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Factors—Risks relating to the Group—The economic valuations contained in the CPR may not provide an accurate
estimate of the value of the Group or its assets
.” The Group has not yet commenced production in any of its assets in
Iraq, but expects first production from Siba in July 2015. The Group also has exploration and appraisal assets in Egypt
and expects to drill four exploration wells and three appraisal wells in Egypt in 2014. Egypt accounted for 27.9 mmboe,
or 16.8%, of the Group’s 2P working interest reserves as at 31 May 2014 and 10.3 mmboe, or 27.6%, of the Group’s 2P
net entitlement reserves as at 31 May 2014. The Directors believe that the successful development of its assets will
contribute to significant future growth in production and operational cash flows.
Strong relationships with national oil and gas companies, government bodies and other supportive stakeholders in the
MENA region
Over the past three decades of working in the core MENA region, the Group’s management team has built strong
relationships with national oil and gas companies and key decision-makers and officials in the oil and gas industries in
various countries in the region. These relationships include EGPC in Egypt, the Iraqi Oil Ministry, the Petroleum
Exploration and Production Authority (“
PEPA
”) in Yemen, and the National Oil Corporation in Libya. In the context of
these relationships, the Group provides valuable technical expertise, advice and assistance to the national oil and gas
companies and local governments on oil and gas projects that are important to these countries and to local economic
development. For example, in September 2007 the Group signed an MoC with the Iraqi Ministry of Oil to provide a
study of the Siba gas field and train a number of personnel. This MoC allowed the Group to provide technical support
and training while also giving the Group an opportunity to better understand the technical challenges of operating in Iraq.
The study the Group provided was used for the competitive bidding process and was helpful in the Group winning the
bid for Siba. More recently, in October 2010 the Group entered into a Memorandum of Understanding (MoU) with the
Yemen Ministry of Oil and Minerals to undertake a study of the potential development of natural gas reserves in Yemen
and the optimisation of the country’s natural gas resources for the benefit of its people and develop a long-term Yemen
Gas Master Plan. Under the framework of the MoU, the Group is to advise the Ministry on the most suitable uses and
applications for the country’s gas resources in order to ensure production sustainability and maximise revenue generation
and job creation. In accordance with the MoU, the Yemen Gas Master Plan was completed in April 2011 and submitted
to the PEPA in Yemen. As part of phase one of the plan, the Group is seeking approval from the Yemen Government to
proceed with a small scale liquefied natural gas project. The Group also maintains strategic relationships in countries in
the broader MENA region where it does not currently have a presence, such as Somalia, Libya and Afghanistan, which
are jurisdictions into which the Group would consider expanding its operations should a favourable opportunity arise.
The Group’s strategic relationships help to strengthen its knowledge of the local oil and gas industries, and assist the
Group in gaining access to and competing effectively for new investment opportunities.
The Group also adopts a cooperative approach in its relationships and dealings with local stakeholders, including local
governments, members of the civil service and others, by seeking to conduct its operations in ways that are tailored to the
countries in which it operates. The Group recruits employees locally whenever possible, and has a programme of
corporate social responsibility initiatives to engage with and support local communities. For example, the Group has
been involved in constructing and repairing local roads, hospitals, schools, and sewage and water supply systems, and in
providing heating and gas supply for schools and villages in Iraq, Egypt, Yemen, Russia and, prior to disposal of the
Group’s assets there, Ukraine. The Group actively supports projects providing for disabled women and children in Egypt
and micro-financing to assist internally displaced persons in Iraq. This cooperative and locally-adaptive approach has
helped the Group to position itself as a trusted partner to local stakeholders.
All of the above elements have contributed to establishing the Group’s network of stakeholder relationships across the
core MENA region, and have helped the Group access new oil and gas opportunities. For example, the Group enjoys the
position of currently being one of the few regional independent oil and gas companies to be present in southern Iraq, in
its Siba and Block 9 assets.
Track record of growth in reserves and production in the MENA region while maintaining effective cost control
The Group has rapidly grown its overall MENA reserve base since inception with 2P working interest reserves
increasing from 18.1 mmboe as at 31 December 2008 to 165.7 mmboe as at 31 May 2014 and 2P net entitlement
reserves increasing from 6.1 mmboe as at 31 December 2008 to 37.0 mmboe as at 31 May 2014. This growth has been
mainly driven by the Group’s expansion in the core MENA region, namely its being awarded the Siba and Mansuriya
licences in Iraq, as well as exploration, appraisal and development success in Egypt, which resulted in the Group’s
Egyptian 2P working interest reserves increasing from 17.8 mmboe as at 31 December 2008 to 27.9 mmboe as at 31 May
2014 and its Egyptian 2P net entitlement reserves increasing from 5.8 mmboe as at 31 December 2008 to 10.3 mmboe as
at 31 May 2014, net of production over this period. The Group’s average daily hydrocarbon production (oil, gas sales
and condensate) on a working interest basis has grown more than thirty times since 2006, from 680 boepd in 2006 to
22,468 boepd in the first three months of 2014. As a result of the growth in the Group’s oil and gas production, operating
cash flow before changes in working capital has increased from $1.4 million in 2006 to $189.9 million in 2013,
representing a CAGR of 101.7%. The Group’s profit for the period from continuing operations has increased from $1.0
