relation to financial reporting and control. The
Committee met four times during the year. The members were Alexander Dembitz
(Chairman), James Ladner and Baroness Chalker, all non-executive directors. All
have since retired from the Committee when they left the Board, James Ladner in
December 2006, Alexander Dembitz in February 2007 and Baroness Chalker in
September 2007.
Currently, Martin Adams is Chairman of the Committee and Tony Renton is a
member, both non-executive directors.
Nomination and Governance Committee
This Committee makes recommendations on corporate governance to the Board. It is
then accountable for evaluating the performance of the Company against these
recommendations and for determining the independence of non-executive directors.
It also leads the process for succession planning and appointments to the Board.
The Committee met four times during the year. The members were Baroness Chalker
(Chairman), Sam Jonah and Alexander Dembitz. All have since retired from the
Committee, Alexander Dembitz in February 2007, Sam Jonah in July 2007 and
Baroness Chalker in September 2007.
Martin Adams and Tony Renton serve as members.
Compensation Committee
This Committee makes recommendations on executive remuneration, benefits and
bonuses to the Board. The Committee met four times during the year. The
members were James Ladner (Chairman), Alexander Dembitz, Sam Jonah and Baroness
Chalker. All have subsequently resigned, as above.
Currently, the Committee is chaired by Tony Renton and Martin Adams is a member.
Internal Controls
The Board has responsibility for establishing and maintaining the Company's
system of internal controls and reviewing its effectiveness. The procedures
which include inter alia financial, operational and compliance matters and risk
management are reviewed on an on-going basis by the relevant Board Committee and
as part of the Schedule of Matters Reserved for the meetings of the full Board.
The internal control system can only provide reasonable and not absolute
assurance against material misstatement or loss. The Board has considered the
need for an internal audit function but does not consider it necessary at the
current time.
Relations with shareholders
The Board is fully committed to maintaining regular and effective communications
with shareholders. In addition to the Annual General Meeting there is regular
dialogue and meetings with the larger shareholders and enquiries are received
and are welcomed from all shareholders. The Company's website
www.equatorexploration.com is also regularly updated with Press Releases and
statements and shareholders are invited to visit and comment on this website.
Directors Service Agreements
No directors have service or consultancy agreements with a notice period in
excess of one year.
Corporate and Social Responsibility Statement
The Group is an ethical company, working in compliance with laws and regulations
wherever we operate. This statement summarises the policies and standards that
are in place to guide the appropriate ethical and professional behaviour for all
employees, directors and contractors to the Group.
Ethics
The Company requires that all employees and directors should always act with the
highest standards of honesty, integrity and fairness in all their business
dealings with others, wherever they may be operating. We are committed to
transparency in all our dealings.
Conflicts of Interest
The Nomination and Governance Committee of the Board monitors to ensure that all
employees and directors avoid conflicts of interest between their private
financial and personal activities and their role in the conduct of Company
business.
Health, Safety and the Environment
The Company places a high degree of importance on health, safety and the
environment and the well being of all those connected to it and its activities.
Specific policies are supported by the HSE Management System Framework that
documents the responsibilities and activities of every employee in the Company
with respect to HSE.
Communities
The Company places a high value on the support of and the endorsement of its
activities by the communities in which it operates. We assist those communities
where we can, for example by providing training and medical supplies to
communities in Nigeria and Sao Tome e Principe.
Employees
The Company is committed to creating a work environment of mutual trust where
every employee is treated with dignity and respect. Our policy is to recruit,
select, develop and promote employees on merit, irrespective of race, colour,
gender, religion, age, national origin, sexual orientation, marital status or
disability.
Public and Political Activities
The Group neither supports political parties nor contributes to the funds of
groups whose activities are calculated to promote partisan party interests.
Therefore no political donations for the financial year 2006 were paid.
EQUATOR EXPLORATION LIMITED
Financial statements
31 December 2006
EQUATOR EXPLORATION LIMITED
Financial statements for the year ended 31 December 2006
Contents Page
Officers and professional advisors 1
Directors' report 2 - 6
Statement of directors' responsibilities 7
Independent auditors' report 8 - 9
Consolidated income statement 10
Company income statement 11
Consolidated balance sheet 12
Company balance sheet 13
Consolidated statement of changes in equity 14
Company statement of changes in equity 15
Consolidated cash flow statement 16
Company cash flow 17
Notes to the financial statements 18 - 39
Officers and professional advisers
Directors
S E Jonah, KBE, OSG - Executive Chairman (resigned - 20 July 2007)
Baroness Chalker of Wallasey (resigned - 28 September 2007)
Mr W Cherwayko
Mr M Adams (appointed - 16 March 2007)
Mr J Auld (appointed - 15 August 2006, resigned - 12 March 2007)
Mr A Dembitz (resigned - 16 February 2007)
Mr P Dimmock
Mr J Ladner (resigned - 6 December 2006)
Mr P Rand (appointed - 13 March 2007)
Mr A Renton (appointed - 16 March 2007)
Registered office
Craigmuir Chambers
PO Box 71
Road Town
Tortola, British Virgin Islands
Registered Agent
HWR Services Limited
Craigmuir Chambers
PO Box 71
Road Town
Tortola, British Virgin Islands
Solicitors
Pinsent Masons
30 Aylesbury Street
London EC1R 0ER
Harney Westwood & Riegels
Craigmuir Chambers
PO Box 71
Road Town
Tortola, British Virgin Islands
Auditors
PricewaterhouseCoopers LLP
Chartered Accountants and Registered Auditors
1 Embankment Place
London WC2N 6RH
Broker
Fox-Davies Capital
1st Floor, Whitefriars House
6, Carmelite St
London EC4Y OBS
Nominated Advisors
Beaumont Cornish Limited
5th Floor
10-12 Copthall Avenue
London EC2R 7DE
Registrars
Computershare Investor Services (Channel Islands) Limited
PO Box 83, Ordnance House
31 Pier Road
St Helier, Jersey JE4 8PW
Channel Islands
Directors' report for the year ended 31 December 2006
The directors submit their report and the audited financial statements of the
Group for the year ended 31 December 2006.
Principal activity
Equator Exploration Limited ('Equator' or the 'Company') is a company
incorporated in the British Virgin Islands. The address of the registered office
is given on page 1.
Equator Exploration Limited and its subsidiaries engage in the exploration and
development of offshore oil and gas projects in West Africa. The Group's
objective is to build a diversified portfolio of exploration, appraisal and
production assets in this region.
Review of the business
Development of OML 122 with Peak Petroleum Industries Nigeria Limited ('Peak')
Drilling operations in OML 122, undertaken with the licence holder and operator
Peak Petroleum Industries Nigeria Limited, continued with finalisation of the
Bilabri DX-1 appraisal well. The well commenced in November 2005 and was
finished in February 2006. It confirmed the presence of the previously
discovered oil and gas reservoirs, and discovered new gas reservoirs in the
Bilabri field.
The drilling of the exploration well, Owanare AX-1 followed immediately. This
well discovered gas in shallow zones but drilling was unable to reach the deeper
objectives as a result of high pressure and temperature. The well is suspended
pending later re-entry for completion as a gas production well once a suitable
development plan has been identified and a gas market has been secured.
Following the Owanare AX-1 well, drilling operations continued with the
appraisal and development drilling programme for the Bilabri field. The
programme during 2006 included 3 wells (D2, D3 and D4) intended both to confirm
reserves and for subsequent completion as horizontal production wells in 2007.
Whilst the D2 well confirmed increased levels of reserves in the lower C2 sand
structure, the D3 well did not prove the reserves forecast to be in the higher
C1 sand structure. This resulted in a reduction in the expected recoverable
reserves from the Bilabri field to 13 million barrels at the 2P (Proven plus
Probable) level. The D4 well had not reached its target at the end of 2006 but
successfully appraised the field early in 2007. Additional gas reserves were
confirmed by these wells and it is expected that these will be developed as part
of a longer term gas project.
Both D3 and D4 encountered operational and technical problems resulting in the
loss of downhole tools. D3 was subsequently plugged and abandoned whilst D4 was
suspended for re-entry and horizontal completion as a production well.
The development of the Bilabri Field for oil production advanced well in terms
of the production and sub-sea facilities. The critical long lead items were
procured and a contract was secured for a Floating Production, Storage and
Offtake Vessel ('FPSO'), due for delivery in late 2007. However, following
major delays with drilling operations in 2007 caused by unrest in the Delta and
by operational problems on the rig, the contract for the drilling rig was
terminated for prolonged force majeure, as the directors considered that
continuation of the project with sole funding from Equator presented an
unacceptable risk. BW Offshore subsequently terminated the contract for the
FPSO. As explained in note 22 to the accounts, the FPSO contract contains early
termination penalties of up to US$52million under certain circumstances.
In September 2007, Equator agreed terms with Peak, to enable Peak to take over
the remaining development of the Bilabri oil project with finance made available
by a third party. Under the terms of the agreement, Equator is to receive an
upfront payment and Peak will assume the current and future project liabilities.
Equator will also receive a carried Net Profits Interest ('NPI') of 5% in the
oil project and a paying interest of 12.5% in any gas development. The Board
believe that the project can be continued and that there will be a significant
residual value. However, the Board consider it prudent to make a provision of
US$200million to account for the possibility of the Company not recovering all
of the historical costs.
Deep Water Nigeria OPL 321 and OPL 323
On 10 March 2006 the Company signed Production Sharing Contracts ('PSC's') for
OPL 321 and OPL 323, two of the most highly sought-after deep water blocks in
the 2005 Nigerian licensing round. The Korean National Oil Corporation ('KNOC')
is the operator of both blocks with a 60% equity interest in each, while Equator
has a 30% equity interest (net economic interest 26%). Under the terms of the
licensing round, local companies were awarded the remaining 10% equity interest.
The two blocks have several very large mapped prospects with gross risked
recoverable prospective resources estimated as 918 million barrels of oil and
2.9 billion standard cubic feet of gas by independent reservoir engineers
Netherland Sewell & Associates, Inc. ('NSAI'). Since year end, the Company has
accepted an offer of a farm-in to 20% of OPL 323 (see Note 23).
Joint Development Zone Block 2
On 17 March 2006, the Company signed a PSC for Block 2 in the Joint Development
Zone between Nigeria and Sao Tome e Principe. Equator's original allocation
of a net 6% equity interest was subsequently increased to 9% by a farm-in to the
interest of another participant. Equator has a net economic interest of 8.75%.
Block 2, which is operated by Sinopec of China, is adjacent to OPL 246 which
hosts the large Akpo field operated by Total. The Company posted a guarantee
for its share of one obligation well in the first 5 year exploration phase of
the PSC. The licence for a 3D seismic survey was purchased. The 3D seismic has
been reprocessed using advanced techniques and interpretation, aimed at
selecting the location of the well, continues. Recent drilling activity in the
region has increased our confidence that Block 2 has the potential to contain
significant reserves.
Sao Tome e Principe Exclusive Economic Zone Rights
Equator awaits the delineation of oil exploration blocks in the Exclusive
Economic Zone of Sao Tome e Principe, anticipated to be completed by the end
of 2007. A 2D seismic programme has been acquired and interpreted by the
Company. Upon completion of the block delineation, and pursuant to its
agreements with the government of Sao Tome e Principe, Equator will exercise
its right to select and acquire a 100% interest in two of the newly delineated
blocks. Once these blocks have been selected the Company will seek to negotiate
PSC's with the government.
Management and Directors
During 2006, two changes to the Board of Directors were announced. In August,
Jeffrey Auld was appointed as an executive director and in December, James
Ladner resigned as a non-executive director. In addition, the company made
several key senior appointments. Dr Kenneth Seymour was appointed as Managing
Director of Equator Exploration Nigeria Limited and Russell Guyatt was appointed
as Project Director specifically responsible for the Bilabri development
project.
During 2007, Alex Dembitz and Jeffrey Auld resigned as directors in February and
March respectively. In March also, Philip Rand was appointed as an executive
director and two new non-executive directors, Martin Adams and Tony Renton, were
appointed. In July, for personal reasons, Sam Jonah resigned from his position
as executive chairman and in September, due to other business commitments,
Baroness Chalker of Wallasey resigned from her position as non-executive
director.
Shares
As at 31 December 2006, there were 175,165,590 common shares issued. No further
shares have been issued since the balance sheet date. As at 31 December 2006,
there were 12,852,750 outstanding share options and 15,676,290 outstanding
warrants all of which are exchangeable into common shares at prices ranging from
US$1.00 per share to #3.05 per share.
Results and dividend
The group made a loss of US$235.65million in the year, an increase of
US$229.70million over the 2005 loss of US$5.95million (as restated). This is
mainly represented by a provision of US$200million against the value of
exploration and evaluation assets. In addition certain pre-licence costs
amounting to US$23.9million have been written off under IFRS rules. The
operational and investing activities of the group increased significantly during
the year as activity increased on the Company's projects resulting in an
increase in overheads including office and staff costs of US$3.5million. The
comparative costs in 2005 were for a part year only, whereas the costs in 2006
are for a complete year and include additional staffing in Nigeria and
additional costs relating to systems and infrastructure. In addition, a charge
of US$3.96million was recorded in the 2006 accounts (2005: US$4.13million,
restated after prior year adjustment of US$2.24million) in respect of share
based payments.
The Company has not paid a dividend during the year (2005: US$Nil).
Risk management
The Equator Group of companies operates in a difficult geographical area and in
an industry with a range of risks that have to be managed by the Company. The
Group's management assesses and evaluates these risks, both on a company-wide
basis and on specific projects. The Group's general philosophy is to pass risk
to its partners where they have greater control over the assets and liabilities
or where the cost of protection would be substantially lower. In those instances
where management deem a risk to be significant, it will consider protecting its
own exposure. The main risks to the Group and the mitigating action taken are
as follows:
Currency risk is managed by matching costs with income as far as possible. Each
of the companies within the Group accounts for its business in its functional
currency, US dollars, thereby minimising translation risk.
Interest rate risk on debt is not currently covered by financial instruments
because the rates are fixed between 10 and 14 per cent per annum in accordance
with loan agreements.
Economic risk to project cash flows is expected to be managed by structuring
financing to match debt repayment to project cash flows.
The risks of well blow-out and of oil pollution are covered, in line with
industry norms, through insurance policies that limit the Company's exposure to
an acceptable deductible amount and provide sufficient coverage for re-drilling.
Security in West Africa is a continuing concern and Equator's management takes
all reasonable precautions to ensure the safety of its own and its contractors'
staff, whether working onshore or offshore.
Financing
The group's Balance Sheet was strengthened as a result of an additional
US$250million of equity being raised through a placement of 41,050,900 shares in
February 2006 at #3.50 (US$6.09) per share. Certain options and warrants were
exercised during the year as explained in note 18. As a result an additional
2,597,500 common shares were issued at an average price of US$1.29 per share. In
addition, Equator completed a US$65million loan from certain of its shareholders
in August 2006 as a bridge to obtaining project or other debt to finance the
Bilabri development.
Future prospects
The Company has a portfolio of exploration and development projects in the
prospective waters in the Gulf of Guinea, offshore West Africa. During 2006 and
2007, exploration drilling in the areas surrounding the Company's blocks has
been encouraging. The discovery of hydrocarbons has increased the probability
that oil and gas have migrated into the prospects that lie within the blocks.
The prospects identified in the deep water offshore blocks have been evaluated
by NSAI with the following results for net Equator share of Prospective
Resources:
Table 1 - Best Estimate Prospective Resources (Equator Net Share)
Unrisked Risked
Oil Gas Oil Gas
million billion million billion
barrels cubic feet barrels cubic feet
OPL 321 302 405 83 111
OPL 3231 575 2,639 192 761
JDZ Block 2 121 168 32 50
Total 998 3,212 307 922
(1) The Equator net interest for OPL 323 is stated pre the farm-in at 30%.
After approval of the assignment of an interest to BG by NNPC, the Equator net
interest in the PSC will be reduced to 10%.
Litigation
There was no outstanding litigation at the end of 2006. Legal issues that have
arisen since the end of 2006 are explained fully in note 22.
Directors and their interests
The names of the directors who held office during the year and after the year
end are disclosed on page 1.
The following directors held the following interest in common shares for the
year ended 31 December 2005:
Number of common shares At 31 December At 31 December
2006 2005
Mr W Cherwayko 3,350,000 3,300,000
S E Jonah, KBE, OSG* (resigned - 20 July 2007) 426,472 426,472
Mr J Ladner (resigned - 6 December 2006) 468,000 468,000
* 176,472 common shares are held in the name of Pictet and Cie.
Directors held the following options to subscribe for common shares at 31
December 2006:
Note Exercise Number of Date of Date of Exercised Date
price shares grant expiry during year exercisable
from
Mr J Auld a #1.220 500,000 06/10/2006 05/10/2011 - 06/10/2008
Baroness Chalker of #1.560 150,000 22/07/2005 21/07/2010 - 22/07/2007
Wallasey
Mr W Cherwayko #1.000 1,600,000 23/11/2004 23/11/2014 - 23/11/2006
Mr W Cherwayko #2.068 400,000 09/11/2005 08/11/2010 - 09/11/2006
Mr A Dembitz #1.000 80,000 23/11/2004 23/11/2014 - 23/11/2006
Mr A Dembitz #1.560 20,000 22/07/2005 21/07/2010 - 22/07/2007
Mr P Dimmock #1.560 325,000 22/07/2005 21/07/2010 - 22/07/2007
Mr P Dimmock #2.068 200,000 09/11/2005 08/11/2010 - 09/11/2007
Mr P Dimmock #1.220 393,750 06/10/2006 05/10/2011 - 06/10/2008
S E Jonah, KBE, OSG #1.000 400,000 23/11/2004 23/11/2014 - 23/11/2006
S E Jonah, KBE, OSG #1.560 1,800,000 22/07/2005 21/07/2010 - 22/07/2007
Mr J Ladner b US$1.250 200,000 22/08/2003 21/08/2008 - 22/08/2003
Mr J Ladner #1.000 80,000 23/11/2004 23/11/2014 - 23/11/2006
Mr J Ladner #1.560 20,000 22/07/2005 21/07/2010 - 22/07/2007
Note a - J Auld's options were forfeit on his resignation
Note b - options vested at date of grant
All other options vest evenly over 2 years from the date of grant
Market price (pence/share)
At 31 December 2006 71.0
Range during year High 405.0
Low 52.0
Going concern
On 7 June 2007 the Company entered into an agreement with Camac Energy EP
Limited, a subsidiary of Camac International Limited, for the merger of its
wholly owned subsidiary, Camac Energy Holdings Limited ('CEHL'), and Equator.
The agreement included various refinancing provisions. On 31 August 2007, the
merger agreement was terminated by mutual consent. The directors have examined
the financial status of the Company and are of the opinion that there are
sufficient alternative funding sources available to the Group. These sources
include the farm out of 20 per cent of OPL 323 announced in August 2007 and the
new short term working capital facilities announced in September 2007.
Therefore the Board considers it appropriate to prepare the financial statements
on a going concern basis.
Statement of disclosure of information to auditors
So far as each of the directors is aware, there is no relevant audit information
of which the company's auditors are unaware.
Each of the directors has taken all the steps that he/she ought to have taken as
director in order to make himself/herself aware of any relevant audit
information and to establish that the company's auditors are aware of that
information.
Suspension of shares
On 4 May 2007, as a result of unusual activity in Equator's shares, the Company
announced that a corporate transaction was being discussed that could lead to
Equator acquiring a larger entity in the form of a reverse takeover. As a
result, trading in the shares was suspended. Details of the conditional proposed
merger with CEHL were announced on 11 June 2007. Following termination of the
merger agreement on 31 August 2007 and publication of these financial statements
and the interim statement as at 30 June 2007, trading in the shares is expected
to recommence.
Substantial shareholders
The following shareholders had interest in 3% or more of the voting capital of
the Company as at 31 December 2006:
Holder No. of shares %
Morstan Nominees Ltd 24,642,961 14.64
Bear Stearns Securities Corp 15,350,006 7.02
N.Y. Nominees Ltd 11,671,165 6.93
HSBC Global Custody Nominee (UK) td 8,854,863 5.26
Merrill Lynch International 8,222,118 4.88
Goldman Sachs Securities (Nominees) Ltd 7,756,696 5.87
Vidacos Nominees Ltd 7,478,939 4.44
Credit Suisse Securities (Europe) Ltd 7,221,061 4.29
Citigroup Global Markets UK Equity Ltd 7,000,000 4.16
Barclays Capital Nominees (no 3) Ltd 8,784,321 5.22
Euroclear Nominees Ltd 5,523,194 3.28
Credit Industriel & Commercial 5,199,191 3.09
The Bank of New York (Nominees) Ltd 4,766,303 3.60
Charitable donations
The Company made no charitable donations during the year but provided a supply
of medicines during a cholera epidemic to Sao Tome e Principe (2005: NIL).
Supplier payment policy
The Company's policy is to pay suppliers within the credit period granted by
each supplier.
Auditors
Chantrey Vellacott, the previous auditors resigned on 29 November 2006. The
directors appointed PricewaterhouseCoopers LLP to fill the casual vacancy and a
resolution for the re-appointment of PricewaterhouseCoopers LLP as auditors of
the Company is to be proposed at the forthcoming annual general meeting.
Wade Cherwayko
Director - Chief Executive
Philip Rand
Director - Chief Financial Officer
23 October 2007
Statement of directors' responsibilities
Under the Company's Articles of Association, the directors are responsible for
preparing financial statements for each financial year which give a true and
fair view of the state of affairs of the Company and the group and of the profit
or loss of the Company and group for that period. In preparing those financial
statements, the directors are required to:
* select suitable accounting policies and then apply them consistently;
* make judgements and estimates that are reasonable and prudent; and
* prepare the financial statements on the going concern basis unless it
is inappropriate to presume that the group will continue in business.
The directors confirm that they have complied with the above requirements in
preparing the financial statements.
The directors are responsible for the maintenance and integrity of the corporate
and financial information included on the Company's website.
Independent Auditors' Report to the Members of Equator Exploration Limited
We have audited the group and parent company financial statements (the ''
financial statements'') of Equator Exploration Limited for the year ended 31
December 2006 which comprise the Consolidated and Company Income Statements,
Consolidated and Company Balance Sheets, Consolidate and Company Cash Flow
Statements, Consolidated and Company Statements of Change in Shareholders'
Equity and the related notes. These financial statements have been prepared
under the accounting policies set out therein.
Respective responsibilities of directors and auditors
The directors' responsibilities for preparing the Annual Report and the
financial statements in accordance with applicable law and International
Financial Reporting Standards (IFRSs) are set out in the Statement of Directors'
Responsibilities.
Our responsibility is to audit the financial statements in accordance with
relevant legal and regulatory requirements and International Standards on
Auditing (UK and Ireland). This report, including the opinion, has been prepared
for and only for the company's members as a body in accordance with the terms of
our engagement letter and for no other purpose. We do not, in giving this
opinion, accept or assume responsibility for any other purpose or to any other
person to whom this report is shown or into whose hands it may come save where
expressly agreed by our prior consent in writing.
We report to you our opinion as to whether the financial statements give a true
and fair view. We report to you whether in our opinion the information given in
the Directors' Report is consistent with the financial statements. We also
report to you if, in our opinion, the company has not kept proper accounting
records, if we have not received all the information and explanations we require
for our audit, or if information specified by law regarding directors'
remuneration and other transactions is not disclosed.
We read other information contained in the Annual Report and consider whether it
is consistent with the audited financial statements. The other information
comprises only the Directors' Report and the Chief Executive's Statement. We
consider the implications for our report if we become aware of any apparent
misstatements or material inconsistencies with the financial statements. Our
responsibilities do not extend to any other information.
Basis of audit opinion
We conducted our audit in accordance with International Standards on Auditing
(UK and Ireland) issued by the Auditing Practices Board. An audit includes
examination, on a test basis, of evidence relevant to the amounts and
disclosures in the financial statements. It also includes an assessment of the
significant estimates and judgments made by the directors in the preparation of
the financial statements, and of whether the accounting policies are appropriate
to the group's and company's circumstances, consistently applied and adequately
disclosed.
We planned and performed our audit so as to obtain all the information and
explanations which we considered necessary in order to provide us with
sufficient evidence to give reasonable assurance that the financial statements
are free from material misstatement, whether caused by fraud or other
irregularity or error. In forming our opinion we also evaluated the overall
adequacy of the presentation of information in the financial statements.
Opinion
In our opinion:
* the group financial statements give a true and fair view, in
accordance with IFRS, of the state of the group's affairs as at 31 December 2006
and of its losses and cash flows for the year then ended;
* the parent company financial statements give a true and fair view, in
accordance with IFRS, of the state of the parent company's affairs as at 31
December 2006 and of its losses and cash flows for the year then ended;
* the information given in the Directors' Report is consistent with the
financial statements.
Emphasis of matter: Material uncertainty - Going concern
In forming our opinion, we have considered the adequacy of the disclosures made
in the financial statements concerning the basis of preparation. The financial
statements have been prepared on a going concern basis and, as described in the
accounting policies note on pages 18 to 23, this depends on the Company raising
adequate funding to enable it to meet its working capital requirements over the
next 12 months. Details of the circumstances relating to this material
uncertainty relating to going concern are described in the note on pages 18 to
23. Should sufficient financing not be available to the Company, the valuation
of certain assets, principally the exploration and evaluation assets, which are
valued at US$191million, may be impaired. The financial statements do not
include any adjustments that would result from a failure to obtain additional
funds. In view of the significance of this uncertainty, we consider that it
should be drawn to your attention but our opinion is not qualified in this
respect.
PricewaterhouseCoopers LLP
Chartered Accountants and Registered Auditors
London
23 October 2007
Consolidated income statement for the year ended
31 December 2006
2006 2005
Continuing operations Note US$'000 US$'000
(Restated)
Revenue 2 277 102
Cost of sales (807) (606)
Gross loss (530) (504)
Administrative expenses (2005 restated -
see note 2) (36,272) (8,682)
Exceptional item: impairment charge 2 (200,000) -
Loss from operations 3 (236,802) (9,186)
Finance income 6 6,282 3,233
Finance costs 6 (5,132) -
Finance income - net 1,150 3,233
Loss before income tax (235,652) (5,953)
Income tax expense - -
Loss for the year (235,652) (5,953)
Loss per share 7
Basic (US$1.35) (US$0.05)
Diluted (US$1.35) (US$0.05)
The notes on pages 18 to 39 form part of these financial statements.
Company income statement for the year ended
31 December 2006
2006 2005
Continuing operations Note US$'000 US$'000
(Restated)
Revenue 2 277 102
Cost of sales (807) (606)
Gross loss (530) (504)
Administrative expenses (2005 restated - see
note 2) (33,396) (8,403)
Exceptional item: impairment charge 2 (200,000) -
Loss from operations 3 (233,906) (8,907)
Finance income 6 25,182 3,233
Finance costs 6 (5,132) -
Finance income - net 20,050 3,233
Loss before income tax (213,856) (5,674)
Income tax expense - -
Loss for the year (213,856) (5,674)
Loss per share 7
Basic (US$1.22) (US$0.05)
Diluted (US$1.22) (US$0.05)
The notes on pages 18 to 39 form part of these financial statements.
Consolidated balance sheet as at 31 December 2006
Notes 2006 2005
US$'000 US$'000
(Restated)
Assets
Non-current assets
Intangibles: Goodwill 8 175 1,373
Exploration and evaluation assets 9 190,283 50,334
Multi-client library 10 1,791 2,598
192,249 54,305
Tangibles: Property, plant and equipment 11 908 739
193,157 55,044
Current assets
Inventories 15 1,508 -
Trade and other receivables 14 4,818 3,945
Cash and cash equivalents 16, 22 86,708 135,972
93,034 139,917
Total assets 286,191 194,961
Equity
Capital and reserves attributable to
equity holders of the company
Share capital 17 - -
Capital reserves (2005 restated - note 2) 458,643 204,409
Accumulated losses (2005 restated - note 2) (245,516) (9,864)
213,127 194,545
Liabilities
Non-current liabilities 19
Borrowings 54,818 -
Long term payables 3,064 -
Deferred income 10,902 -
Current liabilities
Trade and other payables 20 4,280 416
Total equity and liabilities 286,191 194,961
Approved by the Board of Directors on 17 October 2007
Signed on behalf of the Board of Directors:
Martin Adams
Director
Philip Rand
Director - Chief Financial Officer
The notes on pages 18 to 39 form part of these financial statements.
Company balance sheet as at 31 December 2006
Notes 2006 2005
US$'000 US$'000
(Restated)
Assets
Non-current assets
Intangibles: Exploration and evaluation assets 9 - 13,898
Multi-client library 10 1,791 2,598
Receivables from subsidiary
undertakings 12 200,423 37,711
Investments in subsidiaries 13 2,317 3,198
204,531 57,405
Tangibles: Property, plant and equipment 11 306 109
204,837 57,514
Current assets
Inventories 15 1,358 -
Trade and other receivables 14 1,969 1,824
Cash and cash equivalents 16, 22 86,655 135,613
89,982 137,437
Total assets 294,819 194,951
Equity
Capital and Reserves attributable to
equity holders of the Company
Share capital 17 - -
Capital reserves (2005 restated - note 2) 458,643 204,409
Accumulated losses (2005 restated - note 2) (223,616) (9,760)
235,027 194,649
Liabilities
Non-current liabilities 19
Borrowings 54,818 -
Long term payables 902 -
Current liabilities
Trade and other payables 20 4,072 302
Total equity and liabilities 294,819 194,951
Approved by the Board of Directors on 17 October 2007
Signed on behalf of the Board of Directors:
Martin Adams
Director
Philip Rand
Director - Chief Financial Officer
The notes on pages 18 to 39 form part of these financial statements.
Consolidated statement of changes in equity for the year ended
31 December 2006
Note Share Capital Retained
capital reserves earnings Total
US$'000 US$'000 US$'000 US$'000
Balance at 31 December
2004 - 142,159 (5,084) 137,075
Restatement of prior
period share based
payments (see note 2) - (1,173) 1,173 -
Restated balance at
31 December 2004 - 140,986 (3,911) 137,075
Changes in equity for 2005
Loss for the year as
previously reported - - (3,713) (3,713)
Prior year adjustment
(see note 2) - - (2,240) (2,240)
Loss for the year
(as restated) - - (5,953) (5,953)
Total recognised expense
for the year - - (5,953) (5,953)
Issue of share capital - 61,070 - 61,070
Cost of shares issued - (1,777) - (1,777)
Share based transactions - 4,130 - 4,130
- 63,423 (953) 57,470
Restated balance at 31
December 2005 - 204,409 (9,864) 194,545
Changes in equity for 2006
Loss for the year - - (235,652) (235,652)
Total recognised expense
for the year - - (235,652) (235,652)
Total loss for the year - - (235,652) (235,652)
Shares issued - 253,484 - 253,484
Cost of shares issued - (11,010) - (11,010)
Share based transactions - 3,960 - 3,960
Capital contribution - 7,800 - 7,800
- 254,234 (235,652) 18,582
Balance at 31 December 2006 - 458,643 (245,516) 213,127
Included in capital reserves as at 31 December 2006 are amounts attributable to
share based transactions of US$8,674,449 (2005: US$4,649,164 - restated). There
were no liabilities for which the right of a counterparty to cash or other
assets had vested by 31 December 2006.
The notes on pages 18 to 39 form part of these financial statements.
Company statement of changes in equity for the year ended
31 December 2006
Note Share Capital Retained
capital reserves earnings Total
US$'000 US$'000 US$'000 US$'000
Balance at 31 December
2004 - as restated - 142,159 (5,259) 136,900
Restatement of prior
period share based
payments (see note 2) - (1,173) 1,173 -
Restated balance at
31 December 2004 - 140,986 (4,086) 136,900
Changes in equity for 2005
Loss for the year as
previously reported - - (3,434) (3,434)
Prior year adjustment
(see note 2) - - (2,240) (2,240)
Loss for the year
(as restated) - - (5,674) (5,674)
Total recognised expense
for the year - - (5,674) (5,674)
Issue of share capital - 61,070 - 61,070
Cost of shares issued - (1,777) - (1,777)
Share based transactions - 4,130 - 4,130
- 63,423 (5,674) 57,749
Restated balance at
31 December 2005 - 204,409 (9,760) 194,649
Changes in equity for 2006
Loss for the year - - (213,856) (213,856)
Total recognised expense
for the year - - (213,856) (213,856)
Total profit for the year - - (213,856) (213,856)
Shares issued - 253,484 - 253,484
Cost of shares issued - (11,010) - (11,010)
Share based transactions - 3,960 - 3,960
Capital contribution - 7,800 - 7,800
- 254,234 (213,856) 40,378
Balance at 31 December 2006 - 458,643 (223,616) 235,027
Included in capital reserves as at 31 December 2006 are amounts attributable to
share based transactions of US$8,674,449 (2005: US$4,649,164 - restated). There
were no liabilities for which the right of a counterparty to cash or other
assets had vested by 31 December 2006.
The notes on pages 18 to 39 form part of these financial statements.
Consolidated cash flow statement for the year ended
31 December 2006
Notes 2006 2005
US$'000 US$'000 US$'000 US$'000
(restated)
Cash flows from operating activities
Loss from operations (236,802) (9,186)
Adjustments for:
Impairment provision 200,000 -
Pre-licence costs written off 23,885 -
Amortisation of multi-client library 807 606
Share based transactions 3,960 4,130
Warrant adjustment (4,000) -
Goodwill written down 1,198 -
Depreciation on fixtures and equipment 372 135
Operating cash flows before movement in
working capital (10,580) (4,315)
(Increase) in inventory (1,508) -
(Increase in trade and other receivables (873) (3,677)
Increase in trade payables 519 371
Increase in other payables 2,895 -
Net cash used in operating activities (9,547) (7,621)
Cash flows from investing activities
Interest received 6,282 3,233
Interest paid - -
Acquisition of multi-client library - (1,052)
Acquisition of exploration and
evaluation assets (352,932) (48,085)
Acquisition of fixtures and equipment (541) (833)
Net cash used in investment activities (347,191) (46,737)
Cash flows from financing activities
Loan proceeds 65,000 -
Share capital issued (net of costs) 242,474 59,293
Net cash from financing activities 307,474 59,293
Net increase/(decrease) in cash
and cash equivalents (49,264) 4,935
Cash and cash equivalents at
beginning of period 135,972 131,037
Cash and cash equivalents at
end of period 16 86,708 135,972
Cash and cash equivalents includes restricted cash balances
of US$12.8million (2005: US$NIL) as detailed in note 22.
The notes on pages 18 to 39 form part of these financial statements.
Company cash flow statement for the year ended 31 December 2006
Notes 2006 2005
US$'000 US$'000 US$'000 US$'000
Cash flows from operating activities
Loss from operations (233,906) (8,907)
Adjustments for:
Impairment provision 200,000 -
Pre-licence costs written off 23,296 -
Amortisation of multi-client library 807 605
Share based transactions 3,960 4,130
Warrant adjustment (4,000) -
Goodwill written down 1,198 -
Depreciation on fixtures and equipment 111 41
Operating cash flows before movement in
working capital (8,534) (4,131)
(Increase) in inventory (1,358) -
(Increase) in trade and other receivables (145) (1,555)
Increase in trade payables 515 257
Increase in other payables 645 -
Cash used in operating activities (8,877) (5,429)
Intercompany Interest received - -
Net cash used in operating activities (8,877) (5,429)
Cash flows from investing activities
Interest received 6,282 3,232
Interest paid - -
Acquisition of subsidiaries (316) -
Acquisition of multi-client library - (1,052)
Acquisition of exploration and
evaluation assets (2,898) (13,649)
Acquisition of fixtures and equipment (308) (109)
Loans to subsidiary undertakings (350,315) (37,710)
Net cash used in investment activities (347,555) (49,288)
Cash flows from financing activities
Loan proceeds 65,000 -
Share capital issued (net of costs) 242,474 59,293
Net cash from financing activities 307,474 59,293
Net increase/(decrease) in cash
and cash equivalents (48,958) 4,576
Cash and cash equivalents at
beginning of period 135,613 131,037
Cash and cash equivalents at
end of period 16 86,655 135,613
Cash and cash equivalents includes restricted cash balances
of US$12.8 million (2005: US$NIL) as detailed in note 22.
The notes on pages 18 to 39 form part of these financial statements.
To view the notes to the financial statements, please follow the link below;
http://www.rns-pdf.londonstockexchange.com/rns/2411g_-2007-10-24.pdf
This information is provided by RNS
The company news service from the London Stock Exchange
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