41
Annual Report and Accounts 2002 Nimir Group Limited
Annual Report and Accounts
2002
Nimir Group Limited
Nimir Group Limited
Contents
Letter from the President 2
Group Structure 3
Operational Review 4
Financial Review 13
Board of Directors 15
Senior Management 16
Accounts 17
Oil and Gas Reserves (unaudited) 38
Addresses 39
1
Nimir Group Limited
Letter from the President
To the Shareholders, Stakeholders and Associates
The end of year 2002 marks the completion of the first full year of the metamorphosis whichNimir began in 2001. During early 2001 we re-established our corporate governance with a newBoard, developed fundamental strategies and tactics for business success, empowered newmanagement to execute, and established sound objectives for reserve growth, cost controls,operating within plan and enhancing shareholder value. These fundamentals resulted in 2002being a year of discovery and determination for our business, for our operations and mostimportantly for our future.
I am gratified to report that in 2002 the implementation of those fundamentals and the effort ofour associates worldwide contributed to a second constructive year of achievement with aresulting profit of US$6 million. Our proved plus probable reserves increased by 29 MMbbls netof production for the year. Our operating and general and administrative costs continued toshow improvement, and we restructured our staffing levels, providing further benefits for futureperiods without loss of efficiency.
Our exploration programme generated a successful discovery in La Hocha which we will fullyappraise in 2003 for development in 2004.
Despite the turmoil caused by world events during the past two years, Nimir has:
Developed a new strategy and organisation that is effective and successful;
Operated profitably and to plan;
Rationalised operations and fulfilled required obligations;
Adjusted to and operated successfully during historically unusual market conditions;
Established a sound course for future success.
The following pages provide more details specific on our operations, resources and results foryour review.
I extend my thanks to the Shareholders, Board and Associates for their contributions andsupport in achieving our results and building a solid base for the future of Nimir.
L. Tucker LinkPresident1 June 2003
2
Nimir Group Limited
Group Structure
Nimir Holdings Ltd
Please note that this is an abridged version of the Nimir Group Ltd structure.A full structure is available on request.
3
Shareholders
Nimir Holdings Ltd(Bermuda)
Nimir Group Ltd(Bermuda)
Nimir Petroleum Ltd(England)
Nimir Petroleum Holdings Ltd
(England)
Nimir Petroleum Holdings BV(Netherlands)
Nimir Hocol Ltd(Bermuda)
Hocol SA(Cayman Islands)
Homcol Cayman Inc(Cayman Islands)
Nimir Petroleum North Africa Holdings BV(Netherlands)
Nimir Petroleum North Africa Ltd(Netherlands)
Nimir Petroleum Bars BV
(Netherlands)
Nimir Petroleum Buzachi BV
(Netherlands)
Nimir Petroleum Venezuela BV(Netherlands)
Nimir Petroleum Finance BV
(Netherlands)
Nimir Group Limited
Operational Review
Production and Reserves
Nimir’s 2002 production amounted to 11.1 MMbbls of oil, an average of 30,420 bopd.Approximately 81% of this production was contributed by our Colombian subsidiary, Hocol,with 12% coming from our two fields in Venezuela and 7% from the North Buzachi field inKazakhstan. Production volumes were 10.6% lower than in 2001, largely due to technicaldifficulties in the Palermo and Casanare contract areas in Colombia.
Proved and probable reserves are estimated to be 170.1 MMbbls of oil at 31 December 2002.This compares with a total of 141.6 MMbbls at the end of 2001. This 20% increase is net of 2002production and is a result of the successful appraisal of the La Hocha discovery, which added23.4 MMbbls, and the improved confidence level and definition of the North Buzachi fielddevelopment scheme.
Nimir’s net proved reserves are estimated to be 66.73 MMbbls.The bulk of these reserves, 55.7 MMbbls or approximately 84%,are in Colombia with the remainder in Venezuela.Approximately 58% of the total proved reserves aredeveloped, with all the undeveloped reserves in Colombia.Although there is production from the North Buzachi field, noproved reserves have been assigned to this field as the licenceis in the appraisal phase and all production is classified as testproduction. It is anticipated that Buzachi reserves will bebooked as proved following approval of the developmentplan during 2003.
4
35
30
25
20
15
10
5
0Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
2002
Mbd
Nimir Petroleum Net Production 2002
North Buzachi Venezuela Hocol
14
12
10
8
6
4
2
01998 1999 2000 2001 2002
MMbbls
Nimir Petroleum Net Production
Additions and adjustments to proved reservesduring the year amounted to 7.47 MMbbls,representing a production replacement ratio of 67%.
Group performance in HSE continues to beexcellent and again exceeded internal targets andindustry averages. The Lost Time IncidentFrequency (LTIF) for Hocol was 0.82 incidents permillion man-hours worked. This compares withindustry data for South America for 2001 providedby the International Association of Oil & GasProducers (OGP) of 2.5 incidents per million man-hours worked. No Lost Time Incidents werereported from our other operating units.
Exploration
Exploration activities continued in Colombia with the successful completion of a 3-D seismicsurvey over the Tangara block in the Llanos foothills north-east of BP’s Cusiana/Cupiagua fields.Hocol operates this and the adjacent Mundo Nuevo block on behalf of Total and Talisman. Over1400 people were involved in acquiring 540 sq kms of data over a period of 231 days. This wasachieved with zero Lost Time Incidents (LTI’s), a remarkable achievement given the physical andpolitical conditions in the area.
Also in Colombia, the La Hocha-2 well successfully appraised the discovery made in the Rio Paezblock in 2001. The well encountered a good quality sandstone reservoir in the CretaceousMontserrate formation and produced over 500 bopd during testing. Further appraisal drillingand development studies are scheduled to take place during 2003. Estimates of gross reservesrange between 47 and 84 MMbbls.
In North Africa, two exploration wells were drilled on the 7th November block which straddlesthe offshore border between Tunisia and Libya. Both wells encountered hydrocarbons but weresubsequently plugged and abandoned as non-commercial.These wells fulfilled the outstandingwork obligations. The block will be relinquished in 2003.
In Kazakhstan work continued to process and interpret the seismic data acquired during 2001over the Bars Contract area. A number of prospects were identified and work began on theplanning and permitting for two wells to be drilled during 2003.
The Group Prospect Inventory at year end identified net risked undiscovered resources at theP50 level of 96 MMbbls, approximately 94% of which are in Colombia.
Net Proved Reserves 66.7
Net Probable Reserves 103.3
Net Possible Reserves 62.9
Hocol undeveloped 28.1Hocol developed 27.6Venezuela developed 11.0
Buzachi 52.5Hocol 50.8
Buzachi 52.2Hocol 10.7
MMbblsReserves Analysis 2002
Total Reserves 232.9
5
Nimir Group Limited Operational Review cont’d
Nimir Group Limited Operational Review cont’d
Development
A total of 10 development wells were completed during the year, all of which were in Colombia.
In the North Buzachi field, the operator, ChevronTexaco, continued work on defining the optimaldevelopment scheme and submitted the Full Field Development Plan to the Kazakh authoritiesin December. Meanwhile planning and procurement began for a further phase of drilling toboost current production levels and to obtain further data on reservoir continuity and pressurebehaviour.
Expenditure
Group capex during the year amounted to US$ 45.1million for exploration and US$19.1millionfor production and development. This compares with US$72.5 million and US$25.1 millionduring 2001. These differences in capex were largely a result of a reduced seismic acquisitionprogramme in Bars and Colombia and a pause in appraisal drilling in Buzachi.
6
Nimir Group Limited Operational Review cont’d
Colombia
At year end Hocol held interests in 16 Association Contracts, one Incremental Production Contractand one Concession. Nine of these 18 contracts are currently within the exploration phase and 13are Operated. Hocol holdings are located in the Upper Magdalena Valley, Putumayo Basin, CentralLlanos and the foothills in the Llanos Basin. In the Central Llanos area Hocol participates in fiveAssociations, all of which are operated by Perenco.
7
BOGOTA
Rio Meta
Rio Cravo Sur
Mundo Nuevo
Tangara
Balcon
San Francisco Tello
La Jagua
Guadaloupe
San Jacinto
Rio Paez Gaitanas
Doima
Chaparral
Rio Cauca
Rio Magdalena
VENEZUELA
CARIBBEAN SEA
PACIFIC OCEAN
ECUADOR
PERU
BRAZIL
Palermo
Llanos FoothillsHocol-operated
Central Llanos Non-operated
OrtegaEcopetrol-operated
Upper Magdalena ValleyHocol-operated
PANAMA
COLOMBIA
Barranquilla
Santa Marta
Nimir Interests in Colombia
Nimir Group Limited Operational Review cont’d
During 2002 Hocol’s exploration activities were focused on two key projects - the appraisal of theLa Hocha discovery and the acquisition of 162 Km2 (of a 540 Km2 program) of 3D seismic in theTangara Contract where Hocol holds a 15% interest and operates on behalf of Total and Talisman.
Other exploration activities during 2002 involved the drilling of one commitment well in theAlianza Contract, the initiation of critical consultations with native communities within the MundoNuevo block and the completion of seismic interpretation in the Gaitanas/Guadalupe blocks.
Hocol also successfully farmed out 50% of the Doima Association Contract to Sipetrol who willbear the cost of drilling the first exploratory well and will carry Hocol for a portion of the costs inthe second well.
Net production for the year was 9.0 MMbbls or 24.6 Mbopd, some 13% lower than 2001 dueprimarily to the curtailment of drilling operations for various technical and commercial reasons.
A total of ten development wells were drilled during the year, six within the Palermo AssociationContract, one in the Tello Concession and three in the Non-Operated areas.
In Palermo Association, the company successfully enhanced production through theimplementation of waterflooding, complemented by gas injection (Water Alternate Gas process- WAG).The WAG pilot in the San Francisco Field has added 1.2 MMbbls of production since 2001.Consequently, the process will be extended during 2003 and 2004 to the entire northern area ofthe San Francisco Field. The feasibility of Enhanced Oil Recovery (EOR) alternatives such aspolymer injection is currently under evaluation.
Additionally in the San Francisco Field, Hocol has identified significant opportunities for furtherreserves recovery in the overlying Villeta formation. This fractured reservoir is currentlyproducing 719 bopd (gross) from eight wells with a cumulative production of 2.0 MMbbls. Apotential development of 11.5 MMbbls (gross) reserves is considered within the current fiveyear plan.
In the Balcon Field (Palermo Contract), 60 km2 of 3D seismic were acquired during 2002 and theevaluation has identified a total of 16 opportunities to be considered for drilling targets in thenear future.
The Tello Concession produced 13,568 bopd gross in 2002, 1,115 bopd above expectations.Hocol is currently evaluating the potential for incremental production and reserves. If positive,Hocol will begin negotiations with the government for a new contract, to continue beyondFebruary 2006, the Concession’s expiration date.
In the CPI Ortega Contract an extensive 3D seismic survey was carried out to define the potentialof the various fields. A decision on the future of the contract will be made in the course of 2003,once the seismic data has been evaluated.
8
Nimir Group Limited Operational Review cont’d
Venezuela
Nimir Petroleum Venezuela holds an equity interest of 80% in B2X 68/79 block and 90% in B2X70/80 block and has been the operator since 2001.
The blocks are located on Lake Maracaibo 10 kms west of Lagunillas City. During 2002, 109 outof 145 wells were active. Nimir’s net production during the year was 1.35 MMbbls with a dailyaverage of 3,700 bopd. Production was affected by OPEC cuts of almost 20% for the first sevenmonths of the year and the total shut down of the fields during the national strike duringDecember. However, production optimization work during the last quarter resulted in a strongrecovery and, following the lifting of the strike, net production improved to over 4,800 bopd.
Results of the production optimization plan combined with an OPEX review, resulted in areduction of unit cost from US$ 2.41/bbl in 2001 to US$2.01/bbl in 2002.
9
MARACAIBO
LAKE MARACAIBO
Altagracia
San Timoteo
VENEZUELA
Lagunillas Field
B-2X 68/79Nimir-operated
B-2X 70/80Nimir-operated
Nimir Interests in Venezuela
Nimir Group Limited Operational Review cont’d
Kazakhstan
Nimir Petroleum Buzachi BV holds a 35% non-operated interest in the North Buzachi field. Thefield is at a stage of appraisal and production testing whilst the Full Field Development Plan isoptimised and prepared for approval.Total recovery under water injection is expected to be 300MMbbls. This plan was completed and submitted to the Kazakh authorities in December 2002and is expected to be approved during the second quarter of 2003.
During the year, design work was started on an early production scheme to accelerate the fullfield development.This will involve drilling additional wells and installing processing facilities atNorth Buzachi to boost production early in 2004 to 12,500 bopd. This early production addssignificant value to the North Buzachi project and is a priority for Nimir and the operator.
Net production for the year was 787 Mbbls or 2,160 bopd which was 29% above forecast. Thisrepresents a 53% improvement over 2001 production. The net average production duringNovember was a historic high of 2,600 bopd.
10
ATYRAU
KAZAKHSTAN
Damba
Kashagan
Tengiz
BARSNimir-operated
CASPIAN SEA
Karazhanbas
N. BuzachiChevron TexacoOperated
Kalamkas
Zhalgiztobe
QyzylbasKulsary
Nimir Interests in Kazakhstan
Nimir Group Limited Operational Review cont’d
Crude production from the field was exported by a variety of routes either to the Black Sea portsof Batumi, Novorossiysk and Odessa, or to Germany by pipeline. Some crude was also sold on thelocal market. Total net sales revenue for the year was US$14.9 million, an increase of 80% overthe 2001 net revenue of US$8.2 million.
Preparations were made to commence a 10 well drilling campaign to boost production and gainfurther reservoir data. Unfortunately, due to lack of drilling rig availability, the campaign wasdelayed until January 2003. Free water knock-out and water injection equipment was installedat the field. This allowed production rates to be increased and third-party processing fees paidby the North Buzachi partners to be reduced. Nimir’s share of the Joint Venture capitalexpenditure was US$5.3 million. Net operating costs were US$8.8 million, a reduction of 10%from the 2001 figure of US$9.7 million.
Nimir Petroleum Bars BV holds a 100% Working Interest in the Exploration and ProductionContract # 974 in the northwest part of the Buzachi Peninsula. The area under licence comprises5,641 square kilometres, approximately 1.4 million acres, and surrounds several significant oilfields, including the North Buzachi Field.
In 2001, 1,000 km of high resolution seismic data was acquired at a cost of US$6.5 million. During2002 the processing and interpretation of the data led to the identification of two drillableprospects in the salt marsh near to the North Buzachi Field. The drilling programme for theprospects was developed and the permitting and contracting process was initiated. Theprospects are in the same shallow Jurassic and Cretaceous sandstone reservoirs as the NorthBuzachi Field.
Road building commenced in January 2003, ready for the drilling of the two wells in April 2003at an expected total cost of US$2 million. The main contracts for the work have been awardedto local companies. Completion of these two wells will fulfil the outstanding work commitments.
During 2003 Nimir will assess its position in Kazakhstan relative to market conditions andalternative investment opportunities which may result in the sale or exchange of these assets.
11
Nimir Group Limited Operational Review cont’d
North Africa
During 2002, a two well drilling programme was carried out on the company’s 7th Novemberblock which Nimir operates with partners Petronas Carigali and Medex Petroleum.
The first well, Besmah-1, in the Tunisian sector of the block, was drilled to a depth of 3,320 metresand was targeted at the Late Cretaceous Miskar formation.The well was spudded on 27 January2002 and took 53 days to reach Target Depth (“TD”).The well was plugged and abandoned withoil and gas shows but was declared a dry hole. The total cost of the well was US$9.4 million.
El Amal North-1, in the Libyan sector of the block, was drilled to a depth of 2,955 metres, theprimary objective being the chalk Abiod formation. The well was spudded on 7 April 2002 andtook 105 days to reach TD. Considerable problems were encountered with gas in fracturedformations creating well control difficulties. As a result the well was side-tracked twice.The totalcost of this well was US$19.4 million. The well was plugged and abandoned with oil and gasshows but was also declared a dry hole.
Following a technical review by the partners, it was agreed that no further viable prospectscould be identified and that the block should be relinquished. Notice of relinquishment wasissued on 30 January 2003. The district office will be closed down as soon as formalities havebeen completed.
12
TRIPOLI
MEDITERRANEAN SEA
7th NovemberNimir-operated
TUNISIA
LIBYA
Gabes
Mahares
Sfax
El Bouri
AshtartOMV
Miskar BG
Isis
DidonMP Zarat
Djerba Island
Kerkenna Island
Zarzis
Agip
Nimir Interests in Tunisia/Libya
Nimir Group Limited
Financial Review
Group revenues totalled US$193.9 million in 2002, a reduction of 7% from the US$208.8 millionlevel achieved in 2001. The decrease in revenue was due to a decline in production rates in thePalermo and Casanare contract areas in Colombia. This production decrease, however, waspartially offset by a more robust price scenario in 2002.
During the year the average realised price for Group sales was US$17.7/bbl post hedging costs,US$1.10/bbl higher than in 2001. After taking into account transportation and royalties, theaverage netback was US$16.54/bbl. Direct unit operating costs amounted to US$5.17/bbl.
Group profits remained healthy with 2002 net profitafter tax of US$6 million. This was achieved afterexploration cost write offs totalling US$46.3 millioncompared to US$45.2 million in 2001. Cost controlremained strong with administrative expensesdeclining from US$23.9 million in 2001 to US$16.1million in 2002. An ambitious and successful resizinginitiative in Colombia and continued cost controlefforts at the London head office were the maincontributors to this achievement.
Operating cash flow of US$97.2 million in 2002 (2001:US$158.0 million) enabled the Nimir Group to fund anambitious exploration and development programmewithout any increase in debt. Bank and other loanscontinued to decline from a level of US$32.4 million in2001 to US$30.5 million in 2002.
13
40
35
30
25
20
15
10
5
0Nov
01Dec Jan
02Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan
03Feb
Source: BloombergMonthly Average WTI Nov 2001 to Feb 2003
US$/bbls
210
180
150
120
90
60
30
01998 1999 2000 2001 2002
US$millions
Nimir Petroleum Revenues
Nimir Group Limited Financial Review cont’d
The Nimir Group continues todemonstrate a strong financialcondition. Its cash resources willenable it to continue to seek outand develop profitable growthopportunities in line with its corestrategies.
(NOTE: In 2002, the method ofaccounting for the Group’s interestin the ODC pipeline in Colombiawas changed (See Note 23 to theFinancial Accounts). This hasresulted in a restatement of severalitems in the historical accounts ofthe Group. All figures referred toabove reflect this restatement ofaccounts.)
14
160
140
120
100
80
60
40
20
01998 1999 2000 2001 2002
US$millions
Nimir Petroleum Cash Flow
160
140
120
100
80
60
40
20
01998 1999 2000 2001 2002
US$millions
Nimir Petroleum Bank and Other Loans
Nimir Group Limited
Board of Directors
Abdulrahman bin MahfouzAbdulrahman was elected Chairman of the Board of Directors of Nimir Group Limited In March2001. He is also a shareholder and Chairman of Nimir Holdings, the parent holding company.
Abdulrahman is a prominent Saudi Arabian businessman with diverse business interests aroundthe world, ranging from banking, insurance, real estate, oil and industry. Abdulrahmangraduated with a degree in Business Administration and has held senior positions in bothprivate and public companies as a Director of the National Commercial Bank, Chairman of CreditLibanais, Director of the Saudi Research and Distribution Company and Director of Yeminvest.
Sultan bin MahfouzSultan was elected Deputy Chairman of the Board of Directors of Nimir Group Limited in March2001. He is also a shareholder and Deputy Chairman of Nimir Holdings, the parent holdingcompany.
Sultan graduated in law from King Abdul Aziz University in Jeddah. Since graduation, Sultan hasbeen involved in the management of his own and various family investments and has diversebusiness interests around the world. Sultan is currently Vice Chairman of Al Murjan’s AdvisoryBoard, a Director of Zamil Industrial Investment Company and a Director of Arabian CementCompany.
Sami BaarmaSami Baarma joined the Board of Directors in March 2001. Sami is a Jeddah-based privateinvestment manager.
Sami has 16 years of investment and banking experience and was a senior executive at theNational Commercial Bank.
Cherif SedkyCherif Sedky joined the Nimir Board of Directors in March 2001. Cherif is an American citizen andgraduate of Stanford University and Georgetown Law School.
Cherif was a senior partner at a leading Washington law firm before joining the bin Mahfouzfamily as their chief legal adviser in 1994.
Jo MalikJo Malik joined the Board of Directors in March 2001. Jo brings 49 years of oil industryexperience to the company, having worked at Shell International for 37 years, where for 14 years,he was a director on nine boards.
Since leaving Shell, Jo has worked as an advisor to the Saudi Arabian Marketing and RefiningCompany and from 1993 has worked as an advisor to Nimir Petroleum.
Patrick MaleyPatrick Maley joined the Board of Directors in September 2001. Patrick is a London-basedmanagement consultant specialising in commercially orientated services for the petroleumindustry.
Patrick has 26 years of oil industry experience and has worked for the Mobil Oil Corporation andTransworld Oil Ltd.
15
Senior Management
Tucker LinkPresident
Tucker joined Nimir Petroleum in May 2001.
Prior to joining Nimir, Tucker specialised in investment banking, mergers and acquisitions andstrategic operating activities. Tucker has spent the last 16 years in senior executive positionswithin organisations whose asset size ranged from US$25.0 million to US$3.5 billion.
Tucker is responsible for the definition and execution of business strategy based on organicgrowth and acquisitions, with initiatives to maximize shareholder value by way of superiorfinancial performance. He is also responsibile for building long-term relationships with partners,host governments, national oil companies and suppliers.
Paul KennadySenior Vice President,Oil and Gas Operations
Paul Kennady joined Nimir Petroleum in 1998 following a career with Deminex, BP and Britoil.Paul has over 26 years experience in the development and operation of oil and gas fields gainedfrom working in Indonesia, the Middle East, North Africa and the North Sea. Immediately prior totaking up his current position, Paul was Vice President of Production and Development forNimir’s Colombian operation, Hocol.
At Nimir Petroleum, Paul has responsibility for corporate technical services, and for Nimir’ssubsidiary operations in Venezuela, North Africa and Kazakhstan. He is also responsible forBusiness Development.
George RapportSenior Vice Presidentand Chief Financial Officer
George Rapport joined Nimir Petroleum in September 2001, after acting as a financial advisor toNimir from June until September 2001.
Prior to joining Nimir, George was a Managing Director at Chase Manhattan Bank. Of his 33 yearsat Chase, 17 were spent in various positions in oil and gas corporate finance in Paris, London andNew York. He managed relationships with major U.S. and European multi-national oil companiesas well as with U.S. independents.
At Nimir Petroleum, George has responsibility for the finance, legal and information technologyfunctions.
Nimir Group Limited
16
Directors’ Report
The directors present their report and accounts for the year ended 31 December 2002. NimirGroup Limited was incorporated in Bermuda on 16 March 2001.
Pursuant to a Board Resolution dated 5 November 2001, Nimir Group Limited agreed to acquirethe entire issued share capital of Nimir Petroleum Limited from its parent company, NimirHoldings Limited, as a contribution to capital.
The share transfer was the result of a group reconstruction, therefore the combined financialstatements of the Group have been prepared using merger accounting principles as if thecompanies had been part of the Group for all periods.
Results and dividends
The profit for the year, after taxation, amounted to US$6.0 million (2001 - US$12.6 million). Thedirectors are not recommending the payment of any dividends.
Principal activity and review of the business
The Group’s principal activity is the exploration, development and sale of hydrocarbon products.
Sales decreased by 7.11% to US$193.9 million during the year.The decrease in turnover was dueto a decrease in sales volume by 13.2% to 10,920,000 barrels, although selling prices increasedby an average of 7%.
The office in Oman was closed during the year. With the North Africa licence period ending inMay 2003, it was also decided to wind up activities there. This involved a write off during 2002of intangible fixed assets of US$20.8m.
UK charitable donations of US$4,668 were made during 2002.
Future developments
Exploration and development activity will continue during 2003, however the profitability of theGroup is largely dependent on future oil prices.
Directors and their interests
The directors during 2002 and up to the date of this report were:-
Sheikh Abdulrahman Bin Khalid Bin MahfouzSheikh Sultan Bin Khalid Bin MahfouzMr Patrick Maley Mr Sami BaarmaMr Cherif SedkyMr Jo Malik
None of the directors owns or has any options to purchase shares in the company.
The parent company of Nimir Group Limited is Nimir Holdings Limited. The ultimate owners ofthe company are Sheikh Abdulrahman Bin Khalid Bin Mahfouz and Sheikh Sultan Bin Khalid BinMahfouz.
AuditorsIt is intended to put a resolution to reappoint Ernst & Young LLP as auditors to the members atthe Annual General Meeting.
By order of the board
Patrick MaleyDirectorDate: 24 March 2003
17
Nimir Group Limited
Statement of Directors’ Responsibilities for theAccountsThe directors are required to prepare accounts for each financial year which give a true and fairview of the state of affairs of the company and of the Group and of the profit or loss of the Groupfor that period. In preparing those accounts, the directors consider that they are required to:
• select suitable accounting policies and then apply them consistently;
• make judgements and estimates that are reasonable and prudent;
• state whether applicable accounting standards have been followed, subject to any materialdepartures disclosed and explained in the accounts; and
• prepare the accounts on the going concern basis unless it is inappropriate to presume thatthe Group will continue in business.
The directors confirm that the accounts comply with the above requirements.
The directors further consider that they are responsible for keeping proper accounting recordswhich disclose with reasonable accuracy at any time the financial position of the Group.They arealso responsible for safeguarding the assets of the Group and hence for taking reasonable stepsfor the prevention and detection of fraud and other irregularities.
18
Nimir Group Limited
Independent Auditors’ Report to the Membersof Nimir Group LimitedWe have audited the group’s financial statements for the year ended 31 December 2002 whichcomprise the Consolidated Profit and Loss Account, Consolidated Balance Sheet, CompanyBalance Sheet, Consolidated Cash Flow Statement, Consolidated Statement of Total RecognisedGains and Losses, and the related notes 1 to 23. These financial statements have been preparedon the basis of the accounting policies set out therein.
This report is made solely to the company’s members, as a body. Our audit work has beenundertaken so that we might state to the company’s members those matters we are required tostate to them in an auditors’ report and for no other purpose. To the fullest extent permitted bylaw, we do not accept or assume responsibility to anyone other than the company and thecompany’s members as a body, for our audit work, for this report, or for the opinions we haveformed.
Respective responsibilities of directors and auditors
As described in the Statement of Directors’ Responsibilities the company’s directors areresponsible for the preparation of the financial statements in accordance with applicable lawand United Kingdom accounting standards.
Our responsibility is to audit the financial statements in accordance with relevant legal andregulatory requirements and United Kingdom Auditing Standards.
We report to you our opinion as to whether the financial statements give a true and fair view.We also report to you if, in our opinion, the Directors’ Report is not consistent with the financialstatements, if the company has not kept proper accounting records, if we have not received allthe information and explanations we require for our audit, or if information specified by lawregarding directors’ remuneration and transactions with the group is not disclosed.
We read the Directors’ Report and consider the implications for our report if we become awareof any apparent misstatements within it.
Basis of audit opinion
We conducted our audit in accordance with United Kingdom Auditing Standards issued by theAuditing Practices Board. An audit includes examination, on a test basis, of evidence relevant tothe amounts and disclosures in the financial statements. It also includes an assessment of thesignificant estimates and judgements made by the directors in the preparation of the financialstatements, and of whether the accounting policies are appropriate to the group’scircumstances, consistently applied and adequately disclosed.
We planned and performed our audit so as to obtain all the information and explanations whichwe considered necessary in order to provide us with sufficient evidence to give reasonableassurance that the financial statements are free from material misstatement, whether caused byfraud or other irregularity or error. In forming our opinion we also evaluated the overalladequacy of the presentation of information in the financial statements.
Opinion
In our opinion the financial statements give a true and fair view of the state of affairs of thecompany and of the group as at 31 December 2002 and the profit of the group for the year thenended in accordance with accounting principles generally accepted in the United Kingdom.
Ernst & Young LLP ……..March 2003Registered AuditorBecket House1 Lambeth Palace RoadLondon SE1 7EUDate: 24 March 2003
19
Nimir Group Limited
Consolidated Profit and Loss AccountFor the year ended 31 December 2002
Notes 2002 2001Pro-forma
Restated(US$ millions)
Sales 3 193.9 208.8Cost of sales 4 (104.2) (100.2)
Gross profit 89.7 108.6Exploration costs written off 8 (46.3) (45.2)Administrative expenses (16.1) (23.9)Other income 8.6 8.8
Operating Profit 5 35.9 48.3Profit on sale of fixed assets 0.5 0.2
Net interest expense 6 (1.4) (3.0)Profit on ordinary activities before taxation 3 35.0 45.5Taxation on profit on ordinary activities 7 (29.0) (32.9)
Profit for the financial period 6.0 12.6
20
Nimir Group Limited
The notes on pages 25 to 37 form part of these accounts.
Nimir Group Limited
Consolidated Balance Sheetat 31 December 2002
Notes 2002 2001Pro-forma
Restated(US$ millions)
Fixed assets 8Intangible 66.6 67.8Tangible 178.9 196.9
245.5 264.7
Current AssetsStock 9 17.7 16.1Debtors 10 16.0 20.6Unlisted investments 7.5 9.3Cash at bank and in hand 53.7 52.9Restricted cash 18 6.4 6.3
101.3 105.2
Current LiabilitiesCreditors:Amounts falling due within one year 11 (55.9) (89.0)Net Current Assets 45.4 16.2Total Assets Less Current Liabilities 290.9 280.9
CreditorsAmounts falling due after more than one year 12 (24.9) (21.2)
Provisions 13 (29.5) (29.2)Total net assets 3 236.5 230.5
Capital and reservesShare capital 14, 15 0.1 0.1Capital reserve 15 212.5 212.5Other reserves 15 (1.2) (1.2)Profit and loss 15 25.1 19.1Equity shareholders’ funds 236.5 230.5
P. Maley – DirectorDate: 24 March 2003
21The notes on pages 25 to 37 form part of these accounts.
Company Balance Sheetat 31 December 2002
Notes 2002 2001Pro-forma
Restated(US$ millions)
Fixed assetsInvestments 8 212.6 212.6
212.6 212.6
Current assets - -
Current liabilities 11 (0.8) (0.1)
Net current liabilities (0.8) (0.1)
Total assets less current liabilities 211.8 212.5
Total net assets 211.8 212.5
Capital and reservesShare capital 14, 15 0.1 0.1Capital reserve 15 212.5 212.5Profit and loss 15 (0.8) (0.1)Equity shareholders’ funds 211.8 212.5
P. Maley – DirectorDate: 24 March 2003
22
Nimir Group Limited
The notes on pages 25 to 37 form part of these accounts.
Nimir Group Limited
Consolidated Cashflowat 31 December 2002
Notes 2002 2001Pro-forma
Restated(US$ millions)
Net cash inflow from operating activities 16 97.2 158.0
Returns on investments and servicing of financeInterest paid (1.8) (4.2)Interest received 0.7 1.6
(1.1) (2.6)
TaxationCorporation tax repaid/(paid) 1.4 (1.3)Overseas tax paid (34.4) (50.7)
(33.0) (52.0)Net cash inflow from operations after taxation 63.1 103.4
Capital expenditure and investmentCapital expenditure: - Intangible assets (41.6) (76.3)
- Tangible assets (20.1) (26.6)- Investments (8.5)
Receipts from sale of : - Tangible 1.7 0.5- Investments 1.8 -
(58.2) (110.9)
Cash inflow/(outflow) before liquid resources and financing 4.9 (7.5)
Management of liquid resources 18 (0.1) 2.3
Financing(Decrease) in bank borrowings 18 (1.9) (6.3)Loans (to)/from parent and affiliates 18 (2.1) 2.7
(4.0) (3.6)Increase/(decrease) in cash 18 0.8 (8.8)
23The notes on pages 25 to 37 form part of these accounts.
Consolidated Statement of Total RecognisedGains and Lossesat 31 December 2002
Notes 2002 2001Pro-forma
Restated(US$ millions)
Profit for the financial year 6.0 12.6Total recognised gains and losses relating to the year 6.0 12.6Prior year adjustment 23 (21.4) -Total gains and losses recognised since last annual report (15.4) 12.6
24
Nimir Group Limited
The notes on pages 25 to 37 form part of these accounts.
Nimir Group Limited
Notes to the Accountsat 31 December 2002
1. Basis of preparation
Nimir Group Limited was incorporated in Bermuda on 16 March 2001 and is the parent company of aGroup of companies formed as the result of a group reconstruction. Pursuant to a Board Resolutiondated 5 November 2001 Nimir Group Limited agreed to acquire the entire issued share capital of NimirPetroleum Limited from its parent company Nimir Holdings Limited as a contribution to capital.
The pro-forma financial information for 2001 set out in these accounts has been prepared usingmerger accounting principles as if the companies had been part of the Group for all periods presented.
The accounts have been prepared in U.S. Dollars which is the functional currency of the Group.
In preparing the financial statements for the current year, the group has adopted FRS 18 ‘AccountingPolicies’, FRS 19 ‘Deferred Tax’ and the transitional arrangements of FRS 17 ‘Retirement Benefits’ relatingto accounting periods ending on or after 22 June 2002. Adoption of these new standards has notrequired any revisions to the financial statements in either the current or prior years.
No profit and loss account is presented for Nimir Group Limited, its loss for the year was US$0.7 million(2001: US$0.1 million).
2. Accounting policies
A summary of the principal accounting policies, all of which have been applied consistentlythroughout the periods presented, is set out below.
Accounting convention
These accounts are prepared under the historical cost convention in accordance with applicable UKAccounting Standards.
Application of Statement of Recommended Practice (SORP)
The relevant SORP for the group is that produced by the Oil Industry Accounting Committee (OIAC) asset out in “Accounting for Oil and Gas Exploration Development, Production and DecommissioningActivities”. The financial statements have been prepared in accordance with the SORP.
Basis of Consolidation
The financial statements comprise a combination of the consolidated financial statements of NimirGroup Limited and its subsidiaries. The principal subsidiaries are set out in note 8 (d). Inter-companytransactions and balances have been eliminated on consolidation.
The Group conducts some of its oil and gas exploration, development and production activitiesthrough unincorporated joint ventures with other companies.
The share of the joint arrangements which are not entities (JANE’s) production, operating costs andcapital expenditure attributable to the Company is reflected in the combined financial statements.
Oil and gas expenditure
Exploration and appraisal costs
Exploration and appraisal costs are accounted for under the successful efforts policy as set out inStatement of Recommended Practice.
Costs relating to licence acquisition, and exploration and appraisal drilling are initially capitalised asintangible fixed assets. Expenditure on general seismic data and other costs not specifically directed toan identified structure are written off to the profit and loss account in the year in which they arise.
When the three year time limit for carrying forward exploration and appraisal expenditure isinappropriate, any undetermined costs beyond this time limit are disclosed.
If prospects are subsequently deemed to be unsuccessful on completion of evaluation, the associatedcosts are charged to the profit and loss account. If the prospects are deemed to be commerciallyviable, such costs are transferred to tangible fixed assets.
25
2. Accounting policies (continued)
Fields under development and in production
All field development costs are capitalised as tangible fixed assets. Such costs relate to the acquisitionand installation of production facilities and also include development-drilling costs, applicableexploration costs, decommissioning costs, certain administrative costs and capitalised interest.
Pipelines and transportation facilities are recorded as a separate category.
Impairment
The net amounts at which fields in development and production are recorded in the financialstatements are assessed on a field-by-field basis against the likely future net revenues to be derivedfrom the estimated remaining proved developed and undeveloped reserves based on currenttechnical knowledge of the reservoirs. A provision is made where the directors are of the opinion,based on available information, that recorded amounts are unlikely to be fully recovered from futurenet revenues.
Depreciation and Depletion
The capitalised costs of fields in production, together with anticipated future development costs aredepreciated field-by-field on a unit-of-production basis. Depreciation is calculated by reference to theproportion that production for the year bears to the total of the estimated remaining proveddeveloped and undeveloped reserves as at the beginning of the year.
Depreciation of oil transport facilities is made on a unit of throughput basis, calculated by reference tothe proportion that throughput for the year bears to the total of the estimated remaining proveddeveloped and undeveloped reserves as at the beginning of the year.
Offices, equipment and other tangible fixed assets is provided on a straight-line basis with reference tothe individual assets estimated useful lives of between 3 and 20 years.
Interest on borrowings
Interest on borrowings to finance development expenditure is capitalised except to the extent thatsuch capitalisation would necessitate provisions under the Company’s accounting policy regardingceiling tests. Other interest is reflected in the profit and loss account as incurred.
Decommissioning
Decommissioning provisions are established for each field based on the present value of the estimatedfuture liability. The unwinding of discount is included within interest.
Effect of changing estimates
Changes in estimates affecting unit-of-production calculations for depreciation are accounted forprospectively over the estimated remaining proved developed and undeveloped reserves of each field.
Foreign Currencies
Assets and liabilities denominated in foreign currencies are translated into US dollars at the rates ruling atthe year-end.
Transactions during the year in foreign currencies are converted at rates ruling at the transaction dates.Gains and losses resulting from fluctuations are charged or credited to income.
Derivative Financial Instruments
The Group, in the ordinary course of its business and like other oil and gas companies, enters intotransactions to hedge to some extent the results of its operations against movements in exchange rates,interest rates and oil price movements. Gains or losses arising from oil price derivatives are recognised insales from oil production when hedged volumes are sold. There are no material gains or losses relating toexchange rate or interest rate derivative financial instruments.
Pensions
The Group operates an unfunded defined benefit pension scheme for the benefit of its employees inColombia. Contributions to this fund are charged in the profit and loss account so as to spread the cost ofpension over the employees’ working lives within the group. The regular cost is attributed to individualyears using the projected unit method. Variations in pension cost, which are identified as a result ofactuarial valuations, are amortised over the average expected remaining working lives of employees inproportion to their expected payroll costs.
26
Nimir Group Limited
Nimir Group Limited
2. Accounting policies (continued)
The Group also operates money purchase schemes with defined contribution levels covering the majorityof its employees. The estimated cost of providing such benefits is charged against profits on a systematicbasis over the employees’ working lives within the Group.
Taxes on Income
This year the Group has fully adopted the new accounting standard for deferred tax issued by the UKAccounting Standards Board, FRS19 – Deferred Tax. Following adoption of FRS19, the Group provides fordeferred tax in respect of all timing differences that have originated but not reversed at the balance sheetdate where transactions or events have occurred at that date that will result in an obligation to pay more,or a right to pay less or receive more, tax, with the following exceptions:
• provision is made for deferred tax that would arise on remittance of the retained earnings of overseassubsidiaries, associates and joint ventures only to the extent that, at the balance sheet date, dividendshave been accrued as receivable;
• deferred tax assets are recognised only to the extent that the directors consider that it is more likelythan not that there will be suitable taxable profits from which the future reversal of the underlyingtiming differences can be deducted.
Deferred tax is measured on an undiscounted basis at the tax rates that are expected to apply in theperiods in which timing differences reverse, based on tax rates and laws enacted or substantively enactedat the balance sheet date.
Stocks
Oil stocks and consumable stores are stated at the lower of cost or net realisable value.
Revenue Recognition
Sales of oil are recognised on the date that the product is lifted by the buyer. Under and overlifts relatingto entitlement in production are recognised as an adjustment of cost of sales.
Operating Leases
Operating leases are charged or credited to the profit and loss account on a straight line basis over the livesof the leases.
3. Segment information
The operations of the Group constitute one class of business, the exploration for and production ofhydrocarbon liquids and gas.
The five major areas of operation of the Group are Colombia, Venezuela, North Africa, Kazakhstan andOman (discontinued during 2001). The Group holding and co-ordination subsidiary Nimir PetroleumLimited is located in the UK.
The company classifies its sales and operating results into regions as follows (sales are all to external thirdparties):
Sales Profit/(Loss) on ordinaryactivities before Taxation
Year ended 31 December, Year ended 31 December,2002 2001 2002 2001
Restated(US$ millions) (US$ millions)
Colombia 169.4 190.7 62.0 67.5Venezuela 9.7 9.9 4.7 8.1Oman - - - (8.0)North Africa - - (21.1) (2.0)Kazakhstan 14.8 8.2 (4.0) (13.2)UK - - (6.6) (6.9)
193.9 208.8 35.0 45.5
Sales by destination are not materially different from those reported above, and consist solely of oilproduction.
27
3. Segment information (continued)
Net Assets Total AssetsAt 31 December, At 31 December,
2002 2001 2002 2001Restated Restated
(US$ millions) (US$ millions)Colombia 226.4 194.6 295.0 284.9Venezuela 11.5 7.6 13.0 5.3Oman (19.1) (19.1) - -North Africa (29.2) (8.0) 6.7 10.6Kazakhstan (27.3) (23.4) 62.9 57.2UK 74.2 78.8 (30.8) 11.9
236.5 230.5 346.8 369.9
4. Cost of sales
Year ended 31 December,2002 2001
Restated(US$ millions)
Operating costs and transportation (61.1) (56.7)Depletion and depreciation (36.7) (38.1)Production based taxes (6.4) (5.4)
(104.2) (100.2)
5. Operating profit
Operating profit for the period has been arrived at after charging:(a) Staff Costs
Year ended 31 December,2002 2001
(US$ millions)Wages and salaries 11.8 11.1Social security costs 0.9 0.7Other costs 6.0 7.2
18.7 19.0
(b) The average monthly number of employees during the year was as follows:
Year ended 31 December,2002 2001
(Number of employees)United Kingdom 26 27Colombia 176 186Oman - 2North Africa 7 12Kazakhstan 6 6Venezuela 14 14Total 229 247
At 31st December 2002 the total number of employees was 191 (2001: 241)
Year ended 31 December,2002 2001
(US$ millions)(c) Fees paid or payable to directors are as follows:
Fees 0.3 0.1Pension Contributions - -
0.3 0.1
The highest paid director will receive fees of US$45,859. (2001: US$54,375).
28
Nimir Group Limited
Nimir Group Limited
5. Operating profit (continued)
(d) Fees paid to auditors and other accounting firms:Year ended 31 December,
2002 2001(US$ millions)
Audit of group companies:Ernst & Young LLP 0.5 0.7
0.5 0.7Non audit work:Ernst & Young LLP - 0.1Other accounting firms 0.2 -
0.2 0.1
(e) Other Operating Lease rentals for plant and machinery paid during 2002 were US$2.5 million (2001US$1.2 million).
6. Net interest expense
Year ended 31 December,2002 2001
(US$ millions)3rd party interest income 0.7 1.63rd party interest expense – loans and overdrafts (1.8) (4.2)Unwinding of decommissioning provision discount (0.3) (0.4)
(1.4) (3.0)
7. Taxation
(a) Tax on profit on ordinary activities2002 2001
(US$ millions)Restated
Current tax:UK corporation tax - 0.6Adjustments in respect of prior periods (2.0) (2.3)
(2.0) (1.7)Foreign tax 28.2 32.4
Total current tax 26.2 30.7
Deferred tax:Origination and reversal of timing differences 2.8 2.2
Total tax on profit on ordinary activities 29.0 32.9
(b) Factors affecting current tax charge
The tax assessed on the profit on ordinary activities for the year is higher than the standard rate ofcorporation tax in the UK of 30% (2001 – 30%). The differences are reconciled below:
29
7. Taxation (continued)
2002 2001(US$ millions)
RestatedProfit on ordinary activities before tax 35.0 45.5
Profit on ordinary activities multiplied by the standard rate of corporation tax of 30% (2001 – 30%) 10.5 13.7
Expenses not deductible for tax purposes 0.8 2.8Timing differences 2.3 1.6Utilisation of tax losses (0.5) -Origination of tax losses 2.2 6.8Overseas losses not likely to be utilised 6.3 0.6Higher taxes on overseas income 6.6 7.5Adjustments in respect of prior periods (2.0) (2.3)
Total current tax charge 26.2 30.7
(c) Factors that may affect future tax charges
The Group has tax losses arising in the UK of US$3.7 million (2001 - US$0.3 million) that are availableindefinitely for offset against the future taxable profits of those companies in which the losses arose.Deferred tax assets have not been recognised in respect of these as there is insufficient certainty as to theavailability of future taxable profits and they may not be used to offset taxable profits elsewhere in theGroup.
The Group has tax losses of approximately US$11.0 million (2001 - US$12.0 million) arising in Kazakhstanthat are available for offset against future taxable profits over the next seven years. These tax losses havenot been recognised because of the uncertainty as to whether there will be suitable future taxable profits.In addition, there are unrecognised tax losses in the Netherlands which could be used for set off againstincome following specific loss recapture rules.
The Group’s overall tax rates are higher than those in the UK primarily because the profits earned by HocolS.A. and Nimir Petroleum Venezuela B.V. are taxed at a rate of 35% and 34% respectively.
8. Fixed assets
(a) Intangible assets: exploration and appraisal expenditure
Kazakhstan North Africa Colombia Other Total(US$ millions) (US$ millions)
Cost:At 1 January, 2002 51.9 2.9 13.0 - 67.8Additions 6.2 17.9 18.9 2.1 45.1Amounts written off (1.1) (20.8) (22.3) (2.1) (46.3)Transfers - - - - -At 31 December, 2002 57.0 - 9.6 - 66.6
Expenditure of US$56.7 million incurred in exploration and appraisal activities in Buzachi, Kazakhstan hasbeen carried forward pending determination for a period greater than three years.
30
Nimir Group Limited
Nimir Group Limited
8. Fixed assets (continued)(b) Tangible assets:
Fields in Fields in Total Oil Transport Offices, Total development production Oil & Gas facilities Equipment Group
expenditure & other Restated
(US$ millions) (US$ millions) (US$ millions)Cost:At 1 January 2002 6.0 281.8 287.8 112.4 22.0 422.2Additions 0.7 18.4 19.1 0.1 0.8 20.0Transfers 0.7 (1.2) (0.5) (0.1) 0.6 -Disposals - (0.8) (0.8) (0.3) (2.7) (3.8)
At 31 December 2002 7.4 298.2 305.6 112.1 20.7 438.4
Depletion and depreciation:At 1 January 2002 - 166.5 166.5 44.4 14.4 225.3Charge for the year - 29.3 29.3 6.0 1.5 36.8Transfers - - -Disposals - - - (0.1) (2.5) (2.6)
At 31 December 2002 - 195.8 195.8 50.3 13.4 259.5
Net book amounts:At 31 December 2002 7.4 102.4 109.8 61.8 7.3 178.9
At 31 December 2001 6.0 115.3 121.3 68.0 7.6 196.9
There is no capitalised interest included within the tangible fixed assets of the Group.
Provisions for impairment2002 2001
(US$ millions)At 1 January (17.9) (20.8)Reversal - 2.9At 31 December (17.9) (17.9)
The depreciation for 2001 included a US$2.7 million reversal of the impairment provision due to a changein economic conditions for the fields in Venezuela.
Oil and gas expenditure: regional analysisColombia Venezuela Total
(US$ millions) (US$ millions)Cost:Fields in development 7.4 - 7.4Fields in production 277.6 20.6 298.2
At 31 December, 2002 285.0 20.6 305.6
Depletion:At 31 December, 2002 177.6 18.2 195.8
Net book amounts:At 31 December, 2002 107.4 2.4 109.8
At 31 December, 2001 118.6 2.7 121.3
31
8. Fixed assets (continued)
(c) Investments - Company
The company’s Fixed Assets Investments are investments in subsidiary companies2002 2001
(US$ millions)Balance at 1 January 212.6 -Investment in Nimir Petroleum Limited - 212.6
Balance at 31 December 212.6 212.6
(d) Principal Subsidiary Undertakings
The Group owns 100% of the issued share capital in all of its subsidiary undertakings. The followingcompanies have businesses which are material in the context of either the group’s results or net assets. Allare held indirectly through other subsidiaries.
Company Country of ActivityIncorporation
Hocol S.A. Cayman Islands Oil & Gas Exploration, Production &Transportation
Nimir Petroleum Buzachi BV The Netherlands Oil & Gas Exploration & DevelopmentNimir Petroleum Venezuela BV The Netherlands Oil & Gas Exploration & DevelopmentNimir Petroleum Bars BV The Netherlands Oil & Gas Exploration & DevelopmentNimir Petroleum Company North Africa Limited Bermuda Oil & Gas Exploration & DevelopmentNimir Petroleum Finance BV The Netherlands FinanceNimir Petroleum Limited United Kingdom Investment Holding and Services
9. StocksGroup
2002 2001Restated
(US$ millions)Hydrocarbons 11.2 8.6Consumable Stores 6.5 7.5
17.7 16.1
The difference between purchase price or production cost of stocks and their replacement cost is notmaterial.
10. Debtors
Group2002 2001
Restated(US$ millions)
Falling due within one year:Trade debtors 3.5 8.9Provision for bad debt (1.3) (1.3)Loans to other group companies 0.2 -Other debtors 10.5 10.2
12.9 17.8
Falling due after more than one year:Other debtors 6.0 6.0Provision for bad debt (2.9) (3.2)
16.0 20.6
32
Nimir Group Limited
11. Creditors: amounts falling due within one year
Group2002 2001
Restated(US$ millions)
Bank loans due falling within one year (note 12 (i)) 8.6 11.2Trade creditors 18.4 34.6Loans from other group companies 12.5 14.4Taxation payable 3.5 12.9Accruals and other creditors 12.9 15.9
55.9 89.0
Company – Current liabilities of US$0.8 million (2001:US$0.1 million) are in respect of loans from othergroup companies.
12. Creditors: amounts falling due after more than one year
Group2002 2001
Restated(US$ millions)
Other Loan falling due after more than one year (note 12 (ii)) (21.9) (21.2)Accruals and other creditors (3.0) -
(24.9) (21.2)
12. (i) Bank Loans
Group2002 2001
(US$ millions)Revolving bank line of credit of US$20.0 million bearing interestat LIBOR plus 2.5% until 31 December 2002 with a commitmentfee of 0.5% per annum on the unused portion, and collaterizedby certain oil and gas properties under a Pledge Agreement. - -
Short term bank loans (8.6) (11.2)
(8.6) (11.2)
Less bank loans falling due within less than one year (note 11). 8.6 11.2
- -
The revolving bank line of credit is between Hocol and a consortium of banks. The debt agreementcontains various restrictions relating to Hocol with regard to certain types of mergers or consolidations,payment of stock dividends, certain types of leases, purchases and sale of assets, additional borrowings,and creation of liens.
In addition, the loan agreements require the maintenance of certain financial ratios and minimum levels ofworking capital requirements. The loan expired on 31 December 2002.
Nimir Group Limited
33
12. (ii) Other LoanGroup
2002 2001(US$ millions)
Texaco loan falling due after more than one year (21.9) (21.2)
The Other Loan is between Texaco Britain Limited and Nimir Petroleum Finance BV for oil development inKazakhstan. The loan bears interest at LIBOR plus 1.5%, has a maximum principal commitment of US$18.7million, repayable out of the proceeds from oil sales with a final payment date of October 2005. The loanis fully drawn down and the balance includes interest payable.
13. Provisions
GroupDeferred Tax Decommissioning Other Total
Provisions(US$ millions) (US$ millions)
At 1 January 2002 (15.4) (5.1) (8.7) (29.2)Transfer from current tax (3.1) - - (3.1)Charge for the year (2.8) (0.3) - (3.1)Payments - 1.0 4.0 5.0Exchange movements 0.9 0.9
At 31 December 2002 (20.4) (4.4) (4.7) (29.5)
Deferred tax arises as set out below:Group
2002 2001(US$ millions)
Capital allowances for the period in excess of depreciation (4.7) (6.5)Other timing differences 25.1 21.9
Provision for deferred tax 20.4 15.4
Provision is made for the estimated decommissioning costs of producing fields in Colombia, discounted tothe present value. These liabilities are expected to crystallise between 2005 and 2014.
The other provision includes a voluntary pension bonus benefit provided to employees in Colombia andwill be released as the employees retire (note 21).
14. Share capital
The ordinary share capital of the Company at 31 December2002 2001
(Number of Shares)Authorised:Shares of US$1 each 12,000 12,000
Allotted, called and fully paid:Shares of US$1 each 12,000 12,000
The entire share capital was allotted in 2001 to Nimir Holdings Limited as part of the group reconstruction.
34
Nimir Group Limited
15. Reconciliation of movements in shareholders funds (US$ millions)
Share Capital Other Profit & TotalCapital Contribution Reserves Loss
AccountGroupAt 1 January 2002 0.1 212.5 (1.2) 40.5 251.9Prior year adjustment - - - (21.4) (21.4)At 1 January 2002 (restated) 0.1 212.5 (1.2) 19.1 230.5Profit for the period - - - 6.0 6.0
At 31 December 2002 0.1 212.5 (1.2) 25.1 236.5
CompanyAt 1 January 2002 0.1 212.5 - (0.1) 212.5Loss for the period - - - (0.7) (0.7)
At 31 December 2002 0.1 212.5 - (0.8) 211.8
There are no non-equity interests in shareholders funds.
16. Cashflows from operating activities2002 2001
Restated(US$ millions)
Operating profit 35.9 48.3Depletion and depreciation 36.8 42.3Tangible and intangible assets written off 46.3 45.2(Increase) in inventory (2.6) (0.2)Decrease in receivables 1.2 4.7(Decrease)/increase in payables (16.3) 14.1(Decrease)/increase in provisions and other items (4.1) 3.6
Net cashflow from operating activities 97.2 158.0
17. Reconciliation of net cashflow to movement in net debt
2002 2001Restated
(US$ millions)Increase/(decrease) in cash at bank and in hand 0.8 (8.8)Increase/(decrease) in restricted cash at bank and in hand 0.1 (2.3)Cash outflow from bank borrowings 1.9 6.3Cash outflow/(inflow) from loans to other group companies 2.1 (2.7)
Changes resulting from cash flow 4.9 (7.5)
Movement in debt net of cash and liquid resources for the yearNet debt – 1 January 12.4 19.9
Net debt – 31 December 17.3 12.4
35
Nimir Group Limited
Nimir Group Limited
18. Analysis of movement in net debt
1 January Cash Flow 31 2002 December
Restated 2002(US$ millions) (US$ millions) (US$ millions)
Restricted cash at bank and in hand 6.3 0.1 6.4Cash at bank and in hand 52.9 0.8 53.7Bank loans & other loans (32.4) 1.9 (30.5)Loans to/(from) other group companies (14.4) 2.1 (12.3)
Net Debt 12.4 4.9 17.3
Restricted cash represents balances held by third parties to support (a) the issue of a financial guaranteein respect of North Africa operations (US$4.9m) and (b) the lease on the London office (US$1.5m). Thewhole amount is due to be returned during 2003.
19. Related parties
During the year the group entered into transactions in the ordinary course of business with related parties.
Goods & Services Amounts owedcharged to(from) to/(by) related party
related party2002 2001 2002 2001
(US$ millions) (US$ millions)
Nimir Petroleum Company Limited 1.1 0.7 12.5 14.6Nimir Petroleum Company
Europe Limited - - - (0.2)NPC Yemen Holdings 0.1 0.1 (0.2) -
The Group has received loans from Nimir Petroleum Company Limited that are interest free and repayableon demand.
The ultimate parent company of Nimir Group Limited is Nimir Holdings Limited (registered in Bermuda).
Transactions with entities that are part of the group are not disclosed in accordance with FinancialReporting Standard 8 paragraph 3 (c).
The ultimate owners of the company are Abdulrahman Bin Khalid Bin Mahfouz and Sultan Bin Khalid BinMahfouz. All of the related parties are also controlled by the ultimate owners.
The company is the largest group for which group accounts are prepared.
20. Commitments
Group2002 2001
(US$ millions)The following amounts, including information suppliedby the operator, were contracted for at 31 December:Oil and gas expenditure 96.5 60.4
36
Nimir Group Limited
20. Commitments (continued)
Operating leases
Group Company2002 2001 2002 2001
(US$ millions) (US$ millions)At 31 December, the Group had entered intooperating lease obligations relating to land &buildings. Amounts payable within one year inrespect of leases expiring:
Within one year 2.6 2.0 - -In two to five years 1.7 1.1 - -Over five years - - - -
4.3 3.1 - -
21. Pensions
The Group operates money purchase pension schemes with defined contribution levels covering themajority of its employees, including directors. Contributions to the schemes are independentlyadministered. Contribution payable by the Group to the schemes for the period 31 December 2002amounted to US$0.6 million (2001:US$0.6 million).
In Colombia, although the Group does not operate any defined benefit pension schemes, the Group has avoluntary scheme in operation whereby it makes a lump sum termination payment to its staff on theirretirement. The Group provides for the cost of this arrangement so as to recognise the expense over theemployees estimated employment contract, (note 13).
The costs for the scheme are determined with the advice of an independent, qualified actuary. The lastformal valuation was undertaken as at 31 December 2002.The actuary is not an employee of the companynor is he an employee of the group of which the company is a member.
The charge made by the company during the year was US$5.3 million (2001:US$3.2 million), the provisionat the end of the year was US$3.2 million (2001:US$6.6 million), the scheme is unfunded and the schemedeficit on an actuarial basis is US$2.2 million (2001:US$5.8 million). The principal financial assumption wasa rate of salary increase of 10% and the rate used to discount scheme liabilities was 14%. If the companywere to cease trading on 31 December 2002 the liability to its staff would be US$9.6 million. (2001: US$19.8million).
22. Contingent liabilities
The Group’s results are affected by several key factors, namely production volumes, crude oil prices andexchange rates. In addition, the acquisition and disposal of exploration and production interests, costs ofsales (including production related taxes), and the level of exploration and development expenditure(which vary from year to year) and the timing of the related write off or depletion also affect results. Lowercrude oil prices have a negative effect on the operating income and cash flow of the company.
The operation and earnings of Group companies continue, from time to time, to be affected to varyingdegrees by political, legislative, fiscal and regulatory developments, including those relating toenvironmental protection, in the countries in which they operate. The industries in which Groupcompanies are engaged are also subject to physical risks of various types. The nature and frequency ofthese developments and events, not all of which are covered by insurance, as well as their effect on futureoperations and earnings are unpredictable.
23. Prior year adjustmentsAccounting for interest in Oleoducto de Colombia (ODC)
The accounting for the interest in ODC has changed. Previously it was accounted for as an investment andsubject to an annual impairment review. Now it is accounted for as a Joint Arrangement that is not anentity (JANE) and proportionately consolidated, with the asset being depreciated on a unit of throughputbasis. The change to accounting for ODC as a JANE has during the year ended 31 December 2001, had theeffect of:
i. increasing the value of tangible fixed assets by US$39.9 million;ii. decreasing the value of investments by US$63.1 million to US$Nil;iii. and increasing working capital by US$1.8 million.
The net effect of US$21.4 million was taken as an adjustment to reserves. 37
Nimir Group Limited
Oil and Gas Reservesat 31 December 2002
Net proved reserves (unaudited)
The Group’s net ownership interests in estimated quantities of proved oil and gas reserves and changes innet proved reserves are summarised below (in thousands of barrels).
2002 2001(000 bbls)
Net proved reserves at beginning of year:
Proved developed reserves 42,790 52,590Proved undeveloped reserves 27,570 30,980
70,360 83,570
Changes during year:
Revisions and other changes 8,350 193Disposals (880) (980)Production (11,100) (12,423)
(3,630) (13,210)
Net proved reserves at end of period:
Proved developed reserves 38,660 42,790Proved undeveloped reserves 28,070 27,570
66,730 70,360
In certain areas the Group has no ownership interests in reserves but the right to receive production andall revenues from the sale of oil in accordance with Production Sharing Contracts and other agreements.These reserves have been included in the above numbers.
38
Nimir Group Limited
39
Addresses
Head Office:
Nimir Petroleum Ltd
4th Floor, 1 Knightsbridge
London SW1X 7UP
Telephone: +44 (0) 20 7073 7500
Facsimilie: +44 (0) 20 7235 8787
email: [email protected]
Auditors:
Ernst & Young LLP
Becket House
1 Lambeth Palace Road
London SE1 7EU
Telephone: +44 (0) 20 7951 2000
Facsimilie: +44 (0) 20 7951 1345
Legal Advisers:
Fulbright & Jaworski
2 St. James’ Place
London SW1A 1NP
Telephone: +44 (0) 20 7629 1207
Facsimilie: +44 (0) 20 7493 8259
Nimir Group Limited
40
Designed & produced by Response Advertising International Limited
