Desire Posts Loss for 2006

Desire Petroleum plc, the oil and gas exploration company focused on the North Basin in the Falkland Islands, on Monday announced its final results for the year ended 31 December 2006. The company posted a £2,819,000 loss (1.27p per share) for 2006, compared to a £1,884,000 profit (0.90p per share) the previous year.

Colin Phipps, Desire's Chairman, issued the following statement to shareholders:

The principal feature of the past year was the continuing, and widely-publicized, world-wide tightness in the offshore drilling-rig market and this tightness continues. This has been particularly frustrating for the Company as all the necessary permissions and equipment for a three-well drilling program in Tranches C and D in the North Falkland Basin have been in place for some time. Your Board has continued with its strategy of identifying potential partners with access to a rig but the current high oil price has meant that most companies are concentrating on drilling production rather than exploration wells. Despite the high oil price, there has been little or no increase in world-wide exploration drilling. Nevertheless, substantive discussions are taking place with potential partners.

Further technical work, in particular geophysical work, is in the process of being carried out on the prospect inventory with a view to de-risking the prospects and identifying the prime targets for drilling. If encouraging results are obtained from these studies, it is likely that at least one of the prospects in Tranches I and L will be added to the list of potential targets to be drilled in the next campaign and preliminary work has begun on an Environmental Impact Assessment for these Tranches.

Your Board remains committed to and enthusiastic about the prospect of success in the North Falkland Basin, which is one of the few proven oil basins in the world that is still largely undrilled. In addition to the Company's efforts to acquire a partner, collaboration continues with other Licensees in the Falklands, whose commitment matches our own, and it is a matter of when, rather than if, drilling takes place.

The results for the year ended 31 December 2006 have been prepared under UK Generally Accepted Accounting Practice (UK GAAP). The majority of the Company's funds are held in dollars, to match expected expenditure on the exploration program, some of which was incurred on the purchase of long-lead-time casing, tubulars and wellheads required for the program. The loss after tax was due to exchange losses, following the strengthening of the pound against the dollar since the last year-end, and has reversed out the corresponding exchange gain made in 2005. In accordance with Financial Reporting Standard 20, the Company has recognized a charge to the income statement representing the fair value of outstanding employee share options and other share-based payments. The fair value has been calculated using the Black-Scholes valuation model, and this value is charged to the income statement over the relevant vesting periods. The charge for the period of £263,000 is a non-cash item. Not with standing this charge, other administrative expenses remain amongst the lowest in the sector and continue to be more than covered by interest received. For the financial year commencing 1 January 2007 the Company will adopt International Financial Reporting Standards (IFRS) in accordance with the London Stock Exchange rules for AIM-listed companies. Preparation for the transition to IFRS is substantially complete. There will be minimal impact on the Company's results in 2006, and reconciliations between UK GAAP and IFRS income statement, cash flow and balance sheet will be included in the Company's 2007 Interim Report. My colleagues on the Board have been particularly effective during the year, providing, as they do, in-depth coverage of the sector and its technical, financial, legal and corporate requirements. I am grateful for their help and guidance and would like to thank them on behalf of all shareholders.

It is with great sadness that I report the death, aged 73, of Dr. John Martin. John was one of the most distinguished exploration geologists of his generation and gave important service as a director of Desire over a number of years. He had been involved with the initial phase of exploration in the Falklands, since its inception, as adviser to the Falkland Island Government and had continued to assert his confidence in the Island's potential to the end. He will be much missed both as a colleague and a much-valued friend.

The Directors submit their report and the audited financial statements for the year ended 31 December 2006.

Principal activity and business review

The principal activity of the Group for the year continued to be that of oil and gas exploration. The Group produced a loss before taxation of £2,483,000 in the year to 31 December 2006. The loss will be transferred to reserves.


The Directors do not recommend payment of a dividend (2005:nil).

Share capital

During the year, options were exercised over 1,106,342 shares and these were subsequently allotted on 18 July 2006. The option exercise raised £255,000. On 27 February 2007, Dr C B Phipps exercised options over 478,239 shares and these were subsequently allotted. The exercise of the options raised £117,000.