(SOGP.L) Sovereign Oilfield Group PLC Buy/Sell

¿ excluding exceptional items of £3.5m

Operational Highlights

Post Period End Highlights

Graham Burgess, Chief Executive Officer of Sovereign, said:

"Our Fabrication companies have shown sustained profitability for many years and with the disposal of our Drilling businesses, our focus on the Fabrication division, reduced corporate overhead, reduced cost of debt and oil prices over $50/barrel, the Board is confident of an improved trading performance in the current financial year.

"With new funding in place and the proactive support of Lenders going forward, the Board believes that steps taken in 2008 and 2009 will establish a stronger platform for the Group's future growth and profitability."

For further information, please contact:

Sovereign Oilfield Group Plc Tel: 01224 261900

Graham Burgess, Chief Executive Officer Julie Cowie, Finance Director

Buchanan Communications Tel: 0207 466 5000

Tim Thompson / Catherine Breen / Christian Goodbody

Charles Stanley Securities - Nominated Advisor Tel: 0207 149 6000

Mark Taylor/Freddy Crossley

The Executive Chairman's Statement

The year to March 2009 was a difficult one for Sovereign.

Very high interest rates and one off adviser charges imposed by our Lenders during the year led to cash outflows of over £6m and resulted in cash flow challenges at times during the year. Very tight control and management of Group cash flow by our finance team and subsidiary company management teams assured the Board that the Company could meet its financing needs through the period.

The Board continued to pursue refinancing throughout the year and was finally able to re-negotiate the terms of existing loans with our existing Lenders in May 2009, resulting in significantly reduced interest charges and deferral of cash interest payment on our Mezzanine loan until June 2010, and these revised terms and the support of Lenders will greatly improve working capital and cash flow.

The sale and leaseback of some of our buildings, the sale of DDS and the sale of Vertec Engineering and the rental cabin assets of Labtech Services Ltd subsequent to the period end, allowed us to repay £8.4m to Lenders and thus reduce our loans and introduce further working capital into the business.

The recently announced sale of Prodrill and sale and leaseback of our Headquarters building, as approved by shareholders on 26 August 2009, will allow us to further deleverage and also increase working capital when these transactions complete in September 2009.

We will continue to pursue further strategic disposals to refocus the Group as a fabrication business. In line with that policy, and after a review of subsidiary valuations, the Board decided to write down the values of some Drilling subsidiaries through exceptional charges of £3.7m.

As a result, profit performance for the period, after taking all these charges, was disappointing, with a loss after taxation of £13.1m in 2009 (2008: £7.4m).

In the light of our overall performance, the Board are not recommending the payment of an ordinary dividend.

Group turnover for the year, however, grew to £96.5m (2008: £94.6m) of which £82.8m (2008: £80.2m) is from continuing operations.

Diamant Drilling Services S.A., which was sold on 5 March 2009, and Vertec Engineering Ltd and Labtech's cabin rental fleet, which were sold effective on 31 March 2009, contributed £13.7m to turnover, but they are now discontinued operations.

Our Fabrication Division performed well again with turnover at £67.9m (2008: £68.6m) prior to the sale of Vertec and the Labtech cabin rental assets. Continuing operations accounted for £59.6m (2008: £61.0m) of this turnover and an EBIDTA of £2.9m (2008: £5.4m).

During the financial year sales leveled off as the oil price fell from over $147 per barrel in July 2008 to below $40 by end December 2008, which resulted in a number of our customers postponing their projects and developments as they adjusted to the much lower oil price. This resulted in a leveling out of enquiries and orders in the second half of the year which has continued into the current year.

The Drilling Division increased turnover to £28.6m (2008: £26.0m) although DDS was sold in March 2009. Continuing operations therefore accounted for £23.2m (2008: £19.2m) of that turnover and had an EBIDTA loss of £0.6m (2008: profit of £1.4m).

Our shares were suspended from AIM in September 2008 pending completion of the 2008 Report and Accounts. I am pleased to report that both our 2008 Annual Accounts and the 2008 Interim Report were published in May 2009 and as a result the Company's Ordinary Shares were restored to trading on AIM on 18 May 2009.

We appreciate the support and loyalty we have received from Shareholders during this difficult period and hope for your continued loyalty. We recognise this has also been challenging for our suppliers and customers and we appreciate their continuity of business.

Despite the extra pressures on our Directors and staff at all levels over the last few months, they have remained highly focused and professional and deserve special mention and thanks.

I would also like to thank Dr Peter Felter, who stepped down from the Board in May, for his significant contribution to the Board and the Company since it was founded, and to wish him the best for the future.

Throughout 2009, the oil and gas industry experienced a slowdown driven by weakening oil and gas prices and demand. As a result demand for the services provided by our companies generally leveled out in the second half of the year to 31 March 2009.

A return to sustained oil prices of over $55 per barrel at the end of May 2009, from a low of approximately $40 per barrel in December 2008, heralded an increase in enquiries and we anticipate that this will result in increased fabrication contracts over the next months.

Our clients are oil and gas and engineering companies who develop new oil and gas fields including many previously uneconomic smaller oil and gas fields, as well as rehabilitating older fields and adjoining facilities. These activities require the fabrication and manufacturing skills and services and personnel that Sovereign supplies to the oil and gas industry.

At August 2009, the Group has fabrication facilities in the UK and Abu Dhabi and the Group's subsidiary companies are organised into two Divisions - Sovereign Fabrication Services Limited (the Fabrication Division) and Sovereign Oilfield Services Limited (the Drilling Division). At 31 August 2009 these comprised:

Diamant Drilling Services SA ("DDS") of Belgium was sold in March 2009; Sovereign Fishing and Remedial Services LLC ("SFRS") of Abu Dhabi is in the process of being closed down and its assets sold.

Sales

Through organic growth, albeit in a flattening market, the Group has experienced some growth with Group sales, pre disposals, for the year ended 31 March 2009 increasing 2% to £96.5m (2008: £94.6m).

Sovereign Fabrication Services Limited accounted for £67.9m (2008: £68.6m) of this turnover, pre disposals, with Sovereign Oilfield Services Limited accounting for £28.6m (2008: £26.0m) with growth mostly attributable to Prodrill.

The Group's diverse range of customers continue to be the international (e.g. Total) and national (e.g. Dubai Petroleum) oil and gas companies, the major (e.g. Wood Group) and smaller oilfield engineering companies and other oilfield specialised service companies (e.g. FMC) to whom we supply our products and services over a wide geographical area and with whom we have good repeat business.

The Group continued to take advantage of its fabrication supply chain management during the year by maximising intra-group co-operation.

Review of Subsidiaries

Sovereign Fabrication Services Limited

Turnover across the Fabrication Division has been very similar to the previous year.

This comprised:

EBITDA for the Fabrication Division for the period, pre disposals, was £5.1m (2008: £7.1m).

We believe that the Fabrication Division will continue to grow during the coming year in the UK and internationally now that the oil price has recovered.

Sovereign Oilfield Services Limited (the Drilling Division)

This comprised:

EBITDA loss for the Drilling Division for the period was £2.0m (2008: profit of £1.6m) before exceptional items.

DDS was subsequently sold on 5 March 2009 to Logan Oil Tools Inc for EUR250,000 plus up to $350,000 based on performance. The Board do not expect to receive the performance based element, although it is subject to audit in September 2009.

Review and Outlook

Subsequent to negotiations with a number of potential new lenders, in July 2009, Sovereign agreed revised terms with its current Lender group, effective for 18 May 2009, subject to certain conditions.

The new terms agreed provide for a deferral of all outstanding defaults until 31 May 2010, a reduction in margin payable on both senior and mezzanine facilities and a revised covenant package. No restructuring or arrangement fees were payable.

The conditions subsequent included completing the disposal of Vertec and the cabin rental assets of Labtech, and the Group announced on 11 May 2009 that it had completed the sale of these assets for £5.45m in cash, subject to shareholder approval, which was duly received. All proceeds were used to pay down existing debt levels.

Our Fabrication companies have shown sustained profitability for many years and with the disposal of our Drilling businesses, our focus on the Fabrication division, reduced corporate overhead, reduced cost of debt and oil prices over $50/barrel, the Board is confident of an improved trading performance in the current financial year.

With new funding in place and the proactive support of Lenders going forward, the Board has confidence that steps taken in 2008 and 2009 will establish a stronger platform for the Group's future growth and profitability.

Graham Burgess

Executive Chairman
Finance Directors Review

Operational Performance

Pre-exceptionals Continuing Discontinued Total Continuing Discontinued activities Total
activities activities 2009 activities 2008 2008

£m £m £m £m £m £m
Turnover 82.8 13.7 96.5 80.2 14.4 94.6
Gross profit 16.8 5.7 22.5 18.8 6.4 25.2
Operating (loss)/profit (3.7) 0.4 (3.3) 1.3 1.5 2.8
EBITDA (2.0) 0.8 (1.2) 3.1 2.6 5.7
Net (loss)/profit (9.1) (1.0) (10.1) (3.9) 1.4 (2.5)
Post-exceptionals Continuing Discontinued Total Continuing Discontinued activities Total
activities activities 2009 activities 2008 2008

£m £m £m £m £m £m
Turnover 82.8 13.7 96.5 80.2 14.4 94.6
Gross profit 16.8 5.7 22.5 18.8 4.8 23.6
Operating (loss)/profit (6.5) 0.4 (6.1) 1.2 (1.1) 0.1
EBITDA (2.2) 0.8 (1.4) 3.0 - 3.0
Net loss (12.1) (1.0) (13.1) (6.2) (1.2) (7.4)

Table 1

At 31 March 2009 the Group made an operating loss, including discontinued activities but pre-exceptional items, for the year ended 31 March 2009 of £3.3m (2008: operating profit £2.8m). This was below expectations due to the combined effects of the under performance of the Drilling Division, in particular that of DDS, and the impact of accounting for large construction contracts being carried out by Labtech and Forfab which were not sufficiently complete to recognise either turnover or profit.

Turnover for the second half of 2009 was £48.8m, consistent with 2008, resulting in a total for the year of £96.5m (2008: £94.6m), an increase of £1.9m. The Fabrication Division accounted for £67.9m (70%), the Drilling Division £28.6m (30%).

With OIL Middle East operations increased turnover to £4.2m (2008: £1.0m) and turnover of OIL increased by 20.8% to £14.1m due to the completion of some large projects within the year, the impact of the results of Labtech and Forfab was limited, with an overall decrease in turnover from the previous year of £0.7m.

Turnover relating to the Drilling Division was up £2.6m due in the main to 31.5% growth in Prodrill revenues to £15.2m as drilling activity increased, driven by a high oil price. MaxWell also recorded high sales in the year to 31 March 2009 - most of which were deferred from the 2008 financial year.

The gross profit margin for the Group for the year was 23.3% (2008: 26.6%). The gross profit margin for the Fabrication Division was 24.6 % (2008: 25.6%) and the Drilling Division 20.4% (2008: 29.3%). The reduction in gross margin of the Fabrication Division is due to the growth of the Middle East arm of the Fabrication Division which is attracting lower margin, labour intensive, work. Within the Drilling Division, a restructuring of the fishing business saw Middle East revenues fall with a resulting drop in gross profit margin. In addition, our machine shop in Cambuslang, RDT, experienced reduced margins as it strove to extend its customer base following a reduction in orders from a key customer as a result of the current economic environment.

EBITDA loss for the Group, including discontinued activities, pre-exceptional items was £1.2m, (2008: Profit £5.7m), with the Fabrication Division contributing positive EBITDA of £5.1m (2008: £7.1m) and the Drilling Division a loss of £2.0m (2008: £1.6m) with corporate overheads of £4.3m (2008: £3.0m).

Discontinued Activities

As previously reported, on 5 March 2009, the Group sold DDS, which was consistently loss making, to Logan Oil Tools Inc for consideration of up to approximately EUR527,000. Consideration of EUR250,000 was paid on 22 June 2009. Further contingent consideration of up to $350,000 may become payable on 5 September 2009.

During the period to 31 March 2009 DDS achieved sales of £5.4m, with a gross profit margin of 45.0%. At an operating profit level the Company made a loss of £1.6m. Last year's financial statements included an impairment write down in relation to DDS of £2.6m. Subsequent to this write down, the loss on disposal of DDS is £1.4m.

In April 2009, the Group sold Vertec and the assets of Labtech's hire fleet to Offshore Containers Holdings Limited for £5.45m. These disposals formed part of the conditions subsequent on the restructuring of financing arrangements with our Lenders. All proceeds received were used to pay down existing debt.

During the period to 31 March 2009 Vertec Engineering Limited and the Labtech assets achieved sales of £8.3m, with a gross profit margin of 39.5%. At an operating profit level the Company contributed £2.0m. The proceeds of disposal are expected to substantially exceed the book value of the related net assets and accordingly no impairment losses have been recognised on classification of these operations as held for sale.

Pre exceptional items, revenue on continuing activities was up £2.6m or 3.0%, whilst Group operating profit was down £5.0m. (Refer Table 1).

The Board indicated in its last report that following a strategic review we were planning to dispose of certain non-core assets. On 10 August 2009 we announced the proposed disposal of Prodrill Engineering Limited for £2.25m and the sale and leaseback of Sovereign House, the Group's headquarters in Aberdeen for £1.575m, subject to shareholder approval, which has now been received. These disposals will be used to partially reduce debt and partially as working capital for the business.

Exceptional Items

Exceptional items before tax for the year to 31 March 2009 amount to £3.5m.

Of this amount £3.7m relates to impairment write downs taken in relation to MaxWell and RDT. In last year's report we noted that a key area of uncertainty for the Group was the assumptions underlying the carrying value of certain Group assets, in particular goodwill, and that any changes in these assumptions could result in impairment.

Sovereign reviews the carrying value of assets and liabilities annually, or more frequently if there are indications of impairment. At 31 March 2009, the Board deemed it necessary to revisit the assumptions used in calculating the value of future cash flows forecast to be derived from RDT and MaxWell.

Following a detailed review of the assets and liabilities of MaxWell, we have written down the full amount of the goodwill attributed to the acquisition of MaxWell (£2.5m) and part of the value of intangible assets (£0.2m).

Following a similar review of the assets and liabilities of RDT, we have written down part of the value of property, plant and equipment (£0.3m), and of that of intangible assets (£0.7m). The latter write down was in relation to the value that had been attributed to client relationships on acquisition.

In addition to the above, exceptional finance charges of £0.7m were incurred relating to the refinancing of the Group.

Abortive deal costs account for £0.2m of the exceptional charge.

Offsetting the charges above was a profit recognised on the sale and leaseback of two properties during the year amounting to £1.1m.

Operating loss after exceptional items, including discontinued activities, is £6.1m (2008: profit £0.1m). Operating loss after exceptional items in respect of continuing activities, is £6.5m (2008: profit £1.2m).

The net loss, pre-exceptional items, for the Group for the 12 months to 31 March 2009 was £10.1m compared to a net loss of £2.5m for the corresponding period last year. Basic loss per share was (59.76) pence (2008: 14.62 pence).

Post exceptional items the net loss was £13.1m (2008: £7.4m) and basic loss per share was (71.60) pence (2008: 35.98 pence).

The larger loss for this period is due in part to an increased interest charge as a result of increased borrowings and an increased cost of finance.

Balance Sheet

Largely as a result of significant impairment write downs and other exceptional costs, e.g. costs associated with refinancing, the Balance Sheet has weakened from a positive net asset position of £5.2m at the end of 2008 to a net liability position of £6.4m at the end of 2009.

However since the year end, following the disposal of Vertec Engineering Limited and the assets of Labtech's hire fleet to Offshore Containers Limited which generated a gain on disposal of £2.4m, and with the subsequent planned disposals of Sovereign House and Prodrill, both of which will realise gains on disposal, the Board expects that Group will return to a positive net worth position during the financial year to 31 March 2010.

Funding

At 31 March 2008 the net debt was £32.8m, of which cash and short-term deposits were £1.4m. In the 12 months to 31 March 2009, loans increased from £32.9m to £33.4m and cash and short-term deposits decreased by £0.3m, which, combined with foreign exchange movements and movements on finance leases, resulted in a decreased net debt position at 31 March 2009 of £32.5m.

The Group repaid £2.9m of senior debt during the year out of proceeds from the sale and leaseback of two buildings, but overall loans increased due to additional working capital facilities and PIK interest accruing throughout the year at 6% to 7%. At the end of the year loans payable included an amount of £1.9m payable in January 2012 relative to PIK interest.

Subsequent to the year end, the Group has repaid further debt of £5.45m received from the sale of Vertec Engineering Limited. In June 2009, proceeds from the sale of DDS of EUR250,000 were used to augment available working capital balances, as were proceeds from the the sale of a property in East Kilbride for £420,000, of which £350,000 was paid at completion, with £70,000 deferred.

At 31 August total borrowings were £28.6m comprising £11.7m senior debt and £16.9m mezzanine debt.

The above sales, as part of the debt reduction programme implemented by the Board over the last twelve months, have realised in excess of £10m. The planned disposals of Sovereign House and Prodrill will bring this total to £13.9m, reducing debt substantially.

With regard to the revised banking terms, and as disclosed in last year's report, the Group commenced refinancing activities in May 2008. However this took much longer than anticipated largely due to the unprecedented global financial downturn. Pending the conclusion of our refinancing the Directors delayed the publication of the Annual Report and Accounts which led to a suspension of the trading of our shares on AIM on 30 September 2008.

The restructure of the existing debt, which was completed effective 18 May 2009, provided for a standstill on all outstanding defaults and the repayment of debt until 31 May 2010, a reduction in the cost of finance through lower interest rate margins and a revised covenant package, all of which removed short to medium funding concerns.

Following the publication of our audited results for the year ended 31 March 2008 and the unaudited interim results for the 6 months ended 30 September 2008 on 18 May 2009, trading in Sovereign's Ordinary Shares on AIM was restored on 19 May 2009.

The revised covenant package incorporated financial covenants with regard to quarterly revenue and EBITDA. Although the key financial covenants set by our lending group in late April 2009 were stretched we firmly believed that with the oil price moving above $60 per barrel in May 2009 (and now averaging around $70 per barrel) our client base would return to normal trading after the typical 3 - 6 month lag. This lag is clearly not yet over with 90% of capex driven projects still postponed. Our business units are flexible enough to take on a higher a percentage of opex based projects to maintain sales volume although this is a very competitive area. Although the Group has successfully achieved its covenants in the first quarter, there is a likelihood of breaching the 31 December 2009 EBITDA covenant. The failure of covenant tests renders the entire facilities repayable on demand at the option of the Lenders.

The feedback from our customer base is that we can expect to see larger capex driven projects being approved October to December 2009. We can substantiate this information based on the large volume of live enquiries our business units have responded to and are consistently updating at our customers request. With this knowledge we are confident that we will achieve covenants in subsequent periods.

The Company is in dialogue with the Lenders regarding the projected covenant breach at December 2009 and what actions they will take at that time, and whilst these discussions have not yet concluded the Directors are confident of achieving a positive outcome. In the meantime, the Directors continue to actively monitor the trading position in relation to the continued volatility in the financial markets and will take action as appropriate.

Despite exceptionally difficult market conditions many of our businesses continued to expand, whilst others were resilient in the face of lower demand. Throughout the Group we continued to take action to implement cost reduction strategies, without comprising efficiency, and to improve our focus on the areas with greatest opportunity for growth.

Julie Cowie

Group Finance Director

Before Before exceptional
Exceptional Exceptional Items Exceptional
Items Items 2008 Items
2009 2009 Total £m 2008 Total
£m £m 2009 £m 2008
£m £m
REVENUE 82.8 - 82.8 80.2 - 80.2
Cost of sales (66.0) - (66.0) (61.4) - (61.4)
GROSS PROFIT 16.8 - 16.8 18.8 - 18.8
Administrative expenses (20.5) (3.9) (24.4) (17.5) (0.1) (17.6)
GROUP TRADING (LOSS)/ PROFIT (3.7) (3.9) (7.6) 1.3 (0.1) 1.2
Profit on disposal of - 1.1 1.1 - - -

property, plant and equipment
GROUP OPERATING (LOSS)/ (3.7) (2.8) (6.5) 1.3 (0.1) 1.2

Finance revenue - - - 0.2 - 0.2
Finance costs (5.4) (0.7) (6.1) (4.9) (2.9) (7.8)
(5.4) (0.7) (6.1) (4.7) (2.9) (7.6)
(LOSS) BEFORE TAXATION (9.1) (3.5) (12.6) (3.4) (3.0) (6.4)
Tax income/(expense) - 0.5 0.5 (0.5) 0.7 0.2
(LOSS) FOR THE YEAR FROM (9.1) (3.0) (12.1) (3.9) (2.3) (6.2)

(LOSS) FOR THE YEAR FROM (1.0) (1.2)

(LOSS) FOR THE YEAR (13.1) (7.4)

Earnings per ordinary 1p share:¿
Basic (p) (71.60) (35.98)
Diluted (p) (71.60) (35.98)

Adjusted earnings per ordinary share 1p share: ¿
Basic (p) (53.85) (22.61)
Diluted (p) (53.85) (22.61)
Group Statement of Recognised Income and Expense
For the Year Ended 31 March 2009

2009 £m
£m

Exchange differences on retranslation of foreign operations 1.5 0.8
NET INCOME RECOGNISED DIRECTLY IN EQUITY 1.5 0.8
(LOSS) FOR THE YEAR (13.1) (7.4)
TOTAL RECOGNISED INCOME AND EXPENSE FOR THE YEAR (11.6) (6.6)

ATTRIBUTABLE TO:
Equity holders of the parent (11.6) (6.6)

GROUP Balance Sheet
AS AT 31 March 2009

£m £m

Property, plant and equipment 8.1 14.2
Intangible assets 9.4 14.2
Financial assets - 0.1
17.5 28.5

Trade and other receivables 20.5 25.7
Inventories 4.1 6.2
Cash at bank and in hand 1.1 1.4
Assets held for sale 5.2 -
30.9 33.3
TOTAL ASSETS 48.4 61.8

Trade and other payables 17.9 19.7
Interest-bearing loans and borrowings 33.5 33.2
Income tax payable 0.2 0.2
Liabilities directly associated with assets classified as 1.6 -

held for sale
53.2 53.1

Interest-bearing loans and borrowings 0.1 1.0
Deferred tax liabilities 1.4 2.4
Provisions 0.1 0.1
1.6 3.5
TOTAL LIABILITIES 54.8 56.6
NET (LIABILITIES)/ASSETS (6.4) 5.2

Equity share capital 11.7 11.7
Treasury shares (0.3) (0.3)
Currency translation reserve 2.2 0.7
Retained earning (20.0) (6.9)
TOTAL EQUITY (6.4) 5.2
Approved by the Board on 7 September 2009
Mr Burgess
Ms Cowie
Directors

Group Cash Flow Statement
For the Year Ended 31 March 2009

£m £m

(Loss) for the year (13.1) (7.4)

Adjustments to reconcile (loss) for the year to net cash flow from operating activities:
Tax on continuing operations (0.5) (0.1)
Net finance costs 6.1 7.6
Loss on disposal of discontinued operations 1.4 -
Gain on sale of property, plant and equipment (1.1) -
Loss of financial assets at fair value through profit and - -

loss
Depreciation and impairment of property, plant and equipment 1.9 1.5
Amortisation and impairment of intangible assets 4.0 1.4
Share-based payments 0.1 0.1
Exchange differences on interest-bearing loans 0.5 -
Non-cash compensation received - (0.3)
Decrease in inventories 0.3 0.7
Decrease/(Increase) in trade and other receivables 0.2 (1.9)
Increase in trade and other payables 4.5 1.0
Cash generated from operations 4.3 2.6
Income taxes paid (0.2) (1.1)
NET CASH FLOW FROM OPERATING ACTIVITIES 4.1 1.5

Sale of property, plant and equipment 4.8 0.8
Outflow on acquisition of subsidiary undertakings - (8.3)
Payments to acquire property, plant and equipment (2.3) (4.1)
Payments to acquire intangible assets (0.1) (0.3)
NET CASH FLOW FROM INVESTING ACTIVITIES 2.4 (11.9)

Purchase of own shares - (0.3)
Interest paid (4.8) (3.2)
Refinancing costs (0.7) (0.4)
Repayment of factored debt - (0.9)
New borrowings 2.0 14.5
Repayment of borrowings (2.9) (2.4)
New finance leases and hire purchase contracts - 0.2
Repayment of capital element of finance leases and hire (0.4) (0.3)

purchase contracts
NET CASH FLOW FROM FINANCING ACTIVITIES (6.8) 7.2
DECREASE IN CASH AND CASH EQUIVALENTS (0.3) (3.2)
Effect of exchange rates on cash and cash equivalents - -
Cash and cash equivalents at 1 April 1.4 4.6
CASH AND CASH EQUIVALENTS AT 31 MARCH 1.1 1.4

1. Basis of preparation

The Directors have prepared the financial statements on the going concern basis which assumes that the Group and Company will continue in operational existence for the foreseeable future.

The Company and the Group meet their day to day working capital requirements and medium-term funding requirements through banking facilities. At 31 March 2009 the Group owed £33.4m to its Lenders and was in breach of its banking covenants. Subsequent to the year end, the Group had obtained a standstill from its Lenders in the form of a deferral letter regarding the defaults at 31 March 2009 and had agreed to an amendment of terms in respect of debt facilities in place at 31 March 2009.

The new banking terms provide for a deferral of all outstanding defaults and a standstill regarding the repayment of debt until 31 May 2010, a reduction in the margin payable on both Senior and Mezzanine facilities and the revised covenant package that incorporates financial covenants with regards to quarterly revenue EBITDA.

As part of the revised banking terms and conditions subsequent to the refinancing, the Group agreed to the disposal of one of its subsidiaries Vertec Engineering Limited and to dispose of certain assets of Labtech Services Limited. This transaction completed on 4 June 2009.

The Directors have prepared trading and cash flow forecasts for a period in excess of one year from the date of approval of these financial statements. These forecasts make certain assumptions regarding the progression of the Group's restructuring programme and indicate improved cash flow projections over this period. However, due to challenging trading conditions that have impacted the performance of certain businesses within the Group, there is the likelihood of breaching the 31 December 2009 EBITDA covenant. In the event of a breach of this covenant, the outstanding debt becomes immediately payable unless the Lenders agree alternative arrangements with the Company.

The Company is in dialogue with the Lenders regarding this projected covenant breach and what actions they will take at that time, and whilst these discussions have not yet concluded the Directors are confident of achieving a positive outcome. In the meantime, the Directors continue to actively monitor the trading position in relation to the continued volatility in the financial markets and will take action as appropriate.

In the view of the Directors, the combination of circumstances describes above represents a material uncertainty that may cast significant doubt upon the Company and the Groups ability to continue as a going concern. However, having considered this uncertainty, the Directors have a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future and have therefore concluded that it is appropriate to adopt the going concern basis in preparing these financial statements. The financial statements do not include the adjustments that would result if the Company were unable to continue as a going concern.

2. Segmental Analysis

Discontinued
Continuing operations
Drilling Fabrication Corporate Total operations Total
Year ended 31 March 2009 £m £m £m £m £m £m

Revenue
Sales from external customers 23.2 59.6 - 82.8 13.7 96.5
Segment revenue 23.2 59.6 - 82.8 13.7 96.5

Results
Segment result (2.2) 2.2 - - 0.4 0.4
Unallocated expenses - - (7.6) (7.6) - (7.6)
TRADING (loss)/profit (2.2) 2.2 (7.6) (7.6) 0.4 (7.2)
Profit on disposal of 1.1 - 1.1

property, plant and equipment
Net finance costs (6.1) - (6.1)
Los/profit before taxation (12.6) 0.4 (12.2)
Tax income 0.5 - 0.5
Loss for the year from - (1.4) (1.4)

discontinued operations
LOSS AFTER TAX AND (12.1) (1.0) (13.1)

Assets and liabilities
Segment assets 11.1 22.2 - 33.3 5.2 38.5
Unallocated assets - - 10.2 10.2 - 10.2
Total assets 11.1 22.2 10.2 43.5 5.2 48.7
Segment liabilities 4.5 12.7 - 17.2 1.6 18.8
Unallocated liabilities - - 36.0 36.0 - 36.0
Total liabilities 4.5 12.7 36.0 53.2 1.6 54.8

Other segment information Capital expenditure:
Property, plant and equipment 1.8 0.5 - 2.3 0.1 2.4
Intangible assets 0.1 - - 0.1 - 0.1
Depreciation 0.3 0.7 0.1 1.1 0.4 1.5
Amortisation 0.1 - 0.5 0.6 - 0.6
Share-based payment expense - - 0.1 0.1 - 0.1
Impairment losses recognised 0.9 - 2.5 3.4 - 3.4
Write-off of inventories 0.1 - - 0.1 - 0.1
Impairment of receivables 0.3 - - 0.3 - 0.3

Unallocated assets and liabilities comprise certain property, plant and equipment, interest-bearing loans and borrowings and taxation.

Unallocated expenses are principally corporate overheads including staff costs, travel costs and professional fees. 2. Segmental Analysis (continued)

Continuing operations Discontinued
Drilling Fabrication Corporate Total operations Total
Year ended 31 March 2008 £m £m £m £m £m £m

Revenue
Sales from external customers 19.2 61.0 - 80.2 14.4 94.6
Segment revenue 19.2 61.0 - 80.2 14.4 94.6

Results
Segment result 0.8 4.7 - 5.5 (0.5) 5.0
Unallocated expenses - - (4.3) (4.3) - (4.3)
TRADING (LOSS)/PROFIT 0.8 4.7 (4.3) 1.2 (0.5) 0.7
Profit on disposal of - - -

property, plant and equipment
Net finance costs (7.6) - (7.6)
Loss before taxation (6.4) (0.5) (6.9)
Tax income 0.2 - 0.2
Loss for the year from - (0.7) (0.7)

discontinued operations
LOSS AFTER TAX AND (6.2) (1.2) (7.4)

Assets and liabilities
Segment assets 14.9 33.3 - 48.2 9.4 57.6
Unallocated assets - - 4.2 4.2 - 4.2
Total assets 14.9 33.3 4.2 52.4 9.4 61.8
Segment liabilities 4.0 11.1 - 15.1 4.6 19.7
Unallocated liabilities - - 36.9 36.9 - 36.9
Total liabilities 4.0 11.1 36.9 52.0 4.6 56.6

Other segment information Capital expenditure:
Property, plant and equipment 2.5 4.8 0.2 7.5 - 7.5
Intangible assets - 5.2 - 5.2 0.3 5.5
Depreciation 0.5 0.6 0.1 1.2 0.3 1.5
Amortisation - - 0.6 0.6 0.1 0.7
Share-based payment expense - - 0.1 0.1 - 0.1
Impairment losses recognised - - - - 0.7 0.7
Write-off of inventories - - - - 1.6 1.6
Impairment of receivables - 0.2 - 0.2 0.3 0.5

3. EARNINGS PER ORDINARY SHARE

Basic (loss) per share amounts are calculated by dividing (loss) for the year attributable to ordinary equity holders of the parent by the weighted average number of Ordinary Shares outstanding during the year.

Diluted (loss) per share amounts are calculated by dividing the (loss) attributable to ordinary equity holders of the parent by the weighted average number of Ordinary Shares outstanding during the year plus the weighted average number of Ordinary Shares that would be issued on the conversion of all the dilutive potential Ordinary Shares into Ordinary Shares.

The following reflects income and share data used in the basic and diluted earnings per share computations:

£m £m
(Loss) for the year from continuing operations (12.1) (6.2)
(Loss) for the year from discontinued operations (1.0) (1.2)
Basic and diluted loss attributable to equity holders of the (13.1) (7.4)

parent

Basic weighted average number of Shares 16.9 17.1

Diluted weighted average number of Shares 16.9 17.1

There have been no other transactions involving Ordinary Shares or potential Ordinary Shares between the reporting date and the date of completion of these financial statements.

4. Discontinued Operations

(Loss) per share for the discontinued operations is derived from the net loss attributable to equity holders of the parent from discontinuing operations of £(1.0)m: (2008: loss of £(1.2)m), divided by the weighted average number of Ordinary Shares for both basic and diluted amounts as per the table above.

5. (Loss) per share from continuing operations before exceptional items

The Group presents as exceptional items on the face of the Income Statement, those material items of income and expense which, because of the nature and expected frequency of the events giving rise to them, merit separate presentation to allow shareholders to understand better the elements of financial performance in the year, so as to facilitate comparison with prior periods and to assess better trends in financial performance.

To this end, basic and diluted earnings from continuing operations per share is also presented on this basis and using the weighted average number of Ordinary Shares for both basic and diluted amounts as per the table above. The amounts for earnings per share from continuing operations before exceptional items are as follows:

Basic (loss) per share from continuing operations (pence) (53.85) (22.61)

Diluted (loss) per share from continuing operations (pence) (53.85) (22.61)

Net (loss) from continuing operations before exceptional items and attributable to equity holders of the parent is derived as follows:

£m £m
(Loss) attributable to equity holders of the parent - (12.1) (6.2)

continuing operations
Exceptional items after tax - attributable to equity holders 3.0 2.3

of the parent
Basic and diluted (loss) from continuing operations before (9.1) (3.9)

exceptional items attributable to equity holders of the parent

6. (i) Additional Cash Flow Information

1 April Cash Debt on Exchange Non-cash 31 March
2008 flow acquisition differences movements 2009
£m £m £m £m £m £m

Cash and cash equivalents 1.4 (0.3) - - - 1.1
Loans (32.9) 0.9 - (0.5) (0.9) (33.4)
Finance leases (1.3) 0.4 - (0.1) 0.8 (0.2)
(32.8) 1.0 - (0.6) (0.1) (32.5)
1 April Cash Debt on Exchange Non-cash 31 March
2007 flow acquisition differences movements 2008
£m £m £m £m £m £m

Cash and cash equivalents 4.6 (3.2) - - - 1.4
Loans (20.0) (12.1) - - (0.8) (32.9)
Finance leases (0.8) (0.1) (0.5) 0.1 - (1.3)
(16.2) (15.4) (0.5) 0.1 (0.8) (32.8)

6. (ii) Non-Cash Movements

Non-cash movements include £(0.9)m representing non-cash interest in the form of payments in kind.

Further non-cash movements include £0.8m representing finance leases held by Diamant Drilling Services SA, a subsidiary sold in 2009.

7. (i) Reconciliation of Movements in Equity

Equity share capital Treasury share Other equity Currency translation Retained earnings Total equity
£m £m £m £m £m £m
At 1 April 2007 10.7 - 0.9 (0.1) 0.8 12.3
Total recognised income and - - - 0.8 (7.4) (6.6)

expense for the year
Shares issued on acquisition 1.0 - (0.9) - - 0.1
Purchase of Treasury shares - (0.3) - - - (0.3)
Share buyback - - - - (0.3) (0.3)
Share-based payment reserve - - - - - -

credit
At 31 March 2008 and 1 April 11.7 (0.3) - 0.7 (6.9) 5.2

Total recognised income and - - - 1.5 (13.1) (11.6)

expense for the year
Share-based payment reserve - - - - - -

credit
AT 31 MARCH 2009 11.7 (0.3) - 2.2 (20.0) (6.4)

7. (ii) Equity Share Capital

The balance classified as share capital includes the total net proceeds (both nominal value share premium) on issue of the Company's equity share capital, comprising - 1 pence Ordinary Shares.

8. Foreign Currency Translation Reserve

The foreign currency translation reserve is used to record exchange differences arising from the translation of the financial statements of foreign subsidiaries. It is also used to record the effect of hedging net investments in foreign operations.

9. The statutory accounts for the year ended 31 March 2008 have been delivered to the Registrar of Companies. Statutory accounts for the year ended 31 March 2009 are expected to be posted to shareholders today will be delivered to the Registrar of Companies after they have been laid before the Company at the annual general meeting on 29 September 2009. Copies will also be available from Sovereign Oilfield Group Plc's Registered Office: 4 Queens Terrace, Aberdeen, AB10 1XL and on its website www.sovereign-oil.eu.

This information is provided by RNS The company news service from the London Stock Exchange

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