(IVE.L) Irvine Energy PLC Buy/Sell

LONDON, June 30 (Reuters) - Irvine Energy Plc:

RNS Number : 8535U
  Irvine Energy PLC
  30 June 2009
   

Irvine Energy PLC / Index: AIM / Epic: IVE / Sector: Oil & Gas

30 June 2009

Irvine Energy PLC ('Irvine' or the 'Company')

Audited results for the year ended 31 December 2008

Irvine Energy plc, the AIM listed oil and gas exploration and production company, announces its results for the year ended 31 December 2008.

Chairman's Statement

As our shareholders will already be aware, Irvine Energy PLC ("Irvine" or "the Company") has had a difficult year in which the problems associated with disappointing exploration results and operational issues, have been exacerbated by the deterioration in the Exploration and Production ("E&P") credit and broader markets. The Board has spent the last months trying to resolve the issues with its partners and has been focussing on generating some value from its assets. To this end, the Board is pursuing discussions in an attempt to either sell some of the acreage or complete the acquisition of additional assets and raise further finance with the intention of securing the future of the Company. 

Metro and GasRock

Despite some early successes and a strong initial working relationship, in the second half of the period, relations with Irvine's operators Metro Energy Inc. ("Metro") deteriorated. They claimed approximately US$3.8 million from the Company's wholly owned subsidiaries, Wattle Energy Corporation ("Wattle") and Pinon Energy LLC ("Pinon"), in respect of seismic acquisition, joint interest billings and management fees which the Company disputed and asked Metro to substantiate. As a result Metro has withheld revenues from Irvine and has now commenced proceedings against Wattle, Halcyon Nominees (USA) Inc ("Halycyon") and GasRock Capital LLC ("GasRock") (the provider of Irvine's debt finance) in which it claims: 

(1)    US$2,756,570 in respect of expenditure incurred in connection with the seismic programme undertaken in accordance with the Agreement for Oil and Gas Lease Development and Exploration Programme Agreement between Metro, Kanco Energy Inc and Wattle together with interest; 

(2)    US$180,314 in respect of furnished labour, material, machinery and supplies in accordance with the Kansas Exploration and Development Agreement between Metro and Wattle together with interest; and

(3)    US$542,448 in respect of material and equipment sold or furnished, work or labour performed and services rendered together with interest.  

.  

Each of Halcyon, Wattle and GasRock has filed responses to Metro's claim. There is a case management conference in respect of the proceedings on 13 July 2009, although the Board of Irvine is continuing to seek a negotiated solution to the claims. 

As previously reported, the Company's wholly owned subsidiaries, Wattle and Pinon (together "the Borrowers"), entered into the GasRock credit agreement on 28 May 2008 and Irvine Plc guaranteed those borrowings. In November 2008, GasRock advised Wattle and Pinon that it would exercise its discretion not to make any further advances under the credit facility until the dispute with Metro and various concerns about the exploration programme had been resolved. GasRock issued a notice of default, dated 27 January 2009, to Wattle and Pinon calling for repayment of the outstanding balance of the moneys owed to it under the credit agreement. It also issued a notice to the Company claiming payment of the same amount in accordance with the terms of the guarantee. As of 31 March 2009, the outstanding balance of the moneys owed by the Borrowers to GasRock was US$5.507 million (31 December 2008: US$6.12 million).  

Following extensive negotiations by the Board, on 19 March 2009, Irvine and GasRock entered into a release of guarantee whereby GasRock released Irvine Plc from its obligations under the guarantee in consideration of Irvine Plc paying £370,000 to GasRock. The consideration has been paid to GasRock and, accordingly, the Company has been released from the guarantee. In addition, the Company agreed to grant, and subsequently granted, GasRock an option to subscribe for 100 million ordinary shares in the Company at 0.1 pence per share.  

With a lack of income to generate cash, the Board has evaluated various options in order to raise funds by divesting non-core and core assets. However, in spite of this, the environment for the sale of such assets has been and continues to be poor and, at this stage, it has been unable to conclude such a transaction. Although the Company continues to pursue this course of action, the directors do not expect the environment to materially change in the short term.

The outcome of the debt due to GasRock and Metro's claims against the Company's US subsidiaries, Wattle and Pinon, is uncertain at the date of this Report. There is a significant risk that the resolution of these claims will result in a net asset deficiency in the US subsidiaries. At the date of this Report, GasRock has not taken any further action to enforce its security. GasRock and the Company have been discussing various proposals involving Chapter 7 and Chapter 11 of United States Bankruptcy Code. Under these proposals, there is a significant risk that the Company will not retain an interest in any of its US oil and gas assets. However, the Directors believe, based on professional advice, that the liabilities of the US subsidiaries are ring-fenced in those companies and that the Company's loss will be limited to the amount invested.

As previously mentioned, the Company is currently engaged in advanced discussions with third parties regarding the acquisition of additional assets and the raising of further finance. However, at this stage, it is premature to comment further on these discussions and the directors express no opinion on the likelihood of a successful outcome and caution shareholders against drawing any premature inferences.  

Operations summary

The Company still hold extensive and potentially prospective acreage in both Oklahoma and Kansas and particularly believes that potential exists under our acreage in both the Woodford and Caney shales based on other Woodford results in the area. However, exploration results during the period were disappointing and whilst hydrocarbons have frequently been encountered, the drilling has generated results that are below the Directors' expectations. On the positive side, the Company obtained encouraging results from the Priegel No. 3-10 well where we believe we have identified an excellent development opportunity in Booch channel sands. However, operations have effectively ceased pending resolution of the dispute with Metro and the restructuring of the Company's finances.
      

On 1 September 2008, Aaron Close resigned as managing director of Irvine to pursue other opportunities and I have taken control as interim executive Chairman.  

Financials

The loss of the Group after taxation amounted to £2.574 million (2007: £0.850 million). The loss for the Company after taxation amounted to £16.037 million (2007: £0.594 million). The Group's cash position at 31 December 2008 was £0.488 million (2007: £1.204 million).

Outlook

In the short term, the principal objectives of the directors are to conclude additional financed acquisitions and to reach a commercial arrangement with Metro and GasRock. At this stage, it is difficult to forecast whether the Company will realise these objectives and I reiterate that the directors express no opinion on the likelihood of a successful outcome and caution shareholders against drawing any premature inferences. If the Company is able to achieve either of these objectives then it will resume operations.
       

On 30 January 2009, the Company requested a suspension of trading of its shares on AIM, pending clarification of the Company's financial position and discussions with GasRock. There remains a significant degree of uncertainty over the financial position of the Company and as such, the shares shall remain suspended until further notice. Shareholders should be aware that, pursuant to AIM Rule 41, the London Stock Exchange will cancel the admission of the Company's shares from the AIM Market once they have been suspended from trading for six months. 

Douglas Manner

Chairman

30 June 2009 

OPERATIONS REPORT

Production Summary

For the year ended 31 December 2008, the Group produced an average net rate of 294 mcfe/d (thousand cubic feet per day). There was an average producing well count of 22 during the year.

Net production declined from 350 mcfe/d in January to 209 mcfe/d by the end of the year. The primary cause of the production drop was the watering out of the Patriot No. 1-15 during 2008.  

2008 Drilling Results

The drilling results in 2008 were well below expectations.  

Five wells targeting conventional sands were drilled in Oklahoma in 2008. Four of these were drilled for deeper zones, the Cromwell, Jefferson and Gilcrease. Hydrocarbons were found in all cases, but the completions yielded rates that were not sufficiently economic to drill and complete the wells. A fifth well, the Priegel No. 3-10, was drilled for a shallow Booch channel sand and was completed as a high water-cut oil well. Although the oil rates were low in this well, the results were nevertheless encouraging due to the fact that this well was on the thin edge of the channel and seismic data indicated that it thickened significantly in an offset position. It is believed that an excellent development opportunity exists for this channel sand.

Two additional wells were drilled in Oklahoma for the Woodford shale. The Farrow No. 1-24 was a vertical completion in the Woodford and although not producing at economic rates, the data supported drilling a horizontal well in the shale. Therefore, the Jones No. 1-5H was drilled horizontally in the Woodford in June. Only two of the four frac stages were successful and the well performance has been disappointing. Although Irvine's first attempt in the shale failed to produce economic results, Irvine remains confident that the potential exists under our acreage in both the Woodford and Caney shales based on other Woodford results in the area.

In Kansas, five wells were drilled targeting shallow oil sands on structural highs identified by the seismic data acquired in 2007. Four wells were drilled based on the Rock seismic data and one on the Ayers data. Two wells, the Rock No. 1-29 and 1-30 found no hydrocarbons. The other three wells, the Rock 1-5, 1-32 and the Ayers 1-20 found hydrocarbons, but ultimately produced uneconomic oil rates with very high water volumes. The Irvine strategy called for a number of additional wells in this area in order to play out the statistical nature of the play. However, due to capital constraints, no additional drilling has occurred.

As announced on 11 November, GasRock exercised its discretion not to make any further advances under the debt facility. As a result, the drilling activity was put on hold.

Niobrara Development

The Niobrara field was brought into production in April 2008 after a number of logistical issues including salt water disposal permitting and equipment delays had been resolved. After production commenced, it became apparent that the compressor in the field was improperly sized and had to be replaced and subsequent to that a significant pipeline leak was discovered close to the sales metre, thereby placing previous production reports in question.

Initially, 18 wells were brought into production resulting in a total of only 75 to 100 mcfd and large water volumes. Once the infrastructure issues were addressed, it was anticipated that the water production would begin to drop off and that gas production would steadily increase over time. However, this did not occur. At this stage, it appears that during the two years prior to Irvine's acquisition of the field, the wells sat with the reservoir exposed to completion fluid, thereby creating permanent reservoir damage in the Niobrara in which the relative permeability to gas production couldn't be restored. In order to develop the proved gas reserves in place, the field would have to be re-drilled. At this stage, capital constraints preclude this course of action.

Seismic Programme

The seismic programme in the Rock, Ayers and Udall areas in Kansas which was started in 2007 was completed in 2008. The total 3D data base is now up to 55 square miles in Kansas.

The seismic programme has generated large cost overruns, and has been the source of dispute between Irvine and the operator Metro. The parties are continuing to discuss these matters with a view to negotiating a solution.

Land Expiries and Impairment

At its peak, Irvine accumulated approximately 112,000 net acres in Oklahoma and Kansas. A large portion of the acreage was leased in 2006 and early 2007 with three year terms. Although a small portion includes currently producing wells, and will, therefore, be held by production, a significant portion of the acreage has either expired or will be expiring over the next 12 months. In order to renew the expiring leases, Irvine will need to pay to the relevant lessors additional lease bonuses for extension rights. It was Irvine's intention to sell the non-core land to help support the retention of the core properties. Due to the significant change in oil and gas prices and the downturn in capital spending in the industry, there is little demand for new leases at this time.  

Notwithstanding the lease expiry, production issues and unfavourable market conditions, no impairment of the Group's oil and gas assets has been recognised at this time, as the Group is not currently able to market its assets due to the ongoing dispute, and forced sale is unlikely to realise sufficient funds to clear the amounts due to GasRock. In light of the inherent uncertainty and the absence of comparable transactions, the directors are unable to conclude with sufficient certainty on the value of the Group's oil and gas assets.

Douglas Manner

Chairman

30 June 2009

Directors' Report

The Directors present their report together with the financial statements for the Group and the Company for the year ended 31 December 2008.

Company Formation

The Company was incorporated on 6 September 2005 as a public limited company with the registration number 5555175. The Company is domiciled in the United Kingdom. The Company is the ultimate parent undertaking for the group.

Principal Activities

The principal activities of the Company and its subsidiaries are the evaluation and development of on-shore oil and gas projects in North America.

Results and Dividends

The loss of the Group after taxation amounted to £2.574 million (2007: £0.850 million). The loss for the Company after taxation amounted to £16.037 million (2007: £0.594 million). The Directors do not propose the payment of a dividend.

Directors and Directors Interests

The Directors of the Group and the Company during the period were:

                 Date of Appointment  Date of Resignation
 Michael Frayne       7 October 2005                    -
 Anthony Samaha    16 September 2005                    -
 Ross Warner       16 September 2005                    -
 Douglas Manner      1 February 2007                    -
 Aaron Close         1 February 2007     1 September 2008

The interests of the Directors in the ordinary share capital of the Company during the period were:

                   Number of ordinary shares           Number of Options
                  31 Dec. 2008  31 Dec. 2007  31 Dec. 2008  31 Dec. 2007
 Michael Frayne1    63,345,238    59,345,238     5,000,000     5,000,000
 Anthony Samaha2     7,000,000     3,000,000     5,000,000     5,000,000
 Ross Warner3        5,000,000     1,000,000     5,000,000     5,000,000
 Douglas Manner              -             -    10,000,000    10,000,000
 Aaron Close                 -             -    10,000,000    10,000,000

Shares are held by:

1.     Adelise Services Ltd. The interest is a beneficial interest.

2.     Reabold Ltd. The interest is a non-beneficial interest.

3.    Bournemead International Ltd. The interest is a beneficial interest.

Douglas Manner

Chairman

Mr Manner has over 25 years engineering experience in the oil and gas industry, principally in the North American region as well as extensive corporate experience serving on the Boards of numerous oil and gas exploration firms. He was previously Chief Executive Officer ('CEO') of Westside Energy Corporation ('Westside'), an American Stock Exchange listed shale gas energy company with 65,000 acres in the Barnett Shale area in Northern Texas and production of 3 million cubic feet gas per day. Previously, Mr Manner has held senior positions in oil & gas companies including, COO of Kosmos Energy LLC, a private company exploring for oil and gas in offshore West Africa, COO of White Stone Energy, a Houston based oil and gas advisory firm, Chairman and CEO of Mission Resources and COO of Gulf Canada Resources Ltd responsible for both international and domestic activities. He spent 16 years with Ryder Scott Petroleum engineers having started his career at Amoco Production Company.

Michael Frayne

Non-Executive Director

Michael Frayne is a qualified chartered accountant and geologist with over 15 years' experience in the resource sector. Michael has been responsible for sourcing significant resource and energy projects around the world and successfully establishing several UK and Australian listed companies with these projects. Michael was previously the joint managing director of Asia Energy plc.

Ross Warner

Non-Executive Director

Ross Warner holds a Bachelor of Laws degree from the University of Western Australia and a Master of Laws degree from the University of Melbourne. Ross has approximately 10 years' experience working in law firms including Mallesons Stephen Jaques in Australia and Clifford Chance in the UK. His principal area of practice was advising venture capital funds in relation to management buy-outs and related transactions. Ross is a non-executive director of AIM listed Uranium Resources Plc.

Anthony Samaha

Non-Executive Director

Mr Samaha holds Bachelor of Commerce and Bachelor of Economics degrees. He is an Associate of the Institute of Chartered Accountants of Australia and an Associate of the Financial Services Institute of Australasia. Mr Samaha has over 18 years experience in providing accounting and corporate advice in a diverse range of industry sectors, including resource development. He is a director of AIM quoted resources companies Braemore Resources Plc and Altona Energy Plc.

Business review and future developments

A review of the business and the future development of the Group is presented in the Chairman's Statement on pages 3 and 4 and in the Operations Report on pages 5 to 6.

Key performance indicators

The Group has three project areas, Kansas, Oklahoma and Niobrara. A key objective has been to increase the Group's reserves through successful implementation of drilling programmes and the raising of production across the portfolio.

The Group was successful in establishing an independent reserve and resources audit from Netherland, Sewell & Associates, Inc. ("NSAI") with respect to its Niobrara and Oklahoma Projects, as announced in April 2008. The Group also successfully identified drilling targets and established an independent contingent gas resource by NSAI in respect to the Hartshorne coalbed methane project in Oklahoma. In addition the Group identified a number of oil development locations to drill out the Booch sandstone channel in Oklahoma.  

The Group was unsuccessful in its drilling programmes and programme for increasing production in its three project areas, as reviewed in the Operations Report. The financial results for the Group are set out in page 7 of the Directors' Report and were significantly below management's expectations for the reporting period. These financial results reflect the unsuccessful drilling programmes, disappointing production levels, and 3-D seismic cost over-runs, which contributed to the financial distress of the Group, together with the significant decline in oil and gas prices and global credit market difficulties.

The Group cash at 31 December 2009 was £0.488 million.

Business risks and uncertainties

The Group is subject to the risks arising from specific commercial disputes and operational matters, which are described more fully in the Chairman's Statement.

Reference is made to the Going Concern note, in particular to the position of the Group's US subsidiaries.

The Group's business is subject to risks inherent in oil and gas exploration, development and production operations, as well as reliance on a third party operator. In addition, there are risks associated with the jurisdictions where the Group operates. The Company has identified certain risks pertinent to its business including: volatility of future oil and gas prices, exploration and reserve risks, drilling and operating risks, costs and availability of materials and services, loss of or unfavourable changes to production sharing and foreign currency risk. 

Financial instruments

Details of the use of financial instruments by the Company and its subsidiary undertakings as well as description of risks inherent in the use of these financial instruments and the ways the Group seeks to mitigate those risks are provided in Notes 2 and 10 to the Financial Statements.

Substantial shareholdings

On 24 June 2009 the following were registered as being interested in 3% or more of the Company's ordinary share capital:

                                 Ordinary shares of £0.001 each  Percentage of issued share capital
 Canaccord Nominees Limited                          79,961,904                               7.71%
 Barclayshare Nominees Ltd                           76,575,854                               7.38%
 TD Waterhouse Nominees                              64,458,714                               6.21%
 (Europe) Ltd
 HSDL Nominees Ltd                                   43,274,062                               4.17%
 L R Nominees Ltd                                    38,451,825                               3.71%
 HSDL Nominees Ltd (2)                               37,710,424                               3.63%
 Pershing Nominees Limited                           37,472,141                               3.61%
 Pershing Nominees Limited (2)                       32,800,000                               3.16%

Share Capital

Information relating to shares issued during the period is given in Note 18 to the Financial Statements.

Charitable and Political Donations

During the period there were no charitable or political donations.

Payment of Suppliers

The Company's and Group's policy is to settle terms of payment with suppliers when agreeing terms of business, to ensure that suppliers are aware of the terms of payment and to abide by them. It is usual for suppliers to be paid within 28 days of receipt of invoice. 

Post Balance Sheet Events

At the date these financial statements were approved, being 30 June 2009, the Directors were not aware of any significant post balance sheet events other than those set out in Note 23 to the Financial Statements. 

      

Going Concern

The Group financial statements are subject to significant uncertainties as detailed in the notes to the financial statements. As a result, the Group's US subsidiaries do not have sufficient liquid resources to meet their current obligations and may possibly be liquidated. The financial statements do not include the adjustments required to present the financial statements on a break up basis, the prevalent uncertainties prohibit a reliable estimation of recoverable values of the US subsidiaries. 

After taking appropriate professional advice, the Directors believe that the liabilities of the subsidiaries are ring fenced in these entities. In the event that the Directors' of the Company are not able to successfully conclude a work out of the debts and liabilities of the US subsidiaries, the Company may become an investment shell. Negotiations are in progress to acquire further assets and raise capital. 

The Company has sufficient cash to meet it's current obligations as at the year end and to fund activities at the current "burn rate", but will need to raise further equity funds within the next 12 months in order to fund any potential transaction. The Directors are confident about raising sufficient funds for the Company to be a going concern, and therefore the financial statements of the Company are prepared on a going concern basis. 

Auditors

The auditors, BDO Stoy Hayward LLP, have indicated their willingness to continue in office and a resolution that they be reappointed will be proposed at the annual general meeting.

Remuneration

The Company remunerates the Directors at a level commensurate with the size of the Company and the experience of its Directors. The Remuneration Committee has reviewed the Directors' remuneration and believes it upholds the objectives of the Company with regard to this issue. 

Details of directors' emoluments and of payments made for professional services rendered are set out in Note 8 to the Financial Statements.

Corporate Governance

The Directors are committed to maintaining high standards of corporate governance. The Directors have established procedures, so far as is practicable given the Company's size, to comply with the Combined Code as modified by the recommendations of the Quoted Companies Alliance. The Company has adopted and operates a share dealing code for Directors and senior employees on substantially the same terms as the Model Code appended to the Listing Rules of the UKLA.

The financial risk management policies and objectives are set out in detail in Note 2 which accompanies the audited Financial Statements.

The Board

The Board meets regularly throughout the year. To enable the Board to perform its duties, each of the Directors has full access to all relevant information and to the services of the Company Secretary. If necessary the non-executive Directors may take independent professional advice at the Company's expense. The Board currently includes three non-executive Directors. The Board has delegated specific responsibilities to the committees described below.

The Audit Committee

The audit committee comprises Anthony Samaha (Chairman) and Ross Warner, and met twice during the period ended 31 December 2008. The committee reviews the Company's annual and interim Financial Statements before submission to the Board for approval. The committee also reviews regular reports from management and the external auditors on accounting and internal control matters. When appropriate, the committee monitors the progress of action taken in relation to such matters. The committee also recommends the appointment of, and reviews the fees of, the external auditors.

The Remuneration Committee

The remuneration committee is made up of Anthony Samaha (Chairman) and Michael Frayne, and met once during the period ended 31 December 2008. It is responsible for reviewing the performance of the Executive Directors and for setting the scale and structure of their remuneration, paying due regard to the interests of shareholders as a whole and the performance of the Company.

Control Procedures

The Board has approved financial budgets and cash forecasts. In addition, it has implemented procedures to ensure compliance with accounting standards and effective reporting.

Provision of Information to Auditors

As far as the Directors are aware, there is no relevant audit information of which the Company's auditors are unaware. Each Director has taken appropriate steps to ensure that they are aware of such relevant information, and that the Company's auditors are aware of that information.

Annual General Meeting

This report and Financial Statements will be presented to shareholders for their approval at the Company's Annual General Meeting ("AGM"). The Notice of the AGM will be distributed to shareholders together with the Annual Report.

By order of the Board

Anthony Samaha

Director

30 June 2009

Statement of Directors' Responsibilities 

Directors' responsibilities

The Directors are responsible for keeping proper accounting records which disclose with reasonable accuracy at any time the financial position of the company, for safeguarding the assets of the company, for taking reasonable steps for the prevention and detection of fraud and other irregularities and for the preparation of a Directors' Report which complies with the requirements of the Companies Act 1985.

The Directors are responsible for preparing the annual report and the financial statements in accordance with the Companies Act 1985. The Directors are also required to prepare financial statements for the group in accordance with International Financial Reporting Standards as adopted by the European Union (IFRSs) and the rules of the London Stock Exchange for companies trading securities on the Alternative Investment Market. The Directors have chosen to prepare Financial Statements for the Company in accordance with IFRSs

International Accounting Standard 1 requires that Financial Statements present fairly for each financial year the Company's financial position, financial performance and cash flows. This requires the faithful representation of the effects of transactions, other events and conditions in accordance with the definitions and recognition criteria for assets, liabilities, income and expenses set out in the International Accounting Standards Board's 'Framework for the preparation and presentation of financial statements'. In virtually all circumstances, a fair presentation will be achieved by compliance with all applicable IFRSs.  A fair presentation also requires the Directors to:

*     consistently select and apply appropriate accounting policies;

*     present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information; and

*     provide additional disclosures when compliance with the specific requirements in IFRSs is insufficient to enable users to understand the impact of particular transactions, other events and conditions on the entity's financial position and financial performance. 

Financial Statements are published on the group's website in accordance with legislation in the United Kingdom governing the preparation and dissemination of Financial Statements, which may vary from legislation in other jurisdictions. The maintenance and integrity of the Group's website is the responsibility of the Directors. The Directors' responsibility also extends to the ongoing integrity of the Financial Statements contained therein.

Independent Auditors Report to the Shareholders of Irvine Energy plc

We have audited the Consolidated and Company financial statements of Irvine Energy plc for the period ended 31 December 2008, which comprise the Consolidated Income Statement, the Consolidated and Company Balance Sheets, the Consolidated and Company Cash Flow Statements, the Consolidated and Company Statements of Changes in 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) as adopted by the European Union 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).

We report to you our opinion as to whether the financial statements give a true and fair view and have been properly prepared in accordance with the Companies Act 1985, and whether the information given in the directors' report is consistent with those 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 the Chairman's Statement, Operations Report, Directors' Report, and Statement of Directors' Responsibility and consider the implications for our report if we become aware of any apparent misstatements within it.

Our report has been prepared pursuant to the requirements of the Companies Act 1985 and for no other purpose. No person is entitled to rely on this report unless such a person is a person entitled to rely upon this report by virtue of and for the purpose of the Companies Act 1985 or has been expressly authorised to do so by our prior written consent. Save as above, we do not accept responsibility for this report to any other person or for any other purpose and we hereby expressly disclaim any and all such liability.

Basis of Audit 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 judgements 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 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.  

However, there are multiple material uncertainties affecting the financial statements, which are discussed below:
    
Claims made by Metro Energy Inc ("Metro"), the operator of the Group's US licences

As detailed in note 11 to the financial statements, the Group have received claims from the operator of its assets amounting to approximately US$3.8m. The claims, which are disputed by management, relate to seismic acquisition, joint interest billings, and management fees. Management have requested that Metro substantiate the claims and provide supporting documentation. Management have initiated a detailed review of these claims which indicates a significant amount cannot currently be substantiated. Furthermore, the amounts claimed include expenditure that had not been appropriately approved by the Board of Irvine Energy Plc. 

The unresolved status of the dispute and the potential impact on intangible assets and trade payables (the amount has been fully provided) means we are unable to conclude with sufficient assurance over these balances and on any potential adjustments required in the financial statements. 

Carrying values of intangible and tangible fixed assets

The Directors have acknowledged that there are indicators of impairment at the balance sheet date, and have considered the carrying value of the assets. However, in light of the inherent uncertainty regarding the assumptions supporting both the value in use and market value, the Directors are unable to conclude with sufficient certainty on the value of the Group's intangible and tangible assets and therefore have not impaired these assets in the financial statements. The Group is not currently able to market these assets to third parties and a forced sale is unlikely to realise sufficient funds to clear the outstanding amounts due to GasRock Capital LLC ("GasRock", the secured creditor). 

As a result of the material uncertainty surrounding the assumptions used in the assessment of the carrying value of assets, the evidence available to us was limited and we were unable to obtain sufficient appropriate evidence to conclude on the appropriateness of the carrying value of the Group's intangible and tangible assets, and on any potential adjustments required in the financial statements.

Going Concern

The Group financial statements are subject to significant uncertainties as detailed in the notes to the financial statements. As a result, the Group's US subsidiaries do not have sufficient liquid resources to meet their current obligations and may possibly be liquidated. The Company and GasRock (the secured creditor) have been discussing various proposals involving Chapter 7 and Chapter 11 of United States Bankruptcy Code. Under these proposals, there is a significant risk that the Group will not retain an interest in any of its US oil and gas assets.  

The circumstances discussed above represent a material uncertainty that casts significant doubt upon the Group's ability to continue as a going concern. The financial statements do not include the adjustments required to present the financial statements on a break up basis.

As a result of these multiple uncertainties and the limitation in scope over the carrying value of intangible and tangible fixed assets, we are unable to form an opinion on the consolidated financial statements. 

In forming our opinion we also evaluate the overall adequacy of the presentation of information in the financial statements.

Opinion: disclaimer of view given on the consolidated financial statements

Because of the possible effect of the multiple material uncertainties and limitation in scope referred to above, we are unable to form an opinion as to whether:

*     the financial statements give a true and fair view, in accordance with International Financial Reporting Standards, of the state of the Group's affairs as at 31 December 2008 and of its loss for the year then ended; and

*     the financial statements have been properly prepared in accordance with the Companies Act 1985.

In respect solely of the limitation on our work referred to above:

*     we have not obtained all the information and explanations that we considered necessary for the purposes of our audit; and 

*     we were unable to determine whether proper accounting records have been maintained. 

Notwithstanding our disclaimer of view given on the financial statements, in our opinion, the information given in the directors' report is consistent with the financial statements. 
        `

Opinion on the Company financial statements

In our opinion:

*     the parent company financial statements give a true and fair view, in accordance with IFRSs as adopted by the European Union as applied in accordance with the provisions of the Companies Act 1985, of the state of the parent company's affairs as at 31 December 2008;

*     the Parent company financial statements have been properly prepared in accordance with the Companies Act 1985;and

*     the information given in the directors' report is consistent with the Parent company financial statements. 

BDO Stoy Hayward LLP

Chartered Accountants and Registered Auditors

55 Baker Street

London

30 June 2009

CONSOLIDATED Income Statement

For the period 1 January 2008 to 31 December 2008

                                                        2008    2007
                                              Notes    £'000   £'000

 Revenue                                                 330       -

 Cost of sales                                       (1,005)       -

 Gross Loss                                            (675)       -

 Other administration expenses                       (1,697)   (799)

 Share based payments expense                  19          -   (120)

 Total administrative expenses                  4    (1,697)   (919)

 Interest income                                5         31      69

 Other income                                             92       -

 Interest expense                                      (325)       -
                                               10

 Loss before taxation                                (2,574)   (850)

 Income tax expense                             6          -       -

 Loss for the period                                 (2,574)   (850)

 Loss per share expressed in pence per share
 - Basic and diluted                            9     (0.34)  (0.20)

All amounts above relate to continuing operations.

      CONSOLIDATED Balance Sheet

As at 31 December 2008

                                              2008     2007
                                    Notes    £'000    £'000

 Assets
 Non-current assets
 Intangible assets                   11     19,345    9,693
 Property, plant & equipment         14      4,260      916
 Total non-current assets                  23,605    10,609

 Current assets
 Cash and cash equivalents           10        488    1,204
 Other receivables                   15        680    2,670
 Total current assets                        1,168    3,874

 TOTAL ASSETS                              24,773    14,483

 Liabilities
 Current liabilities
 Trade and other payables            16    (2,965)    (536)
 Financial liabilities               17    (4,257)        -
 Total current liabilities                 (7,222)    (536)

 TOTAL LIABILITIES                         (7,222)    (536)

 Net current assets/(liabilities)          (6,054)    3,338

 NET ASSETS                                 17,551   13,947

 SHAREHOLDERS EQUITY
 Share capital                       18      1,037      704
 Share premium                              14,168   12,226
 Merger reserve                      25      2,120    2,120
 Share-based payments reserve        25        186      186
 Foreign exchange reserve            25      3,710    (193)
 Retained earnings                   25    (3,670)  (1,096)
 Total equity                               17,551   13,947

      COMPANY Balance Sheet

As at 31 December 2008

                                           2008    2007
                                Notes     £'000   £'000

 Assets
 Non-current assets
 Investment in subsidiaries      12           -   2,419
 Loans to subsidiaries           13           -   8,253
 Property, plant & equipment     14           8      14
 Total non-current assets                     8  10,686

 Current assets
 Cash and cash equivalents       10         118   1,181
 Other receivables               15         601   2,649
 Total current assets                       719   3,830

 TOTAL ASSETS                               727  14,516

 Liabilities
 Current liabilities
 Other payables                  16        (92)   (119)
 Total current liabilities                 (92)   (119)

 TOTAL LIABILITIES                         (92)   (119)

 Net current assets                         627   3,711

 NET ASSETS                                 635  14,397

 SHAREHOLDERS EQUITY
 Share capital                   18       1,037     704
 Share premium                           14,168  12,226
 Merger reserve                  25       2,120   2,120
 Share-based payments reserves   25         186     186
 Retained earnings               25    (16,876)   (839)
 Total equity                               635  14,397

      CONSOLIDATED Cash Flow Statement 

For the period 1 January to 31 December 2008

                                                                   2008     2007
                                                         Notes    £'000    £'000

 Cash flows from operating activities
 Loss for the period                                            (2,574)    (850)
 Adjustments for;
 Interest income                                                   (31)     (69)
 Interest expense                                                   325        -
 Depreciation and amortisation                                       12        9
 Foreign exchange                                                 (151)       38
 Share based payment                                      19          -      120
 Cash flow from operating activities before changes in          (2,419)    (752)
 working capital

 (Increase)/decrease in trade and other receivables                (62)       85
 (Increase)/decrease in other assets                                 -         -
 Increase/(decrease) in trade and other payables                  2,429       72
 Net cash used in operating activities                             (52)    (595)

 Cash flows from investing activities
 Interest received                                                   31       65
 Interest paid                                                    (325)        -
 Net cash generated from investing activities                     (294)       65

 Cash flows from investing activities
 Payments to acquire intangible assets                          (5,999)  (4,303)
 Payments to acquire property, plant and equipment              (3,011)     (25)
 Net cash used in investing activities                          (9,010)  (4,328)

 Cash flows from financing activities
 Issue of ordinary share capital                                  4,442    3,403
 Costs relating to issue of equity                                (115)     (38)
 Proceeds from borrowings                                         4,257        -
 Net cash generated from financing activities                     8,584    3,365

 Net (decrease)/increase in cash and cash equivalents             (772)  (1,493)
 in the period
 Cash and cash equivalents at beginning of period         10      1,204    2,697
 Exchange gains/(losses) on cash and cash equivalents                56        -
 Cash and cash equivalents at end of period               10        488    1,204

      COMPANY Cash Flow Statement 

For the period 1 January to 31 December 2008

                                                                   2008     2007
                                                        Notes     £'000    £'000

 Cash flows from operating activities
 Loss for the period                                           (16,037)    (594)
 Adjustments for: 
 Interest income                                                   (31)     (69)
 Depreciation                                                         6        6
 Provision for impairment of loans to subsidiary                 13,093        -
 companies
 Write-down of investments                                        2,419        -
 Share based payment                                     19           -      120
 Cash flow from operating activities before changes in            (550)    (537)
 working capital
 (Increase)/decrease in trade and other receivables                 (4)      106
 Increase/(decrease) in trade and other payables                   (27)       27
 Net cash used in operating activities                            (581)    (404)

 Cash flows from investing activities
 Interest received                                                   31       65
 Net cash generated from investing activities                        31       65

 Cash flows from investing activities
 Advances to related parties                                    (4,840)  (4,542)
 Net cash used in investing activities                          (4,840)  (4,542)

 Cash flows from financing activities
 Issue of ordinary share capital                                  4,442    3,403
 Costs relating to issue of equity                                (115)     (38)
 Net cash generated from financing activities                     4,327    3,365

 Net (decrease)/increase in cash and cash equivalents           (1,063)  (1,516)
 in the period
 Cash and cash equivalents at beginning of period        10       1,181    2,697
 Cash and cash equivalents at end of period              10         118    1,181

      Consolidated Statement of Changes in Equity 

For the period 1 January 2008 to 31 December 2008

                                 Share capital                            Foreign currency                   Share based payment  Retained earnings  Total equity
                                                       Share premium   translation reserve  Merger Reserve               reserve
                                                             reserve

                                         £'000                 £'000                 £'000           £'000                 £'000              £'000         £'000
 As at 1 January 2008                      704                12,226                 (193)           2,120                   186            (1,096)        13,947
                                             -                     -                 3,903               -                     -                  -         3,903
 Exchange differences on
 translation of foreign
 operations and total net
 expenses recognised directly
 in equity
                                                                   -                     -               -                     -            (2,574)       (2,574)
 Loss for the period

 Total recognised income and                 -                     -                 3,903               -                     -            (2,574)         1,329
 expense for the period

                                           333                 2,057                     -               -                     -                  -         2,390
 Issue of share capital
                                             -                 (115)                     -               -                     -                  -         (115)
 Cost of issue of share capital
                                           333                 1,942                     -               -                     -                  -         2,275
 As at 31 December 2008                  1,037                14,168                 3,710           2,120                   186            (3,670)        17,551

Refer to Note 25 for definitions of equity reserves.

      Consolidated Statement of Changes in Equity 

For the period 1 January to 31 December 2007

                                 Share capital                            Foreign currency                   Share based payment  Retained earnings  Total equity
                                                       Share premium   translation reserve  Merger Reserve               reserve
                                                             reserve
                                         £'000                 £'000                 £'000           £'000                 £'000              £'000         £'000
 As at 1 January 2007                      404                 6,504                 (171)           2,720                    66              (246)         9,277

 Balance as previously reported
                                             -                     -                     -           (600)                     -                  -         (600)
 Correction of prior period
 adjustment (Note 24)
 Balance as restated                       404                 6,504                 (171)           2,120                    66              (246)         8,677
                                             -                     -                  (22)               -                     -                  -          (22)
 Exchange differences on
 translation of foreign
 operations and total net
 expenses recognised directly
 in equity
                                             -                     -                     -               -                     -              (850)         (850)
 Loss for the period

 Total recognised income and                 -                     -                  (22)               -                     -              (850)         (872)
 expense for the period

                                           300                 5,890                     -               -                     -                  -         6,190
 Issue of share capital
                                             -                 (168)                     -               -                     -                  -         (168)
 Cost of issue of share capital
                                             -                     -                     -               -                   120                  -           120
 Recognition of share based
 payments
                                           300                 5,722                     -               -                   120                  -         6,142
 As at 31 December 2007                    704                12,226                 (193)           2,120                   186            (1,096)        13,947

Refer to Note 25 for definitions of equity reserves

      CoMPANY Statements of Changes in Equity 
    
                                 Share capital         Share premium   Merger Reserve   Share based payment  Retained earnings  Total equity
                                                             reserve                                reserve
                                         £*000                 £*000            £*000                 £*000              £*000         £*000
 As at 1 January 2008                      704                12,226            2,120                   186              (839)        14,397
  Loss for the period                        -                     -                -                     -           (16,037)      (16,037)
 Total recognised income and                 -                     -                -                     -           (16,037)      (16,037)
 expense for the period
  Issue of share capital                   333                 2,057                -                     -                  -         2,390
  Cost of issue of share                     -                 (115)                -                     -                  -         (115)
 capital
                                           333                 1,942                                                                   2,275
 As at 31 December 2008                  1,037                14,168            2,120                   186           (16,876)           635

                                 Share capital                                         Share based payment  Retained earnings  Total equity
                                                       Share premium  Merger Reserve               reserve
                                                             reserve
                                         £'000                 £'000           £'000                 £'000              £'000         £'000
 As at 1 January 2007

 Balance as previously reported            404                 6,504           2,720                    66              (245)         9,449
                                             -                     -           (600)                     -                  -         (600)
 Correction of prior period
 adjustment (Note 24)
 Balance as restated                       404                 6,504           2,120                    66              (245)         8,849
                                             -                     -               -                     -              (594)         (594)
 Loss for the period

 Total recognised income and                 -                     -               -                     -              (594)         (594)
 expense for the period
                                           300                 5,890               -                     -                  -         6,190
 Issue of share capital
                                             -                 (168)               -                     -                  -         (168)
 Cost of issue of share capital
                                             -                     -               -                   120                  -           120
 Recognition of share 
 based payments
                                           300                 5,722               -                   120                  -         6,142
 As at 31 December 2007                    704                12,226           2,120                   186              (839)        14,397

Refer to Note 25 for definitions of equity reserves.

NOTES TO THE FINANCIAL STATEMENTS 

For the 12 month period to 31 December 2008

1. Accounting Policies

The principal accounting policies are summarised below. They have all been applied consistently throughout the period.

Basis of preparation

The Consolidated and Company financial statements have been prepared in accordance with International Financial Reporting Standards and IFRIC interpretations issued by the International Accounting Standards Board (IASB) as adopted by the European Union and with those parts of the Companies Act 1985 applicable to companies reporting under IFRS.

The company has taken advantage of the exemption allowed under section 230 of the Companies Act 1985 and has not presented its own income statement in these financial statements. The Group loss for the year is £2.574m (2007: loss of £0.850m). The loss for the Company for the year is £16.037m (2007: loss of £0.594m).

Going Concern

The Group financial statements are subject to significant uncertainties as detailed in the notes to the financial statements. As a result, the Group's US subsidiaries do not have sufficient liquid resources to meet their current obligations and may possibly be liquidated. The financial statements do not include the adjustments required to present the financial statements on a break up basis, the prevalent uncertainties prohibit a reliable estimation of recoverable values of the US subsidiaries.  

After taking appropriate professional advice, the Directors believe that the liabilities of the subsidiaries are ring fenced in these entities. In the event that the Directors of the Company are not able to successfully conclude a work out of the debts and liabilities of the US subsidiaries, the Company may become an investment shell. Negotiations are in progress to acquire further assets and raise capital. 

The Company has sufficient cash to meet it's current obligations as at the year end and to fund activities at the current "burn rate", but will need to raise further equity funds within the next 12 months in order to fund any potential transaction. The Directors are confident about raising sufficient funds for the Company to be a going concern, and therefore the financial statements of the Company are prepared on a going concern basis. 

Change in Accounting Policy 

*     New standards, amendments to published standards and interpretations to existing standards effective on 1 January 2008 adopted by the group.

 New and revised standards       Standard              Effective for annual
 effective for 31 December 2008                        periods beginning on
 year-ends                                             or after
 Interpretations                 IFRIC 11 - IFRS 2     1 March 2007
                                 Group and Treasury
                                 Share Transactions

                                 IFRIC 12 - Service    1 January 2008
                                 Concession
                                 Arrangements

                                 IFRIC 14 - IAS 19     1 January 2008
                                 The Limit on a
                                 Defined Benefit
                                 Asset, Minimum
                                 Funding Requirements
                                 and their
                                 Interaction

b.   New standards, amendments to published standards and interpretations to existing standards in issue at 31 December 2008 but not yet effective, that will be applicable to the group in the future.

 New and revised standards       Standard              Effective for annual
 issued but not effective for                          periods beginning on
 31 December 2008 year-ends                            or after
 New Standard                    IFRS 8 - Operating    1 January 2009
                                 Segments

 Amendment                       IFRS 3* - Business    1 July 2009
                                 Combinations

                                                       1 January 2009
                                 IFRS 2 - Share-based
                                 Payment - Vesting
                                 Conditions and
                                 Cancellations
                                                       1 January 2009

                                 IAS 1 - Presentation
                                 of Financial
                                 Statements - A
                                 revised Approach      1 January 2009

                                 IAS 23 - Borrowing    1 July 2009
                                 Costs

                                 IAS 27 -
                                 Consolidated and      1 January 2009
                                 Separate Financial
                                 Statements

                                 IAS 32 and 1* -       1 July 2008
                                 Puttable Financial
                                 Instruments and
                                 Obligations Arising
                                 on Liquidation
                                                       30 June 2009

                                 IAS 39 and IFRS 7 -
                                 Reclassification of   1 July 2009
                                 Financial
                                 Instruments

                                 IFRIC 9 and IAS 39*   1 January 2010
                                 - Embedded
                                 Derivatives
                                                       1 January 2010

                                 IAS 39 Financial
                                 Instruments:
                                 Recognition and
                                 Measurement:
                                 Eligible Hedged
                                 Items*

                                 Improvements to
                                 IFRSs*

                                 IFRS 2 - Group
                                 Cash-settled
                                 Share-based Payment
                                 Transactions

 Interpretations
                                 IFRIC 13 - Customer   1 July 2008
                                 Loyalty Programmes

                                                       1 January 2009
                                 IFRIC 15* -
                                 Agreements for the
                                 Construction of Real
                                 Estate
                                                       1 October 2008

                                 IFRIC 16 - Hedges of
                                 a Net Investment in
                                 a Foreign Operation
                                                       1 July 2009

                                 IFRIC 17 -
                                 Distributions of
                                 Non-cash Assets to
                                 Owners*               1 July 2009

                                 IFRIC 18 - Transfer
                                 of Assets from
                                 Customers*

Items marked * had not yet been endorsed by the European Union at the date that these financial statements were approved and authorised for issue by the Board. The standards listed above that are not yet effective are not expected to have a significant impact on the Group.

Basis of consolidation

The consolidated financial information incorporates the results of the Company and its subsidiaries ("the Group") as if they formed a single entity. The Group consists of all 100% owned subsidiaries. Intercompany transactions and balances between group companies are therefore eliminated in full.

Business Combinations

The consolidated financial statements incorporate the results of the business combinations using the purchase method. In the consolidated balance sheet, the acquiree's identifiable assets, liabilities and contingent liabilities are initially recognised at their fair values at the acquisition date. The results of acquired operations are included in the consolidated income statement from the date on which control is obtained.

The merger reserve relates to the utilisation of the provisions in section 131 for merger relief in the Companies Act 1985. This relief arose on the acquisition of subsidiaries in a share for share exchange in the period ended 31 December 2006.

The Company's Investments in Subsidiaries

In its separate financial statements the Company recognises its investments in subsidiaries at cost, less any impairment for permanent diminution in value. The cost of acquisition includes directly attributable professional fees and other expenses incurred in connection with the acquisition.

Revenue

The Group had turnover of £330,000 during the period based on returns provided by the operator.

Revenue arises from sales of oil and gas to third parties. Revenue is recognised at the point of delivery to the purchaser, which is normally on delivery into pipelines.

Interest revenue is accrued on a time basis, by reference to the principal outstanding and at the effective interest rate applicable, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to that asset's net carrying amount.

Foreign currencies

Transactions entered into by group entities in currency other than the currency of the primary economic environment in which they operate (the "functional" currency) are recorded at rates ruling when the transactions occur. Foreign currency monetary assets and liabilities are translated at the rates ruling at the balance sheet date.

On consolidation, the results of the overseas operations are translated into Pounds Sterling at average rates approximating to those ruling when the transactions took place. All assets and liabilities of overseas operations are translated at the rate ruling at the balance sheet date. Exchange differences arising on translating the opening net assets at open rate and the results of overseas operations at actual rate are recognised directly in equity (the "foreign currency translation reserve")

Cash and cash equivalents

Cash consists of cash on hand and cash held on current account or on short term deposits with an original maturity of 3 months or less at variable interest rates.

For the purposes of the Cash Flow Statement, cash and cash equivalents consist of cash and cash equivalents as defined above.

There is no significant difference between the carrying value and fair value of cash and cash equivalents.

Financial assets

The group classifies its financial assets into one of the categories discussed below, depending on the purpose for which the asset was acquired. The only financial assets currently held by the group are classified as loans and receivables.

The group's accounting policy for each category is as follows:

Loans and receivables: These assets are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are initially recognised at fair value plus transaction costs that are directly attributable to their acquisition or issue, and are subsequently carried at amortised cost using the effective interest rate method, less provision for impairment.

Impairment provisions are recognised when there is objective evidence (such as significant financial difficulties on the part of the counterparty or default or significant delay in payment) that the group will be unable to collect all of the amounts due under the terms receivable, the amount of such a provision being the difference between the net carrying amount and the present value of the future expected cash flows associated with the impaired receivable. For receivables, which are reported net, such provisions are recorded in a separate allowance account with the loss being recognised within administrative expenses in the income statement. On confirmation that the receivable will not be collectable, the gross carrying value of the asset is written off against the associated provision.

The Group's loans and receivables comprise trade and other receivables and cash and cash equivalents in the balance sheet.

There is no significant difference between the carrying value and fair value of receivables.

Cash and cash equivalents includes cash in hand and other short term highly liquid investments with a maturity of 3 months or less. Any interest earned is accrued monthly and classified as interest. Short term deposits comprise deposits made for varying periods of between one day and three months.

Trade and other receivables are initially measured at fair value and subsequently at amortised cost (using the effective interest rate) less allowance for impairment.

Fair value through profit or loss: The group does not have any assets held for trading nor does it voluntarily classify any financial assets as being at fair value through profit or loss.

Financial liabilities

The group classifies its financial liabilities into one of two categories, depending on the purpose for which the liability was assumed. These are either fair value through profit or loss and other financial liabilities. At present, the Group does not have any liabilities classified as fair value through profit or loss.

The group's accounting policy for the other financial liabilities category is as follows:

Other financial liabilities: Other financial liabilities include the following items:

Trade payables and other short-term monetary liabilities, which are initially recognised at fair value and subsequently carried at amortised cost using the effective interest method. All interest and other borrowing costs incurred in connection with the above are expensed as incurred and reported as part of financing costs in the income statement.

Intangible assets - Oil and gas exploration and evaluation assets

The Group applies the full cost method of accounting for Exploration and Evaluation ("E&E") costs, where costs of exploring for and evaluating oil and gas properties are accumulated and capitalised by reference to appropriate cost pools. Such cost pools are based on geographic areas and are not larger than a segment. The Group currently has two cost pools being the Kansas, USA, region and the Oklahoma, USA region.

E&E costs are capitalised until the results of the projects are known. The E&E costs may include costs of licence acquisition, technical services and studies, seismic acquisition, exploration drilling and testing. E&E costs include an allocation of salary costs as determined by management on a time apportionment based on level of effort expended on each cost pool.

Tangible assets acquired for use in E&E activities are classified as property, plant and equipment. 

Intangible E&E assets related to each exploration lease/prospect are not depreciated and are carried forward until the existence (or otherwise) of commercial reserves has been determined. The Group's definition of commercial reserves for such purpose is proven and probable reserves on an entitlement basis.

If commercial reserves have been discovered, the related E&E assets are assessed for impairment on a cost pool basis as set out below and any impairment loss is recognised in the income statement. The carrying value, after any impairment loss, of the relevant E&E assets is then reclassified as development and production assets within property, plant and equipment. Such assets are amortised on a unit of production basis over the life of the commercial reserves of the pool to which they relate.

Intangible E&E assets that relate to E&E activities that are determined not to have resulted in the discovery of commercial reserves remain capitalised as intangible E&E assets at cost, subject to meeting a pool-wide impairment test as set out below. 

E&E assets are assessed for impairment when facts and circumstances suggest that the carrying amount may exceed its recoverable amount. Such indicators include the point at which a determination is made as to whether or not commercial reserves exist. Where the E&E assets concerned fall within the scope of an established full cost pool, the E&E assets are tested for impairment together with all development and production assets associated with that cost pool, as a single cash generating unit. The aggregate carrying value is compared against the expected recoverable amount of the pool, generally by reference to the present value of the future net cash flows expected to be derived from production of commercial reserves. Where the E&E assets to be tested fall outside the scope of any established cost pool, there will generally be no commercial reserves and the E&E assets concerned will generally be written off in full. Any impairment loss is recognised in the income statement as additional depreciation and separately disclosed.

Further commentary on the consideration of carrying value of E&E assets is included in Note 11.

Oil and gas assets - Development and production

Development and production assets, representing evaluated leases, are accumulated on a field-by-field basis and represent the cost of developing the commercial reserves discovered and bringing them into production, together with the E&E expenditures incurred in finding commercial reserves transferred from intangible E&E assets as outlined above.

The net book values of producing assets are depreciated on a field-by-field basis using the unit of production method by reference to the ratio of production in the period to the related commercial reserves o the field, taking into account estimated future development expenditures necessary to bring those reserves into production.

An impairment test is performed whenever events and circumstances arising during the development or production phase indicate that the carrying value of a development or production asset may exceed its recoverable amount. The aggregate carrying value is compared against the expected recoverable amount of the cash generating unit, generally by reference to the present value of the future net cash flows expected to be derived from production of commercial reserves. The cash generating unit applied for impairment test purposes is generally the field, except that a number of field interest may be grouped as a single cash generating unit where the cash flows of each field are interdependent.

Impairment of non-financial assets

Non-financial assets and identifiable intangibles, other than oil and gas assets, are reviewed for impairment each reporting date and whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. If the expected discounted future cash flow from the use of the assets and their eventual disposition is less than the carrying amount of the assets, an impairment loss is recognised and measured using the higher of the asset's fair value less costs to sell and the value in use.

In assessing the value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the rises specific to the asset for which the estimates of future cash flows have not been adjusted.

Property, Plant and Equipment other than oil and gas assets

Plant and equipment is stated at cost less accumulated depreciation and any accumulated impairment losses. 

Depreciation is provided on all plant and equipment to write off the cost less estimated residual value of each asset over its expected useful economic life on a straight-line basis at the following annual rates:

Plant and Equipment - between 25% and 33%

The estimated useful lives, residual values and depreciation methods are reviewed at each year end, with the effect of any changes in estimate accounted for on a prospective basis.

Taxation

Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are generally recognised for all deductible temporary differences to the extent that it is probable that taxable profits will be available against which those deductible temporary differences can be utilised except for differences arising on investments in subsidiaries and jointly controlled entities where the group is able to control the timing of the reversal of the difference and it is probable that the difference will not reverse in the foreseeable future.

Recognition of the deferred tax assets is restricted to those instances where it is probable that the taxable profit will be available against which the difference can be utilised.

Deferred tax is also based on rates enacted or substantively enacted at the balance sheet date and expected to apply when the related deferred tax asset is realised or liability settled.

Share-based payments

The Group issues equity-settled share-based payments to certain employees. Equity-settled share-based payments are measured at fair value at the date of grant. The equity-settled share-based payments are expensed over a straight line basis over the vesting period based on the group's estimate of shares that will eventually vest. The fair value is determined using a Black-Scholes model.

Where equity instruments are granted to persons other than employees, the income statement is charged with the fair value of goods and services received, except where it is in respect to costs associated with the issue of securities, in which case it is charged to the share premium account.

Decommissioning

A provision for decommissioning is to be recognised if, due to the environmental impact of the operations of the Group, an obligation arises as a result of a past event, and it is probable that an outflow of economic benefits will be required to settle the obligation. If the effect is material, provisions are determined by discounting the expected future cash-flows at a pre-tax rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability.

The extent to which a decommissioning provision is required in respect of potential obligations depends, inter alia, on the legal requirements at the time of decommissioning, the cost and timing of any necessary decommissioning works, and the discount rate to be applied to such costs.

Other Provisions

A provision is recognised in the balance sheet when the Group has a present legal or constructive obligation as a result of a past event, and it is probable that an outflow of economic benefits will be required to settle the obligation. If the effect is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability.

Where there is a substantial modification of the terms of an existing liability it is accounted for as an extinguishment of the old financial instrument and recognition of a new financial instrument.
      

Segment Reporting

A business segment is a distinguishable component of an enterprise that is engaged in providing an individual product or service or a group of related products or services and that is subject to risks and returns that are different from those of other business segments. A geographical segment is a distinguishable component of an enterprise that is engaged in providing products or services within a particular economic environment and that is subject to risks and returns that are different from those of components operating in other economic environments.

2. Financial Instruments - Risk Management

The financial instruments grouped together by class and category are as follows:

Group:

                              Loans and Receivables
                                2008        2007
 Current financial assets       £'000      £'000
 Trade and other receivables     638       2,630
 Cash and cash equivalents       488       1,204
 Total                          1,126      3,834

                                   Financial Liabilities Measured at Amortised Cost
                                           2008                        2007
 Current financial liabilities            £'000                       £'000
 Trade and other payables                 2,965                        536
 Financial liabilities                    4,257                         -
 Total                                    7,222                        536

Company

                              Loans and Receivables
                                2008        2007
 Current financial assets       £'000      £'000
 Trade and other receivables     567       2,623
 Cash and cash equivalents       118       1,181
 Total                           685       3,804

                                   Financial Liabilities Measured at Amortised Cost
                                           2008                        2007
 Current financial liabilities            £'000                       £'000
 Trade and other payables                   92                         119
 Financial liabilities                      -                           -
 Total                                      92                         119

Carrying value of the financial assets in the balance sheet is equal to the maximum exposure to credit risk.

The group is exposed through its operations to the following financial risks:

*     Foreign exchange risk

*     Interest rate risk

*     Liquidity risk

*     Credit risk

In common with all other businesses, the group is exposed to risks that arise from its use of financial instruments. This note describes the group's objectives, policies and processes for managing those risks and the methods used to measure them. Further quantitative information in respect of these risks is presented throughout these financial statements. References in this note to the Group are also applicable to the Company, unless explicit differences arise between the Group and Company risks, which are therefore stated. 

There have been no substantive changes in the group's exposure to financial instrument risks, its

objectives, policies and processes for managing those risks or the methods used to measure them from previous periods unless otherwise stated in this note.

Principal financial instruments

The principal financial instruments used by the Group, from which financial instrument risk arises, are as follows:

- trade receivables

- cash at bank

- trade and other payables

- loans with related parties

General objectives, policies and processes

The Board has overall responsibility for the determination of the group's risk management objectives and policies. The Board receives monthly reports from the group Financial Controller through which it reviews the effectiveness of the processes put in place and the appropriateness of the objectives and policies it sets.

Management review the Group and Company's exposure to currency risk, interest rate risk, liquidity risk and credit risk on a regular basis and consider that through this review they manage the exposure of the Group and Company. 

The overall objective of the Board is to set polices that seek to reduce risk as far as possible without unduly affecting the Group's competitiveness and flexibility. Further details regarding these policies are set out below.

No formal policies have been put in place in order to hedge the Group and Company's activities to the exposure to currency risk or interest risk. 

Foreign exchange risk

Foreign exchange risk arises because the Group has operations located in the United States of America whose functional currency is not the same as the functional currency in which the Head Company operates and raises finance. The Group's net assets arising from such overseas operations are exposed to currency risk resulting in gains or losses on retranslation into sterling. 

Only in exceptional circumstances will the Group consider hedging its net investments in overseas operations as generally it does not consider that the reduction in foreign currency exposure warrants the cash flow risk created from such hedging techniques.

The Group's policy is, where possible, to allow group entities to settle liabilities denominated in their functional currency (primarily US dollar or pound sterling) with the cash generated from their own operations in that currency. Where Group entities have liabilities denominated in a currency other than their functional currency (and have insufficient reserves of that currency to settle them) cash already denominated in that currency will, where possible, be transferred from elsewhere within the Group.

At the balance sheet date the Group had trade and other payables of £2,873,000 (2007: £536,000) denominated in US dollars and financial liabilities of £4,257,000 (2007: £nil). Refer note 16 in respect of trade and other payables and note 17 in respect of financial liabilities.

Interest Rate Risk

The Group and Company manage the interest rate risk associated with the Group cash assets by ensuring that interest rates are as favourable as possible, whether this is through investment in floating or fixed interest rate deposits, whilst managing the access the Group requires to the funds for working capital purposes.

Liquidity risk

Liquidity risk arises from the Group's management of working capital and the finance charges and principal repayments on its debt instruments. It is the risk that the group will encounter difficulty in meeting its financial obligations as they fall due. Short term payables are classified as those payables that are due within 30 days.

The Board receives cash flow projections as well as information regarding cash balances. 

Capital Disclosures

The Group considers its capital to comprise its ordinary share capital, share premium and accumulated retained losses as well as the reserves (consisting of share based payments reserve, foreign currency translation reserve and merger reserve).

The Group's objectives when maintaining capital is: 

- to safeguard the entity's ability to continue as a going concern, so that it can continue to provide returns for shareholders and benefits for other stakeholders.

The Company meets its capital needs by equity financing. The Group sets the amount of capital it requires in proportion to risk. The Group manages its capital structure and makes adjustments to it in the light of changes in economic conditions and the risk characteristics of the underlying assets. 

Credit Risk

Cash is the only significant concentration of risk. This risk is managed by only banking with reputable financial institutions.

Critical Accounting Estimates and Judgements

The Company and Group make certain estimates and assumptions regarding the future. Estimates and judgements are continually evaluated based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. In the future, actual experience may differ from these estimates and assumptions. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed throughout this report in the relevant notes to the financial statements. The key estimates and judgements relate to:

*     Asset carrying values

*     Contingent liabilities

*     Going concern presentation

3. Revenue and Segment Analysis

The Group had operating revenue during the period of £330,000 (2007: nil) based on returns from operators. 

The Group operates in one business segment, the exploration for oil and gas. The Group has material interests in two geographical segments, the United States of America and the United Kingdom. The Group assets are substantially attributable to the exploration for oil and gas activities in the United States of America. The parent Company operates a head office based in the United Kingdom which incurs certain administration costs. These two geographic segments are presented on a consolidated basis in the table below. 

 Geographic Segments             United Kingdom       United States of    Total
                                                               America
 Year ended 31 December 2008              £'000                  £'000    £'000
 Profit / (loss) from
 operations before tax and                (526)                (2,079)  (2,605)
 finance income
 Interest income                             31                      -       31
 Profit / (loss) before tax               (495)                (2,079)  (2,574)

 Other segment information:
 Segment assets
 Tangible oil and gas assets                  -                  4,221    4,221
 Intangible oil and gas assets                -                 19,345   19,345
 Other tangible and non-current               8                     31       39
 assets
 Current assets                             719                    449    1,168
 Total assets                               727                 24,046   24,773

 Capital expenditure
 Oil and gas assets                           -                  8,993    8,993
 Other tangible assets                        -                     17       17
 Total capital expenditure                    -                  9,010    9,010

 Liabilities
 Liabilities
 Trade and other payables                  (92)                (2,873)  (2,965)
 Other financial liabilities                                   (4,257)  (4,257)
 Total liabilities                         (92)                (7,130)  (7,222)

 Geographic Segments             United Kingdom        United States of   Total
                                                                America
 Year ended 31 December 2007              £'000                   £'000   £'000
 Profit / (loss) from
 operations before tax and                (663)                   (256)   (919)
 finance income
 Interest income                             69                       -      69
 Profit / (loss) before tax               (594)                   (256)   (850)

 Other segment information:
 Segment assets
 Tangible oil and gas assets                  -                     882     882
 Intangible oil and gas assets                -                   9,693   9,693
 Other tangible and non-current              14                      20      34
 assets
 Current assets                           3,830                      44   3,874
 Total assets                             3,844                  10,639  14,483
      
 Geographic Segments          United Kingdom  United States of America  Total
 Year ended 31 December 2007           £'000                     £'000  £'000
 Other segment information:

 Capital expenditure
 Oil and gas assets                        -                     4,610  4,610
 Other tangible assets                     2                        23     25
 Total capital expenditure                 2                     4,633  4,635

 Liabilities
 Liabilities                               -                     (417)  (417)
 Head Office                           (119)                         -  (119)
 Total liabilities                     (119)                     (417)  (536)

The Company does not show its results on a segmented basis as it operates in one geographic segment and one business segment only.

4. Loss from Operations

This has been arrived at after charging/(crediting):

                                                                     2008   2007
                                                                    £'000  £'000
 Staff costs (note 7)                                                 431    182
 Share based payments expense                                           -    120
 Auditors' remuneration        - Group audit services - BDO            25     20
                               - Group audit services - Chapman         -      7
                               Davis
                               - Subsidiary audit services - BDO        -      5
 Depreciation (note 14)                                                12      9
 Foreign exchange differences                                           -     13

5. Interest Income

                                       2008   2007
                                      £'000  £'000
 Bank interest received / receivable     31     69
 Other interest receivable                -      -
 Total interest income                   31     69

6. Taxation

                                                                     2008   2007
                                                                    £'000  £'000
 Current year taxation
 UK corporation tax at 28% on results for the current period            -      -
 (30% rate used in comparative period)

 Factors affecting the tax charge for the period
 Loss on ordinary activities before tax                           (2,574)  (850)

 Loss on ordinary activities at the UK standard rate of 28.5%       (734)  (255)
 (2007:30%)
 Effects of:
 Non deductible expenses                                               79     54
 Future tax benefit not brought to account                            655    201
 Total tax charge for period                                            -      -

No deferred tax asset has been recognised because there is insufficient evidence of the timing of suitable future profits against which the losses can be recovered and the losses may be restricted to trades that generated the losses. 

The value of the deferred tax asset that is unrecognised in the accounts £0.996m (2007: £0.236m).

7. Staff Costs (including Directors)

                         2008   2007
 Consolidated           £'000  £'000
 Salaries                 627    174
 Share based payments       -    120
 Social security costs     48      8
 Total                    675    302

The Consolidated Group had an average monthly number of employees of 7 employees during the period ended 31 December 2008 (2007: 6 employees). Three employees are non-executive directors based in the UK and the other employees, including executives are based in the US, and are engaged in administration and technical evaluation. 

£244,000 of Group staff costs have been capitalised as part of exploration assets.

                         2008   2007
                        £'000  £'000
 Company
 Salaries                 118    109
 Share based payments       -    120
 Social security costs      8      8
 Total                    126    237

The Company had 3 employees during the period ended 31 December 2008 (2007: 3 employees). All employees are non-executive directors of the Company.

8. Directors' and Key Management Personnel Emoluments
                                     £'000        £'000  £'000
                                     Total
                                Emoluments
                                            Share-based
 2008                       Directors Fees     Payments  Total
 Non-Executive Directors:
 Michael Frayne1                        46            -     46
 Anthony Samaha                         36            -     36
 Ross Warner                            36            -     36
 Executive Directors
 Aaron Close                           143            -    143
 Doug Manner                            70            -     70
 Executive Officers
 Charles Bingle                        146            -    146
 Sean Austin                            43            -     43
 Total                                 520            -    520

                                       £'000                 £'000  £'000
                           Total Emoluments 
                              Directors Fees  Share-based Payments

 2007                                                               Total
 Non-Executive Directors:
 Michael Frayne2                          36                     -     36
 Anthony Samaha                           37                     -     37
 Ross Warner                              36                     -     36
 Executive Directors
 Aaron Close                             113                    40    153
 Doug Manner                              50                    40     90
 Executive Officer
 Charles Bingle                           97                    40    137
 Total                                   369                   120    489

*     Services provided by Equatorial Palm Oil Plc and Adelise Services Ltd

*     Services provided by Adelise Services Ltd

No pension benefits are provided for any Director (2007: £nil).

No share options were exercised by the Directors in this period or in the comparative period.

9. Loss Per Share

The basic loss per share is derived by dividing the loss for the period attributable to ordinary shareholders by the weighted average number of shares in issue.  

As inclusion of the potential ordinary shares would result in a decrease in the loss per share they are considered to be anti-dilutive, as such the basic and diluted loss per share are the same. 

                                                            2008            2007
                                                           £'000           £'000
 Loss for the period                                     (2,574)           (850)
 Weighted average number of Ordinary shares of    766.94 million  431.44 million
 £0.001 in issue
 Loss per share - basic expressed in pence               (0.34)p         (0.20)p

Refer to the 110 million contingent share issue disclosed in Note 18 for potential future share issues that may dilute the loss per share.

10. Financial Instruments 

The Group's financial instruments comprise cash and items arising directly from its operation such as receivables, trade payables, and borrowings. In addition, the Group has put options for the sale of gas in the US with a value of £0.07m (2007: nil).

The Company's financial instruments comprise the investments in subsidiaries, other receivables and payables (as disclosed in note 2), and loans to subsidiaries. Further information on loans to subsidiaries is included in note 13.

The Group seeks to obtain a favourable interest rate on its cash balances through the use of bank treasury deposits.

At the period end the Group had a cash balance of £0.488m (2007: £1.2 million), made up as follows:
                  2008   2007
                 £'000  £'000
 British pounds    118  1,181
 US dollars        370     23
 Total             488  1,204

At the period end the Company had a cash balance of £0.118m (2007: £1.18m), made up as follows:
                  2008   2007
                 £'000  £'000
 British pounds    118  1,181
 Total             118  1,181

There is no material difference between the book value and fair value of the Group's or Company's cash.

The Group has four overseas subsidiaries which operate in the United States of America and whose expenditure is primarily denominated in US dollars. Foreign exchange risk is inherent in the Group's activities and is accepted as such. Refer to Note 2 for detailed commentary on the foreign exchange risk of the Group.

The majority of parent Company expenses are denominated in British pounds.

Finance income and expense
                                                                     2008   2007
                                                                    £'000  £'000

 Interest income on financial assets classified as loans and           31     69
 receivables
 Total finance income                                                  31     69

 Interest expense on financial liabilities measured at amortised    (325)      -
 cost
 Net finance income/(expense)                                       (294)     69

There has been no impairment of financial assets or liabilities in the current or comparative periods.

11. Intangible Assets

Oil and gas exploration and evaluation assets
                                                     Group  Group
                                                      2008   2007
                                                     £'000  £'000
 Cost
 Opening Carrying Value                              9,693  5,963
 Additions                                           5,999  4,672
 Currency translation adjustment                     3,653   (60)
 Assets transferred to property, plant & equipment       -  (882)
 Carrying Value at 31 December                      19,345  9,693

Additions represent £2.3m (US$4.6m) of new licences acquired, and approximately £3.7m (US$5.9) of exploration work performed on the Group's oil and gas leases in the US. Included in exploration additions is £2.7m (US$3.8m) representing amounts invoiced by Metro, in their capacity as operator of the licences in the US, that are disputed. The Group have asked Metro to substantiate these cash calls with supporting documentation. Management have initiated a detailed independent review of these charges which indicates that significant amounts cannot currently be substantiated. Furthermore, the amounts claimed includes expenditure that had not been appropriately approved by the Board of Irvine. This process is ongoing. Metro continues to withhold revenues payable to the Group pending the resolution of this dispute.

GasRock have a legal charge over these licences. GasRock served notice on the Group, dated 27 January 2009, that it was in default on the loan facility. GasRock has not taken further action in relation to enforcing it's security, however, given current market conditions it is unlikely that any disposal proceeds would be sufficient to settle the amounts due to GasRock. There is a risk that the Group will not retain an interest in any of its US oil and gas assets. 

There is no provision for impairment in the financial statements as at 31 December 2008 as the Group is not currently able to market its assets due to the ongoing dispute and forced sale is unlikely to realise sufficient funds to clear the amounts due to GasRock. In light of the inherent uncertainty and the absence of comparable transactions, the directors are unable to conclude with sufficient certainty on the value of the Group's oil and gas assets. 

12. Investments

                                       Company  Company
                                          2008     2007
                                         £'000    £'000
 Cost
 Investment in subsidiaries:
 Opening Balance                         2,419    2,419
 Impairment of subsidiary investments  (2,419)        -
 At 31 December                              -    2,419

The directors have impaired the total carrying value of the Company's investment in its subsidiaries as at 31 December 2008. 

Metro, the Operator of the assets owned by Wattle and Pinon, has claimed approximately US$3.8m from Wattle and Pinon in respect of seismic acquisition, joint interest billings, and management fees. Wattle and Pinon have asked Metro to substantiate its claim and this process is ongoing. There is significant uncertainty regarding the resolution of the claims. 

The Group's US subsidiaries do not have sufficient liquid resources to meet their current obligations. GasRock issued a notice of default under the Credit Agreement after the year end. The Group and GasRock are in discussions with third parties regarding the provision of further debt and the raising of further equity. However, as noted elsewhere in this report, GasRock has not reached a conclusion as to the course of action it wants to take in relation to enforcing its security over the oil and assets.

As a result of the above factors, the directors have impaired the total carrying value of the investments in subsidiaries.  

Details of the Company's Subsidiaries at 31 December 2008 are as follows:

 Company                         Country of Registration  Proportion held     Nature of business
 Direct
 Wattle Energy Inc                         USA                 100%        Oil & gas exploration
 Irvine Energy (USA) Inc                   USA                 100%        Oil & gas exploration
 Halcyon Investment Co Pty Ltd          Australia              100%           Holding Company
 Indirect 
 Via Halcyon Investment Co Pty
 Ltd
 Halcyon Nominees Pty Ltd               Australia              100%           Holding Company
 Halcyon Nominees (USA) Inc                USA                 100%        Oil & gas exploration
 Via Wattle Energy Corporation
 Pinon Energy LLC                          USA                 100%        Oil & gas exploration

13. Loans to Subsidiaries - Company
                                   Company    Company
                                      2008       2007
                                     £'000      £'000
 Wattle                              6,739      3,490
 Pinon Energy                        5,176      1,639
 Irvine Energy USA                   1,177        461
 Halcyon Group                           -      2,663
 Impairment of subsidiary loans   (13,092)          -
 Total                                   -      8,253

The loans to subsidiaries are interest free and have no fixed repayment date. They are denominated in US Dollars and are repayable on demand.

The Group's US subsidiaries do not have sufficient liquid resources to meet their current obligations. The Group is in discussions with third parties regarding the provision of further debt and the raising of further equity. The outcome of these discussions is uncertain. Claims of US$3.8m have been made against Wattle and Pinon, as disclosed in Note 12. 

Therefore, the directors do not consider the loans made to subsidiaries to be recoverable and, as a result, have impaired the total amount of the Company's loans to its subsidiaries as at 31 December 2008.  

      

14. Property, Plant and Equipment

                                            Group             Group             Group             Group           Company           Company
                                        Evaluated         Evaluated           Plant &           Plant &           Plant &           Plant &
                                           Leases            Leases         Equipment         Equipment         Equipment         Equipment
                                             2008              2007              2008              2007              2008              2007
                                            £'000             £'000             £'000             £'000             £'000             £'000
 Cost
 Cost at 1 January                            338                 -               589                20                22                20
 Additions                                  2,994                 -                17                25                 -                 2
 Currency translation                         345
 adjustment 
 Transferred from intangible                    -               338                 -               544                 -                 -
 assets
 At 31 December                             3,677               338               606               589                22                22

 Depreciation
 Accumulated depreciation at 1                  -                 -              (11)               (2)               (8)               (2)
 January
 Charge for the period                          -                 -              (12)               (9)               (6)               (6)
 At 31 December                                 -                 -              (23)              (11)              (14)               (8)

 Carrying Value
 At 31 December                             3,677               338               583               578                 8                14

GasRock have a legal charge over these licences. GasRock served notice on the Group, dated 27 January 2009, that it was in default on the loan facility. GasRock has not taken further action in relation to enforcing it's security, however, given current market conditions it is unlikely that any disposal proceeds would be sufficient to settle the amounts due to GasRock. There is a risk that the Group will not retain an interest in any of its US oil and gas assets. 

There is no provision for impairment in the financial statements as at 31 December 2008 as the Group is not currently able to market its assets due to the ongoing dispute and forced sale is unlikely to realise sufficient funds to clear the amounts due to GasRock. In light of the inherent uncertainty and the absence of comparable transactions, the directors are unable to conclude with sufficient certainty on the value of the Group's oil and gas assets. 

15. Other Receivables
                                 Group      Group    Company    Company
                                  2008       2007       2008       2007
                                 £'000      £'000      £'000      £'000
 Placement cash receivable         567      2,619        567      2,619
 Other receivables                  71         11          -          4
 VAT receivable                     18         14         18         14
 Prepayments                        24         26         16         12
                                   680      2,670        601      2,649

Included within Other Receivables is an amount of £567,000 in respect of amounts due for share capital issued at the year end.

16. Trade and Other Payables
                                  Group      Group    Company    Company
                                   2008       2007       2008       2007
                                  £'000      £'000      £'000      £'000
 Trade payables and accruals      2,927        469         54         71
 Non-trade payables                  38         67         38         48
                                  2,965        536         92        119

Included in trade payables is £2.7 million (US$3.8m) representing amounts invoiced by Metro in their capacity as operator of the licences in the US, that are disputed. The Group have asked Metro to substantiate these cash calls with supporting documentation. Management have initiated a detailed independent review of these charges which indicates that significant amounts cannot currently be substantiated. Furthermore, the amounts claimed include expenditure that had not been appropriately approved by the Board of Irvine Plc. This process is ongoing. Metro continues to withhold revenues payable to Group pending the resolution of this dispute.

17. Financial liabilities
                        Group      Group    Company    Company
                         2008       2007       2008       2007
                        £'000      £'000      £'000      £'000
 GasRock loan note      4,257          -          -          -
                        4,257          -          -          -

On 28 May 2008, the Company's wholly owned subsidiaries Wattle and Pinon entered into a credit agreement with GasRock. During the period to 31 December 2008, £4,257,000 was drawn under this facility. Subsequent to the year end GasRock issued a notice of default, dated 27 January 2009, demanding repayment of the outstanding monies owed. It also issued a notice to the Company claiming payment of the same amount in accordance with the terms of the guarantee.  

Following extensive negotiations by the Board, on 19 March 2009, Irvine Plc and GasRock entered into a release of guarantee whereby GasRock released Irvine Plc from its obligations under the guarantee in consideration of Irvine Plc paying £370,000 to GasRock. The consideration has been paid to GasRock and, accordingly, the Company has been released from the guarantee. In addition, the Company agreed to grant, and subsequently granted, GasRock an option to subscribe for 100 million ordinary shares in the Company at 0.1 pence per share.  

At the date of this Report, GasRock has not taken any further action to enforce its security. GasRock and the Company have been discussing various proposals involving Chapter 7 and Chapter 11 of United States Bankruptcy Code. Under these proposals, there is a significant risk that the Company will not retain an interest in any of its US oil and gas assets. However, the Directors believe, based on professional advice, that the liabilities of the US subsidiaries are ring fenced in those companies and that the Company's loss will be limited to the amount invested.

18. Share Capital

                                                2008   2007
 Authorised                                    £'000  £'000
 2,000,000,000 Ordinary shares of 0.10p each  2,000   1,000

An Ordinary resolution was passed at the Annual General Meeting, held on 31 July 2008, to increase the authorised share capital of the company from 1,000,000,000 ordinary shares of 0.10p each to 2,000,000,000 ordinary shares of 0.10p each.
                                                                       Nominal  
                                                   Number of shares       value 
                                                                           £'000
 Called up, allotted, issued and fully paid
 As at 1 January 2008                                   704,674,846          704
 22 May 2008           Placing at a price of             34,000,000           34
                       2.00p per share
 24 July 2008          Placing at a price of             55,000,000           55
                       2.00p per share
 5 December 2008       Placing at a price of            244,000,000          244
                       0.25p per share

 As at 31 December 2008                               1,037,674,846        1,037

Contingent share issues

Pursuant to the terms of the acquisition of Wattle and the Halcyon Group up to an additional 110 million Irvine ordinary shares are to be issued upon achievement of two performance milestones. Under the first performance milestone, an additional 72.5 million Irvine ordinary shares will be issued upon acquisition of leases covering a total of 100,000 acres within the AMI, and the weighted average price of Irvine shares over any subsequent consecutive 20 trading days being 6 pence or greater. Under the second performance milestone, an additional 37.5 million Irvine ordinary shares will be issued upon acquisition of leases covering a total of 150,000 acres within the AMI, and the weighted average price of Irvine shares being 8 pence or greater over any 20 consecutive trading days after achievement of the first performance milestone.

The shares issued in the year rank pari passu with the existing share capital.

Share Options

During the period, no options to subscribe for ordinary shares in the Company were issued. (2007: 27,500,000)

As at 31 December 2008 the options in issue were:

 Exercise Price       Expiry Date  Options in Issue  Options in Issue
                                   31 December 2008  31 December 2007
           3.0p  23 December 2010         3,000,000         3,000,000
           3.5p   1 November 2011        15,000,000        15,000,000
           3.5p   1 February 2012        10,000,000        10,000,000
           6.0p   1 February 2012        10,000,000        10,000,000
           3.5p     20 April 2012         5,000,000         5,000,000
           6.0p     20 April 2012         2,500,000         2,500,000
                                         45,500,000        45,500,000

No options lapsed or were cancelled and no options were exercised during the period. 

19. Share Based Payments

Director Options

Under IFRS 2 'Share Based Payments', the Company determines the fair value of options issued to Directors and Employees as remuneration and recognises the amount as an expense in the income statement with a corresponding increase in equity.

 Name            Date Granted      Number  Exercise Price     Expiry             Fair Value            Fair Value
                                                                 Date           Grant Date            Grant Date 
                                                                                 per Option           Total £'000
 Michael Frayne    1 Nov 2006   5,000,000            3.5p  1 Nov 2011                  0.3p                    15
 Anthony Samaha    1 Nov 2006   5,000,000            3.5p  1 Nov 2011                  0.3p                    15
 Ross Warner       1 Nov 2006   5,000,000            3.5p  1 Nov 2011                  0.3p                    15
 Aaron Close       1 Feb 2007   5,000,000            3.5p  1 Feb 2012                  0.5p                    25
 Aaron Close       1 Feb 2007   5,000,000            6.0p  1 Feb 2012                  0.3p                    15
 Douglas Manner    1 Feb 2007   5,000,000            3.5p  1 Feb 2012                  0.5p                    25
 Douglas Manner    1 Feb 2007   5,000,000            6.0p  1 Feb 2012                  0.3p                    15
 Total                         35,000,000                                                                     125

There were no share options granted during the period. Therefore, the fair value of the options granted to Directors during the period was nil (2007: £80,000). The assessed fair value at the grant date was determined using the Black-Scholes Model that takes into account the exercise price, the term of the option, the share price at grant date, the expected price volatility of the underlying share, the expected dividend yield and the risk-free interest rate for the term of the option.  

The key inputs applied to the Black-Scholes Model for options granted in 2007 included: the closing share price on 1 February 2007 of 2.5p; risk-free interest rate of 5.18%; and expected volatility of 0.40. In assessing the fair value of the options, a discount of 40% has been applied to the theoretical value calculated by the Black-Scholes Model to take into account the lack of marketability of the options and the inherent limitations of the Black-Scholes Model. The term length of the options has been set at 5 years and the dividend yield has been set at 0 as no dividends are expected until profits are made.

For options granted in 2006, the key inputs applied to the Black-Scholes Model included: the closing share price on 1 November 2006 of 2.0p; risk-free interest rate of 4.68%; and expected volatility of 0.40. In assessing the fair value of the options, a discount of 40% has been applied to the theoretical value calculated by the Black-Scholes Model to take into account the lack of marketability of the options and the inherent limitations of the Black-Scholes Model.

Options to Executive Officers

The Company did not grant any options to Executive Officers during the period (2007: 5,000,000 options issued at £40,000).

 Name             Date Granted     Number  Exercise Price        Expiry             Fair Value            Fair Value
                                                                    Date           Grant Date            Grant Date 
                                                                                    per Option           Total £'000
 Charles Bingle  20 April 2007  5,000,000            3.5p  20 April 2012                  0.6p                    30
 Charles Bingle  20 April 2007  2,500,000            6.0p  20 April 2012                  0.4p                    10
 Total                          7,500,000                                                                         40

The fair value of the options granted to Executive Officers during the prior period was £40,000. The assessed fair value at the grant date was determined using the Black-Scholes Model that takes into account the exercise price, the term of the option, the share price at grant date, the expected price volatility of the underlying share, the expected dividend yield and the risk-free interest rate for the term of the option.  

The key inputs applied to the Black-Scholes Model included: the closing share price on 10 April 2007 of 2.9p; risk-free interest rate of 5.22%; and expected volatility of 0.40. In assessing the fair value of the options, a discount of 40% has been applied to the theoretical value calculated by the Black-Scholes Model to take into account the lack of marketability of the options and the inherent limitations of the Black-Scholes Model. The term length of the options has been set at 5 years and the dividend yield has been set at 0 as no dividends are expected until profits are made.

20. Capital Commitments

The Company and Group had no capital commitments at 31 December 2008. 

21. Disputes and contingent liabilities

Metro, operator of the Group's US assets, has claimed approximately US$3.8m in respect of seismic acquisition, joint interest billings and management fees. Metro have been requested to substantiate its claim and this process is ongoing. The amount claimed includes invoiced or cash called material amounts that did not currently have sufficient evidential support or approval. The amounts claimed have been capitalised and included in trade and other payables. Resolution of the dispute may result in the claim being different to the amounts recognised in the financial statements.  

The outcome of Metro's claims against the Company's US subsidiaries, Wattle and Pinon, and the course of action to be taken by GasRock in respect of enforcing its security over the assets is uncertain at the date of this Report. There is a significant risk that the resolution of these claims will result in a net asset deficiency in the US subsidiaries. At the date of this Report, GasRock has not taken any further action to enforce its security. GasRock and the Company have been discussing various proposals involving Chapter 7 and Chapter 11 of United States Bankruptcy Code. Under these proposals, there is a significant risk that the Company will not retain an interest in any of its US oil and gas assets. However, the Directors believe, based on professional advice, that the liabilities of the US subsidiaries are ring fenced in those companies and that the Company's loss will be limited to the amount invested.

22. Related Party Transactions

There were no related party transactions during the period other than those disclosed in Note 7, Note 8 and those disclosed below.

Irvine Energy Plc makes payments for serviced office facilities and administrative support to Equatorial Palm Oil plc ("EPO") who shares common board members with Irvine Energy plc. These payments are all on arms' length terms and amount to £69,359 for the financial period. There were no amounts outstanding to EPO at the year end in respect of these services.

Michael Frayne provided consulting services to Irvine Energy Plc which was charged through EPO. These payments were determined on arm's length terms and came to an amount of £35,531 for the financial period. There were no amounts outstanding to EPO at the year end in respect of these services. 

For details of loans to subsidiaries see Note 13.

For details of investments in subsidiaries see Note 12.

23. Post Balance Date Events

On 30 January 2009, the Company announced that GasRock had issued a notice of default to Irvine in accordance with the credit agreement dated 28 May 2008 requiring Irvine to pay the outstanding balance of the loan which was approximately US$5.6 million at that date. The Company's shares were suspended from trading on AIM, and remain so, pending clarification of the Company's financial position and discussions with GasRock. 

On 24 March 2009, the Company entered into an agreement with GasRock which releases Irvine Plc from its guarantee of the obligations of its wholly owned subsidiaries, Wattle and Pinon under the credit agreement dated 28 May 2008. The release has been given in consideration of the Company paying £370,000 to GasRock. In addition, the Company has agreed to grant GasRock an option ('Option') within two months of 24 March 2009 to subscribe for 100 million ordinary shares in the Company for 0.1 pence per share.

Following the General Meeting on 15 May 2009, the Company was able to issue the Option to GasRock completing the release of Irvine from the obligations of Wattle and Pinon.

24. Operating Lease Commitments

The total value of minimum lease payments are due as follows:

                                                     2008   2007
                                                    £'000  £'000
 Not later than one year                               43     30
 Later than one year and not later than five years     22     90
 Later than five years                                  -     15
 Total Lease Commitment                                65    135

This lease is held by Irvine Energy (USA) Inc for the lease of business premises in Texas, with no recourse to the Company.

25. Reserves

The following describes the nature and purpose of each reserve within Shareholders Equity.

 Share capital                   Amount subscribed for share capital at nominal value.
 Share premium                   Amount subscribed for share capital in excess of nominal value
 Merger reserve                  Value of shares issued in exchange for shares in acquired subsidiary
                                 less the nominal value.
 Share based payment reserve     Value of equity settled share based payments that were allocated to
                                 directors and brokers (per IFRS 2)
 Foreign currency translation    Differences arising on translating the opening net assets at open
 reserve                         rate and the results of overseas operations at actual rate recognised
                                 directly in equity
 Retained earnings               Cumulative net gains and losses recognised in the consolidated income
                                 statement.

A full version of the Company's Report and Accounts can be found at  www.irvineenergy.com.

* * ENDS * *

For further information please visit http://www.irvineenergy.com or contact:
 Doug Manner    Irvine Energy plc            Tel: +44 (0) 20 7766 7500
 Tim Redfern    Evolution Securities         Tel: +44 (0) 20 7071 4300
 Adam James     Evolution Securities         Tel: +44 (0) 20 7071 4300
 Hugo de Salis  St Brides Media & Finance    Tel: +44 (0) 20 7236 1177

This information is provided by RNS
The company news service from the London Stock Exchange
 
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RNS Number : 1126U Irvine Energy PLC 18 June 2009

Irvine Energy plc / Index: AIM / Epic: IVE / Sector: Exploration & Production

18 June 2009

Irvine Energy plc ("Irvine" or "the Company")

Issue of Option to GasRock Capital

Irvine Energy plc, the AIM listed oil and gas exploration and production company, has granted GasRock Capital LLC ("GasRock") an option to subscribe for 100 million ordinary shares in the Company for 0.1 pence per share. The Company has granted the option in satisfaction of its obligations under the release of guarantee referred to in its announcement of 24 March 2009 and as approved at the general meeting of the Company on 15 May 2009.

The Company's shares will remain suspended until further notice.

RNS Number : 3734S Irvine Energy PLC 15 May 2009

Irvine Energy plc / Index: AIM / Epic: IVE / Sector: Exploration & Production

15th May 2009

Irvine Energy plc ('Irvine' or 'the Company')

General Meeting Statement

Irvine Energy plc, the AIM listed oil and gas exploration and production company, announces that all ordinary and special resolutions put before shareholders at today's General Meeting were duly passed.