The results of the fiscal review were announced by Eamon Ryan, the Irish Minister for Communications Energy and Natural Resources on August 1, 2007. The key fiscal change under the new licensing terms is the introduction of a Profit Resources Rent Tax ("PRRT"), which will be levied in addition to the current Corporation Tax of 25 percent.
This new tax will operate on a graded basis of profitability. Marginal projects will be unaffected, still paying 25 per cent, with more profitable projects facing PRRT on a scale of rates taking their aggregate tax burden to a maximum rate of 40 percent.
Confirmation of the new terms has removed the uncertainty introduced by the announcement of the review and the linking of the new tax to profitability rather than production has been welcomed. Worked examples of differing field sizes, contained in the Indecon Report that accompanied the announcement of the new terms, indicate no change in the Net Present Value ("NPV") of a 50 bcf gas field offshore Ireland under the new terms. A 100 bcf gas field displays a 4 per cent reduction in NPV, a 250 bcf gas field a 6 per cent reduction in NPV and a 500bcf gas field a 9 per cent reduction in NPV.
All the worked examples show that NPVs for fields offshore Ireland are higher than for comparable sized fields offshore UK and Norway.
The Lansdowne Board considers the new terms offer a fair balance between continuing to encourage exploration, whilst providing for a greater return to the Irish state in these times of higher oil and gas prices.
Lansdowne has been awarded License 4/07 which extends over parts of blocks 49/ 11, 49/12, 49/17 and 49/18 and contains the Midleton and East Kinsale prospect areas. This License has been granted to Lansdowne on a 100 percent basis.
Lansdowne has also been awarded an interest in License 5/07, which extends over parts of blocks 48/17, 48/18, 48/19, 48/22 and 48/24 and contains the Rosscarbery prospect, as well as the Galley Head (48/18-1) and Carrigaline (48/ 24-4) gas discoveries. This License has been granted to Lansdowne (Operator 77 per cent) and partners.
The Group is delighted to have been awarded these Licenses and is already moving ahead to start planning for drilling the key prospects. Discussions with potential farm-in partners have been continuing and the recent clarification on the license position and the fiscal terms will allow us to move ahead on a much firmer footing.
Our application to convert the Seven Heads Oil Licensing Option into a Lease Undertaking is still under discussion with the Department of Communications, Energy and Natural Resources.
Our application to extend the first phase of the Frontier Exploration License 1/ 05 in the Donegal Basin has not been granted. It was not possible to extend this License without entering into a further drilling commitment and we did not consider that that level of commitment was merited. Consequently that License has been relinquished.
This is the first financial information presented by the Group that has been prepared under the International Financial Reporting Standards ("IFRS"). The transition to IFRS resulted in no numerical adjustments to the corresponding amounts in the prior interim period.
The Group recorded a loss after tax of £816,000 for the first six months of 2007 compared to a loss of £166,000 for the first six months of 2006. The loss for the period includes the write off of £544,000 of intangible exploration assets held against the Donegal License.
Group operating expenses for the first half of 2007 were £286,000 and are in line with expectations. The Group was not fully operational until the second quarter of 2006, resulting in lower operating expenses of £183,000 for the first half of 2006.
Net finance income was £17,000 for both the current and prior interim periods. The higher cash balances in 2006, generated by the Initial Public Offering, were held on deposit for a shorter period than the lower cash balances in 2007.
Total equity attributable to the equity holders of the Company has fallen from £2.7 million as at 30 June 2006 to £1.7 million as at 30 June 2007. The decrease reflects primarily the Donegal write off of £544,000 and operating expenses of £537,000 in the intervening period between these two reporting dates.
The success of Island's drilling program in the Celtic Sea this summer, which recorded potentially commercial gas flows from Cretaceous reservoirs in the 49/ 23-2 Old Head and the 57/2-3 Schull appraisal wells, once again demonstrates the viability of this gas play in the Celtic Sea.
The clarification of the licensing and fiscal terms and the award of new Exploration Licenses clear the way for Lansdowne to move forward to the next stage of the Group's development, which will focus on drilling wells to search for additional gas reserves in the Celtic Sea. The Group is currently evaluating the options available for raising the requisite funding to support the well program.
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