Desire keeps the faith as losses narrow

The North Falkland Basin oil explorer Desire Petroleum said it has sufficient funds to continue in operational existence for the foreseeable future but not enough to drill more wells, as it announced a sharp reduction in annual losses.

The group announced a 2011 loss of $42.5m versus a restated loss of $113.9m the year before. The reduced loss is mainly due to a decrease in exploration and evaluation expense, though the group also enjoyed a $0.65m boost from exchange rare movements, compared to a $2.76m foreign exchange hit the year before.

The group has changed its oil and gas accounting policy from a full cost policy to a successful efforts policy; the latter method allows a company to capitalise only those amounts expended on successful exploration attempts - essentially enabling the company to recognise those costs over a longer period - while costs associated with dry holes are immediately charged against revenues for the period concerned. The decision may have an effect on Desire's tax charges further down the road.

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"Having completed the current phase of drilling activity, the board is of the view that the cost of unsuccessful exploration should not be added to the costs attributable to the development of commercial reserves as it distorts the reporting of the future underlying performance of those assets," the company statement said.

Administrative expenses for the period increased from $0.89m to $1.54m, mainly due to an increase in the number of executive directors in the year from one to three.

Loss per share narrowed to 12.42 cents from 34.66 cents the year before.

Cash resources at the end of the year amounted to $10.6m, plus an additional $24.5m held as restricted cash in escrow accounts with Diamond Offshore Drilling and AGR to meet demobilisation liabilities.

"The Sea Lion discovery plus the associated discoveries in the farm-out well reaffirm our belief that there will be further successes in the North Falkland Basin and that a significant oil and gas province is emerging," said Stephen Phipps, Chairman of Desire Petroleum.

The company currently has no revenue and does not pay dividends.