76
Exploration expenditure written off
Exploration expenditure written off was $3.7 million in 2012, compared to nil in 2011. The write-off in 2012 was wholly
attributable to loss of the amount posted by the Group as a letter of credit to the government of Yemen relating to the
Group’s minimum work commitment for Block 74 in Yemen, which the Group relinquished in 2012 as it had no further
prospects.
General and administrative expenses
General and administrative expenses increased by $2.9 million, or 16.1%, from $17.9 million in 2011 to $20.8 million in
2012. This increase was primarily attributable to higher professional fees resulting from preparatory work performed on
the Issuer’s potential initial public offering, on the Group’s Borrowing Base Facilities, and on the Convertible Loans, as
described below.
Net result from joint venture
Net result from joint venture increased by $2.0 million from $1.1 million in 2011 to $3.1 million in 2012 due to an
increase in profit reported by the Oman joint venture. This increase in profit was primarily attributable to an increase in
revenue due to production increase as well as a decrease in operating expenses.
Fair value loss on convertible loans
Fair value loss on convertible loans increased from nil in 2011 to $4.5 million in 2012. This increase was attributable to
the fact that convertible loans were first borrowed during the year 2012. See “—
Critical accounting policies subject to
significant judgments, estimates and assumptions—Fair value gain or loss on convertible loans
.”
Foreign exchange gain/(loss)
Foreign exchange gain decreased by $0.3 million, or 51.1%, from $0.7 million in 2011 to $0.3 million in 2012. This
decrease was primarily attributable to the translation effect of converting the Group’s current assets which are carried in
currencies other than the US dollar into US dollars on the balance sheet date.
Finance costs (net)
Finance costs (net) decreased by $6.3 million, or 84.0%, from $7.5 million in 2011 to $1.2 million in 2012. This decrease
was primarily attributable to cancellation of the Group’s oil price hedge, which accounted for an expense of $7.1 million
in 2011 compared to no such expense in 2012, and capitalization of finance cost used for qualifying assets. Partly
offsetting this decrease, the Group incurred slightly higher finance costs (which were $5.7 million in 2011 compared to
$5.9 million in 2012) resulting from the initial draw on the Group’s Borrowing Base Facilities and the entry into the
Convertible Loans in 2012, resulting in higher debt levels and interest payments as compared to 2011.
Taxation charge
Taxation charge decreased by $0.4 million, or 4.6%, from $8.7 million in 2011 to $8.3 million in 2012. This decrease
was primarily attributable to decrease in tax due in Egypt, resulting from Area A operations.
Liquidity and capital resources
Overview
The Group’s liquidity requirements arise primarily from its working capital requirements, capital expenditures and
operating expenses related to the Group’s exploration, appraisal and development programmes. For the periods under
review, the Group met its working capital requirements from equity and debt capital raisings and cash flows from
operations.
Going forward, the Group expects to incur further significant capital expenditures and costs to maintain and increase
reserves and production, as part of its exploration, appraisal and development programmes. For detail on the Group’s
exploration, appraisal and development programmes and anticipated capital expenditures, see “
The Group’s business—
Exploration, appraisal and development programmes
.” Under the terms of its licence obligations, the Group has
substantial flexibility and discretion to modify its projected capital expenditures. The Group’s exploration and
development capital expenditures to satisfy the current terms of its licences as at 1 June 2014 totalled $377.6 million
through 2016.
