Desire_Petroleum_plc - Desire Petroleum Plc by nyut545e2

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									THIS DOCUMENT IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION. If you are in any doubt about
the contents of this document you should consult a person authorised under the Financial Services and Markets Act 2000 who
specialises in advising on the acquisition of shares and other securities.
A copy of this document, which comprises a prospectus and which has been drawn up in accordance with the requirements of the
Public Offers of Securities Regulations 1995 (as amended) has been delivered for registration to the Registrar of Companies in
England and Wales in accordance with Regulation 4(2) of those Regulations.
Application will be made for the New Ordinary Shares of Desire Petroleum plc (“the Company” or “Desire Petroleum”) to be
admitted to trading on the AIM market of the London Stock Exchange. It is expected that dealings in the New Ordinary Shares
will commence on AIM on 22 January 2004.
If you have sold or otherwise transferred all of your Existing Ordinary Shares, please send this document together with the
accompanying Application Form and Form of Proxy at once to the purchaser or transferee or to the stockbroker, bank or other
agent through whom the sale or transfer was effected for onward transmission to the purchaser or transferee. If you have sold
part of your holding of Existing Ordinary Shares, you should refer to the instructions regarding split applications set out in the
Application Form accompanying this document.
AIM is a market designed primarily for emerging or smaller companies to which a higher investment risk tends to be attached
than to larger or more established companies. AIM securities are not admitted to the Official List of the UK Listing Authority. A
prospective investor should be aware of the risks of investing in such companies and should make the decision to invest only after
careful consideration and, if appropriate, consultation with an independent financial adviser. Neither the UK Listing Authority
nor the London Stock Exchange has examined or approved the contents of this document.




                              Desire Petroleum Plc
                   (Incorporated and registered in England and Wales with Registered No. 3168611)


 Placing of 35,313,100 new ordinary shares of 1p each at 10p per share
    Open Offer of 37,500,184 new ordinary shares of 1p each at 10p
            per share on the basis of 1 New Ordinary Share for every
        3 Existing Ordinary Shares with an excess application facility
                                           Nominated Adviser & Broker
                                          Seymour Pierce Limited

Copies of this document will be available to the public free of charge at the offices of Seymour Pierce Limited at Bucklersbury
House, 3 Queen Victoria Street, London EC4N 8EL, during normal business hours on any week day (excluding Saturdays,
Sundays and public holidays) from the date of this document until one month from Admission.
Seymour Pierce Limited which is regulated by the Financial Services Authority is acting as nominated adviser and broker to
Desire Petroleum in connection with the proposed Placing and Open Offer and for no one else, and will not be responsible to
anyone other than Desire Petroleum for providing the protections afforded to customers of Seymour Pierce Limited or for
providing advice in relation to the proposed Placing and Open Offer.
The New Ordinary Shares have not been, nor will they be, registered under the United States Securities Act of 1933 (as amended)
or under the securities laws of any state or other jurisdiction of the United States, nor have the relevant clearances been, nor will
they be, obtained from the Securities Commission or similar authority of any province or territory of Canada and no prospectus
has been or will be filed or registration made under any securities laws of any province or territory of Canada, nor has a
prospectus in relation to the New Ordinary Shares been lodged, nor will one be lodged, with or registered by the Australian
Securities Commission, nor have any steps been taken nor will any steps be taken to enable the New Ordinary Shares to be
offered in compliance with applicable securities laws of the Republic of Ireland or South Africa. Accordingly, unless an
exemption under the relevant securities laws is available, the New Ordinary Shares may not be offered, sold, re-sold, renounced,
taken up or delivered, directly or indirectly, in, into or from the United States, Canada, Australia, the Republic of Ireland or
South Africa or any other jurisdiction in which the offer of the New Ordinary Shares would constitute a violation of the relevant
laws or require registration thereof. All Shareholders (including without limitation, nominees, trustees or custodians) who
would or otherwise intend to forward this document and/or any of the accompanying documents to any jurisdiction outside the
United Kingdom or to overseas persons should seek appropriate advice before taking any action.
If you are a Qualifying Shareholder and wish to apply for shares under the Open Offer you should complete the Application
Form accompanying this document and return it, together with the remittance payable, to the Company’s receiving agents,
Capita IRG Plc. The latest time for application and payment in full under the Open Offer is 3.00 p.m. on 20 January 2004. The
procedure for application and payment is described in Part III of this document and in the Application Form.
Notice of an Extraordinary General Meeting of Desire Petroleum to be held at Seymour Pierce Limited, Bucklersbury House,
3 Queen Victoria Street, London EC4N 8EL at 10.00 a.m. on 21 January 2004 is set out at the end of this document.
Shareholders are requested to complete and return the enclosed Form of Proxy for use in connection with the Extraordinary
General Meeting in accordance with the instructions printed thereon as soon as possible but in any event by not later than
10.00 a.m. on 19 January 2004 whether or not they propose to be present at the Extraordinary General Meeting.
                                        CONTENTS

                                                                                   Page
Definitions                                                                            3

Directors, Secretary and Advisers                                                    5

Offer Details, Qualifying Shareholder Application Summary and Expected Timetable     6

Glossary                                                                             7

Map showing the North Falkland Basin                                                 8

PART I       Letter from the Chairman                                                9

PART II      Risk Factors                                                           14

PART III     Open Offer letter from Seymour Pierce                                  16

PART IV      Financial Information on Desire Petroleum Plc                          22

PART V       Unaudited Interim Statement of Results of Desire Petroleum Plc         34

PART VI      Summary of Licences and Joint Operating Agreement                      38

PART VII     Additional Information                                                 44

Notice of EGM                                                                       63




                                              2
                                       DEFINITIONS

The following definitions apply throughout this document unless the context otherwise requires:
“Act”                           the Companies Act 1985 (as amended)
“Admission”                     the admission of the New Ordinary Shares to trading on AIM
                                becoming effective in accordance with the AIM Rules
“AIM”                           the AIM market of the London Stock Exchange
“AIM Rules”                     the rules applicable to companies whose shares are traded on
                                AIM published by the London Stock Exchange
“Application Form”              the application form accompanying this document for use by
                                Qualifying Shareholders in connection with the Open Offer
“Articles”                      the articles of association of the Company
“Company” or “Desire            Desire Petroleum plc
 Petroleum”
“CREST”                         the relevant system (as defined in the CREST Regulations) in
                                respect of which CRESTCo Limited is the operator (as defined in
                                the CREST Regulations) in accordance with which securities
                                may be held and transferred in uncertificated form
“CREST Regulations”             the Uncertificated Securities Regulations 2001
“Crown”                         the UK Government
“Directors” or “Board”          the directors of the Company whose names are set out on page 5
                                of this document
“EGM”                           an extraordinary general meeting of the Company to be held at
                                10.00 a.m. on 21 January 2004, notice of which is set out at the
                                end of this document
“Existing Ordinary Shares”      the Ordinary Shares in issue prior to the Placing and the Open
                                Offer
“Form of Proxy”                 the form of proxy accompanying this document for use by
                                holders of Existing Ordinary Shares in connection with the EGM
“Fugro”                         Fugro Geoteam A/S, a company incorporated in Norway
“Fugro Heads”                   means the heads of agreement dated 5 December 2003 (as
                                amended) between the Company and Fugro, as summarised in
                                paragraph 8.6 of Part VII
“Gaelic”                        Gaelic Resources Public Limited Company
“Group”                         the Company and its subsidiaries
“Issue Price”                   10p per New Ordinary Share
“London Stock Exchange”         London Stock Exchange plc
“New Ordinary Shares”           the Placing Shares and the Open Offer Shares
“North Falkland Basin”          an area lying to the north of the Falkland Islands in relation to
                                which the Crown in right of government of the Falkland Islands
                                exercises jurisdiction over the exploration and exploitation of the
                                non-living resources of the seabed and sub-soil, as indicated on
                                the map set out on page 8 of this document
“Notice”                        the notice of EGM set out at the end of this document
“Official List”                  the Official List of the UK Listing Authority
“Open Offer”                    the invitation being made by Seymour Pierce, on behalf of the
                                Company, to Qualifying Shareholders to subscribe for Open
                                Offer Shares at the Issue Price, on the terms and subject to the
                                conditions set out in this document

                                               3
“Open Offer Shares”          up to 37,500,184 new Ordinary Shares which are the subject of
                             the Open Offer
“Options”                    means options granted by the Company pursuant to the Share
                             Option Schemes
“Ordinary Shares”            ordinary shares of 1p each in the capital of the Company
“Overseas Shareholders”      Shareholders resident in any jurisdiction other than the United
                             Kingdom
“Phipps and Company”         Phipps and Company Limited
“Placing”                    the conditional placing by Seymour Pierce as agent of the
                             Company of the Placing Shares at the Issue Price in accordance
                             with the Placing Agreement
“Placing Agreement”          the conditional agreement dated 24 December 2003 between (1)
                             the Company, (2) the Directors and (3) Seymour Pierce relating
                             to the Placing, details of which are set out in paragraph 8.1 of
                             Part VII of this document
“Placing Shares”             the 35,313,100 new Ordinary Shares which have been
                             conditionally placed by Seymour Pierce in connection with the
                             Placing
“POS Regulations”            the Public Offers of Securities Regulations 1995 (as amended)
“Qualifying Shareholders”    holders of Existing Ordinary Shares whose names appear on the
                             register of members of the Company as at the Record Date
                             excluding certain Overseas Shareholders as described in this
                             document
“Record Date”                the close of business on 22 December 2003
“Remuneration Committee”     the remuneration committee of the Board, from time to time
“Resolutions”                the resolutions set out in the Notice
“Seismic Survey Agreement”   the agreement proposed to be entered into by the Company and
                             Fugro, pursuant to which Fugro will conduct a three dimensional
                             seismic survey of certain areas located in the North Falkland
                             Basin
“Seymour Pierce”             Seymour Pierce Limited
“Shareholders”               holders of Ordinary Shares
“Share Option Schemes”       the share option schemes operated by the Company, details of
                             which are set out in paragraph 5 of Part VII of this document
“Tranche C”                  means the area of the North Falkland Basin marked “C” on the
                             map on page 8 of this document
“Tranche D”                  means the area of the North Falkland Basin marked “D” on the
                             map on page 8 of this document
“Tranche F”                  means the area of the North Falkland Basin marked “F” on the
                             map on page 8 of this document
“Tranche I”                  means the area of the North Falkland Basin marked “I” on the
                             map on page 8 of this document
“Tranche L”                  means the area of the North Falkland Basin marked “L” on the
                             map on page 8 of this document
“uncertificated” or “in       recorded on the relevant register of the Ordinary Shares as being
 uncertificated form”         held in uncertificated form in CREST and title to which by virtue
                             of the CREST Regulations, may be transferred by means of
                             CREST
“UK” or “United Kingdom”     the United Kingdom of Great Britain and Northern Ireland
“United States” or “USA”     the United States of America, its territories and possessions, any
                             state of the United States of America and the district of Columbia
                             and any other area subject to its jurisdiction

                                            4
                           DIRECTORS, SECRETARY AND ADVISERS

Directors:                       Dr Colin Barry Phipps, Chairman
                                 Dr Alan John Martin, Non-executive Director
                                 Dr Ian Gordon Duncan, Non-executive Director
                                 Stephen Lawrey Phipps, Non-executive Director
                                 Walter Ian Logan Forrest, Non-executive Director
                                 Dr David Huw Quick, Non-executive Director
                                 Business address:
                                 Mathon Court, Mathon, Malvern, Worcestershire WR13 5NZ

Company Secretary:               Mrs Anna Ruth Neve

Registered Office:                Mathon Court
                                 Mathon
                                 Malvern
                                 Worcestershire WR13 5NZ

Nominated Adviser and            Seymour Pierce Limited
Broker:                          Bucklersbury House
                                 3 Queen Victoria Street
                                 London EC4N 8EL

Solicitors to the Company:       Clintons
                                 55 Drury Lane
                                 London WC2B 5RZ

Solicitors to the Issue:         Field Fisher Waterhouse
                                 35 Vine Street
                                 London EC3N 2AA

Auditors and Reporting           Hacker Young
Accountants:                     Chartered Accountants
                                 St James Building
                                 79 Oxford Street
                                 Manchester M1 6HT

Registrars:                      Capita Registrars
                                 The Registry
                                 34 Beckenham Road
                                 Beckenham
                                 Kent BR3 4TU

Receiving Agents:                Capita IRG Plc
                                 Corporate Actions
                                 P.O. Box 166
                                 The Registry
                                 34 Beckenham Road
                                 Beckenham
                                 Kent BR3 4TH




                                               5
                                                  OFFER DETAILS

Issue Price                                                                                                               10p
Number of New Ordinary Shares being issued                                                                      72,813,284
Number of Ordinary Shares in issue following completion of the
Placing and the Open Offer                                                                                    185,313,836
Market capitalisation at the Issue Price                                                                    £18.53 million
Percentage of enlarged issued ordinary share capital represented
by the New Ordinary Shares                                                                                 39.29 per cent.
Approximate gross proceeds of the Placing and the Open Offer                                                 £7.28 million
Estimated net proceeds of the Placing and the Open Offer                                                     £6.97 million
Note: The figures in the table above assume that all 37,500,184 Open Offer Shares are subscribed for under the Open Offer and all
35,313,100 Placing Shares are subscribed for pursuant to the Placing.




                 QUALIFYING SHAREHOLDER APPLICATION SUMMARY

The Open Offer is an opportunity for Qualifying Shareholders to subscribe for additional New
Ordinary Shares at 10p per share.
Those Qualifying Shareholders who wish to apply for any New Ordinary Shares should complete
and return the enclosed Application Form (together with payment) in respect of any number of
New Ordinary Shares that they wish to subscribe for. Whilst a pro rata entitlement is shown on
each Application Form, less or more New Ordinary Shares may be applied for (in the case of the
Open Offer being oversubscribed, applications may be scaled back).
Full details of the Open Offer are set out in this document and on the Application Form.




                        EXPECTED TIMETABLE OF PRINCIPAL EVENTS


Record Date for the Open Offer                                                                        22 December 2003
Prospectus published                                                                                  24 December 2003
Latest time and date for splitting Application Forms to
satisfy bona fide market claims under the Open Offer                                    3.00 p.m. on 15 January 2004
Latest time and Date for receipt of Form of Proxy                                    10.00 a.m. on 19 January 2004
Latest time and Date for receipt of completed Application
Forms and payment in full under the Open Offer                                         3.00 p.m. on 20 January 2004
EGM                                                                                  10.00 a.m. on 21 January 2004
Admission effective and dealings commence in the
New Ordinary Shares on AIM and (where applicable)
CREST stock accounts expected to be credited                                           8.00 a.m. on 22 January 2004
Despatch of definitive share certificates for
New Ordinary Shares no later than                                                                        29 January 2004

                                                               6
                                  GLOSSARY

aggradation               the building up of the earth’s surface by the natural accumulation
                          of rock material thrown down or collected in strata by water,
                          wind or volcanic action
comminution               the gradual diminution of a substance to a fine powder or dust by
                          crushing, grinding or rubbing
hydrocarbon               any of a class of compounds of hydrogen and carbon which are
                          found in petroleum, coal and natural gas
lacustrine                sedimentary depositional environment of a lake
oil shows                 occurrence of oil staining, oil fluorescence or high gas reading in
                          drilling mud, drill cuttings or cores, during the drilling of a well
physical check sampling   the gathering of specimens of material for analysis to determine
                          its composition
sandstone                 coarse-grained sedimentary rock consisting primarily of quartz
                          grains or rock fragments
sand source               economic basement or flank rocks of a sedimentary basin that
                          provide sand grains or fragments into the basin during erosion
sealing rocks             impermeable rocks of low or minimal permeability, often shales
                          or salt, that form barriers to the passage of hydrocarbons
sedimentary rock          rock formed by aggradation or comminution of pre-existing
                          rocks and landmasses, subsequently transported and deposited
                          in a subsiding sedimentary basin
seep                      surface escape of oil
seismic survey            linear or grid pattern for acquisition of reflection seismic data
shale                     very fine-grained sedimentary rock consisting primarily of
                          microscopic, layered clay minerals
slick                     a layer of oil floating on the sea, generally caused by an accident
                          but which occasionally is caused by natural seepage from the
                          ocean floor
source rocks              organic-rich, fine grained sedimentary rocks that yield
                          hydrocarbons on reaching thermal maturity
thermal maturity          state of adequate thermal heating of a source rock such that
                          hydrocarbons are expelled




                                         7
                        MAP SHOWING THE NORTH FALKLAND BASIN




Note: Part VI of this document contains details of the areas within these Tranches in which the Company has an interest




                                                                8
                                                  PART I

                                     Letter from the Chairman

                          Desire Petroleum Plc
                        (registered in England and Wales with registered number 3168611)


Directors:                                                                                 Registered Office:
Dr Colin Barry Phipps, Chairman                                                               Mathon Court
Dr Alan John Martin, Non-executive Director                                                         Mathon
Dr Ian Gordon Duncan, Non-executive Director                                                        Malvern
Stephen Lawrey Phipps, Non-executive Director                                     Worcestershire WR13 5NZ
Walter Ian Logan Forrest, Non-executive Director
Dr David Huw Quick, Non-executive Director
                                                                                           24 December 2003
To Qualifying Shareholders and, for information only, to the holders of Options

Dear Shareholder
Proposed Placing of 35,313,100 Placing Shares and Open Offer of 37,500,184 Open Offer Shares
on the basis of 1 Open Offer Share for every 3 Existing Ordinary Shares

Introduction
Your Board indicated in the announcement of Desire Petroleum’s interim results on 23 September
2003 that the Company intended to raise further funds and that Shareholders would be given the
opportunity to participate in any fundraising. Your Board is therefore pleased to have announced
today that the Company proposes to raise up to approximately £7.28 million (before expenses) by
way of a Placing and Open Offer of up to 72,813,284 New Ordinary Shares at a price of 10p per
New Ordinary Share. The Placing has been fully underwritten by Seymour Pierce.
Qualifying Shareholders are invited to subscribe for Open Offer Shares under the Open Offer on
the basis of:
                    1 Open Offer Share for every 3 Existing Ordinary Shares
held at the Record Date. Qualifying Shareholders may apply for their pro rata entitlement, less than
their pro rata entitlement or for their pro rata entitlement together with any further number of
Open Offer Shares, by inserting the number of Open Offer Shares being applied for in the relevant
box on the Application Form. The Open Offer is conditional, inter alia, on the passing of the
Resolutions to be proposed at the EGM, the Placing Agreement becoming unconditional and on
Admission.
The principal purpose of the Placing and Open Offer is to provide funds for the Company to enable
it to negotiate and to enter into the Seismic Survey Agreement with Fugro to engage Fugro formally
to carry out a 3D seismic survey over certain areas within Tranches C and D.

Background Information
Desire Petroleum (named after HMS Desire which discovered the Falkland Islands in 1592) was
incorporated in 1996 specifically to participate in the first round of licences granted by the Falkland
Islands Government to explore for hydrocarbons. The Company currently has the following
interests in exploration licences (the terms of which are summarised in Part VI of this document):
(a)   the exclusive right to search for hydrocarbons from the seabed and subsoil of certain blocks
      within Tranches C, D, I and L;
(b)   a 12.5 per cent. interest in a licence to search for hydrocarbons from the seabed and subsoil of
      certain blocks within Tranche F (“Tranche F Licence”). The remaining 87.5 per cent. interest
      in this licence is held by Sodra Petroleum A.B. (a subsidiary of Talisman Energy Inc.). The
      interests in the Tranche F Licence are the subject of a joint operating agreement (summarised
      in paragraph 2 of Part VI).

                                                       9
In 1998, the Company’s then issued ordinary share capital was admitted to trading on AIM,
following a share placing which raised £15 million before expenses.
Desire Petroleum participated in two of the six wells drilled in the North Falkland Basin during
1998 – one in Tranche C and the other in Tranche F. With the exception of the well in Tranche C,
five of the wells encountered oil shows, but none provided evidence of an economically significant
oil prospect. However, the presence of a very thick (approximately 1,150m), lacustrine source rock
(now known to be the second-richest yet found worldwide) was established. The Directors believe
this source rock has operated as an effective, basin-wide seal, which the Board suspects prevented
the migration of oil to the sandstone reservoirs encountered above it. These sandstone reservoirs
were the target of the initial drilling campaign and the presence of the seal could explain why these
reservoirs are not charged with oil.
Only one well penetrated any depth below the source rock and, although it did encounter
hydrocarbons, because the well was drilled in the centre of the North Falkland Basin (shown as
14/5-1 on the map on page 8 of this document), farthest from a potential sand source, only siltstone
reservoirs, of poor quality, were encountered. However, this result does suggest that, if suitable
reservoirs do exist below and/or adjacent to the source rock, they are likely to be charged with oil.
It has been calculated that very large volumes of oil (up to 60 billion barrels) may have been
generated and expelled from the source rock. The Board’s view is that because the seal is so
effective, this oil should not have escaped and recent studies have concentrated on identifying
where reservoirs, into which the oil could have migrated, might be located. The Directors believe
that these areas within Tranches C and D, in respect of which Desire Petroleum is the exclusive
licensee and which straddle the main oil-generating kitchen, are best-placed for the presence of oil
accumulations and recent work has been directed at identifying potential reservoirs within them.
As a result, a new model of the geology (“New Model”) has been developed by the Company which,
if correct, may lead to the discovery of oil in commercial quantities. The New Model has identified
at least three areas each of which the Directors believe has the potential to contain recoverable
reserves of up to one billion barrels of oil, should suitable reservoir rocks be present.
The New Model predicts sandstone development, both below and adjacent to the source rock,
which, due to the subtle geometry, is difficult to define on the basis of 2D seismic data alone. The
Directors believe that this problem should be resolved by the use of 3D seismic data which should
give a greatly enhanced resolution of the sub-surface geology. The Fugro Heads provide, once
sufficient funds have been raised by the Company, for a fixed price turnkey contract to be entered
into by the Company and Fugro to engage Fugro to acquire 3D seismic data over what the Directors
believe to be the most prospective areas of the Company’s licensed areas within Tranches C and D.
Fugro is one of the world’s major off-shore seismic contractors.
Once the 3D seismic data has been interpreted, the results will, assuming that the 3D seismic data
shows enhanced drilling prospects, form the basis on which the next phase of drilling will be
designed by the Company. These results will also be used as the basis upon which the Company
conducts further negotiations with potential partners who have expressed an interest in the North
Falkland Basin. The most probable time for the next phase of drilling, assuming that the 3D seismic
data shows enhanced drilling prospects, will be the Austral summer of 2004-5.

Reasons for the Placing and the Open Offer and Use of Proceeds
Assuming the Open Offer is fully subscribed, the Placing and the Open Offer will raise proceeds of
approximately £6.97 million for the Company (net of expenses).
The Directors intend that the net proceeds will:
(a)   enable the Company to enter into the Seismic Survey Agreement to engage Fugro to carry out
      the 3D seismic survey described above, initially in respect of parts of Tranches C and D.
      Depending on the total funds raised from the Open Offer, funds may also be used to pay for
      the interpretation of the 3D seismic data collected by Fugro;

                                                 10
(b)   repay an outstanding loan in the sum of £100,000 plus interest to Phipps and Company;

(c)   pay certain deferred fees to each of Phipps and Company (partly in respect of Directors’ fees
      owed to Stephen Phipps), Molard Financial Management Services SA (in respect of the
      services of Walter Ian Logan Forrest), Dr Alan John Martin, Dr Ian Gordon Duncan and QM
      Marketing Limited (in respect of the services of Dr David Quick). These deferred fees total
      £396,560 (plus VAT where applicable) in aggregate. However, certain of the aforementioned
      persons intend to subscribe for 4,015,600 New Ordinary Shares in aggregate which, at the
      Issue Price, represents an aggregate cash subscription of £401,560 (see “Directors’ and
      Certain Shareholders’ Intentions” on page 12 below).

The balance of the funds raised from the Placing and the Open Offer will be used as additional
working capital.


Principal terms of the Placing and the Open Offer
The Company proposes to issue up to 35,313,100 Placing Shares and 37,500,184 Open Offer
Shares at the Issue Price which, assuming the Open Offer is fully subscribed, will raise in aggregate
approximately £7.28 million for the Company (before expenses). Seymour Pierce has fully
underwritten the Placing. Part III of this document comprises a letter from Seymour Pierce, inviting
Qualifying Shareholders to apply for Open Offer Shares at the Issue Price on the basis of:

                    1 Open Offer Share for every 3 Existing Ordinary Shares

registered in their name on the Record Date and so on in proportion for any other number of
Existing Ordinary Shares so registered. Qualifying Shareholders may apply for their pro rata
entitlement, less than their pro rata entitlement, or their pro rata entitlement together with any
further number of Open Offer Shares, by inserting the number of Open Offer Shares being applied
for in the relevant box on the Application Form. Where appropriate, the entitlement of Qualifying
Shareholders will be rounded down to the nearest whole number of Open Offer Shares and any
fractional entitlements will be aggregated and sold, if required, for the benefit of the Company to
satisfy excess applications. The Placing Shares and the Open Offer Shares will, when issued and
fully paid, rank pari passu in all respects with the Existing Ordinary Shares of the Company and
will, once allotted, rank in full for all dividends and other distributions declared, made or paid on
the share capital of the Company in respect of the period after such allotment.

For example, if you currently hold 10,000 Existing Ordinary Shares, your pro rata entitlement
pursuant to the Open Offer is 3,333 Open Offer Shares (“Initial Entitlement”). The excess
application facility entitles you to apply for any number of Open Offer Shares in addition to the
3,333 Open Offer Shares representing the Initial Entitlement.

Qualifying Shareholders will find enclosed with this document an Application Form containing
details of their entitlement to subscribe for Open Offer Shares. To be valid, completed Application
Forms and payment in full must be received by the Company’s receiving agents, Capita IRG Plc,
Corporate Actions, P.O. Box 166, The Registry, 34 Beckenham Road, Beckenham, Kent BR3 4TH
by 3.00 p.m. on 20 January 2004.

The Placing and the Open Offer is conditional, inter alia, on both the passing of the Resolutions to
be proposed at the EGM and Admission. It is expected that dealings in the New Ordinary Shares
will commence on AIM on 22 January 2004 (or such later date as shall be determined by Seymour
Pierce and the Company, being not later than 1 March 2004). If Admission has not so occurred by
such later date, application monies will be returned to applicants without interest as soon thereafter
as is practicable and in any event by 8 March 2004.

Further information on the Open Offer, including the procedure for application and payment, is set
out in the letter from Seymour Pierce in Part III of this document and in the Application Form. The
attention of Overseas Shareholders is drawn specifically to the section entitled “Overseas
Shareholders” contained in Part III of this document.

                                                 11
Directors’ and Certain Shareholders’ Intentions
      Phipps and Company, a corporate Shareholder in which Stephen Lawrey Phipps is a
      shareholder and director has undertaken to subscribe for 3,218,600 New Ordinary Shares
      which, at the Issue Price, represents a cash subscription of £321,860;
      Dr Colin Barry Phipps, Marion Phipps and Michael Field, as trustees of the Phipps and
      Company retirement benefit scheme, have undertaken to subscribe for an aggregate of
      2,500,000 New Ordinary Shares which, at the Issue Price, represents a cash subscription of
      £250,000;
      Dr Alan John Martin has undertaken to subscribe for 225,000 New Ordinary Shares which,
      at the Issue Price, represents a cash subscription of £22,500;
      Walter Ian Logan Forrest has undertaken to subscribe for 225,000 New Ordinary Shares
      which, at the Issue Price, represents a cash subscription of £22,500;
      QM Marketing Limited (a corporate Shareholder in which Dr David Quick is a director and
      shareholder) has undertaken to subscribe for 225,000 New Ordinary Shares which, at the
      Issue Price, represents a cash subscription of £22,500; and
      Dr Ian Gordon Duncan intends to subscribe for 122,000 New Ordinary Shares which, at the
      Issue Price, represents a cash subscription of £12,200.

CREST
The Directors have arranged with CRESTCo Limited for the New Ordinary Shares to be admitted
to CREST with effect from Admission. Accordingly, settlement of transactions in the New
Ordinary Shares following Admission may take place within the CREST system, if the relevant
Shareholders so wish. CREST is a paperless settlement procedure, which allows securities to be
evidenced without a certificate and transferred otherwise than by written instrument. The Articles
permit the holding and transfer of Ordinary Shares under the CREST system.
CREST is a voluntary system and holders of New Ordinary Shares who wish to receive and retain
certificates in respect of New Ordinary Shares will be able to do so. Further information is set out on
the Application Form.

Extraordinary General Meeting
The Placing and the Open Offer are conditional, inter alia, on the approval of Shareholders which is
to be sought at an EGM convened for 10.00 a.m. on 21 January 2004 for which the Notice is set out
at the end of this document. At this meeting the following resolutions will be proposed:
1.    to increase the authorised share capital of the Company from £1,400,000 to £2,500,000 by
      the creation of 110,000,000 New Ordinary Shares;
2.    to authorise the Directors to allot, inter alia, Ordinary Shares pursuant to section 80 of the
      Act, sufficient to satisfy applications under the Placing and the Open Offer and otherwise up
      to an aggregate nominal value of £1,374,994.48; and
3.    to disapply the statutory pre-emption rights set out in section 89 of the Act to enable the New
      Ordinary Shares to be allotted, and to authorise the Directors to allot further Ordinary Shares
      pursuant to section 95 of the Act up to an aggregate nominal value of £928,132.84.

Further Information
Your attention is drawn to Parts II to VII of this document which provide additional information.

Action to be Taken
Form of Proxy
A Form of Proxy is enclosed for use by Shareholders at the EGM. Whether or not Shareholders
intend to be present at the EGM, they are asked to complete, sign and return the Form of Proxy to
the Company’s registrars, Capita Registrars, The Registry, 34 Beckenham Road, Beckenham, Kent

                                                 12
BR3 4TU as soon as possible but in any event so as to arrive no later than 10.00 a.m. on 19 January
2004. The completion and return of a Form of Proxy will not preclude Shareholders from attending
the EGM and voting in person should they wish to do so. Accordingly, whether or not Shareholders
intend to attend the EGM in person or take up any Open Offer Shares under the Open Offer, they
are urged to complete and return the Form of Proxy as soon as possible.
Application Form
If you wish to apply for Open Offer Shares under the Open Offer, you should complete the enclosed
Application Form in accordance with the instructions set out therein and in Part III of this
document. You should then return the Application Form in the enclosed reply-paid envelope, with
the appropriate remittance for the full amount payable on application, to be received no later than
3.00 p.m. on 20 January 2004 at the offices of the Company’s receiving agents, Capita IRG Plc,
Corporate Actions, P.O. Box 166, The Registry, 34 Beckenham Road, Beckenham, Kent BR3 4TH.

Recommendation
The Directors consider the Placing and Open Offer to be in the best interests of the Company and
Shareholders as a whole and accordingly unanimously recommend that you vote in favour of the
Resolutions. The following have irrevocably undertaken to vote in favour of the Resolutions
(further details of which are set out in paragraph 3.4 of Part VII of this document):
(a)   Phipps and Company (a corporate Shareholder in which Stephen Lawrey Phipps is a director
      and shareholder);
(b)   The trustees of the Phipps and Company retirement benefit scheme;
(c)   Dr Alan John Martin;
(d)   Dr Ian Gordon Duncan;
(e)   Walter Ian Logan Forrest;
(f)   Dr David Huw Quick; and
(g)   QM Marketing Limited (a corporate Shareholder in which Dr David Huw Quick is a director
      and shareholder).
The irrevocable undertakings referred to above represent beneficial holdings amounting in
aggregate to 29,193,397 Existing Ordinary Shares, representing 25.95 per cent. of the Company’s
existing issued share capital.

Yours faithfully

Dr Colin B. Phipps
Chairman




                                                13
                                              PART II

                                            Risk Factors

The attention of potential investors is drawn to the fact that ownership of shares in the Company
involves a variety of risks. All potential investors should carefully consider the entire contents of
this document including, but not limited to, the factors described below before deciding whether or
not to subscribe for New Ordinary Shares. The information below does not purport to be an
exhaustive list or summary of the risks affecting Desire Petroleum. There may be additional risks of
which the Directors are not aware. Investors should consider carefully whether an investment in the
Company is suitable for them in the light of the matters referred to in this document, their personal
circumstances and the financial resources available to them.

General Exploration Risks
Oil exploration and production involves a high degree of risk, in particular:
      an investment could be affected adversely by changes in economic, political, administrative,
      taxation or other regulatory factors, whether under English Law or in the UK (where the
      Company is registered) or under the laws of, or in, the Falkland Islands;
      Desire Petroleum’s success is entirely dependent on a successful exploration and production
      programme. There is no guarantee of success in any of these phases, nor is there any guarantee
      that economic accumulations of oil exist in any part of the North Falkland Basin. If at any
      stage the Company is precluded from pursuing the exploration and production programme
      (whether as a result of the termination or variation of any of the licences or agreements
      referred to in Part VI of this document, or otherwise) or decides not to continue, it is possible
      that the Ordinary Shares will cease to have any material value, subject only to any
      distribution of any surplus funds to Shareholders after payment of all debts due to the
      Company’s creditors;
      Desire Petroleum’s profitability will be subject to the normal risks inherent in exploring for
      and producing oil, many of which are outside the control of the Group and will also be
      dependent on the market price of oil, which can fluctuate significantly according to world
      market conditions. The geographic location of the Company’s assets and the lack of any
      existing infrastructure may also result in any oil produced by Desire Petroleum being sold at a
      discount to the world market price of oil; and
      all drilling for oil and gas is inherently speculative. The techniques presently available to
      petroleum engineers and geologists to identify the existence and location of hydrocarbons are
      not infallible. The personal subjective judgment of the relevant petroleum engineer or
      geologist is involved in the selection of any prospect for drilling. In addition, even when
      drilling successfully identifies commercial volumes of hydrocarbons, unforeseeable operating
      problems may render it uneconomic for the Group to continue to produce oil and/or natural
      gas from a particular well.

Operational and Environmental Risks
Desire Petroleum’s oil and gas operations are subject to all of the operating hazards and risks
normally inherent in drilling for and producing oil and gas. These include the possibility of fires,
earthquake activity, explosions, blowouts, cratering, oil spills or seepage, gas leaks,
over-pressurised formations, unusual or unexpected geological conditions, adverse weather
conditions, certain fishing practices and the absence of economically viable reserves. These hazards
may result in cost overruns, substantial losses and/or exposure to substantial environmental
pollution, personal injury claims and loss of life. Such hazards can also severely damage or destroy
equipment, surrounding areas or the property of third parties.
Desire Petroleum’s business is also subject to extensive and changing environmental and safety laws
and regulations governing plugging and abandonment, the discharge of materials into the
environment and otherwise relating to environmental protection. As with any entity with interests

                                                  14
in property, the Group may also be subject to clean-up costs and liability for toxic or hazardous
substances which may exist on or under any of its properties or which may be produced as a result
of its operations. In future, local, regional and national authorities may adopt stricter
environmental standards than those currently in force and such authorities may enforce more
strictly existing laws and regulations.

Market Risks
Desire Petroleum’s business may be affected by the general risks associated with all companies in
the oil and gas industry. The availability of a ready market for oil and gas to be sold by Desire
Petroleum (assuming a successful exploration programme) and the prices received for the Group’s
oil and gas production depend on numerous factors, many of which are beyond its control and the
exact effects of which cannot be accurately predicted. Such factors include general economic and
political activities (including the extent of governmental regulation and taxation), the availability
of transportation capacity (including the proximity and capacity of oil and gas pipelines) and the
availability and pricing of other competitive fuels. No assurance can be given that, should price
changes occur, Desire Petroleum would be able to find markets for its oil and/or gas or that
purchasers under existing contracts would not attempt to abrogate them.

Foreign Exchange Risks
As an oil company with operations overseas, most of Desire Petroleum’s sales and a significant
proportion of its costs are denominated in US dollars although it will report in UK Sterling. As a
result, a number of foreign currency effects may arise from exchange rate movements.

Dependence on Key Personnel
Desire Petroleum’s success will depend on its current and future Directors. The loss of the services
of any of the Directors or other key personnel could have a materially adverse effect upon Desire
Petroleum’s future.

Insurance Cover
Having regard to current activities of the Group and the fact that at present the Group has no
employees, the Directors do not consider it necessary or appropriate for the Company to have in
place any insurance. The occurrence of an event which might have been covered by insurance could
have a material adverse effect on the operations and financial position of the Group. Moreover,
there can be no assurance that Desire Petroleum will be able to maintain adequate insurance in the
future at rates that it considers reasonable.

Suitability
It may be difficult for an investor to sell his or her Ordinary Shares and he or she may receive less
than the amount paid by him or her for them. The Ordinary Shares may not be suitable for
short-term investment. The Ordinary Shares will not be quoted on the Official List and investments
in shares traded on AIM may be considered to carry a higher degree of risk than investments in
shares quoted on the Official List.
The market price of the Ordinary Shares may not reflect the underlying value of the Company’s net
assets.
The investment described in this document may not be suitable for all those who receive it. Before
making a final decision, investors in any doubt are advised to consult their stockbroker, bank
manager, solicitor, accountant or other professional adviser authorised under the Financial
Services and Markets Act 2000.




                                                 15
                                             PART III

                            Open Offer letter from Seymour Pierce




                                                                               Bucklersbury House
                                                                            3 Queen Victoria Street
                                                                               London EC4N 8EL
                                                                                 24 December 2003
To Qualifying Shareholders and, for information only, to the holders of Options
Dear Shareholder
  Proposed Placing of 35,313,100 Placing Shares and Open Offer of 37,500,184 Open Offer
                                          Shares
          on the basis of 1 Open Offer Share for every 3 Existing Ordinary Shares
Introduction
It was announced today that the Company is proposing to issue 35,313,100 Placing Shares at 10p
per share by way of the Placing and up to 37,500,184 Open Offer Shares at 10p per share by way of
the Open Offer to seek to raise approximately £7.28 million in aggregate (before expenses). Your
attention is drawn to the letter from the Chairman of your Company in Part I of this document,
which sets out the background to and reasons for the Placing and the Open Offer. The Placing has
been fully underwritten by Seymour Pierce.
This letter and the accompanying Application Form contains the formal terms and conditions of
the Open Offer.
Details of the Open Offer
Seymour Pierce, as agent for and on behalf of the Company, hereby invites Qualifying Shareholders
to apply for Open Offer Shares at the Issue Price of 10p per share, payable in full on application
(free of expenses). The Open Offer is made on the terms and subject to the conditions set out in this
Part III and in the Application Form enclosed with this document on the following basis:
                    1 Open Offer Share for every 3 Existing Ordinary Shares
registered in the Shareholder’s name at the close of business on the Record Date. Qualifying
Shareholders may apply for their pro rata entitlement, less than their pro rata entitlement, or for
their pro rata entitlement together with any further number of Open Offer Shares, by inserting the
number of Open Offer Shares being applied for in the relevant box on the Application Form.
Qualifying Shareholders’ pro rata entitlements are shown on the Application Form. Where
appropriate, the entitlement of Qualifying Shareholders will be rounded down to the nearest whole
number of Open Offer Shares. Holdings of Existing Ordinary Shares in certificated and
uncertificated form will be treated as separate holdings for the purpose of calculating entitlements
under the Open Offer.
The Open Offer Shares will, when issued and fully paid, rank pari passu in all respects with the
Existing Ordinary Shares and will, once allotted, rank in full for all dividends and other
distributions declared, made or paid on the share capital of the Company in respect of the period
after such allotment. Application will be made to the London Stock Exchange for the Open Offer
Shares to be admitted to trading on AIM. The Open Offer Shares are not being made available in
whole or in part to the public except under the terms of the Open Offer.
To the extent that applications from Qualifying Shareholders exceed 37,500,184 Open Offer
Shares, all excess applications shall be scaled back in such manner as the Board and Seymour Pierce
shall in their absolute discretion determine. Any excess subscription monies will be returned to the
applicant, at the applicant’s risk, without interest.

                                                 16
The Open Offer is conditional, inter alia, on the Placing Agreement not having been terminated in
accordance with its terms, on passing the Resolutions at the EGM and on Admission.

Procedure for application
Application may only be made for the Open Offer Shares on the enclosed Application Form, which
is personal to the Qualifying Shareholder named on it. The Application Form represents a right to
apply for Open Offer Shares. It is not a document of title and it may not be sold, assigned or
transferred, except to satisfy bona fide market claims in relation to purchases of Ordinary Shares
through the market prior to the date on which the Existing Ordinary Shares are marked “ex” the
entitlement to participate in the Open Offer pursuant to the Rules of the London Stock Exchange
(the “ex-date”). Application Forms may be split up to 3.00 p.m. on 15 January 2004, but only to
satisfy such bona fide market claims. Persons who have, prior to the ex-date, sold or otherwise
transferred some or all of their Existing Ordinary Shares should contact their stockbroker, bank or
other agent authorised under the Financial Services and Markets Act 2000 through whom the sale
or transfer was effected and refer to the instructions regarding split applications set out on the
Application Form, since the invitation to subscribe for Open Offer Shares under the Open Offer
may represent a benefit which can be claimed from them by purchasers or transferees under the
Rules of the London Stock Exchange.
In the Open Offer, unlike in a rights issue, the Open Offer Shares which are not applied for will not
be sold in the market for the benefit of those Qualifying Shareholders who do not apply. The
Application Form is not a document of title and cannot be traded.
Qualifying Shareholders who do not wish to apply for any Open Offer Shares under the Open Offer
should not complete or return the Application Form, but are encouraged to vote at the EGM by
completing and returning the enclosed Form of Proxy.
The Application Form shows the number of Existing Ordinary Shares on which the relevant
Qualifying Shareholder’s pro rata entitlement has been based and the number of Open Offer Shares
to which such Qualifying Shareholder is entitled, calculated on the basis described above.
Qualifying Shareholders wishing to apply for Open Offer Shares should complete and sign the
enclosed Application Form in accordance with the instructions thereon and send or deliver it in the
reply-paid envelope provided, together with a remittance for the full amount payable to “Capita
IRG Plc a/c Desire Petroleum plc” (see details of the Procedure for Payment below), so as to arrive
as soon as possible and in any event not later than 3.00 p.m. on 20 January 2004, at which time the
Open Offer will close.
Applications will not be acknowledged and, once made, will be irrevocable. Seymour Pierce and the
Company reserve the right (but shall not be obliged) to treat an Application Form as valid and
binding on the person(s) by whom or for whose benefit it is lodged even if such Application Form is
not completed in accordance with the relevant instructions or not accompanied by a valid power of
attorney where required.
Seymour Pierce and the Company further reserve the right (but shall not be obliged) to accept either
Application Forms received after 3.00 p.m. on 20 January 2004 with the envelope bearing a legible
postmark not later than 3.00 p.m. on 20 January 2004 or from authorised persons (as defined in the
Financial Services and Markets Act 2000) specifying the Open Offer Shares applied for and
undertaking to lodge the Application Form in due course.
If an Application Form is sent by post, Qualifying Shareholders are recommended to allow at least
four working days for delivery. The instructions and other terms set out on the Application Form
are part of the Open Offer.
If you are in any doubt about the action you should take, you should consult your stockbroker,
bank manager, solicitor, accountant or other professional adviser authorised under the Financial
Services and Markets Act 2000 immediately.

Money laundering regulations
To ensure compliance with the Money Laundering Regulations 1993, as amended by the Money
Laundering Regulations 2001 (“Regulations”), it is a term of the Open Offer that Capita IRG Plc

                                                 17
may, at its absolute discretion, require verification of identity from any person completing an
Application Form (“Subscriber”) and, without prejudice to the generality of the foregoing, in
particular any person who either (i) tenders payment by way of a cheque or banker’s draft drawn on
an account in the name of any person or persons other than the Subscriber; or (ii) appears to Capita
IRG Plc to be acting on behalf of some other person.
For Subscribers resident in the United Kingdom this may involve verification of names and
addresses through a reputable agency. For Subscribers who are not resident in the United Kingdom,
verification of identity may be sought from the Subscriber’s bankers or from other reputable
institutions or professional advisers in the Subscriber’s country of residence.
By lodging an Application Form, each Subscriber undertakes to provide such evidence of identity at
the time of lodging an Application Form or, at the absolute discretion of the Company, within a
reasonable time thereafter (in each case to be determined at the absolute discretion of the Company
and Capita IRG Plc) as may be required to ensure compliance with the Regulations.
If satisfactory evidence of identity has not been received by Capita IRG Plc within a reasonable
period of time, then the Application Form in question may be rejected, in which event the
application will not proceed any further and the application monies (without interest) will be
returned to the bank account on which the cheque was drawn at the Subscriber’s own risk.
Where possible Subscribers should make payment by their own cheque. If a third party cheque,
banker’s draft or building society cheque is used, the Subscriber should:
(a)   write his/her name and address on the back of the draft or cheque and, in the case of an
      individual, record his/her date of birth against his/her name; and
(b)   ask the bank or building society (if relevant) to endorse on the reverse of the draft or cheque
      the full name and account number of the person whose account number is being debited and
      stamp such endorsement.
The above information is provided by way of guidance to reduce the likelihood of difficulties,
delays and potential rejection of an Application Form (but without limiting the right of Capita IRG
Plc to require verification of identity as indicated above).

Procedure for payment
All payments must be made by cheque or banker’s draft (i) in pounds sterling drawn on a bank or
building society in the United Kingdom, the Channel Islands or the Isle of Man and (ii) which is
either a settlement member of the Cheque and Credit Clearing Company Limited or CHAPS
Clearing Company Limited or which has arranged for its cheques and banker’s drafts to be cleared
through the clearing facilities provided for members of either of those companies, and must bear the
appropriate sort code number in the top right hand corner. Any application that does not comply
with these requirements may be treated as invalid.
Cheques or banker’s drafts should be made payable to “Capita IRG Plc a/c Desire Petroleum plc”
and should be crossed “a/c payee only”. Any interest earned on payments made before they are due
will be retained for the benefit of the Company.
The Company reserves the right to have cheques presented on receipt and to instruct Capita IRG Plc
to seek special clearance of cheques to allow the Company to obtain value for remittances at the
earliest opportunity. Any person returning an Application Form with a remittance in the form of a
cheque thereby warrants that the cheque will be honoured on first presentation. If cheques or
banker’s drafts are presented for payment before the conditions of the Open Offer are fulfilled, the
monies will be kept in a separate bank account until the conditions are fully met. In the event that
the Open Offer does not become unconditional by 1 March 2004 all application monies will be
returned to applicants as soon as is practicable thereafter and in any event within 7 days. The
interest earned on monies held in the separate bank account will be retained for the benefit of the
Company. If any cheque is not honoured on first presentation, the relevant application may be
deemed to be invalid.
All documents or remittances sent by an applicant (or as he or she may direct) will be sent through
the post at his/her own risk.

                                                 18
All enquiries in connection with the procedure for application and completion of the Application
Form should be addressed to Capita IRG Plc, Corporate Actions, P.O. Box 166, The Registry,
34 Beckenham Road, Beckenham, Kent BR3 4TH. Alternatively, please contact Capita IRG Plc on
0870 162 3100 (or if calling from outside the UK d44 208 639 2157).
If you do not wish to apply for Open Offer Shares under the Open Offer, you should take no action
and should not complete or return the Application Form.

CREST
The Open Offer will be processed outside CREST, for the purposes of calculating entitlements
under the Open Offer, CREST and non-CREST shareholdings will be treated independently and a
separate Application Form will be issued in respect of each. If a Qualifying Shareholder has both an
uncertificated and a certificated shareholding in the Company, there will be two separate
Application Forms despatched in respect of such holdings.
Qualifying Shareholders holding their Existing Ordinary Shares in certificated form will receive
share certificates in respect of the Open Offer Shares allotted to them. Qualifying Shareholders
holding their Existing Ordinary Shares in uncertificated form will be credited with the Open Offer
Shares allotted to them in uncertificated form to the extent that their entitlement arises as a result of
their holding of Existing Ordinary Shares in uncertificated form.
Notwithstanding any other provision of this document or of the Application Form, the Company
reserves the right to allot and/or issue any Open Offer Shares in certificated form. In normal
circumstances, this right is only likely to be exercised in the event of any interruption, failure or
breakdown of CREST (or any part of CREST), or on the part of the facilities and/or systems
operated by the Company’s registrar in connection with CREST. This right may also be exercised if
the correct details in respect of bona fide market claims (such as the member Account ID and
Participation ID details) are not provided as requested on the Application Form.
Qualifying Shareholders who are CREST sponsored members should refer to their CREST sponsor
regarding the action to be taken in connection with this document and the Open Offer.
For more information as to the procedure for application in each case, Qualifying Shareholders are
referred to the Application Form.

Settlement and dealings
The result of the Open Offer is expected to be announced on 21 January 2004. Application will then
be made to the London Stock Exchange for the Open Offer Shares for which valid applications are
made pursuant to the Open Offer to be admitted to AIM. It is expected that Admission will become
effective and that dealings in the Open Offer Shares will commence at 8.00 a.m. on 22 January
2004.
The Existing Ordinary Shares are already admitted to CREST. Accordingly no further application
for admission to CREST is required for the Open Offer Shares, all of which may be held and
transferred by means of CREST.
Subject to the conditions of the Open Offer being satisfied or waived, all Open Offer Shares to be
issued in uncertificated form are expected to be credited to the appropriate CREST stock accounts
on 22 January 2004, unless the Company exercises the right to issue such shares in certificated
form, in which case definitive certificates are expected to be despatched by post on or before
29 January 2004. Subject as aforesaid, definitive certificates for the shares to be issued in
certificated form are expected to be despatched by post on or before 29 January 2004. No
temporary documents of title will be issued. Pending despatch of definitive share certificates,
transfers by non-CREST Qualifying Shareholders will be certified against the share register. All
documents or remittances sent by or to an applicant (or his agent as appropriate) will (in the latter
case) be sent through the post and will (in both cases) be at the risk of the applicant. Qualifying
Shareholders in CREST should note that they will be sent no confirmation of the credit of the shares
to their CREST stock account nor any other written communication by the Company in respect of
the issue of Open Offer Shares. Notwithstanding any other provision in this document, the
Company reserves the right to issue any shares in certificated form.

                                                  19
Overseas shareholders
General
If you are resident in any jurisdiction other than the United Kingdom you are advised to consult a
professional adviser immediately.
The making of the Open Offer to persons who are resident in, or citizens of, countries other than the
United Kingdom may be affected by the law of the relevant jurisdiction. No person receiving a copy
of this document and/or the Application Form in any jurisdiction other than the United Kingdom
may treat the same as constituting an invitation or offer to him, nor should he in any event use such
Application Form, if, in the relevant jurisdiction, such an invitation or offer cannot lawfully be
made to him or such Application Form cannot lawfully be used without contravention of any
unfulfilled registration or other legal requirements. In such circumstances this document and/or any
Application Form are sent for information only. It is the responsibility of any person receiving a
copy of this document and/or Application Form outside the United Kingdom who wishes to make
any application for any Open Offer Shares pursuant to the Open Offer to satisfy himself as to the
full observance of the laws of the relevant jurisdiction, including obtaining all necessary
governmental or other consents which may be required and observing all other necessary
formalities and paying any issue, transfer or other taxes due in such jurisdiction. Such person
should consult their professional advisers as to whether they require any governmental or other
consents or need to observe any applicable legal requirements to enable them to apply for Open
Offer Shares pursuant to the Open Offer.
Persons (including, without limitation, nominees and trustees) receiving an Application Form
should not in connection with the Open Offer distribute or send it in or into any jurisdiction where
to do so would or might contravene local securities laws or regulations. If an Application Form is
received by any person in any such jurisdiction, or by the agent or nominee of such a person, he must
not seek to take up the Open Offer Shares except pursuant to an express agreement with the
Company. Any person who does forward an Application Form into any such jurisdiction, whether
pursuant to a contractual or legal obligation or otherwise should draw the attention of the recipient
to the contents of this section. The Company reserves the right to reject a purported application for
Open Offer Shares from Shareholders in any jurisdiction outside the UK, or persons who are
acquiring Open Offer Shares for resale in any such jurisdiction.
The Company reserves the right, in its absolute discretion, to treat the Open Offer as having been
declined in a particular case if it believes acceptance may violate applicable legal or regulatory
requirements.
US and Canada
Neither the Open Offer Shares nor the Application Form have been or will be registered under the
US Securities Act of 1933, as amended, or under the securities legislation of any state of the US or
any province or territory of Canada and, subject to certain exceptions, may not be offered, sold,
delivered, or transferred, directly or indirectly, within the US or Canada or to or for the benefit of a
North American Person (as is defined below).
Application Forms will not be sent to Shareholders with registered addresses in the US or Canada
nor to Shareholders with registered addresses elsewhere whom the Company knows or reasonably
believes to be holding Existing Ordinary Shares for the benefit of a North American Person unless
the Company is satisfied that such an allotment is permitted, and this document is therefore sent to
any such shareholders for information only.
The Company reserves the right to reject any Application Form that appears to the Company or its
agents to have been executed in or despatched from the US or Canada or which provides an address
in the US or Canada for delivery of definitive share certificates for Open Offer Shares or which does
not make the warranties relating to Overseas Shareholders on the Application Form.
For the purpose of this document and the Application Forms “North American Person” means any
person who is a resident of the US or Canada (including corporations, partnerships or other entities
created or organised in or under the laws of the US or Canada or any estate or trust which is subject
to US federal or Canadian income taxation regardless of the source of its income) and “Canada”
includes its possessions and territories.

                                                  20
Australia
No prospectus in relation to the Open Offer Shares has been or will be lodged with, or registered by,
the Australian Securities Commission. Open Offer Shares may not be offered for subscription or
purchase, sold or delivered, indirectly or directly, nor may any invitation to subscribe for or buy or
sell Open Offer Shares be issued or any draft or definitive document in relation to any such offer,
sale or invitation be distributed, in or into the Commonwealth of Australia, its states, territories or
possessions (“Australia”) or to or for the account or benefit of any person (including corporations
and other entities organised under the laws of Australia but not including a permanent
establishment of any such corporation or entity located outside Australia).
Accordingly, no offer of Open Offer Shares is being made under this document or the Application
Form to Shareholders with registered addresses in, or to residents of, Australia and Application
Forms will therefore not be sent to Shareholders with registered addresses in Australia. The
Company reserves the right to reject any Application Form which appears to the Company or its
agents to have been executed in or despatched from Australia or which provides an address in
Australia for delivery of definitive share certificates for Open Offer Shares or which does not make
the warranties relating to Overseas Shareholders on the Application Form.
South Africa
In order to comply with South African laws, Shareholders with registered addresses in South Africa
may also require the approval of the South African exchange control authorities if they wish to take
up their entitlement.
It is the responsibility of all persons resident outside the United Kingdom who wish to take up their
Open Offer Shares to satisfy themselves as to full observance of the laws of the relevant territory in
connection therewith, including obtaining all necessary governmental and other consents and
complying with all formalities to enable them to take up their entitlements.
Republic of Ireland
No prospectus in relation to the Open Offer Shares has been or will be lodged for registration with
the Registrar of Companies for the Republic of Ireland. Accordingly, the Open Offer is not being
made in the Republic of Ireland and no Application Form will be sent directly or indirectly to any
address in the Republic of Ireland unless otherwise determined by the Company and the Registrars
in their absolute discretion. Similarly, unless so determined otherwise, applications sent from or
post-marked in the Republic of Ireland will be deemed to be invalid.
The above comments are intended as a general guide only and do not constitute a definitive
statement of the specific laws affecting Overseas Shareholders.
Overseas Shareholders who are in any doubt as to whether they require any governmental or other
consents or need to observe any other formalities to enable them to take up their entitlement to
Open Offer Shares should consult their professional advisers.

Taxation
Your attention is drawn to the section headed “Taxation” set out in paragraph 12 of Part VII of this
document. Any Qualifying Shareholder who is in any doubt as to his or her taxation position
should consult a professional adviser without delay.

Further information
Your attention is drawn to the letter from your Chairman which is set out in Part I of this document
and to the further information set out in Parts II to VII (inclusive) of this document and to the terms
and conditions set out in the enclosed Application Form.
Yours faithfully
for and on behalf of Seymour Pierce Limited


Jonathan Wright
Director

                                                  21
                                              PART IV

                        Financial Information on Desire Petroleum Plc

1.    Nature of financial information
The following financial information relating to Desire Petroleum Plc has been extracted, without
material adjustment, from the audited financial statements of Desire Petroleum for each of the three
years ended 31 December 2002. The information set out in this Part IV has not been restated for the
purposes of this document but has been extracted from previously published sources and does not
constitute statutory accounts within the meaning of the Act. Audited statutory accounts have been
delivered to the Registrar of Companies for each of the three years ended 31 December 2000, 2001
and 2002. Unqualified audit reports in accordance with the requirements of the Act for each of the
three years ended 31 December 2002 have been given by Hacker Young, Chartered Accountants of
St James Building, 79 Oxford Street, Manchester, M1 6HT, being the auditors of Desire Petroleum
for the relevant financial periods.


2.    Consolidated Profit and Loss Account
                                                                    2002         2001        2000
                                                       Note         £000         £000        £000
Oil exploration costs                                 2&3             46         (211)       (258)
Administration and other expenses                         3         (429)        (650)       (842)
Operating loss                                                      (383)         (861)     (1,100)
Write off of oil and gas interests                                    —         (6,275)         —
Loss on ordinary activities before interest                         (383)       (7,136)     (1,100)
Interest receivable                                        6           6            23         109
Loss on ordinary activities before taxation                         (377)       (7,113)       (991)
Taxation                                                   7          —             (4)        (20)
Loss for the financial year                               15         (377)       (7,117)     (1,011)
Earnings per share – Basic                                 8      (0.35p)       (6.83p)     (1.00p)

All operating income and operating losses relate to continuing activities.
There is no difference the results as disclosed above and on an historical cost basis.




                                                22
3.    Consolidated Statement of Total Recognised Gains and Losses
                                                              2002        2001       2000
                                                              £000        £000       £000
Loss for the financial year                                     (377)     (7,117)    (1,011)
Currency-translation difference on foreign-currency
net investment                                                    —          (2)       64
Total recognised gains and losses for the year                 (377)     (7,119)     (947)



4.    Reconciliation of Movement in Consolidated Shareholders’ Funds
                                                               2002       2001       2000
                                                               £000       £000       £000
Total recognised gains and losses for the year                 (377)     (7,119)     (947)
New share capital subscribed                                    358         664         1
Net decrease in shareholders’ funds                             (19)     (6,455)     (946)
Opening shareholders’ funds                                   2,374       8,829     9,775
Closing shareholders’ funds                                   2,355      2,374      8,829



5.    Consolidated Balance Sheet
                                                               2002       2001       2000
                                                      Note     £000       £000       £000
Fixed assets
Intangible assets                                       9     2,333      2,297      8,145
Current assets
Debtors due within one year                            10        59         39         82
Investments                                                       6          6          6
Cash at bank and in hand                                        198        413        871
                                                                263        458        959
Creditors
Amounts falling due within one year                    11      (241)      (381)      (275)
Net current assets                                               22         77        684
Total assets less current liabilities                         2,355      2,374      8,829
Capital and reserves
Called-up share capital                                13      1,125      1,074      1,012
Share premium account                                  14     16,744     16,437     15,833
Merger reserve                                         14     13,343     13,343     13,343
Profit and loss account                                 14    (28,857)   (28,480)   (21,359)
Equity shareholders’ funds                                    2,355      2,374      8,829




                                                 23
6.    Consolidated Cash Flow Statement
                                                             2002     2001       2000
                                                      Note   £’000    £’000      £’000
Net cash outflow from operating activities              15a    (548)    (691)    (1,156)
Returns on investments and servicing of
finance                                                15b        6       23        109
Taxation                                              15b       (4)     (20)       (63)
Acquisitions and disposals                            15b        9       —          —
Capital expenditure and financial investment           15b      (36)    (452)    (1,798)
Cash outflow before financing                                   (573)   (1,140)   (2,908)
Financing
Issue of ordinary share capital (net of costs)                358       665         —
Decrease in cash in the year                           15c    (215)    (475)    (2,908)
Reconciliation of net cash flow to movement
in net debt
Decrease in cash in the year                                  (215)    (475)    (2,908)
Exchange movements                                              —        17        153
Movement in net funds in the year                             (215)    (458)    (2,755)
Net funds at the beginning of the year                        413       871     3,626
Net funds at the end of the year                              198       413       871




                                                 24
7.   Notes to the Financial Information
1.   Accounting policies
The Accounts are based on the following policies which have been consistently applied.

Basis of preparation
The Accounts have been prepared under the historical cost convention and the Statement of
Recommended Practice “Accounting for Oil and Gas Exploration, Development, Production and
Decommisioning Activities” and in accordance with applicable accounting standards.

Basis of consolidation
The Group accounts consolidate the accounts of the Holding Company and all its subsidiary
undertakings, all of which were made up to 31 December.

Goodwill
Goodwill is defined as the excess of the consideration paid over the fair value of the net identifiable
assets acquired. From 1 January 1997 goodwill is attributable to separate licence interests acquired
and amortised on a straight-line basis over the expected remaining useful economic life of the
related licences, currently ranging from 2 to 9 years. Where events or circumstances are present
which indicate that the carrying value of goodwill may not be recoverable, the Group records a
provision to write down goodwill to its estimated recoverable amount.

Consortia
In addition to holding licences on its own, the Group is, at times, a member of consortia. As further
explained below, the Group’s proportionate share of the consortia costs are included in intangible
fixed assets.

Capitalisation of oil and gas expenditure
The 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 overheads, is capitalised. 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. If no discoveries are made, the
accumulated capitalised costs will be written off through the profit and loss account.

Foreign currencies
Transactions denominated in foreign currencies are translated at the exchange rate ruling at the
transaction date or at the rate in related forward-currency contracts. Monetary assets and liabilities
denominated in foreign currencies are translated into sterling at the exchange rates ruling at the
Balance Sheet date and any differences thereon are included in the profit and loss account. The
balance sheets and results of overseas subsidiaries are translated at the rate ruling at the balance
sheet date. The resulting exchange differences are taken to reserves.

Taxation
The charge for taxation is based on the results for the year end and takes into account taxation
deferred because of timing differences between the treatment of certain items for taxation and
accounting policies. Full provision is made for the tax liability on all timing differences in
accordance with FRS19. Deferred tax balances have not been subject to discounting.

Financial instruments
The Group uses certain financial instruments in its operating and investing activities that are
appropriate to its Group’s strategy and circumstances.
Financial instruments currently comprise cash and short term debtors and creditors. The Group
regularly reviews the funding opportunities available to it in order to finance its operations,
including considering the use of borrowings, as well as equity, to fund short-term cash
requirements.

                                                 25
The main risks arising from the Group’s present use of financial instruments are currency risk
relating to the Group’s non-sterling cash resources. The addition of any borrowings to the Group’s
portfolio of financial instruments will introduce interest-rate risk.

2.    Production costs incurred
Pre-production costs incurred, or provided in Oil and Gas Exploration Activities were as follows:
                                                             Falkland
                                                               Islands    Portugal          Total
                                                                 £000          £000         £000
Acquisition of unproved properties:
Year ended 31 December 2000
Licence costs                                                      114            —           114
Exploration and appraisal costs                                    240        1,716        1,956
Total (includes costs capitalised of £1,812,000)                    354        1,716        2,070

Year ended 31 December 2001
Licence costs                                                        72           —            72
Exploration and appraisal costs                                     282          359          641
Total (includes costs capitalised of £502,000)                      354          359          713

Year ended 31 December 2002
Licence costs                                                        64           —            64
Exploration and appraisal costs                                     (74)          —           (74)
Total (includes costs capitalised of £36,000)                       (10)          —           (10)

3.    Operating expenses
Oil exploration costs
                                                                  2002         2001         2000
                                                                  £000         £000         £000
Operating leases-other assets                                       64           72          110
Other oil exploration costs                                       (110)         139          148
                                                                    (46)         211          258

Administrative and other expenses
Amortisation of goodwill                                             —            70          155
Auditors’ remuneration – audit fees                                  20           20           20
                        – other services                              3            8           15
Directors’ fees                                                      85           85           84
Foreign-exchange gain net                                            (3)         (18)         (74)
Insurance                                                             6           10            9
Legal and professional fees                                         102          121          236
Management fees                                                     173          337          337
Miscellaneous expenses                                               14           10           10
Travel and entertaining                                              29           20           50
Profit on disposal of fixed assets                                     —           (13)          —
                                                                    429          650          842




                                                 26
4.   Directors’ remuneration
The emoluments of the Directors were as follows:
                                                               2002        2001         2000
                                                                Fees        Fees         Fees
                                                               £000        £000         £000
Dr C B Phipps                                                    20          20           20
Mr S L Phipps                                                    15          15           15
Dr A J Martin                                                    15          15             8
Dr I G Duncan                                                      5           5            8
Mr W I L Forrest                                                 15          15           18
Dr D H Quick                                                     15          15           15
                                                                  85          85          84


5.    Staff costs – Directors and employees
                                                               2002        2001         2000
                                                               £000        £000         £000
Social security costs                                             1           2            1


The average monthly number of employees, including Directors, during the year was as follows:
                                                               2002        2001          2000
                                                           Number       Number       Number
Directors                                                         6            6            6


6.    Interest receivable
                                                               2002        2001         2000
                                                               £000        £000         £000
Bank interest                                                     6          23          109


7.    Taxation
(a)   Analysis of charge in the period
                                                               2002        2001         2000
                                                               £000        £000         £000
Current tax:
  Current tax in the period                                       —            4          20


(b)   Factors affecting tax charge for the period
                                                               2002        2001         2000
                                                               £000        £000         £000
The tax assessed for the period is more than the standard
rate of corporation tax in the UK of
19% (2001 and 2000 – 20%)
Loss on ordinary activities                                     (377)     (7,113)       (991)
Loss on ordinary activities multiplied by the standard rate
of corporation tax in the UK of 19% (2000 and 2001 –
20%)                                                             (72)     (1,423)       (198)
Effects of: Expenses carried forward                              72       1,427         218
                                                                  —            4          20

                                               27
(c) Factors that may affect future tax charges
The Company is carrying forward an amount of tax-deductable expenditure under the assumption
that the Company will have income from oil exploration in the future. The amount currently
available for offset against future revenue is £14,000,000.
No deferred tax is provided on this expenditure as it is not reasonably certain that the income from
this source will materialise

8.    Earnings per share
Basic earnings per ordinary share are based on:
                                                          Weighted average number of shares
                                                             2002          2001          2000
Basic weighted-average number                          108,577,924 104,195,007 101,197,961

                                                             £000            £000                £000
Loss for the year                                         (377,000)     (7,117,000)         (1,011,000)

As the Group reports a loss for the periods then, in accordance with Financial Reporting Standard
Number 14, the share options in issue are not considered dilutive.

9.   Intangible assets
Year ended 31 December 2000
                                                                            Oil and Gas
                                                               Goodwill         Interests        Total
                                                                  £000             £000          £000
Cost
At 1 January 2000                                                     929         6,263         7,192
Additions                                                              —          1,812         1,812
Foreign exchange adjustment                                            12            —             12
At 31 December 2000                                                   941         8,075         9,016
Amortisation
At 1 January 2000                                                     707             —           707
Charges for the year                                                  155             —           155
Foreign exchange adjustment                                             9             —             9
At 31 December 2000                                                   871             —           871
Net book value at 31 December 2000                                     70         8,075         8,145

Gross capitalised costs- unproved properties
                                                                Falkland
                                                                 Islands       Portugal         Total
                                                                   £000           £000          £000
Oil and gas interests                                              2,249         5,826          8,075




                                                28
Year ended 31 December 2001
                                                             Oil and Gas
                                                    Goodwill     Interests    Total
                                                       £000         £000      £000
Cost
At 1 January 2001                                        941        8,075     9,016
Additions                                                 —           502       502
Disposals                                                 —            (5)       (5)
Write off                                                 —        (6,275)   (6,275)
At 31 December 2001                                      941        2,297    3,238
Amortisation
At 1 January 2001                                        871           —       871
Charges for the year                                      70           —        70
At 31 December 2001                                      941           —       941
Net book value at 31 December 2001                         —        2,297    2,297

Gross capitalised costs-unproved properties
                                                    Falkland
                                                     Islands     Portugal    Total
                                                       £000         £000     £000
Oil and gas interests                                  2,297           —     2,297

Year ended 31 December 2002
                                                             Oil and Gas
                                                    Goodwill     Interests    Total
                                                       £000         £000      £000
Cost
At 1 January 2002                                        941        2,297    3,238
Additions                                                 —            36       36
At 31 December 2002                                      941        2,333    3,274
Amortisation
At 1 January 2002                                        941           —       941
Charges for the year                                      —            —        —
At 31 December 2002                                      941           —       941
Net book value at 31 December 2002                         —        2,333    2,333

Gross capitalised costs- unproved properties
                                                    Falkland
                                                     Islands     Portugal    Total
                                                       £000         £000     £000
Oil and gas interests                                  2,333           —     2,333




                                               29
10.   Debtors – due within one year
                                                                  2002    2001        2000
                                                                  £000    £000        £000
Trade debtors                                                       —       —           30
Other debtors                                                       54      32          28
Prepayments                                                          5       7          24
                                                                    59      39          82

11.   Creditors – falling due within one year
                                                                  2002    2001        2000
                                                                  £000    £000        £000
Trade creditors                                                      7      35          69
Corporation tax                                                     —       16          33
Other creditors                                                     22       8           7
Accruals                                                           212     322         166
                                                                   241     381         275

12.   Derivatives and financial instruments
Financial assets
The Group has cash deposits and short term debtors. The currency profile of the Group’s cash
deposits was:
                                                              2002        2001        2000
Currency                                                      £000        £000        £000
British pound                                                  163          390        311
US Dollar                                                       17           11        519
Euro                                                             3            1          29
Falkland Island Pound                                           15           11          12
                                                                   198     413         871

Financial liabilities
The Group has no financial liabilities other than short term creditors
13. Share capital
Ordinary shares of 1p
                                                                 2002    2001        2000
                                                                 £000    £000        £000
Authorised                                                       1,400   1,400       1,400
Issued
At 1 January                                                     1,074   1,012         946
Issued in year                                                      51      62          66
At 31 December                                                   1,125   1,074       1,012

                                                           2002        2001        2000
                                                         Number      Number      Number
Authorised                                           140,000,000 140,000,000 140,000,000
Issued
At 1 January                                         107,387,126 101,197,961     94,662,485
Issued in year                                         5,113,426   6,189,165      6,535,476
At 31 December                                       112,500,552 107,387,126 101,197,961

                                                30
Share options
                                                           Date of grant
                                            7 April   4 October     4 October               7 May
                                              1998        1999           1999                2002
At 1 January 2000 and at
31 December 2001                         600,000      2,333,329        1,555,555                —
Lapsed in the year                      (600,000)            —                —                 —
Granted in the year                           —              —                —          1,600,000
At 31 December 2002                             —     2,333,329        1,555,555         1,600,000
Exercise price                               125p           18p              IR 18p        12.25p
Exercise from                            07/04/01      04/10/99            04/10/99       07/05/05
         to                              06/04/02      08/09/07            26/10/05       06/05/09

14.   Reserves
                                        Unissued                              Share          Profit
                                           Share         Merger            Premium        and Loss
                                         Capital         Reserve            Account        Account
                                           £000            £000               £000           £000
At 1 January 2000                             67         13,342              15,832        (20,412)
Issue of shares                              (66)             —                  —              —
Other movements                               (1)              1                  1             —
Retained loss for the year                    —               —                  —          (1,011)
Foreign currency adjustment                   —               —                  —              64
At 31 December 2000                             —        13,343             15,833         (21,359)
Issue of shares                                 —            —                 604              —
Retained loss for the year                      —            —                  —           (7,117)
Foreign currency adjustment                     —            —                  —               (4)
At 31 December 2001                             —        13,343             16,437         (28,480)
Issue of shares                                 —            —                 307              —
Retained loss for the year                      —            —                  —             (377)
At 31 December 2002                             —        13,343             16,744         (28,857)

15.   Notes to the consolidated cash flow statement
(a)   Reconciliation of operating profit to operating cash flows
                                                                 2002           2001         2000
                                                                 £000           £000         £000
Operating loss                                                   (383)          (861)       (1,100)
Amortisation of goodwill                                           —              70           155
Profit on disposal of assets                                       (10)           (20)           —
Exchange differences                                               —             (15)          (87)
Decrease/(increase) in debtors                                    (19)            17            57
(Decrease)/increase in creditors                                 (136)           118          (181)
Net cash outflow from operating activities                          (548)         (691)      (1,156)




                                               31
(b)   Analysis of cash flows
                                                             2002        2001          2000
                                                             £000        £000          £000
Returns on investments and servicing of finance
Interest received                                                6         23           109
Net cash inflow from returns on investments and
servicing of finance                                              6         23           109
Taxation
Taxation paid                                                   (4)        (20)         (63)
Net cash outflow for taxation                                    (4)        (20)         (63)
Acquisitions and disposals
Proceeds from sale of subsidiary                                 9             —         —
Net cash inflow from disposals                                    9             —         —
Capital expenditure
Payments to acquire intangible fixed assets                     (36)       (477)      (1,798)
Proceeds from sale of fixed assets                               —           25           —
Net cash outflow for capital expenditure                        (36)       (452)      (1,798)

(c)   Analysis of changes in net funds
                                                                               Cash at bank
                                                                                and in hand
                                                                                  net funds
                                                                                       £000
At 1 Januaury 2000                                                                    3,626
Cash flows                                                                            (2,908)
Exchange adjustment                                                                     153
At 31 December 2000                                                                     871
Cash flows                                                                              (475)
Exchange adjustment                                                                      17
At 31 December 2001                                                                     413
Cash flows                                                                              (215)
At 31 December 2002                                                                     198

16.   Commitments
Operating leases
Annual Group and Company obligations under operating leases were as follows:
                                                        2002            2001           2000
                                                   Land and       Land and         Land and
                                                   Buildings      Buildings        Buildings
                                                        £000            £000           £000
Expiring:
Between two and five years                                 64              75             —




                                             32
17. Related party transaction
The Group entered into transactions with the following companies in which certain of the Directors
were materially interested:
Company                                       Related Party
Phipps & Company Limited                      Dr C B Phipps and Mr S L Phipps
Aconite Partners Limited                      Dr A J Martin
Chase Energy Limited                          Dr I G Duncan
Molard Financial Management Services SA Mr W I L Forrest
QM Marketing Limited                          Dr D H Quick
The transactions with the Group during the years were as follows:
                                                                Total          Total        Total
                                                                2002           2001         2000
                                                                £000           £000         £000
Phipps & Company Limited                                          208           372          372
Aconite Partners Limited                                           16            15           22
Chase Energy Limited                                               23            40           36
Molard Financial Management Services SA                            15            15           18
QM Marketing Limited                                               18            17           30

At 31 December the following amounts were included in creditors:
                                                               2002            2001         2000
                                                               £000            £000         £000
Phipps & Company Limited                                         86             186           38
Aconite Partners Limited                                          8               8            2
Chase Energy Limited                                              2              25           —
Molard Financial Management Services SA                           8               8           —
QM Marketing Limited                                              8               8           —




                                               33
                                              PART V

              Unaudited Interim Statement of Results of Desire Petroleum Plc

Nature of financial information
The following financial information relating to Desire Petroleum plc has been extracted, without
material adjustment from the unaudited interim statement of the results for the six months ended
30 June 2003.
The Directors consent to the inclusion of the interim financial information in this document and
accept responsibility therefore for the purpose of paragraph 45(11)(c) of Schedule 1 of the Public
Offers of Securities Regulations 1995 (as amended).

Group Profit and Loss Account
for the six months ended 30 June 2003
                                                                        6 months        6 months
                                                                           ended           ended
                                                                         30 June          30 June
                                                                            2003            2002
                                                                            £000            £000
Oil exploration costs                                                         —                —
Administrative expenses                                                     (213)            (350)
Operating loss                                                               (213)            350
Interest receivable                                                             2               4
Loss on ordinary activities before taxation                                  (211)           (346)
Taxation                                                                       —               —
Loss on ordinary activities after taxation retained for the period           (211)            346
Earnings per share (pence) – Basic                                           (0.19)         (0.32)




                                                34
Group Balance Sheet
as at 30 June 2003
                                                As at      As at
                                              30 June    30 June
                                                2003       2002
                                                £000       £000
Fixed assets
Intangible assets                              2,343      2,321
Current assets
Debtors                                            7          8
Investments                                        1          6
Cash at hand and in bank                         106        200
                                                 114        214
Creditors: amounts due within one year          (315)      (507)
Net current assets                              (201)      (293)
Total assets less current liabilities          2,142      2,028
Capital and reserves
Called up share capital                         1,125      1,074
Share premium account                          16,744     16,437
Merger reserve                                 13,343     13,343
Profit and loss account                        (29,070)   (28,826)
Equity shareholders’ funds                     2,142      2,028




                                         35
Group Cash Flow Statement
for the six months ended 30 June 2003
                                                                       6 months      6 months
                                                                          ended         ended
                                                                        30 June        30 June
                                                                           2003          2002
                                                                           £000          £000
Net cash outflow from operating activities                                   (84)          (193)
Returns on investment and servicing of finance
Interest received                                                              2            4
Capital expenditure and financial investment
Purchase of intangible fixed assets                                           (10)         (24)
Decrease in cash in period                                                   (92)        (213)

Reconciliation of operating loss to net cash outflow from operating activities
                                                                       6 months      6 months
                                                                           ended        ended
                                                                         30 June       30 June
                                                                            2003         2002
                                                                            £000         £000
Operating loss                                                               (213)        (350)
Provision against investments                                                   5           —
Exchange differences                                                           (2)          —
(Increase)/decrease in debtors                                                 52           31
Decrease in creditors                                                          74          126
Net cash outflow from operating activities                                    (84)        (193)




                                                36
Notes to the Interim Financial Statements
for the six months ended 30 June 2003

1.    Basis of preparation
The interim financial information has been prepared on the basis of the accounting policies set out
in the audited accounts for the year ended 31 December 2002.
The interim results for the six months ended 30 June 2003 are unaudited and do not constitute
statutory accounts as defined by section 240 of the Companies Act 1985. Full accounts of the
Company for the year ended 31 December 2002 on which the Auditors gave an unqualified report,
have been delivered to the Registrar of Companies.

2.    Earnings per share
As the group reports a loss for the period then, in accordance with Financial Reporting Standard
Number 14, the share options are not considered dilutive.
The calculation of basic earnings per share is based upon the loss for the period and the
weighted-average number of 112,500,552 (2002 – first half – 107,387,126) shares in issue during
the period.
The diluted earnings per share is based upon the loss for the period and the number of shares in issue
as follows:
                                                                            6 months        6 months
                                                                               ended           ended
                                                                             30 June          30 June
                                                                                2003            2002
                                                                           thousands       thousands
Weighted-average number of shares                                            112,501         107,387
Dilution: Share options in issue                                                  —                —
                                                                             112,501         107,387

3.    Taxation
Taxation comprises a provision for taxation on the interest receivable less any allowable expenses
and any adjustment for over or under provision in prior periods. On the basis of these accounts no
provision for taxation is appropriate.




                                                 37
                                            PART VI

          Summary of the terms of the Licences and Joint Operating Agreement

1.    Licences
1.1   Tranches C and D
      1.1.1 By two petroleum production licences each dated 28 February 1997 but effective
              from 28 October 1996 (“Effective Date”) the Governor of the Falkland Islands
              (“Governor”) granted to (1) LASMO International Limited (2) Clyde Expro Plc and
              (3) the Company (“Licensees” which includes the current licensees, from time to
              time) the exclusive right to search, bore for and obtain petroleum from the seabed
              and subsoil of certain blocks within Tranches C and D, including drilling wells and
              taking samples under the controlled waters (“Tranche C and D Licences”). As a
              result of various assignments, the Company is now the sole Licensee of the Tranche C
              and D Licences.
      1.1.2   On the Effective Date the licensed areas within:
              1.1.2.1    Tranche C comprised an area of 1,610 square kilometres (known as
                         blocks 14/12, 14/13, 14/14, 14/17, 14/18 and 14/19); and
              1.1.2.2    Tranche D comprised an area of 1,610 square kilometres (known as
                         blocks 14/15, 14/20, 15/11, 15/12, 15/16 and 15/17).
      1.1.3   Since the Effective Date, the following areas have been relinquished by the Licensees:
              1.1.3.1    blocks 14/12, 14/13 ,14/17 and 14/18 of Tranche C;
              1.1.3.2    certain areas in blocks 15/11 and 15/16 of Tranche D; and
              1.1.3.3    the entirety of blocks 15/12 and 15/17 from Tranche D.
              Following these relinquishments the licensed areas in Tranche C now comprise
              approximately 536 square kilometres and in Tranche D comprise approximately
              803 square kilometres.
      1.1.4   The term of each of the Tranche C and D Licences have up to 4 parts (which can be
              extended, as the parties may agree) comprising an initial term of 5 years (which was
              due to expire on 28 October 2001 but was first extended by the Governor to expire
              on 25 November 2001 and then further extended and is currently due to expire on
              25 November 2004, “Initial Term”) a second exploration term of 7 years (“Second
              Term”), a third exploration term of 10 years (“Third Term”) and a final exploitation
              term of 35 years (“Fourth Term”, together “Terms”). Continuation of the Terms (in
              respect of all or part of the licensed areas within Tranches C and D) is subject to the
              Licensees’ compliance with the terms of the Tranche C and D Licences.
      1.1.5   Continuation of the Terms and the extent of the licensed area over which they
              operate is, amongst other things, subject to the following:
              1.1.5.1    in respect of the Initial Term (the term of which has been extended to
                         expire on 25 November 2004 and as such is still current as at the date of
                         this document), if less than 4 exploration wells are drilled during the
                         Initial Term, 50 per cent. of the licensed area must be relinquished at the
                         end of the Initial Term, however if, during the Initial Term, any
                         exploration wells are drilled, an additional 10 per cent. of the licensed
                         area can be retained by the Licensees for each of the first three wells
                         drilled. Only one well has been drilled by the Licensees in Tranche C,
                         however, as a result of the relinquishments referred to in paragraph 1.1.3
                         above, the Governor has confirmed that if the Licensees elect to continue
                         into the Second Term, no further relinquishments will be required at the
                         end of the Initial Term;

                                                38
        1.1.5.2    if the Licensees elect to continue into the Second Term and then elect to
                   apply to continue the term of the Tranche C and D Licences into a Third
                   Term, at least 50 per cent. of the licensed area remaining at the end of the
                   Initial Term will be compulsorily surrendered. The remaining licensed
                   area will be the area which the Licensees have identified as having most
                   potential for a petroleum field. Prior to the expiry of the Second Term the
                   Licensees must submit to the Governor a development plan and work
                   programme in respect of their plans for the exploration of the remaining
                   licensed area (which must incorporate proposals as to further exploration
                   or appraisal wells). The Third Term of 10 years allows for further
                   exploration and appraisal drilling. Entry to the Third Term requires a
                   renewed drilling commitment on the exploration acreage, and is therefore
                   on a drill or drop basis;
        1.1.5.3    the Governor’s approval is required before the Licensees can move into
                   the Fourth Term. His approval is dependent upon the production by the
                   Licensees of an acceptable development plan. The development plan may
                   be submitted at any time during the first three Terms. If no development
                   plan is submitted during the first three Terms then the Tranche C and D
                   Licences are automatically terminated.
1.1.6   Under the Tranche C and D Licences, the Licensees are required to pay acreage rent,
        which varies according to the Terms and the royalties for the value of petroleum
        obtained during a particular period.
1.1.7   The Tranche C and D Licences require the Licensees to conduct work programmes in
        Tranches C and D (failure to comply with the work programmes can result in the
        Terms not being continued):
        1.1.7.1    the Tranche C work programme provides, amongst other things, for:
                   1.1.7.1.1 an exploration well to be drilled in years 2 and 3 of the Initial
                             Term (the Licensees have complied with this);
                   1.1.7.1.2 a further two exploration wells to be drilled during years 3 to 5
                             of the Initial Term but only if evidence was found of a working
                             petroleum charge and if an economically significant prospect
                             was identified. As neither a working petroleum charge nor an
                             economically significant prospect were found, no further wells
                             are required to be drilled in Tranche C; and
                   1.1.7.1.3 if the Term continues into the Second Term, the acquisition and
                             processing of 3D seismic data and the drilling of a well.
                             Conditional upon the results further wells may be required;
        1.1.7.2    the Tranche D work programme provides, amongst other things, for:
                   1.1.7.2.1 2D seismic data to be acquired and processed during year 1 of
                             the Initial Term; and
                   1.1.7.2.2 if the Term continues into the Second Term, 3D seismic data to
                             be acquired and processed and a well to be drilled.
1.1.8   To date the Company believes the work commitments in Tranches C and D have
        been fulfilled and formal acknowledgement has been received from the Governor.
1.1.9   During the Initial Term, there is no obligation on the Licensees to drill an exploration
        well in Tranche D as a condition of preserving their rights to extend into the Second
        Term.
1.1.10 The Licensees have various obligations during the Terms, which include:
        1.1.10.1 providing the Governor with information he may from time to time
                 request;

                                           39
              1.1.10.2 abiding by methods and practices customarily used in good oilfield
                       practice;
              1.1.10.3 allowing the Governor and his authorised persons, access to any of the
                       Licensees’ operations;
              1.1.10.4 indemnifying the Governor and others from all third party claims in
                       relation to any matters arising from the Tranche C and D Licences;
              1.1.10.5 keeping and retaining accounts, records of work and samples;
              1.1.10.6 supplying the Governor with details of programmes within set time limits;
              1.1.10.7 operating the wells with the consent of the Governor;
              1.1.10.8 providing to the Governor a return every 3 months and each calendar year
                       containing information on the Licensees’ progress; and
              1.1.10.9 carrying out the various work obligations specified in the Tranche C and
                       D Licences, including obligations as to safety, working practices and the
                       environment.
      1.1.11 The Tranche C and D Licences may be revoked by the Governor in certain
             circumstances, including, if:
              1.1.11.1 any acreage rent and/or royalty payment is in arrears or unpaid for two
                       months after the due date of payment (the Governor may also seize,
                       distrain and sell Licensees’ equipment and petroleum if payments are late);
              1.1.11.2 any breach or non-observance of the terms of the relevant licence or of a
                       development scheme (i.e. a scheme operated by a group of licensees for the
                       working and development of an oil field);
              1.1.11.3 the appointment of a receiver or the making by the Licensees of any
                       arrangement or composition with their creditors;
              1.1.11.4 the compulsory or voluntary liquidation of the Licensees;
              1.1.11.5 if there is a change of control of the Licensees;
              1.1.11.6 in the event that the Licensees win and save any petroleum, they fail to
                       establish a permanent establishment in the Falkland Islands (of a kind and
                       nature approved by the Governor);
              1.1.11.7 failure to pay any tax liability payable under the Taxes Ordinance 1994
                       within 90 days of the due date for payment; and
              1.1.11.8 any breach of a condition subject to which the Governor has given his
                       approval to the entry by the Licensees into an agreement relating to
                       proceeds of sale of petroleum, or any breach of the requirement that
                       notices relating to the Tranche C and D Licences be in English.
      1.1.12 Both Tranche C and D Licences can be terminated by the Licensees on not less than 6
             months’ notice to expire on any anniversary of the Effective Date.
      1.1.13 Neither the burden nor the benefit of either of the Tranche C and D Licences may be
             assigned without the consent in writing of the Governor.
      1.1.14 Any disputes relating to the Tranche C and D Licences are governed by the laws of the
             Falkland Islands under the jurisdiction of the Supreme Court of the Falkland Islands.
             Certain disputes must, in the first instance, be referred to arbitration.
1.2   Tranches I and L
      1.2.1 The Company is the exclusive licensee under two Falkland Islands petroleum
             production licences; one relating to Tranche I and one relating to Tranche L
             (“Tranche I and L Licences”) dated 20 and 26 February 1997 respectively (both

                                               40
        licences have an effective commencement date of 28 October 1996,“Effective
        Date”) and made between (1) the Governor and (2) the Company pursuant to which
        the Company is permitted to search and bore for and get petroleum in the seabed and
        subsoil of the relevant licensed area, which also includes the drilling of wells and
        taking of samples (in the course of exploration for petroleum), under the controlled
        waters.
1.2.2   As at the Effective Date the licensed area in:
        1.2.2.1    Tranche I comprised 1,588 square kilometres (known as blocks 25/3,
                   25/4, 25/5, 25/8, 25/9 and 25/10);
        1.2.2.2    Tranche L comprised 3,149 square kilometres, (known as blocks 25/15,
                   25/20, 25/25, 26/11, 26/12, 26/13, 26/16, 26/17, 26/18, 26/21, 26/22 and
                   26/23).
1.2.3   Since the Effective Date, the following areas have been relinquished by the Company:
        1.2.3.1    blocks 25/3, 25/8 and 25/9 of Tranche I;
        1.2.3.2    blocks 26/12, 26/13, 26/17, 26/18, 26/21, 26/22 and 26/23 of Tranche L.
1.2.4   Following these relinquishments the licensed areas in Tranche I now comprise
        approximately 794 square kilometres and in Tranche L comprise approximately
        1,312 square kilometres.
1.2.5   The terms of the Tranche I and L Licences and the consideration for the grant of these
        licences broadly reflect the same provisions as those outlined above regarding the
        Tranche C and D Licences.
1.2.6   The terms of the work programmes which are to be completed under the Tranche
        Iand L Licences are very similar and are essentially, as follows:
        1.2.6.1    during the initial 5 year term (which, like the Tranche C and D Licences,
                   has been extended to expire on 25 November 2004, “Initial Term”) the
                   Company is required to:
                   1.2.6.1.1 purchase speculative seismic data;
                   1.2.6.1.2 acquire seismic data, process and reprocess it and acquire
                             additional seismic data (conditional upon the results
                             identifying significant prospects and/or leads);
                   1.2.6.1.3 drill one exploration well, if evidence was found of a working
                             petroleum charge and an economically significant prospect was
                             identified. As neither of these conditions was satisfied, no well
                             commitments are outstanding in respect of either Tranche
                             I or L.
                   The Company was initially also required to reassess the slick survey data
                   and conduct physical check sampling, however this requirement was
                   waived by the Governor as the Company acquired more seismic data than
                   was initially required.
        1.2.6.2    If the Initial Term is continued into the Second Term (as defined in
                   paragraph 1.1.4 above), the Company will be required (in respect of each
                   of Tranche I and L (assuming the Term is continued under both the
                   Tranche I and L Licences)) to:
                   1.2.6.2.1 drill a well; and
                   1.2.6.2.2 acquire additional 2D seismic data.
1.2.7   In all other respects, the terms of the Tranche I and L Licences regarding obligations,
        termination, assignment, change of control and dispute resolution broadly reflect the
        terms outlined above for the Tranche C and D Licences.

                                          41
1.3   Tranche F
      1.3.1 The Tranche F Licence was granted on 24 March 1997 (with an effective
             commencement date of 28 October 1996, “Effective Date”) to (1) Sands Oil and Gas
             Limited and (2) IPC Falklands Limited. The current licensees of the Tranche F
             Licence (“Licensees”) are Sodra Petroleum AB (“Sodra”) which holds an 87.5 per
             cent. interest and the Company which holds a 12.5 per cent. interest. The Tranche F
             Licence is the subject of a Joint Operating Agreement, summarised in paragraph 2
             below.
      1.3.2   Since the Effective Date, the Licensees have relinquished blocks 14/23, 14/28, 14/29
              and 14/30 of Tranche F. The current licensed area comprises approximately 534
              square kilometres.
      1.3.3   During the initial term of the Tranche F Licence (which has been extended to expire
              on 25 November 2004, “Initial Term”) the Licensees’ work programme provides for
              the:
              1.3.3.1    purchase of speculative seismic data;
              1.3.3.2    acquisition of satellite seep and gravity data; and
              1.3.3.3    drilling of two wells (this has subsequently been amended to a
                         requirement to drill one well and to purchase additional 2D seismic data).
      1.3.4   To date the Company believes the work commitments in Tranche F have been
              fulfilled and formal acknowledgement has been received from the Governor.
      1.3.5   If the Term is continued into the Second Term (as defined in paragraph 1.1.4 above),
              the Tranche F work requirements will be to:
              1.3.5.1    acquire and process more seismic data; and
              1.3.5.2    drill two wells.
      1.3.6   In all other respects, the terms of the Tranche F Licence regarding obligations,
              termination, assignment, change of control and dispute resolution broadly reflect the
              terms outlined above for the Tranche C and D Licences.

2.    Tranche F Joint Operating Agreement
2.1   The Company and Sodra are parties to a joint operating agreement dated 26 February 1998
      relating to the joint operation for the Tranche F Licence (“JOA”). The JOA will, subject to
      earlier termination, continue for so long as the Tranche F Licence is in force.
2.2   Sodra is the operator of the JOA (“Operator”) and accordingly works under the overall
      supervision and control of a joint operating committee (“Committee”) which consists of one
      representative appointed by each party. Representative’s votes on the Committee are
      weighted according to the percentage level of that representative’s party’s interest in the
      Tranche F Licence (the Company has a 12.5 per cent. interest and Sodra has the balance). A
      Committee decision is passed when one or more party’s votes reach an aggregate of 62.5 per
      cent. The Committee meets as and when required, subject to at least one meeting per year,
      although decisions may be taken by all parties without the need to hold a meeting, provided
      the Operator has received noticeof any proposal which would otherwise be determined at a
      Committee meeting.
2.3   The Committee decides the location and time at which the minimum work programme
      (which the Licencees are required to fulfil under the Tranche F Licence) will be discharged.
2.4   The procedures for the parties agreeing to continue the term of the Tranche F Licence beyond
      the initial term and to a second or third exploration term are set out in the JOA. Subject to
      notice, one party may withdraw from the Tranche F Licence and JOA. The determination and
      surrender provision of the Tranche F Licence, however, requires an affirmative vote from
      both parties.

                                                42
2.5   The Operator is obliged to submit in each year a proposed exploration programme and
      budget, which must be approved by the Committee. Any other expenditure incurred by the
      Operator (except in the case of emergency) should first be approved by the Committee. If a
      discovery of reserves of petroleum is made in Tranche F then the Operator is required by the
      Committee to submit an appraisal programme and budget and a proposed development
      programme in respect of this discovery. The appraisal and development programmes and
      corresponding budgets provide details as to the project to be undertaken and if applicable the
      wells to be drilled, the manner in which these projects are to be carried out and the financial
      implications of these proposals. The Operator is also required to submit a proposed
      production programme and budget prior to commencement of production.
2.6   The parties may, subject to the terms of the JOA, request that the Operator carries out drilling
      or geophysical work, projects and development without the participation of both parties to
      the JOA. The risk, costs and expenses of such projects are however to be borne by that party
      alone, unless another party elects to join the proposed programme.
2.7   If petroleum reserves are discovered in Tranche F then the Company is entitled to its share of
      the total quantities of petroleum discovered in accordance with its percentage interest in the
      JOA. The parties are under an obligation to lift and separately dispose of their share of the
      petroleum as agreed between the parties. If any party is unable, for any reason, to lift its
      entitlement to crude oil then the oil will be lifted in accordance with the off-take procedures
      which are to be agreed by the parties.
2.8   The Operator will obtain and maintain the insurance required at the expense of the parties in
      proportion to their respective percentage interests under the JOA. There are provisions,
      however, which will allow the parties to obtainand maintain their own insurance policies in
      respect of their percentage interests should they choose to do so.
2.9   The rights of all parties under the licences are reserved by the JOA. In addition the parties are
      granted the right to inspect all records and to have access to the licensed areas and operations.
      This will also include transportation and accommodation, where operations are carried out
      off shore, provided that this does not interfere with the operations.
2.10 If a party should default inpaying its share of the costs under the JOA, then all parties are
     required tocontribute towards these outstanding costs according to their percentage interest.
     Interest will accrue on a daily basis on any sums outstanding. For as long as a party remains in
     default, it is not entitled to enjoy its share of the petroleum, its right to representation and its
     right to vote and it is also denied access to data and information.
2.11 The JOA contains a confidentiality undertaking on all parties for the duration of the JOA and
     for the three years following their termination.
2.12 The JOA provides for each of Sodra and the Company to indemnify the other (and its
     affiliates) to the extent of its percentage interest in the Tranche F Licence for any claim by or
     liability to any third party arising from or in connection with the operations under the JOA,
     including any claim for negligence but excluding any claim for wilful misconduct.
2.13 The parties may assign their percentage interest in the JOA, subject to the notice provisions,
     with the consent of the other parties (and, in certain circumstances, the consent of the
     Governor). The consent of the other parties may only be withheld on grounds of lack of
     technical and financial responsibility and/or capability of the proposed assignee.
2.14 The JOA is governed byEnglish law and any dispute is submitted to arbitration in London
     under the Rules of the London Court of International Arbitration.
      Note: a map showing the blocks referred to in this Part VI is availale for inspection (during
      normal office hours) for the period of one month from the date of this document, at the
      Company’s offices at 22 Bruton Street, London W1J 6QE.




                                                   43
                                            PART VII

                                     Additional Information

1.     Responsibility
To the best of the Directors’ knowledge (who have taken all reasonable care to ensure that such is
the case) the information contained in this document is in accordance with the facts and this
document makes no omission likely to affect the import of such information. The Directors, whose
names, addresses and functions are set out on page 5 of this document, accept responsibility for this
document.
2.     The Company
2.1    The Company is registered in England and Wales with company registration number
       3168611. The Company was incorporated under the Act on 6 March 1996 as Oval (1061)
       Limited, a private company limited by shares. The Company changed its name to Desire
       Petroleum Limited on 2 May 1996 and on 7 April 1998 the Company was re-registered as a
       public limited company under the name Desire Petroleum plc.
2.2    The liability of the members of the Company is limited.
3.     The Company’s Share Capital
3.1    The authorised and issued share capital of the Company as at 23 December 2003 (being the
       last practicable date prior to the posting of this document) was as follows:
                                                  Authorised               Issued and fully paid
                                            Number                 £      Number                 £
       Ordinary Shares                  140,000,000        1,400,000 112,500,552 1,125,005.52

3.2    On 30 May 2003 the following resolutions were passed:
       3.2.1 pursuant to section 80 of the Act the Directors were granted authority to allot
               relevant securities (as defined in section 80 of the Act) with a maximum aggregate
               nominal value of £375,000, such authority to expire (unless renewed) at the
               Company’s annual general meeting in 2004 (but the Company may before such
               expiry make an offer or agreement which would or might require relevant securities
               to be allotted after this authority expires); and
       3.2.2 Shareholders’ statutory pre-emption rights contained in section 89(1) of the Act
               were disapplied (pursuant to section 95 of the Act) in respect of the allotment for
               cash of the Ordinary Shares referred to in paragraph 3.2.1 above, provided that this
               power was limited to:
               3.2.2.1 the allotment of equity securities (as defined in section 94 of the Act) in
                         connection with an offer (whether by way of a rights issue, open offer or
                         otherwise) to the Shareholders 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, or any legal or practical problems
                         arising in any territory or the requirements of any regulatory body or
                         stock exchange, or any other matters; and
               3.2.2.2 the allotment (otherwise than under paragraph 3.2.2.1 above) of equity
                         securities up to an aggregate amount of £56,250.
3.3    At the EGM, the Resolutions will be proposed to:
       3.3.1 increase the authorised share capital of the Company from £1,400,000 to
               £2,500,000 by the creation of an additional 110,000,000 Ordinary Shares;
       3.3.2 authorise the Directors to allot Ordinary Shares with an aggregate nominal value of
               £1,374,994.48 (being sufficient authority for the purposes of the Placing and Open
               Offer and to give the Directors authority to allot further Ordinary Shares up to an
               aggregate nominal amount of £636,861.64); and

                                                 44
       3.3.3   disapply shareholders’ statutory pre-emption rights in relation to the Placing and
               Open offer, certain future issues of Ordinary Shares and other issues of Ordinary
               Shares for cash up to an aggregate nominal amount of £928,132.84.
3.4    Irrevocable undertakings to vote in favour of the Resolutions proposed at the EGM have
       been received from:
       3.4.1 Phipps and Company (a corporate Shareholder in which Stephen Lawrey Phipps is a
               director and shareholder) which has also irrevocably undertaken only to subscribe
               for 3,218,600 New Ordinary Shares which, at the Issue Price, represents a cash
               subscription of £321,860;
       3.4.2   Colin Phipps, Marion Phipps and Michael Field as trustees of the Phipps and
               Company retirement benefit scheme who have also irrevocably undertaken to
               subscribe for 2,500,000 New Ordinary Shares which, at the Issue Price, represents a
               cash subscription of £250,000;
       3.4.3   Dr Alan John Martin who has also irrevocably undertaken to subscribe for 225,000
               New Ordinary Shares which, at the Issue Price, represents a cash subscription of
               £22,500;
       3.4.4   Dr Ian Gordon Duncan who has also irrevocably undertaken to subscribe for
               122,000 New Ordinary Shares which, at the Issue Price, represents a cash
               subscription of £12,200;
       3.4.5   Walter Ian Logan Forrest who has also irrevocably undertaken to subscribe for
               225,000 New Ordinary Shares which, at the Issue Price, represents a cash
               subscription of £22,500;
       3.4.6   QM Marketing Limited (a corporate Shareholder in which Dr David Huw Quick is
               a director and shareholder) which has also irrevocably undertaken to subscribe for
               225,000 New Ordinary Shares which, at the Issue Price, represents a cash
               subscription of £22,500; and
       3.4.7   Dr David Huw Quick.
3.5    The authorised and issued share capital of the Company following the Placing and Open
       Offer (assuming full subscription of the New Ordinary Shares) will be as follows:
                                                Authorised              Issued and fully paid
                                           Number              £       Number                 £
       Ordinary Shares                250,000,000      2,500,000 185,313,816 1,853,138.16


4.     Subsidiaries
The Company is a holding company and has the following subsidiaries:
                                              Proportion
                                                of voting
                                               rights and    Country of
Names of subsidiary                 Holding shares held Incorporation Nature of business
Gaelic Resources plc         ordinary shares       100%     Republic of Holding Company
                                                                 Ireland
European Hydrocarbons         ordinary shares**        100%         Channel         Hydrocarbon
Limited                                                              Islands       exploration in
                                                                                         Europe
Interoil Limited               ordinary shares*      99.80%         England        Technological
                                                                                      marketing
                                                                                       company

                                               45
                                                          Proportion
                                                            of voting
                                                           rights and   Country of
Names of subsidiary                              Holding shares held Incorporation Nature of business
Gaelic Resources (Turkey)                ordinary shares*      100% British Virgin      Non-trading
Limited                                                                    Islands
Anglo Scandinavian                       ordinary shares*        100%     England        Non-trading
Petroleum plc
European Hydrocarbons                    ordinary shares*        100%     Channel Holding Company
Holdings Limited                                                           Islands
* Held in the name of Gaelic Resources plc.
** Held in the name of European Hydrocarbons Holdings Limited.


5.       Share Option Schemes
5.1      Desire Petroleum Unapproved Executive Share Option Scheme (“1998 Scheme”)
         On 7 April 1998 the Company adopted the 1998 Scheme. Options have been granted under
         the Scheme to the Directors as set out in paragraph 6.2 below. The following is a summary of
         the rules of the 1998 Scheme:
         5.1.1 Eligibility
                  All the Directors and employees of the Group are eligible to participate at the
                  discretion of the Remuneration Committee.
         5.1.2     Grant of Options
                   Options may be granted in each year in a period of 42 days starting on the
                   announcement of each of the Company’s interim and final results. In circumstances
                   deemed exceptional by the Remuneration Committee options may be granted
                   outside this normal period. Options may not be granted more than 10 years after
                   the date of the adoption of the 1998 Scheme. No consideration is payable for the
                   grant of an option. Options granted under the 1998 Scheme are personal to a
                   participant and, except on his death, may not be transferred.
                   When granting options, the Remuneration Committee may specify performance
                   targets which must be satisfied before those options may be exercised. The
                   Remuneration Committee may also amend or waive such conditions provided that
                   any amended provisions are no more difficult to achieve than those previously
                   notified to the option holder.
         5.1.3     Exercise price
                   The price at which participants may acquire Ordinary Shares pursuant to the 1998
                   Scheme shall not be less than the greater of the nominal value of an Ordinary Share
                   and its market price on the date of grant.
                   For options granted under the 1998 Scheme to the Directors on 7 May 2002 (as set
                   out in paragraph 6.2 below) the exercise price was set at 12.25 pence per Ordinary
                   Share.
                   Any further options to be granted under the 1998 Scheme will have an exercise price
                   set by the Remuneration Committee which shall not be less than the higher of the
                   nominal value of an Ordinary Share and the market quotation for an Ordinary
                   Share on AIM at the close of business on the dealing day ending immediately prior
                   to the date of grant.
         5.1.4     Individual limits
                   Options may only be granted subject to a four times annual remuneration limit,
                   which will take account of all options granted under the 1998 Scheme or any of the
                   other Share Option Schemes. Any option which has already been exercised or has
                   lapsed or been surrendered shall be included in calculating these limits.

                                                           46
              No option may be granted to a Director or employee on a date which falls less than
              two years before the date at which the Director or employee is to retire under his
              contract of employment or service agreement.
      5.1.5   Exercise, lapse and exchange of options
              Options may normally be exercised in whole or in part during the period between
              the third and seventh anniversaries of their grant provided any performance targets
              specified at the date of grant (as otherwise amended or waived at the discretion of
              the Remuneration Committee) have been achieved. Options may be satisfied by the
              issue of new Ordinary Shares or the transfer of existing Ordinary Shares.
              Options normally lapse on cessation of employment. However, exercise is
              permitted for a limited period following cessation of employment for specified
              reasons such as redundancy, retirement or ill health and at the discretion of the
              Remuneration Committee. In the event of the death of an option holder, his
              personal representatives may exercise the option in whole or in part within 12
              months of the date of death, after which time it shall lapse. In the event of an
              amalgamation, takeover or winding up of the Company, options may be exercised
              within certain time limits. There are also provisions for the exchange of options in
              specified circumstances. Options may not be transferred, assigned or charged and
              immediately become void in the event of the participant’s bankruptcy.
      5.1.6   Limits on the issue of Ordinary Shares
              No option to subscribe for Ordinary Shares may be granted on any date if the
              number of Ordinary Shares the subject of that option would, when aggregated with
              the number of Ordinary Shares issued or remaining issuable under the 1998 Scheme
              or under any other employee share scheme in the period of 10 years ending on that
              date, exceed 10 per cent. of the issued share capital of the Company.
      5.1.7   Adjustments
              The number of Ordinary Shares comprised in an option and/or the exercise price
              may be adjusted if any capitalisation issue, offer by way of rights or any
              sub-division, reduction or consolidation or other variation of the Company’s share
              capital occurs.
      5.1.8   Rights attaching to Ordinary Shares
              All Ordinary Shares allotted under the 1998 Scheme will rank pari passu with all
              other Ordinary Shares of the Company of the time being in issue, save as regards
              any rights arising by reference to a record date prior to the date of allotment. An
              application will be made for any such Ordinary Shares to be admitted to AIM.
      5.1.9   Amendments
              The Remuneration Committee may at any time amend the 1998 Scheme provided
              that the prior approval of the Shareholders in general meeting is obtained for certain
              amendments which would make the terms of options more generous to option
              holders. No amendment may abrogate or adversely affect the subsisting rights of a
              participant unless sanctioned by a class meeting of participants. The requirements
              to obtain Shareholder approval for amendments will not apply if they are required
              to take account of developments in taxation.

5.2   Desire Gaelic Share Option Scheme (“Desire Gaelic Scheme”)
      On 30 September 1999 the Company acquired the entire issued share capital of Gaelic
      (“Merger”). Prior to the Merger, Gaelic had operated a share option scheme in respect of
      shares in the capital of Gaelic (“1995 Gaelic Scheme”).
      On 30 September 1999 the Desire Gaelic Scheme was adopted by the Company for the
      purposes of granting equivalent options over Ordinary Shares to holders of options under
      the 1995 Gaelic Scheme. There follows a summary of the rules of the Desire Gaelic Scheme.

                                               47
      5.2.1   Eligibility
              Persons who at 30 September 1999 held outstanding options under the 1995 Gaelic
              Scheme (“Gaelic Options”) and who released their options over Gaelic Shares.
      5.2.2   Grant of options and Exercise Price
              Each holder of Gaelic Options exercisable at 1 pence per share in the capital of
              Gaelic (“Gaelic Share”) was granted an option to subscribe for one Ordinary Share
              at an exercise price of 18 pence per Ordinary Share for every 18 Gaelic Options
              held.
              Each holder of Gaelic Options exercisable at IR1 pence per Gaelic Share was
              granted an option to subscribe for one Ordinary Share at an exercise price of
              IR18 pence per Ordinary Share for every 18 Gaelic Options held. The only
              outstanding Options exercisable pursuant to this scheme in Irish punds are held by
              Walter Ian Logan Forrest (details of these Options are set out in paragraph 6.2). If
              Mr Forrest elects to exercise these Options, the Company will instruct its auditors
              to calculate the euro equivalent of the Irish pund exercise price.
              The Desire Gaelic Scheme provides that, after 31 December 1999, no options can
              be granted under it.
      5.2.3   Exercise period
              Options exercisable at IR18 pence may be exercised at any time up to and including
              26 October 2005. Options exercisable at 18 pence may be exercised at any time up
              to and including 8 September 2007.
              In the event of the death of an option holder within 10 years from the date of the
              grant of the option, his personal representatives may exercise the option in whole or
              in part within 12 months of the date of death, notwithstanding that such exercise
              takes place after the expiry of the 10 year period, after which time it shall lapse.
      5.2.4   Adjustments
              The number of Ordinary Shares comprised in an option and/or the exercise price
              may be adjusted, in such manner as the Company’s auditors may determine, if any
              capitalisation issue, offer by way of rights or any sub-division, reduction or
              consolidation or other variation of the Company share capital occurs. No
              adjustments shall be made which would result in Ordinary Shares being issued at a
              discount.
      5.2.5   General
              5.2.5.1 The Company must keep available sufficient authorised but unissued
                      share capital to permit the exercise of an option which may be exercisable
                      from time to time.
              5.2.5.2 The Board may make such rules and regulations not inconsistent with the
                      rules of the Desire Gaelic Scheme and establish such procedures for the
                      administration of the Desire Gaelic Scheme as it deems appropriate.

5.3   Phipps and Company Option Agreement
      On 26 June 2003 the Company granted to Phipps and Company an option to subscribe for
      2,500,000 Ordinary Shares at 8 pence per Ordinary Share (“Phipps and Company
      Option”). There follows a summary of the terms of the Phipps and Company Option:
      5.3.1   Exercise
              Subject to the Board’s consent (and an intervening takeover offer being made in
              respect of the Company, lapse of the Phipps and Company Option in accordance
              with its terms or the winding up of the Company), the Phipps and Company Option
              can only be exercised after 23 June 2003. The Phipps and Company Option may be
              exercised in instalments.

                                               48
      5.3.2   Lapse of Phipps and Company Option
              To the extent that the Phipps and Company Option (or any of it) has not been
              exercised, it shall lapse on the earliest of (i) 23 June 2010 or (ii) the takeover or
              winding up of the Company.
      5.3.3   Takeover
              In the event of an amalgamation or takeover of the Company, the Phipps and
              Company Option may, in certain circumstances, be exercisable or released in
              favour of the grant to Phipps and Company of equivalent options over the share
              capital of the acquiring company (or its parent company).
      5.3.4   Winding Up
              If the Company is wound up before the Phipps and Company Option lapses, it shall
              remain exercisable for a period of 28 days after the resolution to wind up the
              Company becomes effective (at the end of such period, it will, if unexercised, lapse).
              If Phipps and Company so exercises the Phipps and Company Option, it will be
              entitled to share in the assets of the Company (after deduction of the relevant
              exercise price) as if the Phipps and Company Option had been exercised in full
              immediately prior to the winding up.
      5.3.5   Assignment
              The Phipps and Company Option is not transferable, assignable or chargeable by
              Phipps and Company.
      5.3.6   Adjustment of Phipps and Company Option
              The Directors may adjust the number of Ordinary Shares the subject of the Phipps
              and Company Option if (i) there is an issue of shares or other securities of the
              Company by way of capitalisation or profits or reserves or (ii) shares in the capital
              of the Company are issued by way of rights or placing for cash or (iii) other issues of
              shares in the capital of the Company are made at a discount to market value, or (iv)
              there is a consolidation or sub-division or reduction of share capital.
      5.3.7   General
              For so long as the Phipps and Company Option is exercisable, the Company must
              keep available sufficient authorised but unissued share capital (and ensure that
              Shareholders’ statutory pre-emption rights have been disapplied in respect of the
              allotment of the Ordinary Shares the subject of the Phipps and Company Option,
              pursuant to section 95 of the Act) to permit the exercise of the Phipps and Company
              Option.

6.    Directors’ and Other Interests
6.1   The Directors’ interests in the Ordinary Shares of the Company (other than interests by
      virtue of the holding of Options, which are detailed in paragraph 6.2 below):
      6.1.1   as at 23 December 2003 (the last practicable date prior to the publication of this
              document); and
      6.1.2   as they are expected to be following the Placing and Open Offer (assuming the
              Placing and Open Offer are taken up in full (on the basis of the undertakings and
              intentions referred to in paragraph 3.4 above)




                                                49
      all of which are beneficial and which (in the case of the interests referred to at paragraph
      6.1.1 above) (i) have been notified by each Director to the Company pursuant to section 324
      or 328 of the Act; or (ii) are required pursuant to section 325 of the Act to be entered in the
      register referred to in that section; or (iii) are interests of a connected person (within the
      meaning of section 346 of the Act) of a Director, are as set out below:
                                                                Percentage               Percentage
                                                                 of current Number of of Ordinary
                                                      Current         issued Ordinary          Share
                                                  Number of Ordinary              Shares     Capital
                                                    Ordinary           Share following following
                                                       Shares       Capital Admission Admission
      Dr Colin Barry Phipps                               NIL           NIL         NIL          NIL
      Dr Alan John Martin*                           519,032            0.46    744,032      0.28%
      Dr Ian Gordon Duncan**                         199,714            0.18    321,714      0.17%
      Stephen Lawrey Phipps***                   26,670,238           23.71 32,388,838      17.48%
      Walter Ian Logan Forrest****                 1,221,793            1.09 1,446,793       0.78%
      Dr David Huw Quick*****                      1,242,816            1.10 1,467,816       0.79%
      *       the Ordinary Shares shown against Dr Alan John Martin include 256,832 Ordinary Shares held by his wife;
      **      the Ordinary Shares shown against Dr Ian Gordon Duncan include 30,000 Ordinary Shares held by his wife and
              107,143 Ordinary Shares held by Chase Energy Limited, of which he is a director and shareholder;
      ***     26,330,238 Ordinary Shares shown against Stephen Lawrey Phipps are legally and beneficially held by Phipps &
              Company, of which he is a director and shareholder. The remaining 340,000 Ordinary Shares shown against Stephen
              Lawrey Phipps are held by Dr Colin Phipps, Marion Phipps and Michael Field as trustees of the Phipps & Company
              Limited retirement benefit scheme;
      **** the Ordinary Shares shown against Walter Ian Logan Forrest include 338,768 Ordinary Shares held by Panares
           Resources Inc., of which Mr Forrest is a director and 321,428 Ordinary Shares held by Micor Trading SA of which Mr
           Forrest is a director;
      ***** the Ordinary Shares shown against Dr David Huw Quick include 40,000 Ordinary Shares held by his wife and
            1,147,816 Ordinary Shares held by QM Marketing Limited, of which Dr Quick is a director and shareholder.

6.2   The following Ordinary Shares are subject to Options. In the case of the Options held by
      Directors, these Options are in addition to the Directors’ interests set out in paragraph 6.1:
                                          Desire Phipps and
                             1998         Gaelic Company           Exercise
                           Scheme        Scheme       Option           price         Exercise period
      Dr Colin Barry                    555,555            —            18p      up to 8 September
      Phipps                                                                                   2007
                          250,000             —            —          12.25p         7 May 2005 to
                                                                                        6 May 2009
      Dr Alan John        250,000             —            —          12.25p         7 May 2005 to
      Martin                                                                            6 May 2009
      Dr Ian Gordon       250,000             —            —          12.25p         7 May 2005 to
      Duncan                                                                            6 May 2009
      Stephen Lawrey      250,000             —            —          12.25p         7 May 2005 to
      Phipps*                                                                           6 May 2009
                                              — 2,500,000                  8p       23 June 2003 to
                                                                                       23 June 2010
      Walter Ian Logan                  277,777            —             18p up to 8 September
      Forrest                                                                                  2007
                                        277,777            —         IR18p        up to 26 October
                                                                                               2005
                          250,000             —            —          12.25p         7 May 2005 to
                                                                                        6 May 2009
      Dr David Huw                      277,777            —             18p up to 8 September
      Quick                                                                                    2007
                          250,000             —            —          12.25p         7 May 2005 to
                                                                                        6 May 2009
      Anna Ruth Neve 100,000                  —            —          12.25p         7 May 2005 to
                                                                                        6 May 2009
      *    the Phipps and Company Options shown against Stephen Lawrey Phipps are legally and beneficially held by Phipps &
           Company, of which he is a director and shareholder.

                                                           50
6.3   The Company is not aware of any person, other than a Director who is interested (within the
      meaning given to that expression in Part VI of the Act), directly or indirectly, in 3 per cent. or
      more of the share capital (as defined in section 198(2) of the Act) of the Company other than
      those set out below:
                                                                                         Percentage of
                                                                          Number of              Issued
                                                                            Ordinary         Ordinary
      Shareholder                                                              Shares Share Capital
      Phipps & Company Limited*                                          26,670,238            23.71%
      Rock (Nominees) Limited 1919890 Acct                                 7,447,920             6.62%
      Greenwich Resources International BV                                 6,893,888             6.13%
      Westmount Petroleum UK Limited**                                     5,500,000             4.89%
      HSBC Global Custody Nominee (UK) Limited 813259 Acct                 5,376,100             4.78%
      *    340,000 Ordinary Shares shown against Phipps & Company Limited are held by Dr Colin Phipps, Marion Phipps and
           Michael Field as trustees of the Phipps & Company Limited retirement benefit scheme
      **   5,390,000 Ordinary Shares shown against Westmount Petroleum UK Limited are held by Natwest Fis Nominees
           Limited Sx Acct and the balance are held by Westmount Energy Limited.

6.4   Save as disclosed above, the Directors are not aware of any person or persons who directly or
      indirectly, jointly or severally, exercise, exercises or could exercise control over the
      Company.

6.5   Save as disclosed above, none of the Directors has any interest, beneficial or non-beneficial,
      in the share or loan capital of the Company.

6.6   Save as disclosed herein, no Director has any interest, direct or indirect, in any assets which
      have been or are proposed to be acquired or disposed of by, or leased to, the Company and
      no contract or arrangements exists in which a Director is materially interested and which is
      significant in relation to the business of the Company.

6.7   There are no outstanding loans granted by the Company to any of the Directors, nor are
      there any guarantees provided by the Company for their benefit.

6.8   No Director has or has had any interest in any transaction which is or was of an unusual
      nature, contains or contained unusual terms or is or was significant in relation to the
      business of the Company and which was effected during the current or immediately
      preceding financial year or which was effected during any earlier financial year and remains
      in any respect outstanding or unperformed.

6.9   The table below sets out the current directorships (other than that of Company) and the
      partnerships held by each of the Directors as at the date of this document (and their ages as at
      the date of this document):
      Name                          Age             Current Directorships and Partnerships
      Dr Colin Barry Phipps         69              Ayles Heath Buchanan Neve Limited
                                                    Chartbay Limited
                                                    Chartimage Limited
                                                    Heltstar Limited
                                                    Lawrence Industries Limited
                                                    Lawrence Industries Holdings Limited
                                                    Phipps & Company Limited
                                                    Phipps Buchanan Neve Limited
                                                    Recycling Services Group Limited
                                                    Rydedale Ringer Limited
                                                    Timelift Limited
                                                    Wassell Limited
                                                    Web Supply Services Limited

      Dr Alan John Martin                 70                 CASP

                                                        51
Name                       Age        Current Directorships and Partnerships
Stephen Lawrey Phipps      45         Greenwich Resources plc
                                      Lawrence Industries Holdings Limited
                                      Lawrence Industries Limited
                                      Phipps & Company Limited
                                      Platinum Blue Holdings Limited
                                      Recycling Services Group Limited
                                      Wassell Limited
                                      Web Supply Services Limited
Dr Ian Gordon Duncan       54         Chase Energy Limited
                                      The British Butterfly Conservation Society
                                      Limited
Dr David Huw Quick         60         QM Marketing Limited
                                      South Texas Oil and Gas Limited
Walter Ian Logan Forrest   65         Anglo Scandinavian Petroleum Plc
                                      AP International Maritime Finance Limited
                                      Belmore Resources Limited
                                      Blue Wing Investments Ltd
                                      Bolcar Investments Ltd
                                      Bridgenorth SA
                                      Caledonian Mining Corporation
                                      Camanoe Developments Ltd
                                      Charles Street International Ltd
                                      Colen Limited
                                      Dromendary Trading Limited
                                      Ellen Holdings BV
                                      FlightParks Limited
                                      Gaelic Oil Plc
                                      Gaelic Resources Plc
                                      Georex SA
                                      Interaf SA
                                      Interoil Limited
                                      Island & Costal Minerals (Sierra Leone) Ltd
                                      Kensid Trading SA
                                      Leman Nominee Company Ltd
                                      Mengold Resources Inc.
                                      Meribel Holdings Ltd
                                      Metcom Trading SA
                                      Micor Trading SA
                                      Molard Financial Management Services SA
                                      Molard Nominees SA
                                      Paddington Investments SA
                                      Panares Resources Inc.
                                      Pentex Italia Limited
                                      Polymet Mining Corp.
                                      Phoenix Global Management Ltd
                                      Rene Gott SA
                                      Technology Support Corp. Ltd
                                      Texinvest SA
                                      Tortin Holdings Ltd
                                      Trelexploration SA
                                      WNJ Corporation
                                      Texican Oil Limited (formerly Texican Oil
                                      Plc)
                                      Viatrade Plc

                                 52
6.10   The table below sets out the directorships and partnerships held by each Director in the five
       years immediately preceding the date of this document but which are not currently held:
       Name                            Previous Directorships and Partnerships
       Dr Colin Barry Phipps           Consolidated Supply Management Limited
                                       CSM Trustees Limited
                                       Desire Petroleum Holdings Limited
                                       Gaelic Resources Public Limited Company
                                       Greenwich Resources plc
                                       Gloucestershire Broadcasting Limited
                                       Ryedale Securities Limited
       Dr Alan John Martin              Aconite Partners Limited
                                        Desire Petroleum Holdings Limited
       Stephen Lawrey Phipps            Bridge of Cally Energy Investments Limited
                                        Desire Petroleum Holdings Limited
                                        Global Emerging Markets Europe Limited
                                        JBR Recovery Limited
                                        Schoolsnet Limited
       Dr Ian Gordon Duncan             Desire Petroleum Holdings Limited
                                        W.N.C.T. Enterprises Limited
                                        The Worcestershire Nature Conservation Trust Limited
       Dr David Huw Quick               Calchrome Limited
                                        Greenwich Resources plc
                                        Greenwich Resources Overseas Holdings Limited
                                        Greenwich Resources Overseas Trading Limited
                                        Greenwich Resources (Finance) Limited
                                        Gloucestershire Broadcasting Limited
                                        Thrace Venture Capital Limited
       Walter Ian Logan Forrest         AB Airlines plc
                                        The Association of Small Company Investors Limited
                                        London Wall Securities Ltd
                                        Reunion Mining Limited
6.11   None of the Directors has any unspent convictions in relation to indictable offences nor,
       save as disclosed in paragraph 6.14, has any Director at any time been a director of a
       company (wherever incorporated) or a partner in a partnership at any time when such
       company or partnership has gone into administration, company or partnership voluntary
       arrangements, or made any composition or arrangement with creditors generally or any
       class of creditors, or gone into receivership, compulsory liquidation or creditors’ voluntary
       liquidation, where he was a partner or a director at the time or any time in the last 12 months
       preceding such event, nor has any of them ever been personally bankrupt, in an individual
       voluntary arrangement with creditors or been publicly criticised by any statutory or
       regulatory authority or recognised professional body nor suffered any receivership over his
       assets or the assets of a partnership of which he was a partner at the time of or within the
       12 months preceding such event.
6.12   None of the Directors has been disqualified by a court from acting as a director of a company
       or from acting in the management or conduct of the affairs of any company.
6.13   No Director (or any member of a Director’s family) has a financial product whose value in
       whole or in part is determined directly or indirectly by reference to the price of the Ordinary
       Shares.
6.14   (a)     From 1970 to 1971 Dr Colin Phipps was a non-executive director of King’s Lynn
               Engineering & Fabrications Limited. That company was engaged in the production
               of tanks, especially water tanks for storage. Following an incident where a tank
               burst, it transpired that the company had insufficient insurance cover and was

                                                 53
               unable to meet its obligations arising from the incident. On 15 October 1971 a
               resolution was passed to wind up the company voluntarily. The company had net
               liabilities of approximately £20,000. The liquidation was completed in November
               1974.
       (b)     Walter Ian Logan Forrest became a director of AB Airlines plc on 30 June 1999 and
               resigned on 30 July 1999. On 2 August 1999, AB Airlines plc was placed in
               administrative receivership.
6.15   The Company has contracts as follows, for the provision of the services of the Directors:
       6.15.1 dated 7 April 1998 but effective from 1 April 1998 with Phipps and Company for
              the provision of a wide range of management services (including office costs) to the
              Group for an annual fee of £337,200 plus VAT (“Annual Fee”). If Phipps and
              Company is called upon to provide additional services, including the provision of
              the services of Dr Colin Phipps for periods materially in excess of 20 hours per
              week, then a further fee will be payable up to a maximum daily rate of £1,460 plus
              VAT depending on the level of additional services provided. These services include
              the provision of the services of Dr Colin Phipps as a non-executive Director. On
              1 October 2002, this agreement was amended to reduce the Annual Fee to
              £172,000 (plus VAT) per annum which would include the fees payable to Stephen
              Lawrey Phipps as a non-executive Director pursuant to his agreement with the
              Company (summarised at 6.15.3 below). The Annual Fee has been reduced on a
              temporary basis and is subject to review;
       6.15.2 dated 21 December 2000 with Chase Energy Limited for the provision, as required,
              to the Company of the consultancy services of Dr Ian Gordon Duncan at a daily fee
              of £500 (plus VAT) per day. In addition, by an unwritten agreement, the Company
              pays to Dr Duncan the sum of £4,800 per year in consideration of the provision of
              his services as a non-executive Director;
       6.15.3 dated 7 April 1998 with Mr Stephen Phipps for the provision of his services as a
              non-executive Director at an annual fee of £15,000 plus VAT;
       6.15.4 dated 9 September 1999 (but with effect from 1 October 1999) with Molard
              Financial Management Services SA to procure the services of Mr Forrest as a
              non-executive Director at an annual fee of £15,000 plus VAT;
       6.15.5 dated 9 September 1999 (but with effect from 1 October 1999) with QM
              Marketing Limited and Dr David Huw Quick to procure the services of Dr Quick as
              a non-executive Director at an annual fee of £15,000 plus VAT; and
       6.15.6 dated 7 April 1998 (but with effect from 1 April 1998) with Dr Alan John Martin and
              Aconite Partners Limited to procure the services of Dr Martin as a non-executive
              Director at an annual fee of £15,000 plus VAT. This agreement has subsequently been
              varied so that only Dr Alan John Martin and the Company are parties.
       The contracts detailed in paragraphs 6.15.1, 6.15.3, 6.15.4, 6.15.5 and 6.15.6 above are
       terminable on six months’ notice given by either party. The contracts summarised in
       paragraph 6.15.2 are terminable on 7 days’ notice by either party.
6.16   Save as disclosed in paragraph 6.15 there are no other existing or proposed service
       arrangements between any of the Directors and any member of the Group.
6.17   The aggregate remuneration paid to the Directors including salaries, fees, pension
       contributions and bonus payments and benefits in kind granted by the Company during the
       financial year ended 31 December 2002 amounted to £85,000. In addition the sum of
       £173,000 was paid to Phipps and Company under the terms of the management services
       agreement (as summarised in sub-paragraph 6.15.1 above). On 17 September 2003, each of
       Phipps and Company, Walter Ian Logan Forrest, Dr Alan John Martin, Dr David Huw
       Quick and Dr Ian Gordon Duncan agreed not to seek payment of any outstanding fees until
       such time as the Company’s cashflow comfortably permitted such payment. As a result the
       following sums are outstanding as at the date of this document (which the Company
       proposes to pay out of the net proceeds of the Placing and Open Offer):

                                               54
      6.17.1 Phipps and Company are owed £321,860 (plus VAT), which includes Directors’
             fees owed to Stephen Lawrey Phipps;
      6.17.2 each of Molard Financial Management Services SA (in respect of the services of
             Walter Ian Logan Forrest), Dr Alan John Martin and QM Marketing Limited (in
             respect of the services of Dr David Huw Quick) is owed fees in the sum of £22,500
             (plus VAT, where applicable); and
      6.17.3 Dr Ian Gordon Duncan is owed £7,200.
      On the basis that fees continue to be deferred on the same basis as set out above, it is estimated
      that the aggregate remuneration payable and benefits in kind to be granted to the Directors for
      the current financial year under the arrangements in force at the date of this document will not
      exceed £85,000, and the amount to actually be paid under the terms of the management services
      agreement details of which are set out in sub-paragraph 6.15.1 above will not exceed £172,000
      (however, if the Board deems it appropriate, these fees may be increased).

7.    Memorandum of Association and Articles
7.1   Memorandum of Association
      The memorandum of association of the Company provides that its principal object is to
      carry on all or any of the businesses of an exploration and prospecting company, producers,
      refiners, storers, suppliers and distributors of oil and oil products, and petroleum and
      petroleum products, and to carry on any other trade or business which can be
      advantageously carried on by the Company in connection with or as ancillary to any of the
      business or objects of the Company. The full objects of the Company are set out in clause 4
      of the Company’s memorandum of association.
7.2   Articles
      The New Ordinary Shares will rank pari passu with the Existing Ordinary Shares and, as
      such, have the following rights set out in the Articles:
      7.2.1   Rights attaching to shares
              7.2.1.2 Voting rights of members
                       Subject to the provisions of the Act and to any special voting rights or
                       restrictions attaching to any class of shares, at any general meeting every
                       member who (being an individual) is present in person or (being a
                       corporation) is present by a duly authorised representative, not being
                       himself a member entitled to vote, shall on a show of hands, have one vote
                       and on a poll every member present in person or by proxy or (being a
                       corporation) by a duly authorised representative has one vote for each
                       share of which he is the holder.
              7.2.1.2 Dividends
                      Subject to the provisions of the Act and of the Articles, the Company may
                      by ordinary resolution declare dividends, which shall not exceed the
                      amount recommended by the Board. Subject to any special rights, all
                      dividends shall be apportioned and paid pro-rata according to the
                      amounts paid up or credited as paid up on the shares during any portion or
                      portions of the period in respect of which the dividend is paid. Subject to
                      the provisions of the Act, interim dividends may be paid provided that
                      they appear to the Board to be justified by the profits available for
                      distribution and the position of the Company. Unless otherwise provided
                      by the rights attached to any share, no dividends in respect of a share shall
                      bear interest. The Board may, with the prior authority of an ordinary
                      resolution of the Company, satisfy a dividend wholly or partly by the
                      distribution of specific assets and, in particular, of fully paid up shares
                      credited as fully paid instead of cash. The Board may deduct from
                      dividends any monies due on account of calls or otherwise in relation to
                      the shares of the Company.

                                                 55
        7.2.1.3 Return of capital
                On a winding-up of the Company, any surplus assets available for
                distribution shall be divided among the members in proportion to the
                amounts paid up on their respective shares at the commencement of the
                winding-up, or with the sanction of an extraordinary resolution of the
                Company the whole or any assets of the Company shall be divided
                amongst the members in specie in such manner as shall be determined by
                the liquidator.
7.2.2   Transfer of shares
        All transfers of certificated shares must be effected by an instrument of transfer in
        writing in any usual form or in any other form approved by the Board. The written
        instrument of transfer shall be executed by or on behalf of the transferor and, only
        where the certified shares are not fully paid up, by or on behalf of the transferee. The
        Board may, in its absolute discretion and without giving any reason, refuse to
        register any transfer of certificated shares unless:
        7.2.1.1 it is in respect of a share which is fully paid up;
        7.2.1.2 it is in respect of a share on which the Company has no lien;
        7.2.1.3 it is in respect of any one class of share;
        7.2.1.4 it is in favour of a single transferee or not more than four joint transferees;
        7.2.1.5 it is duly stamped (if required); and
        7.2.1.6 it is lodged at the registered office (as such other place as the Board may
                determine) together with the relevant share certificate(s) and such other
                evidence as the Board may reasonably require to show the right of the
                transferor to make the transfer
        provided that such discretion may not be exercised in such a way as to prevent
        dealings in such shares from taking place on an open and proper basis. Shares
        cannot be transferred to minors, bankrupts or patients suffering from mental
        disorders.
        If the Board refuses to register a transfer it must, within two months after the date on
        which the transfer was lodged with the Company, send notice of the refusal to the
        transferee.
        Subject to the provisions of the CREST Regulations, the registration of transfers
        may be suspended by the Board for any period (not exceeding 30 days) in any year.
        Uncertificated shares may be transferred without a written instrument, in
        accordance with the CREST Regulations. The Board shall register a transfer of any
        uncertificated share in accordance with the CREST Regulations, except that the
        Board may refuse (subject to the relevant requirements of the London Stock
        Exchange) to register any transfer which is in favour of more than four persons
        jointly or in any other circumstance permitted by the CREST Regulations.
        The Company has entered CREST, the paperless settlement system and the Articles
        provide, amongst other things, for the holding and transfer of shares in
        uncertificated form.
7.2.3   Failure to disclose interest in shares
        If a member, or any other person appearing to be interested in shares held by that
        member, has been issued with a notice pursuant to section 212 of the Act (“212
        Notice”) and has failed in relation to any shares (“Default Shares”) to give the
        Company the information required by the 212 Notice within the prescribed period
        (or has in purported compliance with the 212 Notice made a statement which is
        false or inadequate in a material particular), the following sanctions shall apply:

                                          56
        7.2.3.1 the member shall not be entitled in respect of the Default Shares to be
                present or to vote (either in person or by representative or proxy) at any
                general meeting of the Company or at any separate meeting of the holders
                of any class of shares or on any poll or to exercise any other right conferred
                by membership in relation to any such meeting or poll; and
        7.2.3.2 where the Default Shares represent at least 0.25 per cent. in nominal value
                of their class:
                  7.2.3.2.1 any dividend or other money payable in respect of the shares
                            shall be withheld by the Company, which shall not have any
                            obligation to pay interest on it and the member shall not be
                            entitled to elect in the case of a scrip dividend to receive shares
                            instead of that dividend; and
                  7.2.3.2.2 (subject to the CREST Regulations, in the case of uncertificated
                            shares) no transfer, other than an approved transfer (as defined
                            in the Articles) shall be registered unless:
                             a.    the member is not himself in default as regards supplying
                                   the information required; and
                             b.    the member proved to the satisfaction of the Board that
                                   no person in default as regards supplying such
                                   information is interested in any of the shares which are
                                   the subject of the transfer.
        The above sanctions shall also apply to any shares in the capital of the Company
        issued in respect of the Default Shares (whether on capitalisation, a rights issue or
        otherwise).
7.2.4   Changes in Share Capital
        The Company may alter its share capital as follows:
        7.2.4.1 it may by ordinary resolution increase its share capital, consolidate and
                divide all or any of its share capital into shares of larger nominal amounts,
                cancel any shares which have not been taken or agreed to be taken by any
                person and, subject to the provisions of the Act, sub-divide its shares or
                any of them into shares of smaller nominal values;
        7.2.4.2 subject to the provisions of the Act and to any rights for the time being
                attached to any shares, it may by special resolution reduce its share
                capital, any capital redemption reserve, any share premium account or
                any other undistributable reserve in any manner; and
        7.2.4.3 subject to the provisions of the Act and to any rights for the time being
                attached to any shares it may enter into any contract for the purchase of its
                own shares.
7.2.5   Variation of Rights
        Subject to the provisions of the Act and of the Articles, the special rights attached to
        any class of share in the Company may be varied or abrogated (whether the
        Company is a going concern or may or is about to be in liquidation) either with the
        consent in writing of the holders of not less than three quarters in nominal value of
        the issued shares of the class or with the sanction of an extraordinary resolution
        passed at a separate general meeting of the holders of the shares of the class (but not
        otherwise). The quorum for such separate general meeting of the holders of the
        shares of the class shall be at least two persons holding or representing by proxy at
        least one-third of the nominal amount paid up on the issued shares of the relevant
        class.

                                          57
      7.2.6    Directors’ Remuneration
               The aggregate fees (which are distinct from any salary or other remuneration)
               which the Directors shall be entitled to receive for their services as directors of the
               Company shall be determined by the Board but shall not exceed £180,000 per
               annum or such other sum as many from time to time be determined by ordinary
               resolution of the Company. Such sum (unless otherwise directed by the resolution
               of the Company by which it is voted) shall be divided among the Directors in such
               proportions and in such manner as the Board may determine or, in default of such
               determination, equally.
               All the Directors are entitled to be re-paid all reasonable travelling, hotel and other
               expenses properly incurred by them in or about the performance of their duties as
               Directors. If by arrangement with the Board any Director performs any special
               duties or services outside his ordinary duties as a Director and not in his capacity as
               a holder of employment or executive office, he may be paid such reasonable
               additional remuneration which may be by a lump sum or by way of salary,
               commission, participation in profits or otherwise as the Board may determine.
      7.2.7    Permitted Age of Directors
               Subject to complying with the provisions of the Articles, a Director may continue to
               act as a Director (or be appointed or re-appointed as a Director, as the case may be)
               notwithstanding that he has attained the age of 70.
      7.2.8    Borrowing Powers
               Subject to the provisions of the Act and the Articles, the Directors may exercise all
               the powers of the Company to borrow money and to mortgage or charge its
               undertaking, property and uncalled capital and to issue debentures and other
               securities whether outright or as collateral security for any debt, liability or
               obligations of the Company or any third party. The aggregate principal amount for
               the time being outstanding in respect of monies borrowed by the Group (exclusive
               of intra-group borrowings and after deducting cash deposited) shall not at any time,
               without the previous sanction of an ordinary resolution of the Company, exceed an
               amount equal to 5 times the aggregate of:
               7.2.8.1 the amount paid up (or credited as paid up) on the allotted or issued share
                       capital of the Company;
               7.2.8.2 the amount standing to the credit of the capital and revenue reserves of the
                       Group (including any share premium account, capital redemption reserve
                       fund and credit or debit balance on any other reserve) after adding thereto
                       or deducting therefrom any credit or debit balance on the profit and loss
                       account;
               all as shown in the then latest published audited consolidated balance sheet of the
               Group but after;
               7.2.8.3 making such adjustments as are set out in the Articles and which may be
                       appropriate to reflect any relevant variations (including, for example, as to
                       share capital, share premium account and the constitution of the Group).
8.      Material contracts
In addition to the Company’s principal licences and joint operating agreement summarised in Part
VI of this document and the Directors’ service contracts and management contracts summarised at
paragraph 6.15, the following contracts are considered by the Board to be of fundamental
importance to the Company’s business:
8.1   the Placing Agreement pursuant to which and conditional upon, inter alia, Admission
      taking place on or before 8.00 a.m. on 22 January 2004 Seymour Pierce has agreed to use
      reasonable endeavours to procure subscribers for the Placing Shares proposed to be issued
      by the Company at the Issue Price, failing which it will itself subscribe for such shares.
      Seymour Pierce has also agreed to make the Open Offer as agent for the Company.

                                                 58
       The Placing Agreement contains indemnities and warranties from the Company and
       warranties from the Directors in favour of Seymour Pierce together with provisions which
       enable Seymour Pierce to terminate the Placing Agreement in certain circumstances prior to
       Admission including circumstances where any warranties are not found to be true or
       accurate in any material respect. The liability of the Directors for breach of warranty is
       limited. Under the Placing Agreement (and engagement letter dated 28 October 2003 from
       Seymour Pierce to the Company) the Company has agreed to pay to Seymour Pierce a
       corporate finance fee of £60,000 and a commission of 4 per cent. of the value of the Placing
       Shares at the Issue Price provided that such commission will be at a reduced rate in respect of
       certain persons;
8.2    a nominated adviser and nominated broker agreement dated 26 April 2002 and made
       between the Company and Seymour Pierce pursuant to which Seymour Pierce has agreed to
       act as nominated adviser and nominated broker to the Company in consideration for an
       annual fee of £15,000 (exclusive of VAT and expenses);
8.3    the Company has instructed Clintons Solicitors of 55 Drury Lane, London, WC2B 5RZ and
       Hacker Young, Chartered Accountants of St James Building, 79 Oxford Street, Manchester,
       M1 6HT in relation to the Placing and the Open Offer and their estimated fees are included
       in the estimated fees and expenses included in paragraph 13.4 below;
8.4    by a letter dated 18 November 2003 Phipps and Company advanced to the Company the
       sum of £100,000 by way of loan. This loan is unsecured and attracts monthly interest at the
       rate of the higher of 10 per cent. or 5 per cent. over LIBOR. The loan is repayable on
       demand and is intended to be repaid in full from the net proceeds of the Placing and the Open
       Offer;
8.5    the irrevocable undertakings referred to in paragraph 3.4 above; and
8.6    the Fugro Heads entered into by the Company and Fugro will, subject to the Company
       raising sufficient funds, form the basis of the Seismic Survey Agreement pursuant to which
       the Company will formally engage Fugro to carry out a 3D seismic survey, geophysical data
       acquisition and processing within Tranches C and D.

9.     Working capital
The Directors are of the opinion that, having regard to available bank and other facilities and the
expected net proceeds of the Placing and the Open Offer, the working capital available to the Group
will be sufficient for its present requirements, that is for at least the next twelve months from the
date of Admission.

10.    Litigation
Neither the Company nor any member of its Group is engaged in any legal or arbitration
proceedings nor are there (so far as the Directors are aware) any such proceedings pending or
threatened which may have a significant effect on the Group’s financial position.

11.     Intellectual Property
Except for the Company name and logo (which are unregistered trade marks), the Company has no
intellectual property which is fundamental to the business of the Group.

12.     Taxation
The following paragraphs are intended as a general guide only for Shareholders who are resident
and ordinarily resident in the United Kingdom for tax purposes, holding Ordinary Shares as
investments and not as securities to be realised in the course of a trade, and are based on current
legislation and UK Inland Revenue practice. Any prospective purchaser of Ordinary Shares who is
in any doubt about his tax position or who is subject to taxation in a jurisdiction other than the UK,
should consult his own professional adviser immediately.

                                                 59
12.1   Taxation of Chargeable Gains
       For the purpose of UK tax on chargeable gains, the issue of Ordinary Shares pursuant to the
       Placing and Open Offer will be regarded as an acquisition of a new holding in the share
       capital of the Company. To the extent that a Shareholder acquires New Ordinary Shares
       allotted to him, the New Ordinary Shares so allotted will, for the purpose of tax on
       chargeable gains, be treated as acquired on the date of allotment. The amount paid for the
       New Ordinary Shares will constitute the base cost of a Shareholder’s holding. If a
       Shareholder disposes of all or some of his New Ordinary Shares, a liability to tax on
       chargeable gains may, depending on his circumstances, arise. Any gain made on a disposal
       of the Ordinary Shares subscribed for will be eligible for taper relief allowance at either the
       business or non-business rate.
12.2   Loss Relief
       If an investor is an individual or an investment company, relief for losses incurred by that
       investor on disposal of Ordinary Shares may be available under sections 573 to 576 of the
       Income and Corporation Taxes Act 1988, against income of the same or prior year. This
       relief should be available provided the Company and the investor satisfy the relevant
       statutory requirements.
12.3   Business Property Relief
       Unquoted ordinary shares representing minority interests in trading companies such as the
       Company potentially qualify for 100 per cent. business property relief which gives up to
       100 per cent. exemption from inheritance tax. Therefore, where an investor makes a
       lifetime gift of shares or dies while still owner of the shares, no inheritance tax will be
       payable in respect of the value of the shares, provided certain conditions are met. The main
       condition is that the investor held the shares for two years before the date of transfer or
       death.
12.4   Stamp duty and Stamp Duty Reserve Tax
       No stamp duty or stamp duty reserve tax (“SDRT”) will generally be payable on the issue of
       the Ordinary Shares. SDRT will generally be payable on any unconditional agreement for
       the sale of Ordinary Shares, once issued, at the rate of 0.5 per cent. of the consideration paid
       and will be rounded up to the next £5.00 and any instrument of transfer of Ordinary Shares
       will attract a liability to stamp duty at the rate of 0.5 per cent. of the consideration paid
       rounded up to the nearest £5.00. Generally a double liability (to both stamp duty and
       SDRT) in respect of the same transaction can be avoided. Stamp duty and SDRT are usually
       payable by the purchaser.
12.5   Dividends and other Distributions
       Dividends paid by the Company will carry an associated tax credit of one-ninth of the cash
       dividend or ten per cent. of the aggregate of the cash dividend and associated tax credit.
       Individual shareholders resident in the UK receiving such dividends will be liable to income
       tax on the aggregate of the dividend and associated tax credit at the Schedule F ordinary rate
       (10 per cent.) or the Schedule F upper rate (32.5 per cent.). The effect will be that taxpayers
       who are otherwise liable to pay tax at only the lower rate or basic rate of income tax will
       have no further liability to income tax in respect of such a dividend. Higher rate taxpayers
       will have an additional tax liability (after taking into account the tax credit) of 22.5 per cent.
       of the aggregate of the dividend and associated tax credit. Individual shareholders whose
       income tax liability is less than the tax credit will not be entitled to claim a repayment of all
       or part of the tax credit associated with such dividends. A UK resident corporate
       Shareholder should not be liable to corporation tax or income tax in respect of dividends
       received from the Company unless that company is carrying on a trade of dealing in shares.
       Trustees of discretionary trusts who are liable to account for income tax at the rate
       applicable to trusts on the trust’s income are required to account for tax at the Schedule F
       trust rate, currently 25 per cent. on dividends. The 2003 Pre-Budget report announced that
       from 6 April 2004, the trust rate for dividends will increase to 32.5 per cent. Legislation in
       respect of the new trust rate for dividends will be included in the Finance Bill 2004.

                                                  60
       Persons who are not resident in the UK should consult their own tax advisers on the possible
       application of any relevant double tax treaty and on what relief or credit may be claimed in
       the jurisdiction in which they are resident for any tax credit associated with a dividend.
       These comments are intended only as a general guide to the current tax position in the UK as
       at the date of this document. The comments assume that Ordinary Shares are held as an
       investment and not as an asset of a financial trade. If you are in any doubt as to your tax
       position, or are subject to tax in a jurisdiction other than the UK, you should consult your
       professional adviser.
13.    General
13.1   Save as disclosed in this document the Directors are not aware of any material change in the
       financial or trading position of the Company since 31 December 2002 being the date to
       which the last published audited accounts of the Company have been drawn up.
13.2   Hacker Young has given and not withdrawn its consent to the issue of this document and to
       references to it and the use of its name in the form and context in which they respectively
       appear.
13.3   Seymour Pierce has given and not withdrawn its consent to the issue of this document and to
       references to it and the use of its name in the form and context in which they respectively
       appear.
13.4   The expenses of, and incidental to, the Placing and the Open Offer, including commissions
       in respect of Placing Shares placed on behalf of the Company registration and admission
       fees, printing, advertising and distribution costs, legal and accounting fees and expenses, are
       estimated to amount to approximately £310,000, in cash, payable by the Company. Such
       expenses include a commission of £111,450 payable to Seymour Pierce procuring
       subscriptions for the Placing Shares.
13.5   The gross proceeds of the Placing and the Open Offer (assuming full take up of the Open
       Offer) receivable by the Company are expected to be approximately £7.28 million and the
       net proceeds after deduction of the expenses payable by the Company in cash are expected to
       be approximately £6.97 million.
13.6   There is no minimum amount which, in the opinion of the Directors, must be raised by the
       Company pursuant to the Placing and Open Offer in order to provide the sums required
       pursuant to paragraph 21 of Schedule 1 to the POS Regulations and accordingly, for the
       purposes of section 84 of the Act, the Company may allot New Ordinary Shares, whether or
       not the Placing and the Open Offer are subscribed in full.
13.7   The Ordinary Shares are eligible for settlement in CREST pursuant to the CREST
       Regulations.
13.8   Of the Issue Price of 10p, 1p represents the nominal value and 9p represents a premium over
       the nominal value of each New Ordinary Share.
13.9   Monies received from applicants pursuant to the Placing will be held in accordance with the
       terms of the placing letters issued by Seymour Pierce until such time as the Placing
       Agreement becomes unconditional in all respects. If the Placing Agreement does not become
       unconditional in all respects by 1 March 2004, application monies will be returned by
       8 March 2004 to applicants at their risk without interest.
13.10 Save as disclosed in paragraphs 6.15 and 6.17 of this Part VII no person (excluding
      professional advisers whose fees are included in the estimated expenses of the Placing, Open
      Offer and Admission disclosed in paragraph 13.4 and any trade suppliers) has received
      directly or indirectly from the Company within 12 months preceding the date of this
      document or entered into any contractual arrangements whereby that person is entitled to
      receive directly or indirectly from the Company on or after Admission, either:
       13.10.1 fees totalling £10,000 or more; or
       13.10.2 Ordinary Shares to the value of £10,000 or more calculated by reference to the Issue
               Price; or
       13.10.3 any other benefit with a value of £10,000 or more at the date of Admission.

                                                 61
13.11 Temporary documents of title will not be issued and pending despatch of share certificates,
      transfers will be certified against the share register. It is expected that share certificates will
      be despatched at the risk of persons entitled thereto on or about 29 January 2004.
13.12 Other than the proposed application for Admission and the Company’s previous admission
      to AIM on 17 April 1998, the Ordinary Shares have not been admitted to dealing on any
      recognised investment exchange nor has any application for such admission been made and
      there is no intention to make any other arrangements for dealing in the Ordinary Shares on
      any such exchange.
13.13 Save as disclosed in this document, there are no patents or other intellectual property rights,
      licences or particular contracts that may be of fundamental importance to the business of the
      Company.
13.14 The Company’s accounting reference date is 31 December.
13.15 The auditors to the Company are Hacker Young, Chartered Accountants. The financial
      information relating to the Company set out in this document does not constitute the
      statutory accounts of the Company (within the meaning of section 240 of the Act).
13.16 Save as disclosed in this document there are no investments in progress which are significant.
13.17 The Directors are not aware of any significant trends in the development of the Company’s
      business since 31 December 2002 and the Directors believe that the summary of the
      Company’s position in Part I of this document comprises all relevant information regarding
      its prospects for at least the current financial year.
13.18 Copies of this document are available free of charge for one month from the date of
      Admission from the offices of Seymour Pierce at Bucklersbury House, 3 Queen Victoria
      Street, London, EC4N 8EL.
24 December 2003




                                                  62
                          Notice of Extraordinary General Meeting

                          Desire Petroleum Plc
                                        (Registered No. 3168611)


NOTICE IS HEREBY GIVEN that an Extraordinary General Meeting of Desire Petroleum Plc will
be held at the offices of Seymour Pierce Limited, Bucklersbury House, 3 Queen Victoria Street,
London EC4N 8EL at 10.00 a.m. on 21 January 2004 for the purposes of considering and, if
thought fit, to pass the following resolutions which will be proposed as to resolutions 1 and 2 as
ordinary resolutions and as to resolution 3 as a special resolution:


ORDINARY RESOLUTIONS
1. THAT the authorised share capital of the Company be and is hereby increased from
   £1,400,000 to £2,500,000 by the creation of an additional 110,000,000 Ordinary Shares of
   1 pence each;


2.    THAT subject to the passing of resolution 1 above the Directors be and are hereby generally
      authorised in accordance with section 80 of the Companies Act 1985 (“Act”) to exercise the
      powers of the Company to allot relevant securities (as defined in section 80 of the Act) up to a
      maximum nominal amount of £1,374,994.48, PROVIDED that this authority is in
      substitution for any existing authorities conferred on the Directors pursuant to section 80 of
      the Act and (unless previously revoked or varied by the Company in general meeting) shall
      expire at the conclusion of the Annual General Meting of the Company to be held in 2005,
      save that the Directors may allot relevant securities pursuant to this authority after that date
      pursuant to an offer or agreement made by the Company on or before the date as if such
      authority had not expired.


SPECIAL RESOLUTION
3.  THAT subject to the passing of resolutions 1 and 2 above the Directors be and are hereby
    empowered to allot equity securities (as defined in section 94(2) of the Act) for the purposes of
    section 95 of the Act, for cash up to a maximum nominal amount of £928,132.84 as if
    sub-section 89(1) of the Act did not apply to any such allotment provided that this power
    shall be in substitution for any existing powers conferred on the Directors pursuant to section
    95 of the Act and shall be limited to the allotment:


      3.1   of equity securities in connection with the Placing and Open Offer described in the
            Prospectus;


      3.2   of equity securities in connection with a rights issue, open offer or otherwise in favour
            of ordinary shareholders in proportion (as nearly as possible) to the number of
            Ordinary Shares held by them but subject to such exclusions as the Directors may deem
            fit to deal with fractional entitlements or with legal or practical problems arising in any
            overseas territory or with the requirements of any regulatory body or stock exchange;
            and


      3.3   for cash (otherwise than pursuant to paragraphs 3.1 and 3.2 above) of equity securities
            up to a total nominal amount of £190,000


      such power to expire at the conclusion of the Annual General Meeting of the Company to be
      held in 2005 save that the Company may make an offer or enter into an agreement before the
      expiry of such power which would or might require equity securities to be allotted after

                                                  63
        that date and the Directors may allot equity securities in pursuance of such an offer or
        agreement as if the power had not expired.

By Order of the Board                                                                                    Registered Office:
Anna Neve                                                                                                   Mathon Court
Secretary                                                                                                         Mathon
                                                                                                                  Malvern
                                                                                                Worcestershire WR13 5NZ
24 December 2003




Notes:
1.   Every member who is entitled to attend and vote at this meeting is entitled to appoint one or more proxies to attend and vote in
     his/her stead. A proxy need not be a member of the Company. Authorised representatives of corporate members have full voting
     powers. Members who have lodged forms of proxy are not thereby prevented from attending the meeting and voting in person if
     they so wish.
2.   To be effective, the form of proxy (together with any power of attorney or other written authority under which it is signed or
     notarially certified copy of such power or written authority) must be lodged at the offices of the Company’s registrars – Capita
     Registrars, The Registry, 34 Beckenham Road, Beckenham, Kent BR3 4TU not later than 48 hours before the time appointed for
     the holding of the meeting or adjourned meeting or (in the case of a poll taken otherwise than at or on the same day as the meeting
     or adjourned meeting) not less than 24 hours before the time appointed for the taking of the poll at which it is to be used.
3.   Any corporation which is a member of the Company may authorise a person (who need not be a member of the Company) to act as
     its representative to attend, speak and vote (on a show of hands or a poll) on its behalf.
4.   Pursuant to Regulation 41 of the Uncertificated Securities Regulations 2001, the time by which a person must be entered on the
     register of members in order to have the right to attend or vote at the Extraordinary General Meeting is at 10.00 a.m. on
     19 January 2004. If the meeting is adjourned, the time by which a person must be entered on the register of members in order to
     have the right to attend or vote at the adjourned meeting is 48 hours before the date fixed for the adjourned meeting. Changes to
     entries on the register of members after the relevant time will be disregarded in determining the rights of any person to attend or
     vote at the meeting.

                                                                 64
                                                     Millnet Financial   (6773-01)

								
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