Chariot Oil & Gas Limited Annual Report & Accounts 2010 · furthered our other business ... UnLOCKinG AFR iCA’s OiL & GAs POtEntiAL. Chariot Oil & Gas Limited Annual Report & Accounts

Chariot Oil &

Gas Lim

ited Annual Report & Accounts 2010

Annual Report & Accounts 2010

UnLOCKinGAFRiCA’S OiL & GAS pOtentiALChariot Oil & Gas Limited

Registered OfficeSydney Vane HouseAdmiral ParkSt. Peter PortGuernseyGY1 3EL

www.chariotoilandgas.com

Company Overview01 Highlights02 At a Glance04 Chairman’s Statement06 Chief Executive Officer’s Report08 Review of Operations12 Board of Directors and

Senior Technical Team

Corporate Governance14 Directors’ Remuneration Report16 Social Responsibility Statement17 Corporate Governance Statement18 Report of the Directors20 Independent Auditors’ Report

Financial Statements21 Consolidated Statement of

Comprehensive Income22 Consolidated Statement of

Changes in Equity23 Consolidated Statement of

Financial Position24 Consolidated Cash Flow Statement25 Notes forming part of the

financial statementsibc Advisers

Chariot Oil & Gas Limited is an independent oil and gas exploration company with interests in Namibia. Enigma Oil and Gas Exploration (Pty) Limited is a wholly owned subsidiary of Chariot and is the operator of the licence areas.

Four licences covering eight offshore blocks in Namibia �Large block allocation – one of largest holdings in Namibia – �38,725 km²8.5 billion barrels of gross unrisked mean prospective resources �3 geologically distinctive basins – well positioned across �Namibian South Atlantic marginFrontier exploration with a proven working petroleum system �Increasing interest in Africa, specifically in West African deep �water plays

Advisers


Registration Number: 47532

nominated AdviserAmbrian Partners LimitedOld Change House128 Queen Victoria StreetLondonEC4V 4BJUnited Kingdom

BrokerAmbrian Partners LimitedOld Change House128 Queen Victoria StreetLondonEC4V 4BJUnited Kingdom

BankersBarclays Bank PLCPO Box 41Le Marchant HouseLe TruchotSt. Peter PortGuernseyGY1 3BE AuditorsBDO LLP55 Baker StreetLondonW1U 7EUUnited Kingdom

Financial public Relations adviserBuchanan Communications45 MoorfieldsLondonEC2Y 9AEUnited Kingdom

SolicitorsAs to British Law:Memery Crystal LLP44 Southampton BuildingsLondonWC2A 1APUnited Kingdom As to Namibian Law:Lorentz Angula Inc.Private Bag 12007AusspannplatzWindhoek 3rd FloorLA ChambersAusspann PlazaWindhoekNamibia As to Guernsey Law:BabbéPO Box 6918–20 Smith Street,St. Peter PortGuernseyGY1 4BL Company SecretaryArtemis Secretaries LimitedSydney Vane HouseAdmiral ParkSt. Peter PortGuernseyGY1 3EL Registrars and receiving agentsAnson Registrars LimitedPO Box 426Anson PlaceMill CourtLa CharroterieSt. Peter PortGuernseyGY1 3WX

Chariot Oil & Gas LimitedAnnual Report & Accounts 2010

01C

OM

PA

NY

OV

ER

VIE

W

Highlights

Chariot’s blocks of interest are located off the coast of Namibia – a significant acreage position in one of the last frontiers for oil and gas exploration

HighlightsCompleted extensive seismic programmes �across all blocks of interest

Dataroom opened for potential partners �

Paul Welch appointed as CEO �

Strengthened in-house technical team �

Range of due diligence undertaken on new �business opportunities

Cash on hand of US$16.2m at �28th February 2010

Post period highlights3.3 billion barrels increase in mean �prospective resource volumes

George Canjar appointed to Board of �Directors

“I am very pleased to report on what was a transformational period for the Company. We have made great strides in our exploration efforts in Namibia, furthered our other business development opportunities and significantly increased value for shareholders.”

Paul WelchChief Executive Officer


02

BRAZILIAN SALT BASIN(~50 BILLION BOE)

WEST AFRICAN SALT BASIN

(~30 BILLION BOE)

NAMIBIA

KUDU GAS FIELDMORE THAN 1 TCF

A T L A N T I CO C E A N

NORTH FALKLANDSRECENT REPORTED OIL DISCOVERY

BREDASDORP BASIN(OIL AND GAS FIELDS)

RECENT LARGEOIL DISCOVERIES

(CHARIOT ACREAGE GROSS RESOURCE ESTIMATE:

8.5 BILLION BOE)

At a Glance

KEY MiLEstOnEs

May 2008 Listed on AIM raising US$90m

October 2008 Increased mean prospective resources from 3.9 bbbls to 5.24 bbbls

May 2009 Signed farm-out with agreement with Petrobras for 50 per cent of block 2714A

Chariot continues to progress the exploration programmes across its Namibian blocks as it looks to further mature its prospect and lead inventory

Unlocking AFRicA’S oil & gAS potentiAl


03C

OM

PA

NY

OV

ER

VIE

W

“We have committed to and completed the largest exploration programme undertaken offshore Namibia to date.”

Paul Welch Chief Executive Officer

strategyMaximise value from position �in NamibiaMature prospects for drilling �Secure farm-in partners �Introduce nearer term assets �into portfolioBring first oil date forward �and diversify risk

January 2010 Completed all seismic acquisition programmes

February 2010 Dataroom opened in London

March 2010 Further increase in gross mean resource potential – up 62 per cent to 8.5 bbbls


04

Chairman’s Statement

Key positioningwithin prolific South Atlantic margins

“Our key focus is on developing our Namibian assets whilst at the same time looking to bring the first oil date forward.”

Peter Kidney Non-Executive Chairman

It is with pleasure that I present the latest results for Chariot Oil & Gas Limited, reporting on a year that saw transformational changes within our Company. The Board was delighted to welcome Paul Welch as CEO in October 2009 and Chariot has made significant steps forward with our exploration in Namibia, furthered efforts on numerous new business opportunities and built a strong in-house technical team. The Board was also very pleased to welcome George Canjar who joined us as a non-executive director post period. He has extensive experience in the oil and gas industry which will be of great value to us going forward.

Namibia – frontier region, high impact explorationSince our last report, there have been a number of major discoveries in deeper water environments. Brazilian exploration continues its unprecedented success and high profile discoveries have also been reported in West Africa, both in the established West African Basins and in new offshore areas such

as Ghana and Sierra Leone. These latter discoveries prove the prolific capability of African Atlantic margin plays outside the proven basins indicating positive implications for Namibia which lies in a comparable geologic setting. The recent reported discovery offshore the Falklands is also highly encouraging. Deep water exploration and production, pioneered across the Atlantic in the Gulf of Mexico and in Brazil, is leading to increased interest in the remaining underexplored high potential West African areas with majors, national oil companies and governments looking to secure acreage and future supply.

Chariot in Namibia – one of the largest licence holdings and biggest work programmesChariot, through its wholly owned subsidiary Enigma Oil & Gas Exploration (Pty) Limited (“Enigma”) holds one of the largest net acreage positions in Namibia (after the Namibian State Oil Company, Namcor). This totals an area of 38,725 km², and we have committed to and fulfilled the largest exploration work


05C

OM

PA

NY

OV

ER

VIE

W

“The Group is debt free, issued no new shares in the financial period and held cash balances of US$16.2m at 28th February 2010.”

programme offshore Namibia to date. We have been very pleased with our results from the seismic acquisition which we completed across all of our blocks of interest. This has identified gross unrisked prospective resource volumes of 8.5 billion barrels and provided us with a more detailed understanding of the structural composition and prospectivity of the region. Net unrisked prospective resources attributable to Chariot have increased 89 per cent from 3.9 billion barrels as reported at the time of listing on AIM in 2008 to the current estimate of 7.4 billion barrels.

We feel that we are very well positioned within the Namibian margin with licence areas situated in three distinct geological settings. Our work continues to develop our knowledge and understanding of our blocks of interest as we look to further define targets for drilling. Our focus on AfricaCreating value is at the core of the Company’s strategy and we are focused on developing our high impact exploration whilst looking to balance our risk profile. As part of this strategy, concurrent with our farm-out efforts, we are looking to secure nearer term development opportunities and bring our first oil date forward in order to generate production cash flow.

Our focus is on African plays and this is where most of our expertise lies. Africa is a rapidly emerging region on the world energy stage, possessing a multitude of business opportunities for investors. Having worked on the continent for many years, our management team has a broad range of experience in both finding and producing oil whilst working with governments and other partners. Africa holds a wealth of energy potential, a fact that is becoming ever more apparent as more companies focus on the region.

Financial reviewThe Group incurred a loss of US$3.1m (2009: US$28.5m loss) for the year ended 28th February 2010. The other administrative expenses were US$3.03m; this is comparable to the prior year balance of US$3.2m.

Capitalised exploration costs for the period totalled US$17.6m which are primarily related to the acquisition of 3D seismic data. The farm-out agreement with Petrobras in relation to block

2714A allows the Group to recharge 50 per cent of the exploration costs and a portion of the overhead costs related to this block.

The Petrobras farm-out agreement included a payment of US$16.04m to Chariot, and this reduced the capitalised exploration costs for the period. Petrobras have also agreed to pay Chariot a production bonus of up to 2 million barrels of oil equivalent or US$118m from its share of the first production from block 2714A, whichever occurs first. As this bonus is contingent on future production, it has not been included in the financial statements.

During the year, the Group terminated its services agreement with High Resolution Technology & Petroleum Ltd (“HRT”), this was subsequently referred to arbitration. A settlement was achieved in February 2010, whereby both parties agreed that there will be no payment of damages by either side and that each party pays their own respective costs incurred during the dispute. As part of the settlement HRT agreed to provide all outstanding data and reports to the Group. A US$2.9m provision for payment to HRT which was provided for in the 28th February 2009 financial statements, for unpaid exploration costs, was released upon settlement.

ConclusionThe Group has overcome many challenges since floating on AIM in 2008. It has also substantially exceeded its work commitments in Namibia and has attracted the attention of many major international oil companies. Furthermore, the Group is debt free, issued no new shares in the financial period and held cash balances of US$16.2m at 28th February 2010 (2009: US$28.9m).

I wish to thank my fellow Directors and the management and staff of the Chariot Group for their hard work and achievements of the past year. I look forward to an exciting year as we progress our strategic growth objectives.

Peter KidneyNon-Executive Chairman


06

Chief Executive Officer’s Report

“I believe Chariot presents a real value add opportunity. Our Namibian acreage is a solid platform from which to develop, and over the coming years I believe that Chariot can grow from being a junior exploration company into a mid-tier E & P player with both exploration and production success.”

Paul Welch Chief Executive Officer

I am very pleased to report on my first set of full year financial statements as CEO and I am delighted with the progress we have made since I joined Chariot. I am also honoured to be part of a company that I believe has the potential to deliver a great deal of value to shareholders and to put Namibia firmly on the oil producing map. I am pleased to recount our progress and look forward to continuing developments throughout the coming year.

Progress to date Since our interim results, published in November 2009, we have completed all planned seismic acquisition programmes across our blocks of interest, the final programme in the Northern block concluded in January 2010. Such acquisition programmes were extensive, in some licences significantly exceeding the requirements as agreed with the Namibian Ministry, providing a strong indication of our commitment to developing our assets. Due to our large acreage position and the substantial amount of newly

acquired seismic data, we negotiated licence extensions for our blocks in the second quarter of last year in order to have the time to pursue our exploration efforts to the best of our ability. All of our licences are in good standing.

With the completion of the 2D acquisition and interpretation programme, we were very pleased to announce resource volumes for our Central blocks. Three new leads have been identified with 3.3 billion barrels of prospective resources. This increased our previous estimate of gross unrisked prospective resources by 62 per cent to 8.5 billion barrels (net prospective resources of 7.4 billion barrels) and underscored our belief in the oil potential of the Namibian margin.

We announced in February the opening of a dataroom in London in order to seek out further farm-outs for our blocks of interest. Having partners alongside us will help to mitigate the risk and expedite our exploration activity. Since the dataroom opened, we have

8.5 billion (boe)Very large oil targets – gross mean prospective resources of 8.5 billion barrels of oil


07C

OM

PA

NY

OV

ER

VIE

W

“I was delighted to welcome new technical staff to the Group; all of whom have worked in the industry for many years and whose experience is proving invaluable. I look forward to the coming year with confidence as we continue to deliver on our strategy and objectives.”

welcomed a number of interested international oil companies and we expect further visitors over the coming quarter. The expressions of interest have significantly increased from the visits to our first dataroom with parties keen to view the newly acquired 3D seismic information. As we have previously stated, this is a key part of our strategy as we look to secure industry partners to share in the costs and rewards of exploration going forward. We continue to liaise closely with Petrobras on block 2714A in the south and look forward to working alongside other interested parties in due course.

Our new business opportunity evaluation efforts continue across the African continent as we seek out additional prospects. As previously stated, we are looking to balance our current portfolio with nearer term production potential in order to introduce production cash flows and reduce our risk profile. This process is ongoing using our in-house skills and expertise.

I was delighted to welcome new technical staff to the Group during the period: Matthew Taylor (Director of Exploration), Julia Kemper (Senior Staff Geophysicist), Martin Richards (Development Engineering Manager) and Alex Green (Commercial Manager), all of whom have worked in the industry for many years and their experience is proving invaluable.

Operating in NamibiaNamibia is a country that I am very familiar with from my earlier activities with Shell and Hunt Oil – both early entrants into the country. As well as the interesting geology that the offshore basins offer, Namibia is a superb place to do business. Namibia has recently celebrated the 20th anniversary of its independence and inaugurated President Hifikepunye Pohamba for a second five-year term. It has a stable democracy with a competitive fiscal regime and sound investment profile.

The government has pursued free-market principles designed to promote commercial development, has good relations with its neighbours, and actively encourages international foreign investment. We have an excellent working relationship with the Ministry of Mines and Energy and Namcor and it is a continuing pleasure to work there.

Chariot – the futureI believe Chariot presents a real value add opportunity. Our Namibian acreage is a solid platform from which to develop, and over the coming years I believe that Chariot can grow from being a junior exploration company into a mid-tier E & P player with both exploration and production success. Whilst securing new opportunities is a priority for us, our position offshore Namibia remains our key focus. The team that we have in place now is one that I am extremely pleased to be working with and I value their input immensely. We now possess the in-house skills to both further develop the Namibian potential and expand the business by acquiring additional assets. We believe that we have an enviable strategic position within one of the few remaining high impact exploration frontier regions off the West African coast. I relish the prospect of an exciting year ahead which will see significantly increased activity levels and I look forward to updating shareholders accordingly.

Paul WelchChief Executive Officer


08

N A M I B I A

Leads and Prospect

Prospective Trends

2D Seismic

3D Seismic

1811A ENIGMA

1811B ENIGMA

2312A&B ENIGMA

2412A&B (NORTHERN HALVES) ENIGMA

2714B ENIGMA

2714A ENIGMA(PETROBRAS 50%)

Review of Operations

Namibia – three basins, distinct geologyChariot is well positioned with our blocks situated in three geologically distinct settings:

The “Northern blocks” in the •Namibe Basin, located north of the Walvis Ridge. The “Central blocks” straddling •the Luderitz/Walvis Basins.The “Southern blocks” in the •Orange Basin.

The Namibe Basin forms part of the prolific West African “salt basin”, bounded to the south by the Walvis ridge. Prior to the Atlantic Ocean opening, the Namibe Basin lay adjacent to the Santos Basin of Brazil, in which recent super-giant oil discoveries have been made. The Luderitz and Walvis Basins are virtually unexplored with only four wells drilled to date, in an area similar in size to the prolific UK

North Sea Central Graben, where hundreds of exploration wells have been drilled. The Orange Basin contains the very large delta of the Orange River system and also hosts the giant Kudu gas field.

Exploration in Namibian margin to dateSporadic exploration activity in the Southern African Atlantic margin led to the discovery of the giant Kudu gas field (in Namibian waters), now under development, and the Ibhubesi oil and

Licence Licence Interest expiry date – first area Asset Licence Operator % Status phase exploratory phase km2 Comment

Offshore basinsBlock 1811A 14 Enigma 100 Exploration 27th October 2010 5,481Block 1811B 14 Enigma 100 Exploration 27th October 2010 5,481

Block 2312A 19 Enigma 100 Exploration 31st August 2011 MinimumBlock 2312B 19 Enigma 100 Exploration 31st August 2011

16,801 four year

N/2 of Block 2412A 19 Enigma 100 Exploration 31st August 2011 explorationN/2 of Block 2412B 19 Enigma 100 Exploration 31st August 2011 period

Block 2714A 20 Enigma 50 Exploration 31st August 2010 5,481Block 2714B 15 Enigma 100 Exploration 27th October 2010 5,481

Summary table of the blocks

strategically positioned across 3 distinct basins


09C

OM

PA

NY

OV

ER

VIE

W

northern BlocksVolume potential 2.5 billion barrels �Located in the Namibe Basin �WD 0–2,750 m over block �1,500 km � 2 3D seismic (2008/09)Processing to be complete in �Q2 2010One Prospect identified to date �– WD at location 700–1,000 m6 leads identified �

Central BlocksVolume potential 3.3 billion barrels �Located in Walvis Basin �WD 500–3,000 m �3,000 km of 2D seismic (2008) �Processing and interpretation �completed March 201013 leads identified �

southern BlocksVolume potential 2.7 billion barrels �Located in the Orange Basin �WD 100–1,500 m �3,000 km � 2 3D acquired in 2008/0916 leads identified �Petrobras farmed into Block 2714A �for a 50 per cent interestLeads located in shallow water �less than 500 m

gas fields (in South African waters). There has only been one phase of exploration, in the early 90s, which was targeted at the primary Namibian margin and culminated in the drilling of eight exploration wells, all located in the shallow waters on the shelf and slope portions of the basin due to technical and commercial limits that existed at that time. Our newly acquired seismic data combines evidence of large structural features with direct hydrocarbon indications which provide strong support for the move into the deeper water sections of these basins. These were areas that were technically out of reach to the early explorers in Namibia.

ProspectivityThe Namibian margin south of the Walvis Ridge is proven to host productive rift system source rocks as well as Lower Aptian marine oil prone

facies (equivalent in age to source rich sequences in the Aptian salt basin to the north) and Cenomanian-Turonian source rocks. Although gas is the dominant phase found to date this appears to be a function of high maturity in the local fetch area of the main discovery (Kudu) which lies below the very thick Orange delta sediment deposits. Source rock characteristics are oil prone and oil is the expected phase in most of the prospectivity identified in Chariot’s exploration areas. The absence of salt has inhibited trap development on the shelf and slope (hence the poor exploration record of past drilling) but deepwater seismic demonstrates a wide range of large structural and stratigraphic traps that appear to be associated with large rotated rift fault blocks. Chariot has positioned itself to exploit this, as yet, untapped potential.

Key features of Chariot’s licencesProspect portfolio includes several •large structural traps and combination structural/stratigraphic closures in three different geological settings.Prolific hydrocarbon generation is •proven in the Orange Basin with the giant Kudu gas field, demonstrably sourced from an oil prone, but locally over mature source rock.Extensive seabed gas hydrates, •gas chimneys and other Direct Hydrocarbon Indicators (“DHIs”), all positive indicators of both gas and oil generation. Past drilling, even where unsuccessful, •has revealed interbedded sandstone and shale intervals providing multiple sealed reservoir target levels for future exploration.Despite poor trap development on the •shelf, discoveries have been made and oil shows encountered proving a petroleum charge system.

strategically positioned across 3 distinct basins


10

Review of operations continued

“We remain confident about the significant potential of offshore Namibia and believe that we are well placed to develop and realise the value of our assets.”

Northern BlocksBlocks 1811A and B are situated to the north of the Walvis Ridge. Multiple leads are mapped including a very large fault block overlain by Aptian age carbonates.

Chariot undertook two acquisition programmes across the Northern blocks in 2009 completing an initial programme of 900 km² which was followed up with a further 600 km² focusing on an area of specific interest over the previously identified Zamba prospect. The area of 3D seismic data acquired totalled 1,500 km2 and processing and interpretation has commenced and will be completed in the near future. As well as the Zamba prospect, four stacked leads have been identified in the Tapir Complex. A seismic line through this prolific section is shown here.

This area has proven hydrocarbon potential as evidenced by the Kunene-1 well in adjacent block 1711 which shows potential for up to 14 Tcf gas, (as reported by the Namibian Ministry of Mines and Energy). Basin modelling demonstrates potential for oil in Chariot’s licence area.

Central BlocksThe blocks are located on an arch between the Walvis and Luderitz Basins and can be charged by hydrocarbons from a thick rift section in either, or both flanking basins. Large structural features have been mapped and hydrocarbon indicators seen in the Chariot concessions resulting in a lead portfolio being defined.

Chariot completed over 3,000 line km of 2D seismic data acquisition across its 2312A and B blocks in the period. Following the processing and interpretation this data the Company announced, in March 2010, that these licences contain 3.3 billion barrels of unrisked prospective resources. Prior to this announcement, no volume potential had been assigned to this area. Three leads were reported, Klipspringer, Hartebeest and Oryx all of which lie in relatively deepwater depths of 2,000–2,500 m. The leads are interpreted to lie within a mapped Cretaceous channel-fan system with seismic character indicative of deep marine sandstone facies. These high graded leads are identified as combination traps with a component of structural dip closure (apparent following depth conversion) with upside stratigraphic trapping potential. Preliminary source maturity modelling suggests that the leads are oil prone. (Only the volumes contained within the structural closure have been included in the prospective resource volume estimates.)

Southern BlocksBlocks 2714A and B are situated to the south of the Luderitz High, on the northern edge of the Orange Delta. The mapped leads are mainly early Cretaceous turbidites and transitional phase Kudu type pinch-outs.

On blocks 2714A and B, 3D seismic processing continues, the results of which will be available in the near future. Chariot, as Operator, completed 3,000km² of data acquisition across these blocks, the latter 1,500 km² in partnership with Petrobras. The Company has been buoyed by the interest of Petrobras in the period, resulting in the farm-in agreement being signed and announced in May 2009. Chariot looks forward to developing a closer relationship with them as the partners assess drilling prospects on block 2714A.

ConclusionWe feel that we are very well positioned within the Namibian margin with our licence areas situated in three distinct geological settings. Our work continues to develop our knowledge and understanding of our blocks of interest as we look to further define targets for drilling.

“Our work continues to develop our knowledge and understanding of our blocks of interest as we look to further define targets for drilling.”Matthew Taylor Director of Exploration


11C

OM

PA

NY

OV

ER

VIE

W

Northern Blocks

Central Blocks

Southern Blocks


12

Board of Directors and Senior Technical Team

Peter KidneyNon-Executive ChairmanPeter is a fellow of the Institute of Chartered Accountants in Ireland and he has over 26 years of experience in natural resources, including oil and gas. Peter was previously the Chief Executive Officer of the quoted mining company, ARCON International Resources Plc which was taken over by Lundin Mining in 2005. He was also a founding Director of Providence Resources Plc, an oil and gas exploration and production company quoted on AIM. From 2004 to 2006, Peter also acted as the Chairman of the Irish Mining Industries Association, IMEG.

Board of Directors:

James BurgessCommercial DirectorJames set up Everett Financial Management Limited in 1992 and sold it in 2003. Since then, he has been involved in numerous fund raisings and admissions to trading on AIM of a number of companies in the energy and resource sectors, operating largely in the African continent. Prior to Everett Financial Management Limited, James worked with Hoare Govett which is now part of RBS. He is a Non-Executive Director of a number of companies, including Chromex Mining plc which is also listed on AIM.

Adonis PouroulisNon-Executive DirectorAdonis, one of the founders of Chariot and Enigma, is a mining entrepreneur whose expertise lies in the discovery and exploration of natural resources. Adonis is also Chairman of Petra Diamonds Ltd., a pan-African diamond mining company which he founded and listed on London’s AIM market in 1997. Petra is now one of the largest independent diamond producers in Africa. He has been influential in the listing of a number of other companies onto AIM and has been instrumental in structuring and raising funds to help finance early stage exploration and mining projects across Africa.

Paul WelchChief Executive OfficerPaul has extensive oil and gas industry experience having worked for Shell International for 12 years, followed by a further nine years with independent companies, most recently with Hunt Oil and Pioneer Natural Resources. He held a wide variety of engineering, management and business development positions throughout Shell’s global operations across all of its core regions of exploration, development and production. At Hunt Oil, Paul evaluated exploration and production opportunities across its international asset portfolio and more recently he worked in Northern Africa with Pioneer, responsible for producing assets in Tunisia. Paul was instrumental in significantly increasing the production profile and overseeing new business development in Algeria, Libya, Morocco, Egypt and Iraq.

Heindrich ndumeCountry Director NamibiaHeindrich is a Namibian national with mining exploration experience throughout sub-Saharan Africa. Heindrich has played a unique role within the development of Namibia’s mining and energy strategies, including acting as National Energy Council Secretary and World Energy Council Representative for the Namibian Ministry of Mines and Energy. Heindrich was one of the founding shareholders of Enigma, which is now a 100 per cent subsidiary of Chariot.

Robert sinclairNon-Executive DirectorRobert is Managing Director of the Guernsey-based Artemis Company, a Director of a number of investment fund management companies and investment funds associated with Artemis Company. Robert is Chairman of Schroder Oriental Income Fund Limited, a Director of ING UK Real Estate Income Trust Limited, Chairman of its Audit Committee and a Director of Chromex Plc. He is a Fellow of the Institute of Chartered Accountants in England and Wales and is resident in Guernsey. Robert represents the interests of Westward, a major shareholder of Chariot.


13C

OM

PA

NY

OV

ER

VIE

W

Senior Technical Team:

Alex GreenCommercial ManagerAlex has over 20 years experience in business development, commercial and financial experience in the upstream oil and gas sector. Alex began his career as a Petroleum Economist for Clyde Petroleum where he was responsible for developing the company’s corporate business model and evaluating acquisition opportunities. He subsequently worked as a Risk Analyst for BG Plc and moved to Commercial Manager and then Group Economics Manager for Paladin Resources. At Paladin, Alex led successful joint venture negotiations and ran the financial and commercial analysis within the company’s business development team. He also played a key role in developing internal and external financial models.

Martin RichardsDevelopment Engineering ManagerMartin has worked in the oil and gas industry for over 30 years and has an in-depth experience of all aspects of subsurface management, reservoir engineering and petroleum economics. He has worked as both a Chief and Senior Reservoir Engineer for a variety of companies, including Petro-Canada, Suez Oil Company, Deminex and Mobil. He has particular expertise in operational and functional reservoir management, leading multi-disciplinary reservoir studies, asset management and reserves reporting. Martin has had numerous exploration and drilling successes to date.

Matthew taylorDirector of Exploration Matthew is a petroleum geologist who has worked in the industry for nearly 30 years. He began his career with BP Exploration in 1980 and subsequently held senior geologist posts with BHP Petroleum and Triton Energy. Further to this Matthew consulted and advised a range of clients including Chevron, Dana Petroleum and Marathon Oil on New Venture projects, both identifying targets and providing detailed prospect and basin evaluations and opportunity assessments. Subsequent to this, he played a major role in the acquisition of exploration acreage in Namibia, Oman, Senegal, Togo and Western Europe working for Hunt Oil.

Julia KemperSenior Staff GeophysicistJulia has more than 25 years of experience in the oil and gas industry having worked as a geophysicist for both BP and Shell and more recently as senior geophysicist with Hunt Oil and MND Exploration & Production. She has been involved in all aspects of geophysical work throughout her career and has been a formative part of, and had key roles in, New Venture divisions. Julia specialises in the development, interpretation and evaluation of 2D and 3D seismic programmes as well as the assessment of new opportunities. She has a long track record working in Namibia and her knowledge of the country contributed to securing the offshore acreage for Hunt Oil in 2005.

George CanjarNon-Executive DirectorGeorge has 30 years of experience in the oil industry and began his career at Shell having graduated with a Bachelor of Science in Geologic Engineering from the Colorado School of Mines. He subsequently worked for Royal Dutch/Shell Oil for 17 years, followed by Carrizo Oil & Gas as Vice President of Exploration and Development and more recently he was Executive Vice President and Chief Operating Officer for Davis Petroleum Corporation. His career has spanned a broad spectrum of the E & P sector involving all petroleum engineering and exploration disciplines as well as a variety of corporate activity. His expertise lies in deal structuring, portfolio development, risk analysis, and strategic modelling in addition to being the operational catalyst for bringing successful projects to first production.


14

Remuneration CommitteeThe Group’s Remuneration Committee comprises of Peter Kidney (Chairman), Robert Sinclair and Adonis Pouroulis.

The purpose of the Remuneration Committee is to:make recommendations to the Board on an overall remuneration policy for Executive Directors and other senior executives •in order to retain, attract and motivate high quality executives capable of achieving the Group’s objectives; anddemonstrate to shareholders that the remuneration of the Executive Directors of the Group is set by a committee whose •members have no personal interest in the outcome of their decision, and who will have due regard to the interests of the shareholders.

Procedures for developing policy and fixing remunerationThe Board fixes executive remuneration and ensures that no Director is involved in deciding his or her own remuneration. The Committee is authorised to obtain outside professional advice and expertise.

The Remuneration Committee is authorised by the Board to investigate any matter within its terms of reference. It is authorised to seek any information that it requires from any employee.

Details of the remuneration policyThe basic fees to be paid to the directors are recommended by the Remuneration Committee, and are subject to approval by the full Board.

Directors’ service agreementsAll service agreements for directors are terminable by either party on six months’ notice.

Directors’ remunerationThe following remuneration comprising directors’ fees, share option charge and benefits in kind, were payable to directors during the year: Performance Fees/ cash Share option Benefits Pension 2010 2009 basic salary bonus valuation(2) in kind(1) contribution Total Total US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 US$’000

P Welch 188 – 125 1 – 314 –K Broger(4) 238 – – 2 – 240 638J Burgess 219 49 – – 4 272 350A Pouroulis 71 – – – – 71 201P Kidney 275(3) – – – – 275 968R Sinclair 20 – – – – 20 146N Leighton(4) 14 – – – – 14 148H Ndume 150 – – 6 – 156 459Total 1,175 49 125 9 4 1,362 2,910

1 Benefits typically comprise private health care arrangements and permanent health insurance. Pension costs in 2009 in relation to Directors were US$4,000 (2009: US$ nil).2 The IFRS 2, share option valuation charge relating to the Directors is US$125,000 (non-cash) (2009: US$2,175,000, of which US$368,000 worth have

been reversed from the share-based payment reserve due to Kevin Broger’s options lapsing upon his resignation).3 Includes US$204,000 for additional services during the year including work on the HRT contract dispute.4 Directors who resigned during the year.

Directors’ interests in sharesThe Directors who held office at the end of the year had the following interests in the issued share capital of the Group. 2010 2009

P Welch – –J Burgess 2,250,000 2,250,000A Pouroulis(1) 22,835,971 22,835,971P Kidney 500,000 500,000R Sinclair – –H Ndume(2) 21,376,171 22,376,171Total 47,963,592 48,963,592

1 Shares are held by Westward Investments Limited a Company which is owned by a discretionary trust of which A Pouroulis is one of a number of beneficiaries.2 Shares are held by Protech Namibia (Pty) Limited of which H Ndume is the sole registered shareholder.

Directors’ Remuneration Report


15C

or

po

ra

te Go

ve

rn

an

Ce

Share optionsThe Group operates a share option scheme pursuant to which Directors and senior executives may be granted options to acquire ordinary shares in the Company at a fixed option exercise price. During the year, options were granted over a total of 4,000,000 ordinary shares.

Further details of the above share option scheme and long-term incentive plan can be found in note 20.

Directors’ share optionsThe Directors who held office at the end of the financial year had the following interests in the share option scheme: Options Options held at Options held at 1st March granted 28th February Exercise Exercisable 2009 in the year 2010 price (p) from Expiry date

P Welch – 3,000,000 3,000,000 26.00 13/11/2011 13/11/2019J Burgess 200,000 – 200,000 130.00 13/05/2010 13/05/2018A Pouroulis 100,000 – 100,000 130.00 13/05/2010 13/05/2018P Kidney 500,000 – 500,000 38.50 25/04/2010 25/04/2018R Sinclair 100,000 – 100,000 130.00 13/05/2010 13/05/2018H Ndume 250,000 – 250,000 130.00 13/05/2010 13/05/2018Total 1,150,000 3,000,000 4,150,000

No options were exercised during the year. Kevin Broger’s 300,000 options were cancelled upon his resignation on 15 June 2009. Norman Leighton resigned on 10th October 2009, and he may exercise 100,000 options at a price of £1.30 per share, at the discretion of the Board.

The interests of the Directors to subscribe for ordinary shares have not changed since the year end.

Significant shareholders

Westward Investments Limited 16.1%Protech Namibia (Pty) Limited 15.1%Citigroup 13.3%Generali 5.6%Baillie Gifford 5.1%Libra Advisors 4.5%

Approximate percentage of ordinary shares not in public hands: 34 per cent.

By order of the Board

Peter Kidney Chairman of the Remuneration Committee


16

The Group supports the growing awareness of social, environmental and ethical matters when considering business practices. This statement provides an outline of the policies in place that guide the Group and its employees when dealing with social, environmental and ethical matters in the workplace.

Code of conductThe Group maintains and requires the highest ethical standards in carrying out its business activities in regard to dealing with gifts, hospitality, corruption, fraud, the use of inside information and whistle-blowing.

Equal opportunity and diversityThe Group promotes and supports the rights and opportunities of all people to seek, obtain and hold employment without discrimination. It is our policy to make every effort to provide a working environment free from bullying, harassment, intimidation and discrimination on the basis of disability, nationality, race, sex, sexual orientation, religion or belief.

Employee welfareThe Group aims to assist employees at all levels to improve their professional abilities and to develop their skills.

The Group will practise manpower and succession planning in regard to the number and type of personnel resources that will be required in the future. Individual career progression activities are developed with this in mind.

Joint venture partners, contractors and suppliersThe Group is committed to being honest and fair in all of its dealings with partners, contractors and suppliers. The Group has a policy to provide clarity and protection, within its terms of business, to ensure the delivery and receipt of products and services at agreed standards. The Group also closely guards information entrusted to it by joint venture partners, contractors and suppliers, and seeks to ensure that it is never used improperly.

Operating responsibly and continuous improvementThe Group is committed to a proactive quality policy to ensure that stakeholders are satisfied with the Group’s results and the way in which the business operates and to promote continuous improvement in the overall operation of the Group. In pursuit of these objectives, the Group will use recognised standards and models as benchmarks for its management system.

Environmental policyThe Group adopts an environmental policy which sets standards which meet or exceed industry guidelines and host government regulations. This will be reviewed on a regular basis. As part of the environmental assessment, Chariot employed marine mammal observers to travel on board the seismic vessels. These observers were able to compile marine mammal and bird count statistics which will assist in the preparation of future environmental impact assessments. Social impacts will also form part of these assessments and preliminary work in this area will consider the impact of the Namibian coastline in the event that it becomes a petroleum province.

Social Responsibility Statement


17C

or

po

ra

te Go

ve

rn

an

Ce

Corporate Governance Statement

The Combined CodeChariot Oil & Gas Limited’s shares are traded on AIM and as such, Chariot is not subject to the requirements of the Combined Code on corporate governance, nor is it required to disclose its specific policies in relation to corporate governance. The Directors, however, support high standards of corporate governance and will progressively adopt best practices in line with the Combined Code on Corporate Governance, so far as is practisable.

The Board of Directors operates within the framework described below.

The workings of the Board and its Committees

The Board of DirectorsThe Board meets frequently to consider all aspects of the Group’s activities. A formal schedule of matters reserved for the Board has been issued and approved and includes overall strategy and approval of major capital expenditure.

The Board consists of the Chairman, Chief Executive Officer, Executive Directors and Non-Executive Directors. All Directors have access to the advice and services of the Company Secretary and the Group’s professional advisers. Peter Kidney and George Canjar are independent Directors.

Remuneration CommitteeThe Remuneration Committee comprises Robert Sinclair, Adonis Pouroulis and is chaired by Peter Kidney. Its terms of reference are discussed in the Remuneration Report.

Audit CommitteeThe Audit Committee comprises Peter Kidney (Chairman) and Adonis Pouroulis and Robert Sinclair. It meets at least twice each year and at any other time when it is appropriate to consider and discuss audit and accounting related issues. The Audit Committee is responsible for monitoring the quality of any internal controls and for ensuring that the financial performance of the Group is properly monitored, controlled and reported on. It also meets the Group’s auditors and reviews reports from the auditors relating to accounts and any internal control systems.

Nomination CommitteeThe Nomination Committee comprises Peter Kidney, Robert Sinclair and is chaired by Adonis Pouroulis. The Committee is responsible for reviewing the structure, size and composition of the Board, preparing a description of the role and capabilities required for a particular appointment and identifying and nominating candidates to fill Board positions, as and when they arise.

Relations with shareholdersCommunications with shareholders are given a high priority by the Board of Directors who take responsibility for ensuring that a satisfactory dialogue takes place. Directors plan to meet with the Company’s institutional shareholders following the announcement of interim and final results and at other appropriate times. The Directors are also in regular contact with stockbrokers’ analysts. The Company has developed a website containing investor information to improve communications with individual investors and other interested parties.

Internal controlThe Directors acknowledge their responsibility for the Group’s system of internal controls and for reviewing its effectiveness. The system of internal control is designed to safeguard the Group’s assets and interests and to help ensure accurate reporting and to help ensure compliance with applicable laws and regulation. Despite the inherent limitations in any system of internal control the Board considers that the Group’s existing systems operated effectively throughout the year.


18

The Directors present their report together with the audited financial statements for the year ended 28th February 2010.

Results and dividendsThe results for the year are set out on page 21.

The directors do not recommend payment of a final dividend (2009: nil).

Principal activityThe principal activity of the Group is that of oil and gas exploration.

Going concernThe Directors consider that the Group has adequate financial resources to enable it to continue in operation for the foreseeable future. For this reason they continue to adopt the going concern basis in preparing the financial statements.

Business review and principal risks and uncertaintiesA full review of the Group’s activities during the year, recent events, and expected future developments and principal risks and uncertainties is contained within the Chairman’s Statement on pages 4 to 5. These pages form part of this Directors’ Report.

Key performance indicatorsThe key performance indicators of the Group are as follows: 2010 2009 US$’000 US$’000

Cash at bank at 28th February 16,226 28,850Exploration expenditure 17,630 38,186

Financial instrumentsDetails of the use of financial instruments by the Group are contained in note 19 to the financial statements.

DirectorsThe Directors of the Company during the year were:

Paul Welch (CEO) Appointed 5th October 2009Peter Kidney (Chairman) Kevin Broger (Chief Executive Officer) Resigned 15th June 2009James Burgess (Executive Director) Heindrich Ndume (Executive Director) Norman Leighton (Non-executive Director) Resigned 9th October 2009Adonis Pouroulis (Non-executive Director) Robert Sinclair (Non-executive Director)

Details of Directors’ interests in shares and share options are disclosed in the Remuneration Report on pages 14 and 15.

Report of the Directors


19C

or

po

ra

te Go

ve

rn

an

Ce

Directors’ responsibilitiesThe Directors are responsible for preparing the Directors’ Report and the financial statements for the Group in accordance with applicable Guernsey law and regulations.

Guernsey legislation requires the Directors to prepare financial statements for each financial year which give a true and fair view of the state of affairs of the Group and of the profit or loss of the Group for that year.

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

consistently select and apply appropriate accounting policies;•present information, including accounting policies, in a manner that provides relevant, reliable, comparable and •understandable information;provide additional disclosures when compliance with the specific requirements in IFRSs is insufficient to enable users to •understand the impact of particular transactions, other events and conditions on the entity’s financial position and financial performance; andprepare the financial statements on a going concern basis unless, having assessed the ability of the Group to continue as a •going concern, management either intends to liquidate the entity or to cease trading, or have no realistic alternative to do so.

The Directors are responsible for keeping proper accounting records which disclose with reasonable accuracy at any time the financial position of the Group and to enable them to ensure that the financial statements comply with The Companies (Guernsey) Law 2008. They are also responsible for safeguarding the assets of the Group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Group’s website. Legislation in Guernsey governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

AuditorsAll of the current Directors have taken all the steps they ought to have taken to make themselves aware of any information needed by the Company’s auditors for the purposes of their audit and to establish that the auditors are aware of that information. The Directors are not aware of any relevant audit information of which the auditors are unaware.

BDO LLP were appointed as auditors of the Company by the Directors. BDO LLP have expressed their willingness to continue in office and a resolution to re-appoint them as auditors will be proposed at the next general meeting.

By order of the Board

Artemis Secretaries LtdSecretary28th May 2010


20

To the members of Chariot Oil & Gas LimitedWe have audited the financial statements of Chariot Oil & Gas Limited for the year ended 28th February 2010 which are set out on pages 21 to 24. These financial statements have been prepared under the historical cost convention and in accordance with the accounting policies set out on page 25.

This report is made solely to the Company’s members, as a body, in accordance with Section 262 of The Companies (Guernsey) Law, 2008. Our audit work is undertaken so that we might state to the Company’s members those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company’s members as a body, for our audit work, for this report, or for the opinions we have formed.

Respective responsibilities of the directors and auditorsAs described in the Statement of Directors’ Responsibilities within the Directors’ Report the Company’s directors are responsible for the preparation of the financial statements in accordance with applicable law and International Financial Reporting Standards (IFRS) as adopted by the European Union.

Our responsibility is to audit the financial statements in accordance with relevant legal and regulatory requirements and International Standards on Auditing (UK and Ireland).

We report to you our opinion as to whether the financial statements give a true and fair view and are properly prepared in accordance with The Companies (Guernsey) Law, 2008. We also report to you if, in our opinion, the Directors’ Report is not consistent with the financial statements, if the Company has not kept proper accounting records, if we have not received all the information and explanations we require for our audit, or if information specified by law is not disclosed.

We read the Directors’ Report and consider the implications for our report if we become aware of any apparent misstatements within it.

Independent Auditors’ Report

Basis of opinionWe conducted our audit in accordance with International Standards on Auditing (UK and Ireland) issued by the Auditing Practices Board. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the financial statements. It also includes an assessment of the significant estimates and judgements made by the directors in the preparation of the financial statements, and of whether the accounting policies are appropriate to the Company’s circumstances, consistently applied and adequately disclosed.

We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or other irregularity or error. In forming our opinion we also evaluated the overall adequacy of the presentation of information in the financial statements.

OpinionIn our opinion the financial statements:

give a true and fair view, in accordance with International •Financial Reporting Standards as adopted by the European Union, of the state of the company’s affairs as at 28th February 2010 and of its loss for the year then ended; andhave been properly prepared in accordance with •The Companies (Guernsey) Law, 2008.

BDO LLPChartered Accountants and Registered AuditorsLondon28th May 2010


21Fin

an

Cia

l Sta

tem

en

tS

Consolidated statement of comprehensive incomeFor the year ended 28th February 2010 Year ended Year ended 28th February 28th February 2010 2009 Note US$’000 US$’000

Provision for impairment of intangible assets – (3,098)Share-based payments (195) (2,641)IPO costs expensed – (1,842)Other administrative expenses (3,028) (3,217)Total administrative expenses (3,223) (10,798)

Loss from operations 4 (3,223) (10,798)Finance income 97 2,039Finance expense 7 – (19,811)Loss for the year before taxation (3,126) (28,570)

Taxation expense 9 – –Loss for the year attributable to the equity holders of the parent (3,126) (28,570)

Other comprehensive income: Exchange differences on translating foreign operations (56) (832)Total comprehensive income attributable to the equity holders of the parent (3,182) (29,402)

Loss per ordinary share – basic and diluted 10 US$(0.02) US$(0.22)

All amounts relate to continuing activities.

The notes on pages 25 to 36 form part of these financial statements.


22

Consolidated statement of changes in equityFor the year ended 28th February 2010 Total attributable to equity Share Share Other Exchange Retained holders or capital premium reserve reserve losses the parent US$’000 US$’000 US$’000 US$’000 US$’000 US$’000

As at 29th February 2008 1,988 45,506 1,454 (353) (2,861) 45,734Total comprehensive income for the year – – – (832) (28,570) (29,402)Convertible loan note conversion – 1,111 (1,111) – – –Issue of share capital 814 97,497 – – – 98,311Issue costs – (9,484) – – – (9,484)Share-based payments – (1,421) 4,062 – – 2,641As at 28th February 2009 2,802 133,209 4,405 (1,185) (31,431) 107,800Total comprehensive income for the year – – – (56) (3,126) (3,182)Share-based payments – – 919 – – 919Transfer of reserves due to lapsed options – – (368) – 368 –As at 28th February 2010 2,802 133,209 4,956 (1,241) (34,189) 105,537

The following describes the nature and purpose of each reserve within owners’ equity.

Share capital Amount subscribed for share capital at nominal value.Share premium Amount subscribed for share capital in excess of nominal value.Other reserve Amount of proceeds on issue of convertible debt relating to the equity component and share-based

payments reserve.Retained earnings Cumulative net gains and losses recognised in the financial statements.Exchange reserve Foreign exchange differences arising on translating into the reporting currency.



23Fin

an

Cia

l Sta

tem

en

tS

28th February 28th February 2010 2009 Note US$’000 US$’000

Non-current assetsExploration and appraisal costs 11 88,582 86,991Property, plant and equipment 12 486 209Total non-current assets 89,068 87,200

Current assetsTrade and other receivables 13 723 122Cash and cash equivalents 14 16,226 28,850Total current assets 16,949 28,972

Total assets 106,017 116,172

Current liabilitiesTrade and other payables 15 480 8,372

Total liabilities 480 8,372

Net assets 105,537 107,800

Capital and reserves attributable to equity holders of the parentShare capital 16 2,802 2,802Share premium account 133,209 133,209Other reserve 4,956 4,405Retained loss (34,189) (31,431)Foreign exchange reserve (1,241) (1,185)Total equity 105,537 107,800

The financial statements were approved by the Board of Directors and authorised for issue on 28th May 2010.

Peter KidneyChairman


Consolidated statement of financial positionAt 28th February 2010


24

Consolidated cash flow statementFor the year ended 28th February 2010 Year ended Year ended Year ended Year ended 28th February 28th February 28th February 28th February 2010 2010 2009 2009 US$’000 US$’000 US$’000 US$’000

Loss for the year before taxation (3,126) (28,570)Finance income (97) (2,039) Finance expense – 54 IPO costs expenses – 1,842 Impairment – 3,098 Depreciation 11 47 Foreign exchange differences (189) 19,757 Share-based payment expense 195 2,641 (80) 25,400Net cash flow from operating activities before changes in working capital (3,206) (3,170)(Increase) in trade and other receivables (601) (114)(Decrease) in trade and other payables (7,892) (504)Net cash (outflow) from operating activities (11,699) (3,788)

Investing activitiesFinance income 97 2,039 Payments in respect of property, plant and equipment (403) (100) Payments in respect of intangible assets (16,847) (31,375) Proceeds in respect of intangible assets 16,039 – Cash outflow used in investing activities (1,114) (29,436) Financing activitiesProceeds from issue of Convertible Loan notes – 1,992 Issue of ordinary share capital – 88,847 Issue costs relating to share capital – (9,484) Repayment of borrowings – (3,052) Net cash flow from financing activities – 78,303

Net (decrease)/increase in cash and cash equivalents in the year (12,813) 45,079Cash and cash equivalents at start of year 28,850 3,528Effect of foreign exchange rate changes on cash and cash equivalents 189 (19,757)Cash and cash equivalents at end of year (note 14) 16,226 28,850



25Fin

an

Cia

l Sta

tem

en

tS

1 General informationChariot Oil & Gas Limited is a Company incorporated and domiciled in Guernsey with registration number 47532. The address of the registered office is Sydney Vane House, Admiral Park, St Peter Port, Guernsey, GY1 3EL. The Company’s administrative & head office is in Guernsey. The nature of the Company’s operations and its principal activities are set out in the Directors’ Report and in the Review of Operations and the Financial Review.

The functional and presentational currency of the Group is US dollars (US$).

2 Accounting policiesBasis of preparationThe financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS and IFRIC interpretations), as issued by the International Accounting Standards Board (IASB), as adopted by the European Union.

In accordance with the provisions of section 244 of the Companies (Guernsey) Law 2008, the Group has chosen to only report the Group’s consolidated position hence separate Company only financial statements are not presented.

The financial statements are prepared under the historical cost accounting convention on a going concern basis.

Going concernThe Directors are of the opinion that the Group has adequate financial resources to enable it to undertake its planned programme of exploration and appraisal activities over the forthcoming 12 months.

New accounting standardsCertain new standards, amendments and interpretations to existing standards have been published that are mandatory for the Groups accounting periods beginning on or after 1st March 2010 or later periods and which the Group has decided not to adopt early. These are:

The IASB and IFRIC have issued the following standards and interpretations:

The following were amendments to published standards and interpretations to existing standards effective in the year adopted by the Group. Effective dateInternational Accounting Standards (IAS/IFRS) (periods beginning on or after)

IAS 1 Amendment – Presentation of financial statements: a revised presentation 1st Jan 2009•IAS 23 Amendment – Borrowing costs 1st Jan 2009•IFRS 2 Amendment – Share-based payment: vesting conditions and cancellations 1st Jan 2009•IFRS 7 Amendment – Improving Disclosures about Financial Instruments 1st Jan 2009• Improvements to IFRSs (2009) 1st Jan 2009•

Notes forming part of the financial statements for the year ended 28th February 2010

New standards effective in the year relevant to the Group:IFRS 8 Operating Segments 1st Jan 2009•

The adoption of IFRS 8 and the amendment to IAS 1 and IFRS 7 affected the presentation and disclosure of the financial statements. The amendment to IAS 23 and IFRS 2 did not have any financial effect in the year. Where appropriate the accounting policies of the Group have been updated to reflect the required amendments.

Standards, interpretations and amendments to published standards effective in the year but which are not relevant to the Group: Effective dateInternational Accounting Standards (IAS/IFRS) (periods beginning on or after)

IFRS1 and Amendments – Cost of an Investment in a subsidiary, jointly controlled entity or associate•IAS 27 1st Jan 2009•IFRS 2 Amendment – Vesting conditions and cancellations 1st Jan 2009•IFRIC 13 Customer loyalty programmes 1st Jul 2008•IAS 39/IFRS7 Reclassification of financial instruments – Effective date and transition 1st Jul 2008•IFRIC 16 Hedges of a Net Investment in a Foreign Operation 1st Oct 2008•IAS 32 and 1 Amendments – Puttable financial instruments and obligations arising on Liquidation 1st Jan 2009•IFRIC 15 Agreements for the Construction of Real Estate 1st Jan 2009•IFRS 1 First-time adoption of international accounting standards 1st Jan 2009•

Notes forming part of the financial statementsFor the year ended 28th February 2010


26

2 Accounting policies continuedStandards, interpretations and amendments, which are effective for reporting periods beginning after the date of these financial statements: Effective dateInternational Accounting Standards (IAS/IFRS) (periods beginning on or after)

IFRIC9 and Amendments – Embedded derivatives•IAS 39 30th Jun 2009•IAS 27 Amendment – Consolidated and separate financial statements 1st Jul 2009•IAS 39 Amendment – Recognition and measurement: Eligible hedged items 1st Jul 2009•IFRS 3 Revised – Business combinations 1st Jul 2009•IFRIC 17 Distributions of non-cash assets to owners 1st Jul 2009•IFRIC 18 Transfers of assets from customers 1st Jul 2009•IFRS 1* Additional exemptions for first-time adopters 1st Jan 2010•IFRS 2* Amendment – Group Cash-settled Share-Based payment transactions 1st Jan 2010•IAS32 Amendment – Classification of Rights Issues 1st Feb 2010•IFRIC19* Extinguishing Financial Liabilities with Equity Instruments 1st Apr 2010• Improvements to IFRSs (2009)* generally 1st Jan 2010•IAS24* Revised – Related party disclosures 1st Jan 2011•IFRIC 14* Amendment to IFRIC 14 – IAS 19 Limit on a defined benefit asset, •

Minimum funding requirements and their interaction 1st Jan 2011IFRS9* Financial instruments 1st Jan 2013•

Except for the adoption of IFRS 3 Revised, which would materially affect the presentation and financial impact of a business combination, the above standards, interpretations and amendments will not significantly affect the Group’s results or financial position. The adoption of IFRS 9 will eventually replace IAS 39 in its entirety and consequently may have a material affect on the presentation, classification, measurement and disclosures of the Group’s financial instruments.

Items marked* had not yet been endorsed by the European Union at the date that these financial statements were approved and authorised for issue by the Board.

The Directors anticipate that the adoption of these standards and interpretations in future periods will have no material impact on the financial statements of the Group. There will be additional presentational and disclosure impacts affecting the presentation of the financial statements.

Intangible fixed assetsThe Group applies the full-cost method of accounting under which all expenditure relating to the acquisition, exploration, appraisal and development of oil and gas interests, including an appropriate share of directly attributable overheads, is capitalised within cost pools. Capitalised costs are amortised on a unit of production basis. The Board regularly reviews the carrying values of intangible assets and writes down capitalised expenditure to levels it considers to be prudent. Costs pools are determined on the basis of geographical principles. The Group currently has one cost pool, relating to offshore exploration interests in Namibia.

TaxationIncome tax expense represents the sum of the current tax and deferred tax charge for the period.

Deferred tax is recognised on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases, and is accounted for using the balance sheet liability method. Deferred tax liabilities are recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised.

The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.

Deferred tax is calculated at the tax rates that have been enacted or substantially enacted and are expected to apply in the year when the liability is settled or the asset realised. Deferred tax is charged or credited to the income statement, except when it relates to items charged or credited directly to equity, in which case the deferred tax is also dealt with in equity.

Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when they relate to income taxes levied by the same taxation authority and the Group intends to settle its current tax assets and liabilities on a net basis.

Notes forming part of the financial statements continuedFor the year ended 28th February 2010


27Fin

an

Cia

l Sta

tem

en

tS

2 Accounting policies continuedForeign currenciesTransactions entered into by Group entities in a currency other than the currency of the primary economic environment in which they operate (“their functional currency”) are recorded at the rates ruling when the transactions occur. Foreign currency monetary assets and liabilities are translated at the rates ruling at the reporting date. Exchange differences arising on the retranslation of unsettled monetary assets and liabilities are recognised immediately in profit or loss, except for foreign currency borrowings qualifying as a hedge of a net investment in a foreign operation, in which case exchange differences are recognised in other comprehensive income and accumulated in the foreign exchange reserve.

When a gain or loss on a non-monetary item is recognised in other comprehensive income, any exchange component of that gain or loss shall be recognised in other comprehensive income. Conversely, when a gain or loss on a non-monetary item is recognised in profit or loss, any exchange component of that gain or loss shall be recognised in profit or loss.

On consolidation, the results of overseas operations are translated into US dollar at rates approximating to those ruling when the transactions took place. All assets and liabilities of overseas operations, including goodwill arising on the acquisition of those operations, are translated at the rate ruling at the reporting date. Exchange differences arising on translating the opening net assets at opening rate and the results of overseas operations at actual rate are recognised in other comprehensive income and accumulated in the foreign exchange reserve.

Property, plant and equipment and depreciationProperty, plant and equipment are stated at cost or fair value on acquisition less depreciation. Depreciation is provided on a straight line basis at rates calculated to write off the cost less the estimated residual value of each asset over its expected useful economic life. The residual value is the estimated amount that would currently be obtained from disposal of the asset if the asset were already of the age and in the condition expected at the end of its useful life.

Property, plant and equipment are depreciated using the straight line method over their estimated useful lives over a range of 2.5–5 years.

The carrying value of tangible fixed assets is assessed annually and any impairment charge is charged to the income statement.

LeasesRent paid on operating leases is charged to the income statement on a straight line basis over the term of the lease.

Share-based paymentsWhere equity settled share options are awarded to employees, the fair value of the options at the date of grant is charged to the consolidated income statement over the vesting period. Non-market vesting conditions are taken into account by adjusting the number of equity instruments expected to vest at each balance sheet date so that, ultimately, the cumulative amount recognised over the vesting period is based on the number of options that eventually vest. Market vesting conditions are factored into the fair value of the options granted. As long as all other vesting conditions are satisfied, a charge is made irrespective of whether the market vesting conditions are satisfied. The cumulative expense is not adjusted for failure to achieve a market vesting condition.

Where the terms and conditions of options are modified before they vest, the increase in the fair value of the options, measured immediately before and after the modification, is also charged to the consolidated income statement over the remaining vesting period.

Where equity instruments are granted to persons other than employees, the consolidated income statement is charged with the fair value of goods and services received. Where the equity instruments are granted for goods and services are capital in nature, the fair value is changed to the intangible asset value.

Basis of consolidationWhere the Company has the power, either directly or indirectly, to govern the financial and operating policies of another entity or business so as to obtain benefits from its activities, it is classified as a subsidiary. The consolidated financial statements present the results of the Company and its subsidiaries (“the Group”) as if they formed a single entity. Intercompany transactions and balances between the Group companies are therefore eliminated in full.

Financial instrumentsThe Group’s financial assets consist of current account or short-term deposits at variable interest rates, loans and other receivables. Any interest earned is accrued and classified as interest. Trade and other receivables are stated initially at fair value and subsequently at amortised cost.

The Group’s financial liabilities consist of trade and other payables. All are non-derivative assets. The trade and other payables are stated initially at fair value and subsequently at amortised cost.


28

2 Accounting policies continuedJoint arrangementsJoint arrangements are those in which the Group has certain contractual agreements with other participants to engage in joint activities that do not create an entity carrying on a trade or business on its own. The Group includes its share of assets, liabilities, and cash flows in joint arrangements, measured in accordance with the terms of each arrangement, which is usually pro rata to the Group’s interest in the joint arrangement. The Group’s exploration, development and production activities are generally conducted jointly with other companies in this way. Critical accounting estimates and judgements The Group makes estimates and assumptions regarding the future. Estimates and judgements are continually evaluated based on historical experiences and other factors, including expectations of future events that are believed to be reasonable under the circumstances. In the future, actual experience may deviate from these estimates and assumptions. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are as follows: Recoverability of intangible assetsUnder the full cost based method of accounting, the Group capitalises exploration costs until it is capable of determining whether its exploration efforts were successful and, if they were successful, whether any impairment charges may be required to bring the net book values of assets in line with their economic values.

Impairment reviewThe carrying amounts of the Group’s assets are reviewed at each balance sheet date and, if there is any indication that an asset may be impaired, its recoverable amount is estimated. The recoverable amount is the higher of its net selling price and its value in use.

Estimates on impairment are limited to an assessment by the Directors of any events or changes in circumstance that would indicate that the carrying value of the asset may not be recoverable.

Any impairment loss arising from the review is charged to administrative expenses whenever the carrying amount of the asset exceeds its recoverable amount.

Share-based paymentsDirectors best estimate of the valuations underlying the share-based payments are based on assumptions made by Directors using updated models previously prepared by external consultants. See note 20 for further details of these assumptions.

3 Segmental analysisIn the opinion of the Directors, the operations of the Group companies comprise one single class of business including oil and gas exploration. The Group operates in one geographic area, Namibia. The financial information presented reflects all the activities of this single business.

2010 Exploration of oil and gas Corporate Total US$000 US$000 US$000

Administrative expenses (1,629) (1,594) (3,223)Loss after taxation (1,629) (1,497) (3,126)Non-current assets 88,913 155 89,068Total assets 89,158 16,859 106,017Total liabilities (52) (428) (480)

2009 Exploration of Oil and Gas Corporate Total US$000 US$000 US$000

Administrative expenses (3,747) (7,051) (10,798)Loss after taxation (11,197) (17,393) (28,570)Total assets 87,200 28,972 116,172Total liabilities (3,050) (5,322) (8,372)



29Fin

an

Cia

l Sta

tem

en

tS

4 Loss from operations 28th February 28th February 2010 2009 US$’000 US$’000

Loss from operations is stated after charging/crediting:Depreciation 11 47Share-based payments – share option scheme (all equity settled) 145 2,641Share-based payments – long-term incentive scheme (all equity settled) 50 –Pre licence acquisition expenditure – 383AIM admission costs expensed – 1,842Professional and consultancy fees 853 825

Auditors’ remuneration:Fees payable to the Company’s auditors for the audit of the Company’s annual accounts 50 45Audit of the Company’s subsidiaries pursuant to legislation 27 Fee payable to the auditor for corporate finance services – 212Total payable 77 257

Fees payable for corporate finance services in 2009 include an amount of US$150,000 set against the share premium account.

5 Leases commitments 28th February 28th February 2010 2009 US$’000 US$’000

Not later than one year 214 –Later than one year and not later than five years 378 –Later than five years – –

6 Employees 28th February 28th February 2010 2009 US$’000 US$’000

Directors fees and emoluments 617 309Wages and salaries – staff costs 719 275Amounts paid to third parties in respect of Directors’ services 401 426Share-based payments expense (note 20) 195 2,641Social security costs 20 20 1,952 3,671

Included in the Directors fees is an amount of US$292,600 (2009: US$118,000) in respect of capitalised exploration costs, included in wages and salaries is an amount of US$121,000 (2009: US$216,000) in respect of capitalised exploration costs. Included in the amounts paid to third parties in respect of Director’s services is an amount of US$204,000 (2009: US nil) in respect of capitalised exploration costs.

7 Finance income and expense 28th February 28th February 2010 2009 US$’000 US$’000

Bank interest receivable 97 2,039Other finance expense – (54)Foreign exchange gain/(loss) 189 (19,757)Net finance gain/(expense) 286 (17,772)


30

8 InvestmentThe Company’s directly (*) and indirectly (**) held subsidiary undertakings at 28th February 2010 are: Percentage of Country of ordinary shareSubsidiary undertaking Principal activity incorporation capital held

Enigma Oil and Gas Exploration (Pty) Limited** Oil and Gas exploration Namibia 100%Chariot Oil and Gas Investments (Namibia) Limited* Holding Company Guernsey 100%Chariot Oil and Gas Statistics Limited*(1) Services Company UK 100%Enigma Petroleo Y Gas N.V.** Holding Company Dutch Antilles 100%

1 Chariot Oil and Gas Statistics Limited was acquired on 3rd December 2009.

9 TaxationThe Company is tax resident in Guernsey, where corporate profits are taxed at zero per cent.

No taxation charge arises in Namibia as the Namibia subsidiary has recorded a taxable loss for the period.

Factors affecting the tax charge for the current periodThe reasons for the difference between the actual tax charge for the year and the standard rate of corporation tax in Guernsey applied to profits for the year are as follows: Year ended Year ended 28th February 28th February 2010 2009 US$’000 US$’000

Tax reconciliationLoss on ordinary activities for the year before tax (3,126) (28,570)Loss on ordinary activities at the standard rate of corporation tax in Guernsey of 0% (2009: 0%) – –Difference in tax rates in local jurisdictions at the applicable tax rate of 35% (2009: 35%) (1,366) (241)Disallowable expenses – 1Deferred tax effect not recognised 1,366 240Total taxation charge – –

Deferred tax not recognised in respect of losses carried forward in Namibia total US$1,120,909 (2009: US$498,576). The Company had tax losses carried forward on which no deferred tax asset is recognised. Deferred tax assets were not recognised as there is uncertainty regarding the timing of future profits against which these assets could be utilised.

Namibian taxation and royaltiesNormal taxationThe petroleum income tax is payable annually at a rate of 35 per cent of the taxable income received by or accrued to any person from a license area in connection with exploration, development or production operations in that area. Each licence area is assessed separately and losses in one cannot be set off against profits in another.

Additional profits taxIn addition to the above tax, annually there will be paid an additional profits tax (“APT”). APT shall be payable at the end of each tax year on each petroleum licence area and determined on the basis of the rate of return on the project. It is levied on the project’s net cash receipt, the after tax net cash flow achieved above certain defined tiers of threshold rate of return on the project. The first tier rate of APT is 25 per cent.

10 Loss per shareThe calculation of basic loss per ordinary share is based on a loss of US$3,126,000 (2009: loss of US$28,570,000) and on 141,173,471 ordinary shares (2009: 132,261,953), being the weighted average number of ordinary shares in issue during the year. Potentially dilutive options are detailed in note 20, however these are anti-dilutive as the Group reported a loss for the year consequently a separate diluted loss per share has not been presented.



31Fin

an

Cia

l Sta

tem

en

tS

11 Exploration and appraisal costs by cost pool Namibia Namibia US$000’s Onshore Offshore Total US$’000 US$’000 US$’000

Cost and net book valueAt 1st March 2008 1,970 49,933 51,903Additions 1,128 37,058 38,186Impairment charge for the period (3,098) – (3,098)At 1st March 2009 – 86,991 86,991Additions – 17,630 17,630Farm in proceeds – (16,039) (16,039)At 28th February 2010 – 88,582 88,582

During 2009, after review of the results of the aeromagnetic survey the Directors considered the carrying value of the on-shore assets to be nil, therefore an impairment charge of US$3,098,000 was charged to the income statement in 2009 representing all the costs incurred on the onshore licences to date. This view was taken given the expected recoverable prospects of this licence which was subsequently relinquished.

The Group signed a farm-out agreement with Petrobras for a 50 per cent stake in one of the four licences offshore in Namibia; Block 2714A. This agreement included a payment of US$16.04m which has been paid in full.

12 Property, plant and equipment Fixtures, Fixtures, fittings and fittings and equipment equipment year ended year ended 28th February 28th February 2010 2009 US$’000 US$’000

CostAt 1st March 256 156Additions 403 100At 28th February 659 256DepreciationAt 1st March 47 –Charge for the year 126(1) 47At 28th February 173 47Net book value 486 209

1 US$115,000 of the depreciation charge relates to oil exploration activities and has been capitalised to exploration and appraisal costs during the year

13 Trade and other receivables 28th February 28th February 2010 2009 US$’000 US$’000

Other receivables and prepayment 723 122

28th February 28th February 2010 2009 US$’000 US$’000

Amounts due:Under three months 350 53Between three and six months – 57Over six months 373 12 723 122


32

14 Cash and cash equivalents 28th February 28th February 2010 2009 US$’000 US$’000

Analysis by currencySterling balance 279 2,665Namibian dollar balance 42 7Restricted cash balance (sterling) – 4,630US dollar balance 15,905 21,548 16,226 28,850

The restricted cash balance in 2009 relates to funds placed by the Group in a jointly managed deposit account to provide Wavefield Inseis (the service provider for the 3D seismic data acquisition) settlement of their monthly invoices. Funds were released upon approval of periodic invoices with the bank mandated to accept payment instructions only on signature receipt from both a group director and the service provider. The full amount shown as restricted cash above was released to settle final payments relating to the completion of the seismic acquisition within 30 days of the prior year’s balance sheet date.

15 Trade and other payables 28th February 28th February 2010 2009 US$’000 US$’000

Trade payables 139 6,696Accruals 279 1,676Amounts due to related parties 62 – 480 8,372

28th February 28th February 2010 2009 US$’000 US$’000

Amounts payableUnder three months 480 5,429Between three and six months – 2,943After six months – – 480 8,372

Trade payables and accruals principally comprise amounts outstanding for trade purchases and ongoing costs.

16 Share capital Authorised 28th February 28th February 28th February 28th February 2010 2010 2009 2009 Number US$’000 Number US$’000

Ordinary shares of US$0.02 (1p) each 400,000,000 2,984 400,000,000 2,984

Allotted, called up and fully paid 28th February 28th February 28th February 28th February 2010 2010 2009 2009 Number US$’000 Number US$’000

Ordinary shares of US$0.02 (1p) each 141,173,471 2,802 141,173,471 2,802

The shares have a nominal value of 1p. The share capital has therefore been translated at the historic rate of US$:GBP of 1.995.



33Fin

an

Cia

l Sta

tem

en

tS

16 Share capital continuedDetails of the ordinary shares issued to date up to 28th February 2010 are given in the table below: Date Description Price US$ Number of shares

1st March 2008 Opening balance 100,000,00019th May 2008 Placing of shares to provide working capital 2.58 34,615,00019th May 2008 Conversion of loan notes 1.29 846,15419th May 2008 Conversion of loan notes 1.29 5,712,317At 28th February 2009 and 2010 141,173,471

17 Capital commitmentsAt the balance sheet date the Group had entered into capital commitments of US$1.05m (2009: US$7.1m).

18 Related party transactionsThe Group has entered into various transactions in which ICM, Westward and Protech are interested parties. ICM, Protech and Westward own 0 per cent, 15.1 per cent and 16.2 per cent (2009: 18 per cent, 16.2 per cent and 15.9 per cent respectively) of the issue ordinary shares. Norman Leighton, whom held office during the year, is a Director of ICM. Adonis Pouroulis, one of the Directors, is one of a number of potential beneficiaries of the trust that owns Westward. Robert Sinclair, one of the Directors, is a Director of Westward. Protech is wholly owned by Heindrich Ndume, one of the Directors.

Details of Directors and key management personnel related party transactions are detailed below. The key management personnel are considered to be the Directors, see note 6 for details of their remuneration.

No funding was provided by Westward to pay exploration costs on behalf of Enigma during the year (2009: US$1.7m). •No funding was provided by ICM during the year (2009: US$1.4m). •Westward Investments Limited, a Company of which Mr Robert Sinclair is a Director and is owned by a discretionary trust of •which Mr Adonis Pouroulis is one of a number of beneficiaries, provides services and facilities for the Group and received fees totalling approximately US$69,200 for the period. (2009: US$10,581). There were no fees outstanding at the year end (2009: US$ nil).J&K Property Investments Limited a company owned as to 50 per cent by James Burgess and of which he is a Director, •provided services and facilities for the Group in the prior year and received fees totalling US$14,437 in 2009. There were no fees outstanding at the end of 2009.Pursuant to an agreement dated 1 October, 2007, Artemis Trustees Limited, a company of which Mr Robert Sinclair is a •Director and ultimately a shareholder, was appointed by the Company to provide administration secretarial services. Fees are chargeable on a time spent basis, calculated by reference to the time, work type and skills involved in providing the services. The fees paid for the period totalled US$177,145 (2009: US$303,009). The amount outstanding at the year end was US$15,224 (2009: US$26,111).Chromex Mining PLC, a company of which Mr James Burgess and Robert Sinclair are Directors, provides services and facilities •for the Group and received fees totalling approximately US$29,597 for the period (2009: US$21,521). The amount outstanding at the year end was US$10,496 (2009: US$ nil).Aladar Resources Limited a company of which Mr Kevin Broger is a Director and majority owner, provided services and •facilities for the Group and received fees totalling approximately US$67,463 for the period (2009: US$31,723). There were no fees outstanding at the year end (2009: US$ nil).Fintragh Trading and Consulting Limited, a company of which Peter Kidney is a Director provided professional services for the •Group and received fees totalling approximately US$178,919 (2009: US$ nil). There was US$24,947 outstanding at the year end (2009: US$ nil).By deed of assignment dated 7 May 2008, the Company consented to the assignment by BMO to Sirius Investment •Management LLP Incorporated of warrants exercisable over a number of ordinary shares calculated by dividing US$63,924 (£44,556) by 50 per cent of the Placing Price. No further warrants were issued to Sirius Investment Management LLP during this year.


34

19 Financial instrumentsThe Board of Directors determine, as required, the degree to which it is appropriate to use financial instruments or other hedging contracts or techniques to mitigate risk. Throughout the year ending 28th February 2010 no trading in financial instruments was undertaken (2009: nil).

There is no material difference between the book value and fair value of the Group cash balances, short-term receivables and payables.

Market riskMarket risk arises from the Group’s use of interest bearing and foreign currency financial instruments. It is the risk that future cash flows of a financial instrument will fluctuate because of changes in interest rates (interest rate risk), and foreign exchange rates (currency risk). Throughout the period the Group has held surplus funds on deposit, principally with its main bankers Barclays, on fixed short-term deposits covering periods of one week to three months monitoring rates of return whilst assuring the ability to meeting working capital requirements.

The Directors have not disclosed interest rate sensitivity analysis on the Group’s financial assets and liabilities at the year end as the risk is not deemed to be material.

The Group’s treasury policy is that all significant cash balances are held in the parent company. Therefore the market risk is not deemed significant in any of the subsidiary undertakings.

Currency riskThe Group has very limited currency exposure in respect of items denominated in foreign currencies comprising:

Transactional exposure in respect of operating costs and capital expenditure incurred in currencies other than the functional •currency of operations.

This risk is managed with funds being held principally in US dollars to recognise the trading currency of the industry with a limited balance maintained in sterling and Namibian dollars to meet ongoing corporate and overhead commitments.

At the year end, the Group had cash balances of US$16.2m as detailed in note 14.

Other than the non US$ cash balances descried in note 14 no other financial instrument is denominated in a currency other than US dollars. A 10 per cent adverse movement in exchange rates would lead to an increase in the foreign exchange loss of US$32,100 and a 10 per cent favourable movement in exchange rates would lead to a corresponding reduction, the effect on net assets would be the same as the effect on profits (2009: US$250,500).

Restricted cash balances are detailed in note 14.

CapitalThe Company considers its capital to comprise its ordinary share capital, share premium and retained earnings as well as the share-based payments reserve (“Other reserve”).

In managing its capital, the Group’s primary objective is to maintain a sufficient funding base to enable the Group to meet its working capital and strategic investment needs. The Group has met its work programme commitments and with the receipt of the farm in proceeds, the Group currently holds sufficient capital to meet its ongoing needs for the next 12 months.

Liquidity riskThe Group’s practice is to regularly review cash needs and to place excess funds on fixed term deposits for periods not exceeding three months with an institution that are top band rated by Standard & Poors.

The Group has sufficient funds to continue operations for the forthcoming year and has no perceived liquidity risk.

20 Share-based paymentsShare Option SchemeDuring the year, the Company operated the Chariot Oil & Gas Share Option Plan (“Share Option Scheme”). The Company recognised total expenses (all of which related to equity settled share-based payment transactions) under the plan of: 28th February 28th February 2010 2009 US$’000 US$’000

Share Option Scheme 145 2,641



35Fin

an

Cia

l Sta

tem

en

tS

20 Share-based payments continuedThe Option Plan provides for an exercise price equal to the closing market price of the Company shares on the date of the grant. The options expire if they remain unexercised after the exercise period has lapsed. For options valued using the Black-Scholes model there are no market performance conditions or other vesting conditions attributed to the options.

The following table sets out details of all outstanding options granted under the Share Option Scheme. Options Options Number Number 28th February 28th February 2010 2009 US$’000 US$’000

Outstanding at beginning of year 1,840,000 –Granted during the year 4,000,000 1,840,000Forfeited during the year(1) (300,000) –Outstanding at the end of the year 5,540,000 1,840,000

1 These options relate to those that were forfeited by a Director who resigned during the year.

The range of the exercise price of share options exercisable at the year end falls between US$0.38 (25p) – US$1.98 (130p), (2009: US$0.55 (38.5p) – US$1.87 (130p)).

The weighted average share price at the date of exercise US$0.39 (26p), using exchange rate of £ = US$ 1.5224. (2009: US$1.37 (95p), using exchange rate of £ = US$ 1.4347).

The estimated fair values of options which fall under IFRS 2, and the inputs used in the Black-Scholes model to calculate those fair values are as follows: Estimated Expected ExpectedDate of grant fair value Share price Exercise price volatility Expected life Risk free rate dividends

28th April 2008 £0.98 £1.21 £0.385 32% 10 years 4.94% 0%27th March 2008 £0.62 £1.21 £1.30 32% 10 years 4.94% 0%13th November 2009 £0.17 £0.26 £0.26 80% 5 years 4.3% 0%15th January 2010 £0.19 £0.28 £0.25 80% 5 years 4.3% 0%

Expected volatility was determined by calculating the annualised standard deviation of the daily changes in the share price.

Long-term incentive schemeThe Plan provides for the awarding of shares to employees. The award will lapse if an employee leaves employment.

During the year 1,531,427 awards were granted to employees, none of whom are Directors of any Group company. The shares will vest in equal instalments over a three year period. Share price (p)Date of grant at grant date

1st December 2009 25.415th January 2010 27.388th February 2010 33.7010th February 2010 36.81Total

The Company recognised total expenses (all of which related to equity settled share-based payment transactions) under the plan of: 28th February 28th February 2010 2009 US$’000 US$’000

Long-term incentive scheme 50 –


36

20 Share-based payments continuedWarrantsThe following table sets out details of all outstanding warrants. 28th February 28th February 28th February 28th February 2010 2010 2009 2009 Number of Fair value Number of Fair value warrants US$’000 warrants US$’000

Outstanding at beginning of year 2,996,019 1,765 130,224 344Granted during the year 2,614,036 723 2,865,795 1,421Outstanding at the end of the year 5,610,055 2,488 2,996,019 1,765

The range of the exercise price of warrants outstanding at the year end falls between US$0.46 (30p) – US$1.87 (130p), (2009: US$0.93 (65p) – US$1.87(130p)).

The weighted average share price at the date of exercise is US$0.46 (30p) using exchange rate of £ = US$ 1.5224 (2009: US$1.77 (124p), using exchange rate of £ = US$ 1.4347).

The warrants issued during the year were a part of the fee for the Facilitator of the farm-out agreement with Petrobras and the cost is capitalised within exploration and appraisal cost. In 2009, the warrants were issued to the Company’s brokers and the cost set against the share premium account.

Since the year end, 2,653,281 warrants lapsed and 342,738 warrants were exercised therefore at the date of this report 2,614,036 warrants are outstanding.

The estimated fair values of warrants which fall under IFRS 2, and the inputs used in the Black-Scholes model to calculate those fair values are as follows: Estimated Expected ExpectedDate of grant fair value Share price Exercise price volatility Expected life Risk free rate dividends

13th February 2008 £1.33 £2.50 £0.65 32% 2.3 years 4.94% 0%27th March 2008 £0.62 £1.21 £0.65 32% 2.1 years 4.94% 0%25th April 2008 £0.21 £1.205 £1.30 32% 2.1 years 4.94% 0%19th May 2009 £0.18 £0.34 £0.30 95% 2 years 1.03% 0%

Expected volatility was determined by calculating the annualised standard deviation of the daily changes in the share price.

For warrants valued using the Black-Scholes model there are no market performance conditions or other vesting conditions attributed to the warrants.

21 Contingent liabilitiesThere are no outstanding contingent liabilities as at 28th February 2010.

22 Post balance sheet eventsOn 20th May 2010, pursuant to an assignment of warrants to dated 7th May 2008 Sirius Investment Management LP Incorporated (“Sirius”) exercised its entitlement to purchase 68,547 new ordinary shares of 1 pence each in the capital of the Company at a price of 65 pence per share.

On 27th May 2010, pursuant to two Deed of Warrant Grants between the Company and BMO Capital Markets (“BMO”) dated 13th February and 27th March 2008 respectively the Company received valid notice on 19th May 2010 from BMO Nesbitt Burns Inc that it intended to exercise its entitlement to purchase 274,191 new ordinary shares of 1 pence each in the capital of the Company at a price of 65 pence per share. Accordingly, the Company has issued and allotted 274,191 new ordinary shares to BMO Nesbitt Burns Inc (following a transfer from BMO further to a Power of Attorney dated 12th May 2009).


Company Overview01 Highlights02 At a Glance04 Chairman’s Statement06 Chief Executive Officer’s Report08 Review of Operations12 Board of Directors and

Senior Technical Team

Corporate Governance14 Directors’ Remuneration Report16 Social Responsibility Statement17 Corporate Governance Statement18 Report of the Directors20 Independent Auditors’ Report

Financial Statements21 Consolidated Statement of

Comprehensive Income22 Consolidated Statement of

Changes in Equity23 Consolidated Statement of

Financial Position24 Consolidated Cash Flow Statement25 Notes forming part of the

financial statementsibc Advisers

Chariot Oil & Gas Limited is an independent oil and gas exploration company with interests in Namibia. Enigma Oil and Gas Exploration (Pty) Limited is a wholly owned subsidiary of Chariot and is the operator of the licence areas.

Four licences covering eight offshore blocks in Namibia �Large block allocation – one of largest holdings in Namibia – �38,725 km²8.5 billion barrels of gross unrisked mean prospective resources �3 geologically distinctive basins – well positioned across �Namibian South Atlantic marginFrontier exploration with a proven working petroleum system �Increasing interest in Africa, specifically in West African deep �water plays

Advisers


Registration Number: 47532

nominated AdviserAmbrian Partners LimitedOld Change House128 Queen Victoria StreetLondonEC4V 4BJUnited Kingdom

BrokerAmbrian Partners LimitedOld Change House128 Queen Victoria StreetLondonEC4V 4BJUnited Kingdom

BankersBarclays Bank PLCPO Box 41Le Marchant HouseLe TruchotSt. Peter PortGuernseyGY1 3BE AuditorsBDO LLP55 Baker StreetLondonW1U 7EUUnited Kingdom

Financial public Relations adviserBuchanan Communications45 MoorfieldsLondonEC2Y 9AEUnited Kingdom

SolicitorsAs to British Law:Memery Crystal LLP44 Southampton BuildingsLondonWC2A 1APUnited Kingdom As to Namibian Law:Lorentz Angula Inc.Private Bag 12007AusspannplatzWindhoek 3rd FloorLA ChambersAusspann PlazaWindhoekNamibia As to Guernsey Law:BabbéPO Box 6918–20 Smith Street,St. Peter PortGuernseyGY1 4BL Company SecretaryArtemis Secretaries LimitedSydney Vane HouseAdmiral ParkSt. Peter PortGuernseyGY1 3EL Registrars and receiving agentsAnson Registrars LimitedPO Box 426Anson PlaceMill CourtLa CharroterieSt. Peter PortGuernseyGY1 3WX

Chariot Oil &

Gas Lim

ited Annual Report & Accounts 2010

Annual Report & Accounts 2010

UnLOCKinGAFRiCA’S OiL & GAS pOtentiALChariot Oil & Gas Limited


www.chariotoilandgas.com

Documents

Chariot Oil & Gas Limited Annual Report & Accounts 2010 · furthered our other business ... UnLOCKinG AFR iCA’s OiL & GAs POtEntiAL. Chariot Oil & Gas Limited Annual Report & Accounts