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Meridian Petroleum plc
Meridian Petroleum plcAnnual Report & Accounts 2005
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Contents Page
Corporate Information 2
Chief Executive’s Officer’s Statement and Review of Operations 3
Directors’ Report 6
Report of the Independent Auditors 9
Consolidated Profit & Loss Account 11
Consolidated Statement of Total Recognised Gains & Losses 12
Consolidated Balance Sheet 13
Company Balance Sheet 14
Consolidated Cash Flow Statement 15
Accounting Policies 16
Notes to the Accounts 19
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CorporateInformation
Directors Donald Blanks Caldwell – Non-Executive Chairman
Anthony John Mason – Chief Executive Officer
Peter Richard Clutterbuck – Non-Executive Director
Company Secretary Niel Redpath FCA
Registered Office 42 Berkeley Square
London W1J 5AW
Nominated Advisor and Broker Westhouse Securities LLP
Clements House
14-18 Gresham Street
London EC2V 7NN
Auditors Grant Thornton UK LLP
Manor Court
Barnes Wallis Road
Segensworth
Fareham
Hampshire PO15 5GT
Solicitors Field Fisher Waterhouse LLP
35 Vine Street
London EC3N 6AE
Bankers Barclays Bank
54 Lombard Street
London EC3P 3AH
Registrars Lloyds TSB Registrars
Princess House
1 Suffolk Lane
London EC4R 0AN
Registered number 05104249
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Chief Executive’sOfficer’s Statement& Reviewof Operations
Although 2005 was a year of varied fortunes for Meridian Petroleum PLC (“Meridian” or the “Company”), our progress since
the year end has been much more promising.
We experienced some mixed results in the development of our US prospect portfolio with even the successes frustrated by
the difficulty of obtaining the right equipment and personnel for various tasks. However, we believe we have achieved much
more significant results in the development of our larger projects, both in the USA and Australia.
Current US Prospects
Meridian’s first and primary producing asset, Emery Hudson, began production in July of 2004. However, the well, after very
promising initial production rates, experienced a gradual decline in pressure and as a result production levels dropped from
a peak of 900 mcfpd in the early part of 2005 to 278 mcfpd in mid 2005. What became evident on analysis was that the reef
in question was highly compartmentalized and in order to counter this issue, two step out legs were drilled in October of 2005,
the C & D Wells. These step out legs encountered gas, but not in commercial quantities. After further analysis of the 3D
Seismic data, it was determined that a direct approach to the reef was required. It is likely that operations will re-commence
on Emery Hudson at some stage in the third quarter of 2006 in order to enhance the production potential of this large gas
prone reef.
Meridian drilled the Calvin 36 #1 test well in September and October of 2004. The gas shows from the Sligo Petit formation
looked highly promising. However, the Rodessa Zone, whilst apparently prolific in other areas, was found to be wet. Based
upon recent experience this is likely to be a local phenomenon and is unlikely to be the case across the entire acreage
position. The initial issue with the 36 # 1 well was water ingress in the lower portion of Sligo Petit due primarily to the vertical
fracturing in this zone. Throughout the year the well was monitored and both bottom hole pressure and surface pressure
continued to rise on a gradual basis, indicating the presence of good reservoir. The well bore was re entered in early 2006
and significant gas flow resulted. The well is currently being completed and will be on line in the summer of 2006.
Overall we view the potential of the Calvin field to be significant from both the Sligo Petit and Rodessa formations in the
shallow zones. Meridian is developing a detailed plan to fully exploit at minimal cost the potential of these zones. The
Company is also in negotiation to acquire the deeper and highly prolific Lower Cotton Valley Troy Lime and Calvin Gas Sand
areas. These formations are being produced to the North of the Calvin Field by Anadarko, on geologic trend with the
Company’s acreage position at Calvin. The full reserve potential will be released post the acquisition and after a detailed
review by ECL Scott Pickford the Company’s reserve consultants. The Calvin Field meets the Company’s criteria of being
both technically sound and having an existing infrastructure in the field which enables gas to be processed and transported
to market at an economic cost. Thus, maximizing profitability and return to shareholders.
The Milford 36 well (25% WI) was drilled in March of 2005 and encountered approximately 103 feet of net pay in the reef.
Initial production tests were indicative of a potentially “tight” zone in the reef and exhibited limited porosity. The acid wash
injected in the well bore did not counter this issue and the Company, along side our joint venture partners, proposes to drill
a series of lateral legs using a coiled tubing unit, a method which was successfully utilized at the Calvin 36 # 1 well. This
work is planned for late second quarter 2006 with the prognosis being very good and we look forward to completion and
subsequent hook up.
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Chief Executive’sOfficer’s Statement& Reviewof Operations
The Brighton 36 well, drilled in April of 2005, was plugged and abandoned which was disappointing given the initial potential
exhibited for the reef in question. There are no plans to re enter this well bore. The exploration costs of approximately
$200,000 were expensed during the year.
In late 2005 Meridian commenced the process for the acquisition of the Orion lease in Oakland County Michigan. This
acquisition was completed in early 2006 on the initial lease position for a cost of $40,000. The Orion prospect consists of a
2.7 to 3 BCF shut in reserve. The reef was previously drilled with 2 wells in 1989 and 1990 but both were shut in due to H2S
emissions. Our proposed technical solution was to utilize alternate sulphur treat towers and this proposal was accepted by
the Michigan Department of Environmental Quality (DEQ). Additionally, the planned well site is located on an asphalt mining
area, and also adjacent to a Michigan Gas Storage Company Pipeline. Hence, a direct tap into the line can be made saving
time and money. It is proposed to drill this well upon completion of the permitting process in late second quarter 2006.
Meridian purchased a 10% interest in the producing Victory 1-21 well in April 2005. The well has been in production
throughout and was recently deepened.
As part of Meridian’s initiative to develop a greater inventory of prospects, several seismic lines were shot over areas in
Mississippi that have been purchased by the Company. These lines in turn were reprocessed in November 2005, and
several oil producing sand channels identified. In order to fully define these channels it was decided that the 3D seismic
would be a substantial aid plus it would further minimize dry hole risk. The Company has subsequently entered into an
agreement whereby a third party will shoot 3D seismic over the acreage in return for a 50% working interest. This is
anticipated in 3rd or 4th quarter 2006.
Development projects
In September of 2005 the Company commenced detailed work on the Dolores prospect located in South Australia. This
entailed the re processing of all of the original field data and seismic lines over the prospect area. This significant exercise
was carried out in our Houston office. On its completion we conducted an AVO analysis on the area which confirmed the
evidence of hydrocarbons in two distinct areas via bright spots and AVO reflection. The results of this highly detailed work
were made public in the recent Scott Pickford report which gave a P2 reserve of 543 BCF Gas in Place. This is clearly a
substantial asset and the Company has commenced active discussions with potential farm in or joint venture partners. The
asset is located some 40 KM West of the Moomba to Adelaide pipeline and is therefore not stranded gas, but rather a
commercially exploitable reserve that can taken to the growing market of South East Australia. Additionally, gas prices are
rising in Australia and the market is moving towards less price regulation over time. The Company is in the final stages of
Native Title deliberation and is highly confident of a successful outcome in the next several months.
As part of its growth strategy, Meridian has been keen to seek out development projects within the USA with significant
upside, preferably onshore. Within this context the Company examined various opportunities and eventually confirmed a
substantial opportunity located in the Warrior Basin, Alabama. In order to take this opportunity to the next level the Company
commissioned a detailed feasibility study from an internationally renowned consultant in the area. This study revealed a Coal
Bed Methane (“CBM”) project with a potential gas reserve likely to be in excess of 1 TCF. This study was in turn reviewed
by Scott Pickford and the results of which were made available to the public market in May 2006. At this time the Company
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Chief Executive’sOfficer’s Statement& Reviewof Operations
is commencing leasing of an initial footprint that will in turn be utilized for the proposed pilot project. The pilot project is likely
to take the form of a ten well pilot scheme designed to test various areas of the project and not least of all the production of
gas on a commercial basis. The project is located in an area of mature production and also an area with abundant
infrastructure enabling the gas to get to market on advantageous commercial terms. We have great confidence in the
potential of this project and look forward to developing the Pilot Scheme as the first phase later in 2006.
The Company's Working Interests in Proven, Probable and Prospective Reserves
The Companies working interest in proven and probable reserves as at 31 December 2005 were:
Total BOE Oil bbl Gas mmcf
Reserves at 31 December 2004 443,399 30,733 2,476
Revisions -208,430 13,741 -1,333
Acquisitions 379,422 46,249 1,999
Production -9,741 0 -58
Reserves at 31 December 2005 604,650 90,723 3,084
The reserves at 31 December have been derived by Scott Pickford and include the Calvin (Sligo-Pettet),
Victory 21 and Orion 36 licenses. In addition to the probable reserves above, Scott Pickford identified
the following prospective resources:
Prospective Resources (P50) Total BOE Oil bbl Gas mmcf
Calvin (Rodessa) 280,975 55,470 1,353
Milford 36 78,082 54,898 139
Emery Hudson 40,738 12,987 167
Delores (Australia) 72,000,000 432,000
Total 72,399,795 123,355 433,659
The above Reserves and Resources are based on certain assumptions which are described in the Scott Pickford Valuation
Update Report dated April 2006.
Summary
In conclusion, Meridian has made significant progress towards the securing of larger commercial assets as evidenced by
Australia, CBM in the Warrior Basin and potentially deep gas at Calvin. Over the course of the year the smaller US assets
will be brought on line as cash producers, but more importantly the development of Dolores in Australia will commence as
will work in the Warrior Basin. Despite the frustrations of 2005, Meridian has been able to position itself for a sustained effort
in 2006 with the identification and securing of larger assets. The focus in future will not be on the development of smaller
assets but rather on these larger assets that will provide more significant long term value to shareholders.
Anthony Mason
Date: 28 June 2006
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Directors’Report
The Directors present their report together with the audited financial statements for the year ended 31 December 2005.
Principal Activities
The Group’s activities are the exploration and production of oil and gas.
Business Review
A review of the Group’s trading during the period is contained in the Chief Executive Officer’s Statement and Review of
Operations on page 3 to 5.
There was a Group loss after taxation for the period of £872,307 (2004: £1,081,100). The Directors do not recommend
a dividend.
Directors
The interests of the directors in office at 6 June 2006 and their families in the shares of the company throughout the
year ended 31 December 2005 were as follows:
Number of Shares Number of Warrants
31 December 2005 31 December 2004
Donald Caldwell 400,000 450,000
Anthony Mason 24,700,000 24,700,000 2,240,124
Peter Clutterbuck - -
Post Balance Sheet Events
(1) On 20 February 2006 the Company completed the placing of 7,171,426 ordinary shares at 14p per share
raising £1,004,000.
(2) On 24 April 2006 the Company issued 1,140,000 ordinary shares at 30p per share pursuant to an exercise
of warrants raising £342,000.
(3) On 19 May 2006 the Company issued 300,000 ordinary shares at 10p per share pursuant to an exercise of
options raising £30,000.
Directors’ Responsibilities for the Financial Statements
The directors are responsible for ensuring that the directors' report and other information included in the annual report
is prepared in accordance with company law in the United Kingdom.
United Kingdom company law 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 company and the group and of the profit or loss of the group for that
period. In preparing those financial statements, the directors are required to:
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Directors’Report
- select suitable accounting policies and then apply them consistently
- make judgements and estimates that are reasonable and prudent
- state whether applicable accounting standards have been followed, subject to any material departures
disclosed and explained in the financial statements
- prepare the financial statements on the going concern basis unless it is inappropriate to presume that the
company will continue in business.
The directors are responsible for maintaining proper accounting records, for safeguarding the assets of the group and
for taking reasonable steps for the prevention and detection of fraud and other irregularities.
Legislation in the United Kingdom governing the preparation and dissemination of the financial statements and other
information included in annual reports may differ from legislation in other jurisdictions.
The Annual Report will be available on the company’s website.
The maintenance and integrity of the web site is the responsibility of the directors; the work carried out by the auditors
does not involve consideration of these matters and, accordingly, the auditors accept no responsibility for any changes
that may have occurred to the information contained in the financial statements since they were initially presented on
the web site.
Substantial Shareholders
At 20 June 2006 the following had an interest in 3% or more of the nominal value of the company's shares:
Name Shareholding %
Mellon Nominees UK Limited 15,127,334 20.81%
HSBC Global Custody Nominee UK Limited 7,639,900 10.51%
HSDL Nominees Limited 7,329,437 10.08%
Barclayshare Nominees Ltd 6,333,389 8.71%
TD Waterhouse Nominees Europe Limited 6.068.699 8.35%
L R Nominees Limited 3,431,183 4.72%
Raven Nominees Limited 2,350,000 3.23%
Tony Mason holds a total of 24,700,000 (34%) shares which are held in the name of Mellon Nominees and HSBC Global
Custody Nominees and in other nominee companies.
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Directors’Report
Payment Policy and Practice
It is the company's normal practice to settle the terms of payment when agreeing the terms of the transaction, to ensure
that suppliers are aware of those terms, and to abide by them. Trade creditors at the period end amount to 36 days
(2004: 47) of average supplies for the period.
Financial risk management objectives and policies
The Company has to date financed its operations from internally generated cash flows and equity issues. It raises
additional equity funds in pounds sterling and pays for exploration and development costs in US$. To date, the company
has chosen not to hedge this exchange rate risk. The company reviews its financing requirements and its hedging policy
when required. For further details refer to note 19.
Third Party Indemnities
The Company has taken out Directors and Officers Insurances.
Related parties
The Company has entered into related party transactions, the details of which are outlined in note 23.
Auditors
Grant Thornton UK LLP offer themselves for reappointment as auditors in accordance with section 385 of the
Companies Act 1985.
Annual General Meeting
The Annual General Meeting will be held on 27 July 2006 at 42 Berkeley Square, London W1.
ON BEHALF OF THE BOARD
A. Mason
Director
28 June 2006
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Report of theIndependentAuditorsto the Members ofMeridian Petroleumplc
We have audited the group and parent company financial statements (the "financial statements") of Meridian Petroleum plc
for the year ended 31 December 2005 which comprise the principal accounting policies, the group profit and loss account,
the group and company balance sheets, the group statement of total recognised gains and losses and notes 1 to 21. These
financial statements have been prepared under the accounting policies set out therein.
This report is made solely to the company’s members, as a body, in accordance with Section 235 of the Companies Act
1985. Our audit work has been undertaken so that we might state to the company’s members those matters we are required
to state to them in an auditors' 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 directors and auditors
The directors' responsibilities for preparing the Annual Report and the financial statements in accordance with United
Kingdom law and Accounting Standards (United Kingdom Generally Accepted Accounting Practice) are set out in the
Statement of Directors' Responsibilities.
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, whether they are properly
prepared in accordance with the Companies Act 1985 and whether the information given in the Directors' Report is not
consistent with the financial statements. We also report to you if, in our opinion, 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 regarding directors' remuneration and other transactions is not disclosed.
We read other information contained in the Annual Report, and consider whether it is consistent with the audited financial
statements. This other information comprises only the Directors' Report and the Chief Executive's Statement and Review of
Operations. We consider the implications for our report if we become aware of any apparent misstatements or material
inconsistencies with the financial statements. Our responsibilities do not extend to any other information.
Basis of audit opinion
We 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 judgments made by the directors in the
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Report of theIndependentAuditorsto the Members ofMeridian Petroleumplc
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.
Opinion
In our opinion:
• the financial statements give a true and fair view, in accordance with United Kingdom Generally Accepted
Accounting Practice, of the state of the group's and the parent company's affairs as at 31 December 2005 and
of the group's loss for the year then ended;
• the financial statements have been properly prepared in accordance with the Companies Act 1985; and
Emphasis of matter - carrying value of tangible fixed assets
In forming our opinion, which is not qualified, we have considered the adequacy of the disclosures made in note 9 to the
financial statements concerning the carrying value of tangible fixed assets. The assets concerned relate to the capitalised
exploration and development costs of the Emery Hudson field, where production commenced during 2004 but was
suspended during 2005 pending a step out well which proved unsuccessful. Further analysis has been performed by the
company to identify a re-entry point, and exploration activities are expected to resume in the third quarter of 2006. The
outcome of these activities is uncertain, however the directors are of the opinion that the carrying value of these assets is
currently supported.
GRANT THORNTON UK LLP
REGISTERED AUDITORS
CHARTERED ACCOUNTANTS
Segensworth
28 June 2006
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ConsolidatedProfit andLoss AccountFor the year ended31 December 2005
2005 2004
Restated
Note £ £
Turnover 1
Continuing operations 87,703 -
Acquisitions - 355,982
87,703 355,982
Cost of sales
Continuing operations (114,824)
Acquisitions - (119,172)
Gross profit (27,121) 236,810
Other operating charges (net)
Continuing operations (857,672) (397,512)
Acquisitions - (939,195)
Operating Loss
Continuing operations (884,793) (397,512)
Acquisitions - (702,385)
(884,793) (1,099,897)
Interest receivable 2 12,486 18,797
Loss on Ordinary Activities Before Taxation 3 (872,307) (1,081,100)
Tax on ordinary activities 5 - -
Loss for the financial year (872,307) (1,081,100)
Loss per share (pence) 7 (1.4) (2.4)
The 2004 comparative figures have been restated to represent the foreign currency differences arising from the re-
translation of the net investment in foreign subsidiaries (previously reported by inclusion in “Other operating charges”)
as a movement in reserves (profit and loss account).
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The accompanying accounting policies and notes form an integral part of these financial statements.
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ConsolidatedStatement of TotalRecognised Gainsand LossesFor the year ended31 December 2005
2005 2004
Restated
£ £
Loss for the financial year (872,307) (1,081,100)
Currency differences on foreign currency net investments 107,167 (92,444)
Total gains and losses recognised since last financial statements (765,140) (1,173,544)
2005 2004
Restated
£ £
Loss for the financial year (872,307) (1,081,100)
Foreign currency translation difference on investment in foreign subsidiary 107,167 (92,444)
Share options granted - 206,000
Profit and loss account (765,140) (967,544)
Issue of shares (net of costs) 654,856 4,346,942
Net (decrease) / increase in shareholders’ funds (110,284) 3,379,398
Shareholders’ funds at beginning of period 3,379,398 -
Shareholders’ funds at 31 December 2005 3,269,114 3,379,398
The 2004 comparative figures have been restated to represent the foreign currency differences arising from the re-
translation of the net investment in foreign subsidiaries (previously reported by inclusion in “Other operating charges”)
as a movement in reserves (profit and loss account).
Reconciliation ofMovements inShareholders’ FundsFor the year ended31 December 2005
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The accompanying accounting policies and notes form an integral part of these financial statements.
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ConsolidatedBalance SheetAt 31 December 2005
2005 2004
Note £ £
Fixed assets
Intangible assets
- Exploration costs and leases 8 246,978 577,194
Tangible Assets 9 2,939,924 2,026,896
Total Fixed Assets 3,186,902 2,604,090
Current assets
Debtors 11 80,190 259,093
Cash at bank and in hand 217,779 742,036
Total current assets 297,969 1,001,129
Creditors: amounts falling due within one year 12 (215,757) (225,821)
Net current assets 82,212 775,308
Total assets less current liabilities 3,269,114 3,379,398
Capital and reserves
Called up share capital 14 3,204,660 2,829,660
Share premium account 15 1,797,138 1,517,282
Profit and loss account 15 (1,732,684) (967,544)
Total equity shareholders’ funds 3,269,114 3,379,398
The financial statements were approved by the Board of Directors on 28 June 2006
Director
Date: 28 June 2006
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The accompanying accounting policies and notes form an integral part of these financial statements.
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Company BalanceSheetAt 31 December2005
2005 2004
Note £ £
Fixed assets
Investments 10 2,250,000 2,250,000
Current Assets
Debtors: Amounts falling due within one year 11 16,188 1,335,527
Debtors: Amounts falling due after one year 11 2,283,596 -
Cash at bank and in hand 237,328 671,876
Total current assets 2,537,112 2,007,403
Creditors: amounts falling due within one year 12 (48,443) (48,853)
Net current assets 2,488,669 1,958,550
Total assets less current liabilities 4,738,669 4,208,550
Capital and reserves
Called up share capital 14 3,204,660 2,829,660
Share premium account 15 1,797,138 1,517,282
Profit and loss account 15 (263,129) (138,392)
4,738,669 4,208,550
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The accompanying accounting policies and notes form an integral part of these financial statements.
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ConsolidatedCash FlowStatementFor year ended31 December 2005
2005 2004
Note £ £
Net cash outflow from operating activities’ 16 (599,020) (698,079)
Returns on investments and servicing of finance
Interest received 12,486 18,797
Net cash inflow from returns on investments and servicing of finance 12,486 18,797
Capital expenditure and financial investment
Exploration and development expenditures (653,555) (763,047)
Sales proceeds from re-determination of interest 60,976 -
Net cash outflow from capital expenditure and financial investment (592,579) (763,047)
Acquisitions and disposals
Net cash acquired with subsidiary undertakings - 87,424
Net cash outflow before financing (1,179,113) (1,354,905)
Financing
Issue of shares 750,000 2,478,208
Expenses paid in connection with share issues (95,144) (381,267)
Net cash inflow from financing 654,856 2,096,941
(Decrease) / Increase in cash (524,257) 742,036
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The accompanying accounting policies and notes form an integral part of these financial statements.
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Accounting Policies Basis of Preparation
The financial statements have been prepared under the historical cost convention and in accordance with applicable UK
Accounting Standards and the Statement of Recommended Practice “Accounting for Oil and Gas Exploration,
Development, Production and Decommissioning Activities” revised in June 2001 (the SORP).
In preparing the financial statements for the current year, the group has adopted the following Financial Reporting
Standards:
- the presentation requirements of FRS 25 Financial Instruments: Disclosure and Presentation
This Standard requires financial instruments to be presented in accordance with their substance. Therefore
shares, which previously were always presented as part of shareholders' funds regardless of the substance of
the instrument, may now be presented as a liability when in substance that share is equivalent to a liability.
There have been no adjustments to the financial statements of the company on adoption of this standard.
- FRS 21: Events after the balance sheet date
The adoption of FRS 21 has resulted in a change in accounting policy in respect of proposed equity dividends.
If the company declares dividends to the holders of equity instruments after the balance sheet date, the
company does not recognise those dividends as a liability at the balance sheet date. Previously where these
equity dividends were proposed after the balance sheet date but before authorisation of the financial statements
they were recorded as liabilities at the balance sheet date. As no dividend is proposed nor been paid no
adjustment has been required to the financial statements for this year nor for the year ended 31 December
2004.
The principal accounting policies of the group, which are considered to be most appropriate to the group’s circumstances,
are set out below.
Basis of Consolidation
The consolidated financial statements incorporate the financial statements of Meridian Petroleum plc and its subsidiaries.
The results of subsidiaries are included from the date of acquisition, on an acquisition accounting basis.
Turnover
The Company’s development and production activities are operated by Wellmaster Production Company LLC. Turnover
represents the Company’s share of sales of oil and gas during the year, excluding sales tax and royalties, and is recognised
on the basis of the group’s working interest when title passes to the customer. All turnover arises in the USA.
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Accounting Policies Exploration and Development Costs
In accordance with the successful efforts method as set out in the SORP, expenditure including related overheads on the
acquisition, exploration and evaluation of interests in licences not yet transferred to a cost pool is capitalised under
intangible assets and not amortised. Cost pools are established on the basis of specific fields. When it is determined that
such costs will be recouped through successful development and exploitation or alternatively by sale of the interest,
expenditure will be transferred to tangible assets.
Amortisation and Depletion
Exploration and development costs transferred to tangible assets are depreciated over the expected productive life of the
asset using a unit of production basis.
An impairment test will be performed whenever there is an indication that the net book value amount in respect of a project
may no longer be recoverable, and any necessary provision charged through the profit and loss account. The directors
have considered the carrying values of capitalised exploration and development costs as at 31 December 2005 and their
conclusions are documented under Note 9.
Investments
Investments are included at cost less amounts written off.
Deferred Taxation
Deferred tax is recognised on all timing differences where the transactions or events that give the group an obligation to
pay more tax in the future, or a right to pay less tax in the future, have occurred by the balance sheet date. Deferred tax
assets are recognised when it is more likely than not that they will be recovered. Deferred tax is measured using rates of
tax that have been enacted or substantively enacted by the balance sheet date.
Foreign Currencies
Transactions in foreign currencies are translated at the exchange rate ruling at the date of the transaction. Monetary
assets and liabilities in foreign currencies are translated at the rates of exchange ruling at the balance sheet date. The
financial statements of foreign subsidiaries are translated at the rate of exchange ruling at the balance sheet date.
Change in accounting policy
The directors consider that, in line with their conclusion that amounts due from group companies will not be repaid within
one year, the accounting policy should be modified such that the exchange differences arising from the retranslation of the
net investment in subsidiaries, as at December 31, funded by loans from the Company, are taken directly to reserves.
The impact of this change is to credit foreign exchange differences of £107,167 (2004 restated: charge £92,444) to reserves
rather than to the profit and loss account. All other exchange differences are dealt with through the profit and loss account.
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M E R I D I A N P E T R O L E U M P L C
Accounting policies Financial Instruments
Financial assets are recognised in the balance sheet at the lower of cost and net realisable value. Provision is made for
diminution in value where appropriate.
Interest receivable and payable is accrued and credited or charged to the profit and loss account in the period to which it
relates.
Liquid Resources
Liquid resources comprise funds on deposit at not less than 7 days’ notice.
Operating leases
Rentals payable under operating leases are taken to the profit and loss statement on a straight line basis over the period
of the lease.
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M E R I D I A N P E T R O L E U M P L C
Notes to theAccounts
1 Turnover and Loss on Ordinary Activities Before Taxation
The turnover of £87,703 is attributable to one segment, namely oil and gas production and all arises in USA.
Net assets and profit before tax all apply to the one business segment.
The geographical breakdown of net assets and net operating loss is:
Net Assets Loss before tax
2005 2004 2005 2004
Restated
£ £ £ £
UK 177,049 597,164 (465,451) (645,583)
USA 3,092,065 2,771,815 (388,800) (365,989)
Australia - 10,419 (18,056) (69,528)
Total 3,269,114 3,379,398 (872,307) (1,081,100)
2 Interest receivable and similar income
2005 2004
£ £
Bank and short term interest 12,486 18,797
3 Operating Loss
Loss on ordinary activities before taxation is stated after charging:
2005 2004
£ £
Amortisation and depreciation 45,701 83,020
Profit on disposal of assets 48,329 -
Auditors’ remuneration
Audit 46,769 17,000
Non-audit - 3,000
Taxation 20,481 3,459
Rentals payable in respect of land and buildings 33,000 22,297
In addition, in 2004, £71,289 was charged against the share premium account in respect of Reporting
Accountant fees paid to Grant Thornton UK LLP on the AIM flotation of the Company
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M E R I D I A N P E T R O L E U M P L C
Notes to theAccounts
4 Directors and Employees
Staff costs (excluding non executive directors) during the year were as follows:
2005 2004
£ £
Wages and salaries 186,666 176,406
Social security costs 8,116 7,172
194,782 183,578
The average number of employees during the year was: 2.
Remuneration in respect of directors was as follows:
2005 2004
£ £
Emoluments (including amounts paid to third parties) 222,984 295,571
In addition to the above, a UITF 17 charge of £Nil (2004: £206,000) has been made to the profit and loss
account in respect of share options granted to the directors
There are no Company pension schemes.
The amounts set out above include remuneration of £120,000 (2004: £122,206) in respect of the highest paid
director.
5 Tax on Loss on Ordinary Activities
No liability in respect of corporation tax arises as a result of trading losses.
US tax losses to be carried forward as at 31 December 2005 at the standard rate of US corporation tax of
34% (2004: 35%) amount to £1,392,777 (2004: £501,384)
UK tax losses to be carried forward as at 31 December 2005 at the standard rate of UK corporation tax of
30% (2004: 30%) amount to £875,611 (2004: 352,850)
No deferred tax asset has been recognised in respect of losses carried forward since the recognition criteria
of FRS19 are not met.
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M E R I D I A N P E T R O L E U M P L C
Notes to theAccounts
Tax reconciliation
2005 2004
£ £
Loss on ordinary activities before taxation (872,307) (1,081,100)
Loss on ordinary activities before taxation multiplied by the average of the standard rate of UK corporation tax (30%) and the standard rate of USA federal income tax (34%) 278,092 385,830
Tax effects of
Temporary timing differences - (61,800)
Losses not utilised 278,092 324,030
6 Loss for the year
The Company has taken advantage of Section 320 of the Companies Act 1985 and has not included its own
profit and loss account in these financial statements. The Company loss for the year was (£124,737) (2004
£344,392).
7 Loss per Share
The calculation of the basic loss per share is based on the loss attributable to ordinary shareholders of
£872,307 (2004 £1,081,100) divided by the weighted average number of shares in issue during the year of
59,718,193 (2004 45,178,443).
The outstanding warrants and options (Note 15) are anti-dilutive and hence no diluted loss per share is
presented.
8 Intangible fixed assets
The Group
Cost
2005 2004
£ £
North America Australia Total North America Australia Total
At beginning of period 577,194 15,250 592,444 - - -
Currency translation adjustment 77,574 - 77,574 - - -
Additions in the period 461,730 - 461,730 458,321 15,250 473,571
Acquisition of subsidiary - - - 118,873 - 118,873
Disposals (12,647) - (12,647) - - -
Amounts written off (124,642) - (124,642)
Transfers to tangible assets (Note 9)(732,231) - (732,231) - - -
At 31 December 2005 246,978 15,250 262,228 577,194 15,250 592,444
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M E R I D I A N P E T R O L E U M P L C
Notes to theAccounts
Amortisation
2005 2004
£ £
North America Australia Total North America Australia Total
At beginning of period - 15,250 15,250 - - -
Charge for the year - - - - 15,250 15,250
At 31 December 2005 - 15,250 15,250 15,250 15,250
Net book value
2005 2004
£ £
North America Australia Total North America Australia Total
At 31 December 246,978 - 246,978 577,194 - 577,194
9 Tangible fixed assets
The Group
Cost
Oil and Gas Assets
2005 2004
£ £
At beginning of period 2,094,666 -
Currency translation adjustment 34,673 -
Additions in the period 191,825 289,476
Acquisitions - 1,805,190
Transfers from intangible assets (Note 8) 732,231 -
At 31 December 3,053,395 2,094,666
Depletion
Oil and Gas Assets
2005 2004
£ £
At beginning of period 67,770 -
Currency translation adjustment 1,174 -
Charge for the year 44,527 67,770
At 31 December 113,471 67,770
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M E R I D I A N P E T R O L E U M P L C
Notes to theAccounts
Net book value
Oil and Gas Assets
2005 2004
£ £
At 31 December 2,939,924 2,026,896
All of the oil and gas assets are located in North America.
During 2004, the Group acquired interests in six oil and gas exploration and production properties.
Under the acquisition accounting method adopted in the 2004 financial statements, the assets acquired
were recorded at their fair values, with a substantial part of the consideration being allocated to tangible
fixed assets, specifically, to those assets relating to the Emery Hudson field, where production had
commenced. This asset equates to the value of tangible fixed assets on the balance sheet as at 1 January
2005 and was identified by the Competent Person's report, produced on admission to AIM, as being the
only asset with proven reserves. No fair value adjustment was assigned to intangible assets in respect of
the probable reserves.
In October 2005, the Company announced that the step out well on Emery Hudson had not been
successfully completed as a producer and that more work would be undertaken to find a suitable re-entry
point with the intent of bringing the field back into production. It transpires that the geological structure of
the Emery Hudson reserve appears likely to have a degree of compartmentalisation. This work has been
completed with positive indicators, and exploration operations, which are anticipated to lead to renewed
production on this field, are expected to commence in the third quarter of 2006 to confirm these initial
results.
The Directors have commissioned a detailed review of the Group's reserves by their consultants ECL Scott
Pickford. On the basis of consultation with Scott Pickford in conjunction with a review of other data
analyses available, they have taken the view that the carrying value of Emery Hudson and the other assets
is still supported. This will be reviewed regularly and could change as a result of further exploration and
development activity over the coming months given the inherent uncertainties involved in oil and gas
activities.
During 2005 a transfer has been made from intangible to tangible fixed assets in respect of the capitalised
oil and gas development costs relating to the Calvin field where significant probable reserves were
identified in the 2004 Competent Persons report. The directors consider that commerciality of the field was
established in 2005, and that these assets should therefore be reclassified as tangible under the provisions
of the SORP.
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M E R I D I A N P E T R O L E U M P L C
Notes to theAccounts
10 Investments in Group Companies
At 31 December the company held more than 20% of the share capital of the following undertakings:
Proportion held
Class of
Country of share By the By the Nature of
incorporation capital held company group business
Held Indirectly
Meridian Petroleum Pty Limited Australia Ordinary 100% Oil and Gas
Meridian Petroleum (USA) Inc. USA Ordinary 100% Oil and Gas
Held Directly
Meridian Resources Limited UK Ordinary 100% 100% Oil and Gas
2005 2004
£ £
Investment in subsidiary undertaking (at cost) 2,250,000 2,250,000
11 Debtors
The Group The Company
2005 2004 2005 2004
£ £ £ £
Amounts falling due within one year
Trade debtors 38,205 131,265 -
Amounts owed by group undertakings - - - 1,266,766
Other debtors 17,547 76,753 - 34,203
Prepayments and accrued income 24,438 51,075 16,188 34,558
80,190 259,093 16,188 1,335,527
Amounts falling due after one year
Amounts owed by group undertakings - - 2,283,596 -
The Directors consider that the amounts owed by group undertakings to the company as at 31 December
2005 will not be repaid within one year and have presented these accordingly in the Company Balance Sheet
12 Creditors: Amounts Falling Due Within One Year
The Group The Company
2005 2004 2005 2004
£ £ £ £
Trade creditors 83,501 134,255 864 17,310
Social security and other taxes 3,092 15,740 3,092 15,740
Other creditors 129,164 75,826 44,487 15,803
215,757 225,821 48,443 48,853
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M E R I D I A N P E T R O L E U M P L C
Notes to theAccounts
13 Deferred Taxation
No deferred tax asset has been recognised on losses carried forward (see note 6). There is no provided or
unprovided deferred tax liability.
14 Share Capital
2005 2004
£ £
Authorised
150,000,000 ordinary shares of 5p each 7,500,000 7,500,000
Allotted, called up and fully paid
64,093,193 (2004: 56,593,193) ordinary shares of 5p each 3,204,660 2,829,660
During the year the company allotted shares with an aggregate nominal value of £375,000 as follows:
Nature of consideration
Share Capital Share Premium
Price per Share Number £ £
Cash (share placing)
10p 7,500,000 375,000 375,000
The Company has granted warrants to subscribe for shares as follows:
Exercised
Granted in or lapsed in At 31
Exercise price the period the period December 2005
Warrants expiring 20 July 2007 30p 3,940,154
The Company has granted options to subscribe for 1,030,000 shares at 10p exercisable up to 20 July 2007.
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M E R I D I A N P E T R O L E U M P L C
Notes to theAccounts
15 Share Premium Account and Reserves
The Group
Share premium account Profit and loss account
2005 2004 2005 2004
£ £ £ £
At beginning of period 1,517,282 - (967,544) -
Retained loss for the year - - (872,307) (1,081,100)
Premium on allotment during the year 375,000 1,898,548 - -
Share issue costs (95,144) (381,266) - -
Share options granted - - - 206,000
Foreign currency investment translation - - 107,167 (92,444)
At 31 December 1,797,138 1,517,282 (1,732,684) (967,544)
The Company
Share premium account Profit and loss account
2005 2004 2005 2004
£ £ £ £
At beginning of period 1,517,282 - (138,392) -
Retained loss for the period - - (124,737) (344,392)
Premium on allotment during the year 375,000 1,898,548 - -
Share issue costs (95,144) (381,266) - -
Share options granted - - - 206,000
At 31 December 1,797,138 1,517,282 (263,129) (138,392)
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M E R I D I A N P E T R O L E U M P L C
Notes to theAccounts
16 Net Cash Outflow from Operating Activities
2005 2004
£ £
Operating loss (884,793) (1,099,897)
Amortisation - 15,250
Depletion 45,701 67,770
Write off exploration and development costs initially capitalised 124,642 -
Gain on disposal of fixed assets (48,329) -
Foreign currency translation difference (5,080) (92,444)
Decrease / (Increase) in debtors 178,903 (19,696)
(Decrease) / Increase in creditors (10,064) 224,938
UITF 17 Stock options charge - 206,000
Net cash outflow from operating activities (599,020) (698,079)
17 Financial instruments
The Group has financed its operations from equity issues.
The Group uses financial instruments, other than derivatives, comprising cash, liquid resources and various
items, such as trade debtors, trade creditors, etc, that arise directly from its operations. The main purpose of
these financial instruments is to raise finance for the Group’s operations.
The Group has not entered into any derivative transactions such as interest rate swaps, forward rate
agreements or forward currency contracts. Funds in excess of immediate requirements are placed in sterling
deposits.
Short-term debtors and creditors have been excluded from all the following disclosures, other than the
currency risk disclosures.
In the normal course of its operations the Group is exposed to foreign currency, commodity price and interest
rate risks. The financial statements are produced in pounds sterling but much of its business is conducted in
US dollars. As a result it is subject to foreign currency exchange risk due to exchange rate movements, which
will affect the Group’s transaction costs and the translation of the results and underlying net assets of its
foreign subsidiaries.
The Group does not hedge its exposure of foreign investments held in foreign currencies.
The net monetary liabilities (2004: assets) held in the US at the year end amounted to $(154,000) (2004:
$290,000)
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M E R I D I A N P E T R O L E U M P L C
Notes to theAccounts
18 Contingent Liabilities
There were no contingent liabilities at 31 December 2005 (2004: Nil)
19 Operating Leases
There were commitments in respect of the lease of premises amounting to £2,750 (2004 £33,000) due within one
year and £Nil (2004 £2,750) due after one year.
20 Post Balance Sheet Events
(1) On 20 February 2006 the Company completed the placing of 7,171,426 ordinary shares at 14p per
share raising £1,004,000.
(2) On 24 April 2006 the Company issued 1,140,000 ordinary shares at 30p per share pursuant to an
exercise of warrants raising £342,000.
(3) On 19 May 2006 the Company issued 300,000 ordinary shares at 10p per share pursuant to an
exercise of options raising £30,000.
21 Transactions with Directors and Other Related Parties
Donald Caldwell has an interest in each of the Company’s US assets by virtue of his interests in Longwood
Exploration Company and Lodestar Energy, LLC. Donald Caldwell and his wife own the entire issued share capital
of Lodestar Energy, LLC and they are also the sole directors of the company. Donald Caldwell owns 40% of the
issued share capital of Longwood Exploration Company and is also a director and president of the company.
Longwood Exploration Company owns a 20% working interest (WI) and a 15.2% net revenue interest (NRI) in the
Emery Hudson field. Lodestar Energy LLC owns a 3.5% WI and a 2.66% NRI in the Emery Hudson field. In
addition, Donald Caldwell personally owns an overriding royalty interest in the lease of around 1.5%.
Longwood Exploration Company owns a 10% WI and a 7.5% NRI in the Brighton 36 prospect.
Longwood Exploration Company owns a 3.33% WI and a 2.5% NRI in the Calvin prospect. Donald Caldwell also
owns a small personal interest in the prospect.
Lodestar Energy, LLC and Longwood Exploration Company also held interests in the West Levees Creek and
Middleton Creek prospects.
The company has a consulting agreement with Lodestar Energy, LLC and during the year £63,984 (2004: £36,092)
was paid by the company under this agreement.
The company has a consulting agreement with Global Energy Consultants Limited which was paid £39,000 (2004:
£18,450) during the year. Peter Clutterbuck is a shareholder and director of Global Energy Consultants.
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M E R I D I A N P E T R O L E U M P L C
Notice ofAnnual GeneralMeeting
Notice is hereby given that the Annual General Meeting of the Meridian Petroleum Plc will be held on 27th July 2006 at
42 Berkeley Square, London W1J 5AW at 10.00 a.m. for the following purposes, namely:
Ordinary Business
As Ordinary Business, to consider and, if thought fit, pass the following resolutions which will be proposed as Ordinary
Resolutions:
1. To receive and adopt the Directors’ Report and the Financial Statements for the year ended 31 December
2005, together with the report of the auditors thereon.
2. To reappoint Grant Thornton UK LLP as auditors of the Company until the conclusion of the next Annual
General Meeting at which accounts for the Company are presented and to authorise the directors to
determine the Auditors’ remuneration.
3. To re-elect Donald Caldwell as a director of the Company, who retires in accordance with the Company’s
Articles of Association and offers himself for re-appointment.
4. To transact any other ordinary business.
Special Business
As Special Business 1 to consider and if thought fit to pass the following resolutions of which the resolution numbered
5 will be proposed as an ordinary resolution and the resolution numbered 6 will be proposed as a special resolution:
5. That the Directors be and they are hereby generally and unconditionally authorised in accordance with
section 80 of the Companies Act 1985 (the “Act”) to allot relevant securities (as defined in that section) up to
a maximum aggregate nominal amount of £1,250,000 and this authority will (unless renewed) expire at the
conclusion of the next Annual General Meeting of the Company but the Company may, before this authority
expires, make an offer or agreement which would or might require relevant securities to be allotted after the
authority expires and the Directors may allot relevant securities pursuant to such offer or agreement as if the
authority conferred hereby had not expired.
6. That the Directors be and they are hereby empowered pursuant to section 95 of the Act to allot equity
securities (within the meaning of section 94 of the Act) for cash pursuant to the authority conferred by
Resolution 5 above as if section 89(1) of the Act did not apply to any such allotment provided that this power
shall be limited to:
{ 2 9 }
Annual Report 2005 V3 PRINT.qxp 30/06/2006 14:44 Page 29
M E R I D I A N P E T R O L E U M P L C
Notice ofAnnual GeneralMeeting
(a) the allotment of equity securities in connection with an issue in favour of the holders of ordinary shares
of the Company in proportion (as nearly as may be) to their respective holdings of ordinary shares,
subject only to exclusions or other arrangements which the Directors may deem necessary or
expedient to deal with fractional entitlements, legal or practical problems arising in any overseas
territory or the requirements of any regulatory body or stock exchange in any territory; and
(b) the allotment (otherwise than pursuant to sub-paragraph (a) above) of equity securities up to an
aggregate nominal amount of £1,250,000
and the power hereby granted shall expire at the conclusion of the next Annual General Meeting of the
Company save that the Company may before such expiry make an offer or agreement which would or might
require equity securities to be allotted after such expiry but otherwise in accordance with the foregoing
provisions of this power in which case the Directors may allot equity securities in pursuance of such offer or
agreement as if the power conferred hereby had not expired.
BY ORDER OF THE BOARD
Niel Redpath Registered Office:
Company Secretary 42 Berkeley Square
3 July 2006 London W1J 5AW
Notes:
1. Copies or particulars of contracts of service between directors and the company or any of its subsidiary undertakings will be available for
inspection by members at the registered office of the company during normal business hours from the date of this notice until 26 July
2006 and at the place of the Annual General Meeting for fifteen minutes prior to and until the conclusion of that meeting.
2. A Member entitled to attend and vote at the Meeting convened by this Notice is entitled to appoint one or more proxies to attend and, on
a poll, to vote in his or her stead. A proxy need not be a member of the Company. A form of proxy is enclosed. The appointment of a
proxy will not preclude a member from being present at the Meeting and voting in person if he or she should subsequently decide to do
so.
3. To be valid, forms of proxy must be lodged at the office of the Company’s registrars, The Causeway, Worthing, West Sussex BN99 6ZL,
not less than 48 hours before the meeting or any adjournment.
4. Pursuant to regulation 41 of the Uncertificated Securities Regulations 2001, members will be entitled to attend and vote at the meeting if
they are registered on the Company’s register of members 48 hours before the time appointed for the meeting or any adjournment
thereof.
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Annual Report 2005 V3 PRINT.qxp 30/06/2006 14:44 Page 30
{ 3 1 }
M E R I D I A N P E T R O L E U M P L C
Form of ProxyFor AnnualGeneral Meeting
I ....................................................................................................................................... (Name(s) in full in block capitals)
of (address) .........................................................................................................................................................................
.............................................................................................................................................................................................
being a member of the above named Company hereby appoint ...............................................................................
of ............................................................. or, failing him/her the Chairman of the Meeting, as my proxy to vote for me on
my behalf in accordance with the instructions set out below at the Annual General Meeting of the Company to be held
on 27th July 2006 and at any adjournment thereof.
Please delete "Either" or "Or" below and mark "For" or "Against" as appropriate and return this form to the Company
Secretary. To be valid this form must be lodged with the Company’s registrars not less than 48 hours before the Meeting.
Either To vote as my Proxy or failing him/her as the Chairman thinks fit.
Or For Against
Resolution 1
Resolution 2
Resolution 3
Resolution 4
Resolution 5
Resolution 6
Signed .............................................................................................................................................................................
Name ..............................................................................................................................................................................
Date ...............................................................................................................................................................................
✂
PLEASE COMPLETE IF YOU DO NOT INTEND TO ATTEND IN PERSON
(Company No: 05104249)
Annual Report 2005 V3 PRINT.qxp 30/06/2006 14:44 Page 31
SECOND FOLD
BUSINESS REPLY SERVICELicence No. SEA10846 1
Lloyds TSB RegistrarsThe CausewayWorthingWest SussexBN99 6ZL
THIRD FOLD & TUCK IN
DLO
FT
SRI
F
Annual Report 2005 V3 PRINT.qxp 30/06/2006 14:44 Page 32