Star Energy Group plc
Annual Report and Accounts
for the year ending 31 December 2005
Star Energy Group plc
6th Floor
5 Lower Belgrave Street
London SW1W 0NR 
T. +44 (0) 20 7730 6663  
F. +44 (0) 20 7730 7774
Star Energy Ltd
6th Floor
5 Lower Belgrave Street
London SW1W 0NR 
T. +44 (0) 20 7730 6663  
F. +44 (0) 20 7730 7774
Star Energy UK Onshore Ltd
Humbly Grove Oilfield
Weston Common
The Avenue
Lasham
Alton
Hampshire GU34 5SY 
T. +44 (0) 1256 381 621
F. +44 (0) 1256 381 524
Star Energy (East Midlands) Ltd
Welton Gathering Centre
Barfield Lane, off Wragby Rd
Sudbrooke
Lincoln LN2 2QU 
T. +44 (0) 1522 754 040
F. +44 (0) 1522 596 502
Star Energy HG Gas Storage Ltd
Humbly Grove Oilfield
Weston Common
The Avenue
Lasham
Alton
Hampshire GU34 5SY 
T. +44 (0) 1256 381 621
F. +44 (0) 1256 381 524
Star Energy Gas Storage
Services Ltd
Humbly Grove Oilfield
Weston Common
The Avenue
Lasham
Alton
Hampshire GU34 5SY
T. +44 (0) 1256 381 621
F. +44 (0) 1256 381 524
Star Energy Management Ltd
Oil Depot
Ramper Road
Gainsborough
Lincolnshire DN21 1AY
T. +44 (0) 1427 811 155
F. +44 (0) 1427 811 156
Star Energy Oil & Gas Ltd
Oil Depot
Ramper Road
Gainsborough
Lincolnshire DN21 1AY
T. +44 (0) 1427 811 155
F. +44 (0) 1427 811 156
Star Energy Oil UK Ltd
Larkwhistle Farm Site
Crawley Down
Winchester
Hampshire SO21 2RJ
T. +44 (0) 1962 883 978
F. +44 (0) 1962 881 976
www.starenergy.co.uk
Star Energy Group plc Annual Report and Accounts for the year ending 31 December 2005 Star Energy is an integrated energy  
group with a distinctive business model.
Star Energy’s primary focus is to build a  
significant multi-site gas storage business.  
We aim to consolidate our existing oil and gas  
production business to provide the depleted  
reservoirs that form the basis of future gas  
stores. We will exploit our expertise in operating  
onshore oil and gas fields safely and responsibly  
in environmentally sensitive areas. Star Energy  
will take advantage of opportunities to expand  
its asset base in the UK and, if possible,  
continental Europe.
01 Highlights 2005
02  Chairman’s Statement
03  Chief Executive’s Statement
04  Our Group at a Glance
06  Exciting Potential
08  Responding to Market Demand
10  A Portfolio of Opportunities
12  Powering Ahead
14  Continual Improvement
16  Financial Review
18  Board of Directors
20 Shareholder Information
21 Directors’ Report
22 Directors’ Remuneration Report
27 Corporate Governance
29 Statement of Directors’ Responsibilities
30 Independent Auditors’ Report
31 Consolidated Profit and Loss Account
32 Consolidated Balance Sheet
33 Company Balance Sheet
34 Consolidated Cash Flow Statement
35 Reconciliation of Movements in Group 
Shareholders’ Funds
36 Notes to the Financial Statements
56 Unaudited Statement of Net  
Commercial Oil and Gas Reserve  
Quantities — Proven and Probable
bbl barrels
bcf billion (10
9
) cubic feet 
boe barrels of oil equivalent
bopd barrels of oil per day
boepd barrels of oil equivalent per day
km kilometre
mmbbl millions of barrels
mmscf million standard cubic feet
MW Mega (10
6
) Watt
MWh Mega (10
6
) Watt-hour
probable reserves  those reserves which are not yet proven but 
which are estimated to have a 50% chance of 
being technically and economically producible
proven reserves  those reserves which, on the available evidence, 
are reasonably certain to be technically and 
economically producible: that is, having a 
90% chance of being produced
EPC Engineering, Procurement and Construction
Glossary
Photography by Giles Barnard 01 	 www.starenergy.co.uk	 Annual	Report	and	Accounts	2005	 Star	Energy	Group	plc 01
Our	 first	 gas	 storage	 facility,	 the	 10	 bcf	 Humbly	 Grove	 gas	 store,	 started	 operations	 in	 November	 2005
In	 August	 2005,	 we	 purchased	 Pentex,	 the	 onshore	 UK	 oil	 	 and	 gas	 company,	 increasing	 our	 proven	 and	 probable	 oil	 and	 gas	 reserves	 by	 16.5	 million	 boe
Proven	 and	 probable	 oil	 and	 gas	 reserves	 independently	 assessed	 at	 26.3	 million	 boe	 as	 at	 31	 December	 2005	 	 (2004:	 14.7	 million	 boe	 based	 on	 management’s	 assessment)	 The	 acquisition	 brings	 the	 total	 number	 of	 oil	 and	 gas	 onshore	 UK	 fields	 operated	 by	 Star	 Energy	 to	 26	 (2004:	 14),	 resulting	 in	 the	 Company	 owning	 and	 operating	 two	 thirds	 of	 all	 the	 proven	 and	 producing	 onshore	 UK	 reservoirs,	 and	 giving	 us	 the	 greatest	 potential	 to	 develop	 additional	 gas	 stores
Weighted	 average	 oil	 production	 for	 the	 year,	 including	 the	 Pentex	 acquisition,	 was	 4,178	 bopd	 (2004	 full	 year:	 3,021	 bopd)
Turnover	 of	 £24.7	 million	 (2004:	 £17.1	 million)
EBITDA	 of	 £9.4	 million	 (2004:	 £2.8	 million)	 after	 one-off	 administrative	 expenses	 of	 £nil	 (2004:	 £2.0	 million)
Profit	 before	 tax	 of	 £2.1	 million	 (2004:	 £2.1	 million	 loss)	 after	 total	 one-off	 costs	 of	 £nil	 (2004:	 £2.2	 million)
Basic	 earnings	 per	 share	 of	 1.82	 pence	 per	 ordinary	 share	 (2004:	 6.85	 pence	 loss)
Capital	 expenditure	 of	 £67.5	 million	 (2004:	 £15.6	 million)	 with	 £60.9	 million	 (2004:	 £12.9	 million)	 in	 respect	 of	 the	 Humbly	 Grove	 gas	 storage	 facility
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Highlights  
2005 	 02 	 Star	Energy	Group	plc	 Annual	Report	and	Accounts	2005	 www.starenergy.co.uk 	 www.starenergy.co.uk	 Annual	Report	and	Accounts	2005	 Star	Energy	Group	plc
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Chairman’s 
Statement
Star	Energy	is	in	an	excellent	position	to	provide	 substantial	extra	gas	storage.	We	have	accelerated	 our	engineering	and	development	programmes	 	 with	the	objective	of	adding	80-90	bcf	of	additional	 capacity	within	the	next	five	to	seven	years.
2005	 was	 a	 landmark	 year	 in	 the	 development	 of	 Star	 Energy’s	 business.	 In	 November	 our	 first	 gas	 storage	 facility	 at	 Humbly	 Grove	 began	 operations,	 while	 in	 August	 we	 completed	 the	 acquisition	 of	 Pentex	 Management	 Limited,	 further	 strengthening	 our	 onshore	 Exploration	 and	 Production	 portfolio,	 and	 adding	 additional	 sites	 with	 potential	 for	 gas	 storage	 development.
2005	 was	 also	 a	 year	 in	 which	 UK	 gas	 supplies	 were	 never	 far	 from	 the	 headlines.	 Concerns	 over	 possible	 winter	 supply	 shortages	 combined	 with	 substantial	 increases	 in	 prices	 have	 alarmed	 consumers	 and	 raised	 major	 issues	 for	 the	 Government	 to	 address	 in	 its	 current	 Energy	 Review.	 Amongst	 these	 issues	 is	 the	 increased	 awareness	 both	 of	 the	 important	 role	 played	 by	 gas	 storage	 in	 maintaining	 supply	 and	 curbing	 price	 increases,	 and	 the	 acute	 shortage	 of	 such	 storage	 capacity	 in	 the	 UK.
Star	 Energy	 is	 in	 an	 excellent	 position	 to	 provide	 substantial	 extra	 storage.	 We	 have	 accelerated	 our	 engineering	 and	 development	 programmes	 with	 the	 objective	 of	 adding	 80–90	 bcf	 of	 additional	 capacity	 within	 the	 next	 five	 to	 seven	 years.	 This	 objective	 will	 incur	 significant	 capital	 expenditure,	 which	 we	 will	 look	 to	 finance	 through	 both	 the	 debt	 and	 equity	 markets.	 We	 remain	 extremely	 concerned,	 however,	 that	 this	 development	 plan	 will	 be	 held	 back	 by	 the	 current	 UK	 planning	 and	 permitting	 regime,	 which	 fails	 to	 facilitate	 the	 timely	 development	 of	 key	 strategic	 infrastructure	 such	 as	 gas	 storage.	 Indeed,	 our	 application	 to	 Lincolnshire	 County	 Council	 to	 develop	 the	 Welton	 site	 was	 rejected	 despite	 a	 strong	 recommendation	 from	 the	 planning	 officers.	 We	 will	 be	 taking	 this	 application	 forward	 on	 appeal,	 and	 we	 are	 encouraged	 by	 the	 increasing	 level	 of	 support	 we	 are	 receiving	 from	 Central	 Government.	 The	 strong	 interest	 and	 support	 from	 investors	 in	 our	 business	 was	 very	 welcome	 during	 the	 year.	 Our	 raised	 profile	 as	 a	 significant	 player	 in	 the	 gas	 market,	 coupled	 with	 greater	 liquidity	 in	 our	 shares	 following	 the	 Pentex	 acquisition,	 underpinned	 good	 growth	 in	 our	 share	 price,	 positioning	 Star	 Energy	 as	 one	 of	 the	 30	 largest	 businesses	 by	 market	 value	 listed	 	 on	 AIM	 by	 the	 end	 of	 the	 year.
We	 report	 a	 profit	 for	 the	 year	 of	 £1.3	 million	 (2004:	 £2.9	 million	 loss)	 after	 one-off	 costs	 	 of	 £nil	 (2004:	 £2.2	 million).	 Shareholders’	 	 funds	 have	 increased	 from	 £56.8	 million	 as	 	 at	 31	 December	 2004	 to	 £91.0	 million	 as	 at	 31	 December	 2005	 as	 a	 result	 of	 the	 placing	 	 of	 19.1	 million	 shares	 to	 raise	 net	 proceeds	 	 of	 £31.9	 million	 for	 the	 acquisition	 of	 Pentex.
On	 behalf	 of	 the	 Board,	 I	 would	 like	 to	 thank	 all	 our	 stakeholders	 and	 our	 hard-working	 management	 and	 staff	 for	 their	 support	 in	 2005,	 and	 we	 look	 forward	 to	 further	 success	 in	 2006.	 Stephen Gutteridge
Chairman
Stephen Gutteridge
Chairman 	 02 	 Star	Energy	Group	plc	 Annual	Report	and	Accounts	2005	 www.starenergy.co.uk 03 	 www.starenergy.co.uk	 Annual	Report	and	Accounts	2005	 Star	Energy	Group	plc 03
Chief 
Executive’s 
Statement
The	 year’s	 activities	 were	 dominated	 by	 	 two	 events;	 the	 commissioning	 of	 the	 Company’s	 first	 gas	 store	 at	 Humbly	 Grove	 in	 Hampshire	 and	 the	 acquisition	 of	 Pentex	 Management	 Limited.	 Operational	 from	 November	 2005,	 the	 Company’s	 first	 gas	 storage	 project,	 	 the	 10	 bcf	 Humbly	 Grove	 gas	 store	 is	 the	 Company’s	 first	 step	 in	 its	 plan	 to	 build	 80–90	 bcf	 of	 additional	 gas	 storage	 capacity	 over	 the	 next	 five	 to	 seven	 years.	 The	 Humbly	 Grove	 gas	 store	 construction	 started	 well	 with	 the	 27	 km,	 24"	 diameter	 pipeline	 completed	 ahead	 of	 schedule	 and	 all	 major	 plant	 and	 equipment	 delivered	 on	 time	 and	 within	 budget.	 The	 four	 new	 gas	 storage	 wells	 were	 also	 completed	 in	 time,	 albeit	 with	 some	 cost	 overruns.	 The	 construction	 progress	 during	 the	 summer	 months	 was	 compromised	 by	 the	 EPC	 contractor,	 AMEC,	 which	 has	 resulted	 in	 significant	 cost	 overruns	 of	 some	 £11	 million,	 the	 majority	 of	 which	 has	 only	 recently	 been	 brought	 to	 the	 attention	 of	 Star	 Energy.	 The	 Company	 intends	 to	 mitigate	 these	 cost	 overruns	 by	 using	 the	 adjudication	 clause	 and,	 if	 necessary,	 the	 arbitration	 clause	 in	 its	 contract	 with	 AMEC.	 Despite	 these	 disappointments,	 we	 are	 confident	 that,	 based	 on	 initial	 indications,	 	 the	 Humbly	 Grove	 facility	 will	 perform	 in	 line	 	 with	 expectations.	 In	 August	 2005,	 the	 Company	 took	 another	 significant	 step	 in	 its	 development	 through	 the	 acquisition	 of	 the	 onshore	 UK	 oil	 and	 gas	 company	 Pentex	 Management	 Limited	 for	 an	 initial	 consideration	 of	 £38.5	 million.	 The	 acquisition	 has	 contributed	 valuable	 additional	 oil	 and	 gas	 reserves,	 and	 boosted	 the	 Company’s	 weighted	 average	 oil	 and	 gas	 production	 for	 2005	 to	 4,658	 boepd	 (2004:	 3,502	 boepd).	 Not	 only	 does	 the	 purchase	 increase	 profitability,	 it	 also	 adds	 a	 large	 number	 of	 proven	 and	 producing	 reservoirs,	 some	 of	 which	 may	 form	 the	 basis	 of	 potential	 future	 gas	 storage	 projects.	 In	 addition	 to	 the	 gas	 storage	 wells	 at	 Humbly	 Grove,	 two	 new	 infill	 wells	 were	 drilled	 at	 Singleton	 and	 one	 gas	 well	 at	 Humbly	 Grove	 into	 the	 Rhaetic	 formation.	 A	 3D	 seismic	 survey	 was	 undertaken	 at	 Albury.
Stronger	 oil	 prices	 have	 improved	 the	 profitability	 of	 the	 business	 and	 enhanced	 	 our	 ability	 to	 fund	 the	 expenditure	 on	 engineering	 and	 planning	 activities	 for	 future	 	 gas	 storage	 projects.	 Although	 we	 remain	 concerned	 at	 the	 difficulties	 faced	 in	 obtaining	 planning	 permission	 for	 future	 storage	 projects,	 the	 increased	 level	 of	 support	 from	 Central	 Government,	 coupled	 with	 ever	 strengthening	 market	 drivers,	 gives	 us	 cause	 for	 optimism	 and	 we	 look	 forward	 to	 the	 next	 year	 with	 confidence	 and	 enthusiasm.
Roland Wessel
Chief	 Executive	 Officer
Roland Wessel
Chief	Executive	Officer
Stronger	oil	prices	have	improved	the	 profitability	of	the	business	and	enhanced	 	 our	 ability	 to	 fund	 the	 expenditure	on	 engineering	and	planning	activities	for	 	 future	gas	storage	projects.	 	 04 	 Star	Energy	Group	plc	 Annual	Report	and	Accounts	2005	 www.starenergy.co.uk 	 www.starenergy.co.uk	 Annual	Report	and	Accounts	2005	 Star	Energy	Group	plc
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Our Group 
at a Glance
Our	strategy	is	designed	to	exploit	several	dimensions	 of	our	key	asset	–	a	portfo lio	of	licences	covering	UK	 onshore	oil	and	gas	fields.	As	they	 deplete,	the	fields	 can	be	used	as	gas	stores,	with	the	repressurisation	of	 the	reservoirs	simultaneously	enhancing	oil	production.
A	 seasonal	 gas	 storage	 facility	 is	 a	 method	 of	 storing	 relatively	 cheap	 gas	 at	 times	 of	 low	 demand	 and	 selling	 it	 at	 higher	 prices	 at	 times	 of	 high	 demand.	 Various	 types	 of	 storage	 facilities	 exist.	 Star	 Energy’s	 fields	 are	 ‘brownfield’	 sites	 and	 will	 use	 redeveloped	 reservoirs	 that	 have	 already	 been	 natural	 stores	 of	 hydrocarbons,	 together	 with	 existing	 infrastructure,	 thus	 keeping	 any	 environmental	 impact	 	 to	 a	 minimum.
Star	 Energy	 is	 the	 UK’s	 second	 largest	 onshore	 oil	 producer,	 producing	 a	 weighted	 average	 of	 4,178	 bopd	 net	 for	 2005	 (2004:	 3,021	 bopd)	 from	 total	 oil	 reserves	 that	 have	 been	 recently	 estimated	 to	 amount	 to	 24.5	 million	 barrels	 (2004:	 14.1	 million).	 In	 addition,	 the	 weighted	 average	 of	 gas	 production	 was	 480	 boepd	 for	 the	 year	 (2004:	 481	 boepd)	 which	 was	 used	 to	 generate	 electricity.	 Gas Storage Gas & Oil Production
Strategy 
The	 Group	 intends	 to	 exploit	 this	 potential	 growth	 market	 by	 developing	 those	 fields	 in	 its	 upstream	 portfolio	 with	 geology	 suited	 to	 gas	 storage.	 After	 Humbly	 Grove,	 other	 potential	 sites	 in	 the	 Star	 Energy	 portfolio	 include	 Welton,	 Albury	 and	 Bletchingley.	 Our	 initial	 strategy	 is	 to	 contract	 the	 storage	 space	 to	 blue	 chip	 customers,	 securing	 a	 stable	 level	 of	 cash	 flow,	 while	 retaining	 the	 ability	 to	 share	 in	 the	 upside	 in	 the	 longer	 term	 if	 winter/summer	 price	 differentials	 widen.
Strategy 
This	 portfolio	 represents	 a	 pool	 of	 opportunities	 as	 potential	 gas	 	 storage	 projects	 as	 well	 as	 providing	 the	 Group	 with	 a	 stable	 source	 of	 cash	 flow.	 Our	 strategy	 is	 to	 continue	 development	 of	 this	 portfolio	 and	 augment	 it	 as	 suitable	 opportunities	 arise.	 A	 number	 of	 exploration	 prospects	 exist	 within	 the	 Group’s	 licence	 areas	 but,	 in	 the	 near	 term,	 Star	 Energy	 intends	 to	 prioritise	 gas	 storage	 development	 above	 	 this	 potential. 	 04 	 Star	Energy	Group	plc	 Annual	Report	and	Accounts	2005	 www.starenergy.co.uk 05 	 www.starenergy.co.uk	 Annual	Report	and	Accounts	2005	 Star	Energy	Group	plc 05
Founded	 in	 1999,	 Star	 Energy	 is	 an	 integrated	 energy	 company	 currently	 operating	 in	 	 the	 UK	 onshore	 sector,	 combining	 gas	 storage,	 oil	 and	 gas	 production,	 and	 electricity	 generation.	 The	 Company	 is	 the	 second-largest	 onshore	 UK	 producer	 and	 has	 148	 employees.	 Our	 UK	 sites	 include	 many	 mature	 fields	 with	 significant	 upside	 potential	 using	 modern	 technology.
Our	 experienced	 and	 highly	 skilled	 workforce	 approach	 all	 developments	 with	 an	 emphasis	 on	 environmental	 soundness	 and	 minimal	 impact	 on	 the	 surroundings.	 Star	 Energy	 has	 gas	 fired	 power	 generation	 plants	 at	 seven	 of	 its	 production	 sites	 with	 a	 total	 generating	 capacity	 of	 approximately	 35	 MW.	 The	 plants	 utilise	 gas	 from	 our	 fields	 to	 generate	 electricity	 that	 helps	 meet	 the	 requirements	 of	 our	 upstream	 operations.
Electricity Generation
Strategy 
Efficient	 use	 of	 power	 is	 an	 integral	 component	 of	 our	 business	 strategy.	 We	 intend	 to	 maintain	 operational	 flexibility,	 relocating	 turbines	 as	 appropriate	 and	 negotiating	 agreements	 for	 both	 the	 sale	 and	 purchase	 of	 electricity	 to	 balance	 periods	 of	 surplus	 and	 deficit	 in	 our	 upstream	 and	 gas	 storage	 operations.
Our Sites
★ Star Energy Licences
    Former Pentex Licences
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East Midlands Oilfields
Eskdale
East Glentworth
Corringham & Glentworth
Welton, Scampton North 
Scampton, Stainton & 
Nettleham
Rempstone
Goodworth
Stockbridge
Avington
Long Clawson
South Leverton
Bothamsall
Gainsborough/Beckingham
Egmanton
Kirklington
Cold Hanworth
Palmers 
Wood
Bletchingley
Albury
Humbly Grove
Horndean
Storrington
Singleton
Weald Basin Oil & Gas Fields 	 06 	 Star	Energy	Group	plc	 Annual	Report	and	Accounts	2005	 www.starenergy.co.uk 	 www.starenergy.co.uk	 Annual	Report	and	Accounts	2005	 Star	Energy	Group	plc
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Exciting Potential
Highlights
Gas	 storage	 is	 a	 key	 tool	 to	 balance	 gas	 supply	 	 and	 demand
UK	 has	 a	 low	 level	 of	 storage	 capacity	 compared	 to	 other	 major	 gas	 markets
Storage	 in	 depleted	 hydrocarbon	 reservoirs	 provides	 the	 bulk	 of	 gas	 storage	 capacity	 in	 many	 major	 gas	 markets,	 including	 UK,	 where	 three	 operational	 facilities	 provide	 over	 80%	 of	 current	 gas	 storage	 capacity
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Why more gas storage?
The UK has entered into new territory. From being a gas 
exporting country, 2005 saw the UK change to being a  
net gas importer. We will now need to import increasingly 
significant quantities of gas — estimates range to 50% of  
the UK’s total annual requirements imported by the end  
of this decade. 
Import-dependent countries such as France and Germany 
have long recognised the importance of gas storage.  
It is Star Energy’s contention that, as the UK becomes 
increasingly import-dependent, the level of gas storage will 
need to converge towards that of our continental European 
peers. The need for storage in the UK is exacerbated by  
the large annual ‘swing’ required — approximately twice  
as much gas is used in winter as in summer.
Star Energy is in an excellent position to add significant 
volumes of gas storage over the next five to seven years,  
with over 80 bcf of potential additional storage beyond  
the Company’s first storage facility, Humbly Grove. 
Why use depleted reservoirs?
Star Energy’s gas storage facilities use depleted oil and  
gas reservoirs over 1 km deep to store natural gas. These 
reservoirs have demonstrated their integrity by storing 
hydrocarbons for tens of millions of years. The gas is 
injected into pore spaces in rock formations replacing  
oil and gas that has previously been produced. The rock  
is a secure and natural storage medium with no chance  
of underground combustion due to the absence of oxygen.  
In addition, the rock controls the rate of egress of gas  
to surface via the wellbores, where the latest control 
technology is incorporated into the surface processing and 
export facility. Depleted reservoir gas stores are globally  
the most common form of underground gas storage and  
have established an excellent safety record.
The UK is the world’s third-largest gas market after the USA and Russia, 
with a major ‘swing’ requirement. ‘Swing’ describes the significant 
difference between winter and summer gas consumption, the UK requiring 
approximately twice the volume of gas in the coldest winter months 
compared to the warmest summer months.
30
25
0
5
10
15
UK
%
USA Germany Italy Netherlands France
20
Storage as a Percentage of Annual Consumption 	 06 	 Star	Energy	Group	plc	 Annual	Report	and	Accounts	2005	 www.starenergy.co.uk 07 	 www.starenergy.co.uk	 Annual	Report	and	Accounts	2005	 Star	Energy	Group	plc 07
The	 gas	 storage	 facility	 at	 Humbly	 Grove
Star Energy’s Portfolio of Current and Proposed Gas Storage Developments
Commercial	 operations,	 the	 timings	 of	 which	 are	 subject	 to	 planning	 and	 permitting	 approvals.
Number of Proven Producing  
Reservoirs Onshore UK
34%	 Others
66%	 Star	 Energy
Why is Star Energy well placed?
Star Energy has two-thirds of the proven producing reservoirs 
onshore UK, and is actively investigating additional storage 
opportunities from within its extensive portfolio of onshore 
oil and gas fields. This is important because, even if all of 
Star Energy’s storage projects, and other projects known  
to be under development, are added to the current level  
of UK storage capacity, there will still only be approximately 
7% of annual consumption in the form of storage — well 
below our import-dependent European peers. Not only will 
Star Energy’s future facilities be helping to manage the 
demand variations in the UK market, they will perform an 
increasingly vital role in the security of gas supplies. 
Humbly Grove
Welton
Albury Phase 1
Albury Phase 2
Bletchingley
Gainsborough
Total
10
15
6
24
30
8
93
Sites 2005 2006 2007 2008 2009 2010 2011 bcf 	 08 	 Star	Energy	Group	plc	 Annual	Report	and	Accounts	2005	 www.starenergy.co.uk 	 www.starenergy.co.uk	 Annual	Report	and	Accounts	2005	 Star	Energy	Group	plc
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Responding to 
Market Demand
Gas Storage 
The Humbly Grove gas storage project was 
operational from November 2005.
The construction of the 27 km pipeline connecting 
Humbly Grove to the National Transmission System 
(NTS) at Barton Stacey was completed in April 2005 
with minimal impact on the local environment.
Four wells were drilled at Humbly Grove during the 
year to achieve the required gas injection and 
withdrawal rates for the gas store.
Operation of the 10 bcf facility began on 4 November 
2005 when Star Energy commenced gas injection to 
the store. Despite teething problems, initial performance 
indications of gas injection and withdrawal are in line 
with expectations. 
Delays by AMEC, the principal contractor, in 
completing the Engineering Procurement and 
Construction (EPC) contract prevented the completion 
of the project by the target month of October 2005. 
In addition, cost over-runs in the EPC contract amount 
to some £11 million (21% over the budgeted EPC contract 
value), taking the total project cost to £76.3 million 
and 17% over budget.
Highlights
Construction	 completed	 of	 a	 27	 km	 pipeline	 to	 link	 the	 gas	 store	 to	 the	 National	 Transmission	 System
Initial	 indications	 are	 that	 the	 Humbly	 Grove	 	 gas	 storage	 facility	 will	 perform	 in	 line	 with	 expectations	 ★
★ 	 08 	 Star	Energy	Group	plc	 Annual	Report	and	Accounts	2005	 www.starenergy.co.uk 09 	 www.starenergy.co.uk	 Annual	Report	and	Accounts	2005	 Star	Energy	Group	plc 09
Case Study / Arthur Moors,  
Gas Storage Operations Manager,
Humbly Grove
Arthur	started	at	Humbly	Grove	in	1986,	 during	the 	 initial	 commissioning	 of	 the	 site’s	 oil	 production	 facility.	 An	 instrumentation	 and	 control	engineer	by	training,	Arthur	has	been	 key	to	the	successful	operation	of	Humbly	 Grove	and	its	associated	fields.	With	effect	 from	1	January	2006,	Arthur	took	on	 responsibility	for	the	operation	of	the	Humbly	 Grove	gas	storage	facility.	Outside	of	work,	 Arthur’s	interests	include	horse	riding. 	 10 	 Star	Energy	Group	plc	 Annual	Report	and	Accounts	2005	 www.starenergy.co.uk 	 www.starenergy.co.uk	 Annual	Report	and	Accounts	2005	 Star	Energy	Group	plc
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A Portfolio of 
Opportunities
Highlights
Weighted	 average	 oil	 production	 for	 the	 year,	 including	 the	 Pentex	 acquisition,	 was	 4,178	 bopd
The	 Group	 now	 comprises	 26	 operated	 fields
The	 Pentex	 acquisition	 adds	 16.5	 million	 boe	 	 of	 proven	 and	 probable	 oil	 and	 gas	 reserves
★
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★
Oil & Gas Production 
Star Energy produces oil and gas from UK 
onshore fields in the Weald Basin and in the 
East Midlands. These fields form the feed 
stock for potential gas storage projects,  
as well as providing a stable source of cash 
flow. The acquisition of the Pentex assets 
represents a highlight in 2005, providing  
an additional 1,800 boepd to the business. 
High safety and environmental standards 
continue to underpin our activities.
Oil production from the existing assets fell by  
14% to 949,470 barrels, due primarily to reduced 
production from Humbly Grove during the gas storage 
construction, natural decline and a number of 
individual well problems. The acquisition of Pentex 
contributed 228,637 barrels, giving a net increase in 
oil production for the year of 75,442 barrels (7%). 
Operating costs for the existing assets remained steady 
at £9.2 million, demonstrating the continued focus  
on cost control, without impairment to safety or 
environmental standards. Operating costs for the Pentex 
assets amounted to £2.1 million, and pre-commissioning 
cost of the Humbly Grove gas store amounted to  
£1.2 million, taking total operating costs for the 
enlarged group to £12.6 million.
Drilling activity in the year comprised two infill wells 
at Singleton and two infill wells at Welton. 	 10 	 Star	Energy	Group	plc	 Annual	Report	and	Accounts	2005	 www.starenergy.co.uk 11 	 www.starenergy.co.uk	 Annual	Report	and	Accounts	2005	 Star	Energy	Group	plc 11
Case Study / Karl Fisher,
Operations Manager, Gainsborough
Karl	 joined	 Pentex	 in	 1991	 as	 a	 field	 operator,	 and	 by	 1998,	 had	 taken	 on	 production	 and	 work	 over	 responsibilities	 for	 all	 of	 the	 Pentex	 assets	 in	 the	 East	 Midlands.	 Karl	 was	 promoted	 to	 operations	 supervisor	 for	 all	 Pentex	 operations	 in	 the	 East	 Midlands	 in	 2001.	 Following	 the	 acquisition	 of	 Pentex	 by	 Star	 Energy,	 Karl	 has	 helped	 to	 integrate	 the	 Pentex	 East	 Midlands	 assets	 into	 the	 enlarged	 Group,	 and	 continues	 his	 essential	 role	 in	 maintaining	 their	 operating	 efficiency.	 When	 not	 at	 work,	 Karl	 likes	 to	 be	 outside,	 with	 interests	 in	 motorbikes,	 gun	 dog	 training	 and	 hill	 walking. 	 12 	 Star	Energy	Group	plc	 Annual	Report	and	Accounts	2005	 www.starenergy.co.uk 	 www.starenergy.co.uk	 Annual	Report	and	Accounts	2005	 Star	Energy	Group	plc
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Powering  
Ahead
Electricity Generation
The acquisition of the Pentex assets has 
provided Star Energy with an additional  
9 MW of generating capacity, giving a  
total generating capacity of 35 MW  
located on seven sites. Star Energy  
strives to be self-sufficient in electricity 
consumption, with excess power generated 
sold under contract.
Of the 35 MW total generating capacity, 15 MW is 
located at Humbly Grove and dedicated to running  
the gas storage facility. 
Electricity generated in 2005 amounted to 71,262 
MWhs, down 27% on 2004. Whilst the Pentex 
acquisition contributed 16,929 MWhs in the year, 
electricity production from the existing assets fell  
by 44% to 54,333 MWhs as a result of reduced gas 
production at Storrington, Welton and Humbly Grove. 
Of the electricity produced, 55,749 MWhs were sold.
Highlights
Star	 Energy’s	 currently	 installed	 generating	 capacity	 is	 35	 MW
The	 Humbly	 Grove	 gas	 storage	 facility	 utilises	 	 the	 dedicated	 services	 of	 3x5	 MW	 Siemens	 Typhoon	 Gas	 Turbine	 generators
★
★ 	 12 	 Star	Energy	Group	plc	 Annual	Report	and	Accounts	2005	 www.starenergy.co.uk 13 	 www.starenergy.co.uk	 Annual	Report	and	Accounts	2005	 Star	Energy	Group	plc 13
Case Study / Steve Flanagan,  
Acting Operations Manager,  
Humbly Grove
Steve	has	been	involved	in	the	oil	and	gas	 industry	for	a	number	of	years,	joining	Star	 Energy	in	1988	at	the	Horndean	field	as	a	 Production	Operator.	Through	on-the-job	 training	and	day-release	to	college,	Steve	 qualified	as	an	instrument	technician	and	 	 is	now	responsible	for	supervising	the	oil	 	 and	gas	production	facilities	of	Humbly	Grove	 and	its	associated	fields.	When	not	spending	 time	with	his	family,	Steve	enjoys	travelling	 and	sailing. 	 14 	 Star	Energy	Group	plc	 Annual	Report	and	Accounts	2005	 www.starenergy.co.uk 	 www.starenergy.co.uk	 Annual	Report	and	Accounts	2005	 Star	Energy	Group	plc
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Continual 
Improvement
Star Energy is committed to continually improving Health, Safety 
and Environmental (HSE) performance at all levels of its activities. 
The Group HSE Manager reports directly to the Chief Executive 
Officer and plays a key and independent role in the way the HSE 
system is maintained and updated.
Health and Safety
A culture of HSE awareness is nurtured 
throughout our operations, and 
employees are encouraged to report 
any HSE incident, however small. 
Appropriate training, both on and off 
the job, is given to employees to assist 
them in maintaining a safe working 
environment. 
The Group’s HSE methods and 
procedures have been introduced  
to the Pentex operations, and an HSE 
manager appointed specifically to 
ensure maintenance of Star Energy HSE 
standards in this new part of the Group.
During the year, the Group received a 
Silver Award for Occupational Safety and 
an Achievement Award in Behavioural 
Safety, both from the Royal Society for 
the Prevention of Accidents (RoSPA). 
The Group strives to maintain the 
highest standards of health and safety 
at all times for its workforce, and 
incurred only one Lost Time Incident 
(LTI) during the year (2004: nil). An LTI 
is registered when an individual cannot 
start their normal duties the day after 
an incident. 
Environment
No significant environmental incidents 
have occurred within Star Energy’s 
activities during 2005.
The oil and gas production facilities 
are configured so that any hydrocarbon 
spill is contained and easily cleaned up 
without encroaching on the underlying 
ground. The use of natural screens 
such as trees and soil banks makes  
the presence of oil and gas fields less 
obvious to the local community.
Star Energy has worked closely with 
Hampshire County Council and local 
residents during the planning and 
construction of the Humbly Grove gas 
storage facility and its associated 27 km 
pipeline to Barton Stacey, with minimal 
impact on both the environment and 
local neighbours. Star Energy is anxious 
to maintain this process of involving 
and informing planning authorities  
and the local community at all stages  
in the development of its future gas 
storage projects.
As well as liaising with the relevant 
county councils, all the Group’s 
operations are monitored, audited and 
controlled by the Health and Safety 
Executive, Department of Trade and 
Industry and the Environment Agency.  
In accordance with the UK government’s 
adoption of the Integrated Pollution 
Prevention and Control (IPPC) Directive 
by October 2007, the preparation of IPPC 
applications to the Environment Agency 
are on schedule for completion by the 
middle of 2006.
Other
Star Energy continues to support SCOPE, 
the disability organisation whose focus is 
people with cerebral palsy. 	 14 	 Star	Energy	Group	plc	 Annual	Report	and	Accounts	2005	 www.starenergy.co.uk 15 	 www.starenergy.co.uk	 Annual	Report	and	Accounts	2005	 Star	Energy	Group	plc 15
Case Study / Samantha Paget,
Human Resources Manager, London
After	graduating	from	University	College	 London	in	2002	with	a	degree	in	French	and	 Italian,	Samantha	moved	to	Paris	where	she	 taught	 the	 English	 language	 to	 French	 business	 people.	She	started	work	with	Star	Energy	in	 January	2004	as	Group	Administration	 Manager	in	the	London	office,	taking	on	the	 role	of	Human	Resources	Manager	in	2005.	 Samantha	enjoys	music	and	films,	and	has	 	 a	particular	interest	in	making	shoes.
Case Study / Bill Grant,
Group Health & Safety Manager, Welton
Bill	has	been	involved	with	the	oil	industry	 	 in	the	East	Midlands	for	many	years,	starting	 work	for	BP	in	1968	at	the	Gainsborough	 oilfield,	and	ultimately	managing	the	 maintenance	operations	during	the	 development	of	the	Welton	oilfield.	With	years	 of	experience	in	oilfield	operations,	he	 understands	the	environment	in	which	our	 employees	work	and	the	health	and	safety	 issues	which	they	face.	Outside	of	work,	Bill	 enjoys	spending	time	with	his	grandchildren.	 	 16 	 Star	Energy	Group	plc	 Annual	Report	and	Accounts	2005	 www.starenergy.co.uk 	 www.starenergy.co.uk	 Annual	Report	and	Accounts	2005	 Star	Energy	Group	plc
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Financial 
Review
Financial review
The	 acquisition	 of	 Pentex	 and	 strong	 oil	 prices	 have	 contributed	 to	 the	 Group’s	 profitability	 in	 the	 year.	 The	 first	 revenues	 from	 the	 Humbly	 Grove	 gas	 storage	 facility	 were	 received,	 with	 operations	 commencing	 in	 November	 2005.	 Turnover
Turnover	 has	 increased	 by	 £7.6	 million	 (44%)	 to	 £24.7	 million	 (2004:	 £17.1	 million).	 Of	 this	 increase,	 £6.4	 million	 has	 been	 contributed	 	 by	 the	 Pentex	 acquisition,	 £0.8	 million	 	 from	 gas	 storage,	 and	 £0.4	 million	 from	 	 the	 existing	 business.
Crude	 oil	 sales	 of	 £21.9	 million	 (2004:	 £15.4	 million)	 represent	 the	 majority	 of	 the	 Group	 turnover,	 accounting	 for	 89%	 of	 the	 total	 (2004:	 90%).	 The	 sale	 of	 electricity	 at	 £2.0	 million	 (2004:	 £1.7	 million)	 accounts	 for	 8%	 	 of	 the	 total	 (2004:	 10%),	 with	 gas	 storage	 revenues	 representing	 the	 remaining	 3%	 	 of	 total	 turnover	 (2004:	 nil).
The	 weighted	 average	 oil	 production	 rate	 for	 the	 Group,	 including	 the	 Pentex	 acquisition	 for	 the	 period	 8	 August	 2005	 to	 31	 December	 2005,	 was	 4,178	 bopd	 (2004:	 3,021	 bopd),	 with	 2,601	 bopd	 produced	 by	 the	 existing	 assets	 (2004:	 3,021	 bopd)	 and	 1,577	 bopd	 produced	 by	 the	 Pentex	 assets.
The	 effective	 oil	 price	 achieved	 by	 the	 Group	 was	 $34.01	 per	 barrel	 (2004:	 $25.33),	 resulting	 from	 the	 forward	 sale	 of	 2,000	 bopd	 at	 	 $29	 per	 barrel	 for	 the	 year,	 1,500	 bopd	 at	 $44.75	 per	 barrel	 relating	 to	 the	 Pentex	 acquisition,	 and	 an	 average	 Dated	 Brent	 price	 for	 the	 year	 of	 $54.38.	 Combined	 with	 an	 average	 sterling/US	 dollar	 exchange	 rate	 for	 the	 year	 of	 $1.81	 (2004:	 $1.83),	 the	 average	 sterling	 revenue	 per	 barrel	 for	 the	 year	 was	 increased	 to	 £18.81	 (2004:	 £13.83).
Electricity	 production	 for	 the	 year	 totalled	 71,262	 MWhs	 (2004:	 97,310	 MWhs),	 representing	 an	 average	 annualised	 rate	 of	 	 480	 boepd	 (2004:	 481	 boepd).	 Electricity	 sales	 totalled	 55,749	 MWhs	 (2004:	 74,266	 MWhs)	 under	 annual	 contract	 with	 SmartestEnergy	 at	 an	 average	 price	 of	 £35.11	 per	 MWh	 (2004:	 £23.17	 per	 MWh).
Operating result
The	 Group	 made	 an	 operating	 profit	 of	 £3.6	 million	 (2004:	 £1.3	 million	 loss),	 after	 charging	 one-off	 costs	 of	 £nil	 (2004:	 £2.0	 million,	 mainly	 relating	 to	 the	 AIM	 admission	 and	 debt	 restructuring).	 Of	 this	 total,	 £1.0	 million	 was	 contributed	 by	 the	 existing	 business	 and	 	 £2.6	 million	 by	 the	 Pentex	 acquisition.
Colin Judd
Financial	Director
Other	 cost	 of	 sales	 is	 £12.6	 million	 	 (2004:	 £9.3	 million),	 comprising	 £9.2	 million	 (2004:	 £9.3	 million)	 for	 the	 continuing	 operations,	 £2.1	 million	 (2004:	 £nil)	 in	 respect	 of	 the	 acquired	 Pentex	 operations,	 and	 	 £1.2	 million	 (2004:	 £nil)	 arising	 from	 the	 	 pre-commissioning	 activities	 of	 the	 Humbly	 Grove	 gas	 storage	 facility.
The	 non-cash	 depletion	 and	 depreciation	 charge	 of	 £5.8	 million	 (2004:	 £4.2	 million)	 includes	 £1.2	 million	 in	 respect	 of	 the	 Pentex	 acquisition.	 The	 year-on-year	 increase	 in	 the	 charge	 for	 the	 existing	 business	 reflects	 the	 lower	 production	 rates	 in	 the	 year.
Before	 one-off	 costs,	 administrative	 expenses	 remain	 in	 line	 with	 the	 prior	 year	 at	 £3.0	 million	 (2004:	 £3.0	 million).	 One-off	 costs	 amount	 	 to	 £nil	 (2004:	 £2.0	 million,	 comprising	 £1.5	 million	 associated	 with	 AIM	 admission	 and	 restructuring,	 £0.2	 million	 for	 other	 advisory	 costs,	 and	 £0.3	 million	 relating	 to	 the	 write	 down	 of	 development	 costs	 previously	 capitalised	 for	 the	 Welton	 wind	 turbine	 project).	 Interest and similar charges
The	 net	 interest	 charge	 for	 the	 year	 was	 £1.6	 million	 (2004:	 £0.8	 million),	 comprising	 interest	 costs	 of	 £1.4	 million	 (2004:	 £0.9	 million),	 arrangement	 and	 other	 bank	 fees	 	 of	 £0.3	 million	 (2004:	 £0.6	 million	 including	 one-off	 costs	 of	 £0.2	 million	 relating	 to	 debt	 arrangement	 fees),	 interest	 received	 of	 £0.5	 million	 (2004:	 £0.4	 million),	 and	 exchange	 losses	 of	 £0.4	 million	 (2004:	 £0.3	 million	 gains).	 The	 year-on-year	 increase	 in	 interest	 costs	 reflects	 the	 draw-down	 of	 £52.2	 million	 against	 the	 £57.5	 million	 senior	 debt	 facility	 established	 in	 May	 2004,	 and	 the	 additional	 senior	 debt	 of	 £20.0	 million	 established	 in	 July	 2005	 as	 partial	 funding	 of	 the	 Pentex	 acquisition.	 Management	 of	 cash	 flow	 has	 generated	 interest	 income.	 Exchange	 losses	 of	 £0.2	 million	 (2004:	 £0.1	 million	 losses)	 have	 arisen	 on	 US	 dollar	 receivable	 balances	 in	 the	 normal	 course	 of	 business.	 Funds	 held	 in	 euros	 to	 meet	 capital	 commitments	 for	 the	 Humbly	 Grove	 gas	 storage	 construction	 project	 gave	 rise	 to	 	 an	 exchange	 loss	 of	 £0.2	 million	 (2004:	 £0.4	 million	 gain).	 Taxation
The	 tax	 charge	 of	 £0.8	 million	 (2004:	 £0.7	 million)	 comprises	 a	 Corporation	 tax	 charge	 of	 £0.8	 million	 (2004:	 £0.2	 million),	 	 and	 a	 negligible	 deferred	 tax	 charge	 (2004:	 £0.5	 million)	 after	 the	 deduction	 of	 £0.9	 million	 (2004:	 £nil)	 arising	 from	 the	 release	 of	 previously	 unutilised	 capital	 allowances.	 	 16 	 Star	Energy	Group	plc	 Annual	Report	and	Accounts	2005	 www.starenergy.co.uk 17 	 www.starenergy.co.uk	 Annual	Report	and	Accounts	2005	 Star	Energy	Group	plc 17
The	 tax	 charge	 for	 the	 Group	 results	 in	 an	 effective	 rate	 of	 39%	 of	 pre-tax	 profits	 of	 	 £2.1	 million	 (2004:	 35%	 of	 pre-tax	 loss).	 Cash flow
The	 acquisition	 of	 Pentex	 was	 funded	 through	 a	 share	 placing	 of	 £31.9	 million	 (net	 of	 issue	 costs	 of	 £3.1	 million)	 and	 senior	 debt	 of	 	 £20.0	 million.
Cash	 flow	 from	 operations	 amounted	 to	 £19.2	 million	 (2004:	 £2.0	 million).	 Capital	 expenditure	 of	 £67.5	 million	 was	 incurred	 during	 2005	 (2004:	 £10.7	 million),	 £60.9	 million	 of	 which	 was	 in	 respect	 of	 the	 Humbly	 Grove	 gas	 store.	 Capital	 commitments	 at	 31	 December	 2005	 amounted	 to	 £6.1	 million	 (2004:	 £25.2	 million).	 Balance sheet
The	 placing	 of	 19.1	 million	 shares	 at	 185p	 	 to	 raise	 net	 proceeds	 of	 £31.9	 million	 for	 	 the	 acquisition	 of	 Pentex	 has	 strengthened	 	 the	 balance	 sheet	 significantly,	 increasing	 shareholders’	 funds	 from	 £56.8	 million	 as	 	 at	 31	 December	 2004	 to	 £91.0	 million	 at	 	 31	 December	 2005.	 Net	 debt	 has	 increased	 from	 £11.0	 million	 net	 funds	 to	 net	 debt	 of	 £54.2	 million.	 The	 senior	 debt	 facility	 for	 £57.5	 million,	 established	 in	 May	 2004,	 was	 increased	 by	 £20.0	 million	 	 to	 partially	 fund	 the	 Pentex	 acquisition.	 As	 at	 31	 December	 2005,	 the	 total	 senior	 debt	 facility	 was	 drawn	 down	 in	 the	 amount	 of	 £72.2	 million	 (2004:	 £nil).
Management of financial risk
The	 Group’ s	 policy	 is	 to	 protect	 revenues	 through	 hedging	 and	 forward	 sales.	 Forward	 oil	 sales	 contracts	 in	 place	 for	 2005	 were	 as	 follows:	 3,000	 barrels	 per	 day	 from	 1	 January	 2005	 to	 31	 March	 2005	 at	 $25	 per	 barrel;	 2,000	 barrels	 per	 day	 from	 1	 April	 2005	 to	 31	 December	 2005	 at	 $29	 per	 barrel.	 In	 addition,	 a	 forward	 sale	 contract	 for	 45,000	 barrels	 per	 calendar	 month	 (approximately	 1,500	 barrels	 per	 day)	 was	 assumed	 as	 part	 of	 the	 Pentex	 acquisition.	 This	 contract	 expires	 on	 31	 March	 2006.
In	 line	 with	 Group	 policy,	 and	 to	 comply	 with	 the	 terms	 of	 the	 senior	 debt	 facility,	 oil	 price	 hedging	 as	 disclosed	 in	 Table	 1	 is	 in	 place	 as	 at	 31	 March	 2006.
On	 31	 March	 2005,	 the	 Group	 purchased	 	 a	 put	 option	 on	 600	 bopd	 for	 calendar	 2006	 	 at	 $35	 per	 barrel	 at	 a	 premium	 of	 $0.83	 	 per	 barrel.
The	 Group	 has	 entered	 into	 a	 contract	 to	 fix	 the	 interest	 rate	 at	 7.535%	 for	 75%	 of	 the	 debt	 outstanding	 under	 the	 May	 2004	 senior	 debt	 facility	 of	 £57.5	 million	 during	 the	 period	 to	 	 31	 December	 2008.
The	 Group	 sold	 $1.75	 million	 per	 calendar	 month	 for	 2005	 at	 an	 average	 rate	 of	 $1.8671.	 International Financial Reporting  
Standards (IFRS)
The	 Group	 will	 convert	 to	 International	 Financial	 Reporting	 Standards	 (IFRS)	 in	 accordance	 with	 the	 mandatory	 date	 for	 AIM	 quoted	 companies	 of	 1	 January	 2007.	 An	 initial	 appraisal	 has	 been	 undertaken	 to	 identify	 the	 principal	 differences	 between	 the	 Group’s	 accounting	 policies	 and	 IFRS,	 and	 a	 project	 team	 has	 been	 identified	 to	 manage	 the	 Group’s	 transition	 from	 UK	 accounting	 standards	 to	 IFRS	 and	 to	 ensure	 successful	 implementation	 within	 the	 planned	 timetable.
Colin Judd
Financial	 Director
Table 1: Oil Price Hedging
	 Premium	 Strike	 Put	 Call	 Q1 	 2006	 Q2-4 	 2006	 2007 	 T ype	 $	 $	 $	 $	 bopd	 bopd	 bopd
Swap	 	 27.50	 	 	 1,800	 1,800 	 Swap	 	 27.00	 	 	 	 	 1,600
Swap	 	 44.75	 	 	 1,500	 	 Swap	 	 58.10	 	 	 	 500	 Swap	 	 58.00	 	 	 	 500	 Zero	 cost	 collar	 	 	 50.00	 66.00	 	 600	 Swap	 	 57.10	 	 	 	 	 200
Swap	 	 57.00	 	 	 	 	 200
Zero	 cost	 collar	 	 	 50.00	 64.00	 	 Put	 option	 0.83	 	 35.00	 	 600	 600
Total	 bopd	 	 	 	 	 3,900	 4,000	 2,600
* 2004	 results	 before	 one-off	 	 administrative	 expenses	 	 of	 £1,974,000
2005
2004*
Operating profit
3,639
626
Administrative expenses Other income Depletion and
depreciation
Other cost of sales
288
15
2004 results before one-off administrative expenses of £1,974,000
3,024 3,025
12,566
9,342
5,771
4,166
2005 / 2004* Comparison (£’000) 	 18 	 Star	Energy	Group	plc	 Annual	Report	and	Accounts	2005	 www.starenergy.co.uk 	 www.starenergy.co.uk	 Annual	Report	and	Accounts	2005	 Star	Energy	Group	plc
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Board of 
Directors
1. Roland Wessel (52)
Chief Executive Officer
Roland	 is	 a	 geology	 graduate	 with	 over	 25	 years’	 experience	 in	 the	 oil	 and	 gas	 industry.	 The	 majority	 of	 Roland’s	 career	 has	 been	 spent	 in	 the	 drilling	 services	 sector	 and	 he	 has	 undertaken	 managerial	 assignments	 in	 most	 of	 the	 active	 oil	 and	 gas	 regions	 of	 the	 world	 including	 West	 Africa,	 the	 Middle	 East,	 the	 North	 Sea,	 and	 North	 and	 South	 America.	 Roland	 co-founded	 Star	 Energy	 in	 1999.	 2. Colin Judd (52)
Financial Director
Colin	 has	 an	 honours	 degree	 in	 engineering	 and	 management,	 and	 qualified	 as	 a	 chartered	 accountant	 with	 Price	 Waterhouse	 in	 1979.	 His	 experience	 includes	 various	 professional	 accounting	 positions	 with	 Price	 Waterhouse	 in	 the	 UK,	 Europe	 and	 the	 Far	 East,	 various	 UK	 and	 overseas-based	 financial	 management	 positions	 with	 Christian	 Salvesen	 plc,	 and	 financial	 directorships	 with	 service	 companies	 to	 the	 oil	 and	 gas	 industry.	 3. Stephen Gutteridge (51)
Non-executive Chairman
Chairman of the Nominations Committee
Steve	 has	 held	 senior	 positions	 in	 a	 number	 of	 organisations	 in	 the	 energy	 sector,	 including	 main	 board	 director	 responsible	 for	 their	 electricity	 and	 gas	 supply	 business,	 and	 the	 International	 Petroleum	 Exchange	 as	 business	 development	 director.	 Currently	 director	 of	 Marwyn	 Investments	 Group,	 Steve	 is	 also	 a	 non-executive	 director	 of	 CORGI,	 the	 gas	 safety	 organisation.
4. Adrian Fernando (43)
Business Development Director
Adrian	 graduated	 with	 a	 first	 class	 honours	 degree	 in	 Economics	 and	 an	 MPhil	 in	 Development	 Studies.	 Following	 a	 period	 of	 three	 years	 working	 as	 an	 economic	 adviser	 for	 the	 United	 Nations	 in	 Central	 America	 he	 joined	 Amerada	 Hess,	 latterly	 developing	 their	 energy	 marketing	 and	 trading	 business	 in	 his	 role	 as	 deputy	 managing	 director.	 5. Melvyn Horgan (50)
Technical Director
Melvyn	 gained	 a	 PhD	 in	 Mathematics	 before	 training	 as	 a	 reservoir	 engineer	 with	 British	 Gas.	 His	 experience	 includes	 evaluating	 and	 appraising	 exploration	 projects,	 simulating	 field	 production	 and	 forecasting	 reservoir	 production	 for	 Burmah	 Oil.	 As	 technical	 director	 for	 Duke	 Engineering,	 he	 was	 responsible	 for	 managing	 multi-disciplinary	 teams	 in	 geology,	 geophysics,	 reservoir	 evaluation,	 simulation,	 field	 development	 and	 enhanced	 oil	 recovery	 studies.	 6. Stephen East (48)
Non-executive Director
Chairman of the Audit Committee
After	 qualifying	 as	 a	 chartered	 accountant	 with	 Binder	 Hamlyn,	 Stephen	 spent	 13	 years	 with	 Redland	 plc,	 progressing	 to	 become	 group	 treasurer.	 Thereafter,	 he	 joined	 the	 property	 group	 MEPC	 plc,	 where	 he	 became	 finance	 director.	 In	 this	 role,	 he	 had	 major	 strategic	 involvement	 in	 the	 re-focusing	 of	 the	 business	 and	 its	 subsequent	 sale.	 Currently	 group	 finance	 director	 of	 Woolworths	 Group	 plc,	 Stephen	 is	 also	 a	 non-executive	 director	 of	 	 The	 Regus	 Group	 plc.
7. David Wertheim (61)
Senior Independent Non-executive Director
Chairman of the Remuneration Committee
A	 biochemistry	 graduate	 with	 an	 MBA,	 David	 has	 held	 a	 number	 of	 senior	 management	 roles	 in	 the	 US,	 Australia	 and	 Europe.	 After	 joining	 soda	 ash	 manufacturer	 Brunner	 Mond	 as	 finance	 director,	 he	 became	 chief	 executive	 and	 led	 the	 Stock	 Exchange	 listing	 in	 1996.	 David	 is	 currently	 a	 director	 of	 Optima	 Management	 Services	 Limited,	 and	 a	 non-
executive	 director	 of	 the	 Royal	 Mint	 and	 the	 Hallé	 Concerts	 Society.
8. Charles Carter (39)
Non-executive Director
Charles	 is	 employed	 by	 the	 UK	 subsidiary	 of	 the	 Vitol	 oil	 and	 gas	 trading	 group.	 Qualifying	 as	 a	 chartered	 accountant	 with	 Deloitte	 Haskins	 &	 Sells,	 and	 initially	 specialising	 in	 mergers	 and	 acquisitions,	 he	 moved	 to	 National	 Grid	 where	 he	 held	 a	 number	 of	 international	 business	 development	 and	 finance	 roles,	 latterly	 director	 of	 corporate	 finance	 with	 group-level	 responsibility	 for	 a	 broad	 remit	 of	 financial	 management	 including	 corporate	 finance.
9. Roger Pearson (57)
Group Operations Director
Graduating	 as	 a	 chemical	 engineer,	 Roger	 has	 held	 a	 number	 of	 senior	 project	 management	 positions	 in	 the	 oil	 and	 gas	 indusry	 on	 facilities	 such	 as	 Thistle,	 Beatrice,	 Rough	 Storage,	 Bruce	 and	 Liverpool	 Bay.	 He	 joined	 Star	 Energy	 in	 2000	 as	 Managing	 Director	 for	 the	 Company’s	 Weald	 Basin	 assets,	 and	 was	 appointed	 to	 the	 Board	 on	 21	 October	 2005	 as	 Group	 Operations	 Director.	 Roger	 is	 a	 Chartered	 Engineer	 and	 a	 member	 of	 the	 Institute	 of	 Chemical	 Engineers. 	 18 	 Star	Energy	Group	plc	 Annual	Report	and	Accounts	2005	 www.starenergy.co.uk 19 	 www.starenergy.co.uk	 Annual	Report	and	Accounts	2005	 Star	Energy	Group	plc 19
6 1 9 3
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Shareholder Information
Non-executive Directors
Stephen Gutteridge
Chairman
David Wertheim
Senior	Independent	Director
Chairman	of	the	Remuneration	Committee
Stephen East
Chairman	of	the	Audit	Committee
Charles Carter
Non-executive	Director
Executive Directors
Roland Wessel 
Chief	Executive	Officer
Colin Judd 
Financial	Director
Melvyn Horgan 
Technical	Director
Adrian Fernando
Business	Development	Director
Roger Pearson
Group	Operations	Director
Company Secretary
Colin Judd
Contact Details
Star Energy Group plc
5	Lower	Belgrave	Street
London	SW1W	0NR
Tel:	+44	(0)	20	7730	6663
Fax:+44	(0)	20	7730	7774
www.starenergy.co.uk
Registered Office
Kempson	House
Camomile	Street
London	EC3A	7AN
Registered	in	England	and	Wales	No.	5054503
Registrars
Lloyds TSB Registrars
The	Causeway
Worthing
West	Sussex	BN99	6DA
Nominated Adviser
Hoare Govett Limited
250	Bishopsgate
London	EC2M	4AA
Legal Advisers
Norton Rose
Kempson	House
Camomile	Street
London	EC3A	7AN
Auditors
BDO Stoy Hayward LLP
8	Baker	Street
London	W1U	3LL
Principal Bankers
ABN Amro Bank NV
250	Bishopsgate
London	EC2M	4AA
Barclays Bank plc
7th	Floor
5	The	North	Colonnade
Canary	Wharf
London	E14	4BB
Bank of Scotland
New	Uberior	House
11	Earl	Grey	Street
Edinburgh	EH3	9BN
BNP Paribas
21,	Place	du	Marché	Saint-Honoré
75031	Paris	Cedex	01
France 	 20 	 Star	Energy	Group	plc	 Annual	Report	and	Accounts	2005	 www.starenergy.co.uk 21 	 www.starenergy.co.uk	 Annual	Report	and	Accounts	2005	 Star	Energy	Group	plc 21
Directors’ Report
The	directors	present	their	Annual	Report	and	the	audited	financial	 statements	for	the	year	ended	31	December	2005.
Principal activities
The	principal	activities	of	the	Group	are	the	exploration,	development	 and	production	of	crude	oil,	development	and	provision	of	gas	 storage	facilities,	and	electricity	generation.
Business review
The	results	of	the	Group	as	at	31	December	2005	are	set	out	on	 pages	31	to	35.	The	Group	made	a	profit	for	the	year	of	£1,264,000	 (2004:	£2,850,000	loss).	The	directors	do	not	recommend	the	 payment	of	a	dividend.
A	full	review	of	the	Group’s	activities	during	the	year,	recent	events	 and	future	developments	is	contained	in	the	Chairman’s	Statement	 on	page	2,	the	Chief	Executive’s	Statement	on	page	3,	the	Review	 	 of	Operations	on	pages	4	to	15,	and	the	Financial	Review	on	pages	 	 16	and	17.
Charitable and political donations
During	the	year,	the	Group	made	charitable	contributions	in	the	 	 UK	totalling	£39,696	(2004:	£26,308).	In	line	with	Group	policy,	 	 no	donations	were	made	for	political	purposes.
Financial instruments
The	Financial	Review	on	pages	16	and	17	provides	an	explanation	 	 of	the	role	that	financial	instruments	have	had	during	the	year.	The	 explanation	summarises	the	Group’s	policies	for	holding	or	issuing	 financial	instruments.	The	strategies	for	achieving	these	policies	 	 have	been	followed	during	the	year.
Subsequent events
Since	the	balance	sheet	date	the	Group	has	continued	to	progress	 	 in	its	exploration,	development,	production	and	business	growth	 strategies.
The	Group	is	renegotiating	the	repayment	terms	of	its	senior	 	 debt	facility.	As	part	of	this	renegotiation,	bank	fees	of	£300,000	 	 will	be	incurred.	 Directors
The	directors	of	the	Company	who	served	during	the	year	and	 subsequent	to	the	year	end	were	as	follows:	 Charles	Carter	 Stephen	Gutteridge	 Stephen	East	 David	Wertheim	 Roland	Wessel	 Colin	Judd	 Melvyn	Horgan	 Adrian	Fernando	 Roger	Pearson	(appointed	21	October	2005)
Details	of	the	directors’	interests	in	the	shares	of	the	Company	and	 	 in	share	options	are	set	out	on	pages	22	and	26	in	the	Directors’	 Remuneration	Report.
Substantial shareholdings
Except	for	the	holdings	of	shares	listed	below,	the	Company	has	 	 not	been	notified	by	any	person	holding	3%	or	more	of	the	issued	 Ordinary	shares	of	10p	each	of	the	Company	as	at	14	March	2006:
	 	 	 	 Number	 %
Petronas	 International	 Corp.	 Ltd.		 	 15,130,675	 19.06
Artemis	 Investment	 Management	 	 	 	 9,455,691	 11.91
Tudor	 Capital	 (UK)	 	 	 	 	 7,823,549	 9.86
Fidelity	 Investments	 	 	 	 7,623,095 	 	 9.60
Credit	 Suisse	 FB	 (MM)	 	 	 	 6,184,210	 7.79
Vitol	 Holding	 S.a.r.l.	 	 	 	 4,127,400	 5.20
Corporate responsibility
The	Group	is	fully	committed	to	high	standards	of	environment,	 health	and	safety	management	as	reported	on	pages	14	and	15.
Supplier payment policy
It	is	Company	and	Group	policy	to	settle	all	debts	with	creditors	on	 	 a	timely	basis	and	in	accordance	with	the	terms	of	credit	agreed	with	 each	supplier.	 Trade	creditors	of	the	Company	and	the	Group	at	31	December	2005	 were	equivalent	to	5	and	22	(2004:	13	and	20)	days’	purchases,	 respectively,	based	on	the	average	daily	amount	invoiced	by	 suppliers	to	the	Company	and	the	Group	during	the	year.
Auditors
On	6	December	2005,	KPMG	Audit	Plc	issued	the	Company	and	 	 its	subsidiaries	with	a	formal	notice	of	resignation	following	the	Audit	 Committee’s	decision	to	put	the	audit	out	to	tender.
On	13	December	2005,	BDO	Stoy	Hayward	LLP	were	appointed	 auditors	of	the	Company	and	its	subsidiaries.	 In	accordance	with	the	Companies	Act	1985,	a	resolution	for	 	 the	re-appointment	of	BDO	Stoy	Hayward	LLP	as	auditors	of	 	 the	Company	is	to	be	proposed	at	the	forthcoming	Annual	 	 General	Meeting.
Annual General Meeting
Your	attention	is	drawn	to	the	Notice	of	Meeting	enclosed	with	this	 Annual	Report	which	sets	out	the	resolutions	to	be	proposed	at	the	 forthcoming	Annual	General	Meeting.
By	order	of	the	Board
Colin Judd
Company	Secretary
Kempson	House
Camomile	Street
London	EC3A	7AN
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Directors’ Remuneration Report
Whilst	the	Company	is	not	required	to	present	a	directors’	 remuneration	report,	as	it	is	not	subject	to	the	Listing	Rules	of	the	 Financial	Services	Authority	nor	the	requirements	of	the	Directors’	 Remuneration	Report	Regulations	2002,	it	has	disclosed	here	certain	 information	about	directors’	remuneration	policy	and	emoluments.	 The	directors’	remuneration	report	is	not	audited.
Remuneration Committee
The	Remuneration	Committee’s	primary	objective	is	to	provide	 recommendations	to	the	Board	on	the	Company’s	remuneration	 policy,	and	to	determine	the	remuneration	of	the	executive	directors	 and	other	key	managers.
The	Remuneration	Committee	comprises	David	Wertheim	 (Chairman),	Stephen	East,	Stephen	Gutteridge	and	Charles	Carter,	 	 all	of	whom	are	deemed	non-executive	directors.	Executive	directors	 may	be	invited	to	attend	meetings	of	the	Remuneration	Committee	 but	do	not	take	part	in	any	decision	affecting	their	own	remuneration.	 The	Remuneration	Committee	meets	as	necessary:	during	the	 	 year	the	Committee	met	formally	a	total	of	four	times	(2004:	twice	 following	admission	to	AIM).
During	the	year,	the	Remuneration	Committee	sought	the	advice	of	 Mercer	Human	Resource	Consulting	Limited	(Mercer)	as	independent	 remuneration	consultants	appointed	by	the	Company.	Mercer	has	no	 other	contracts	with	the	Group.	 Remuneration policy
The	Group’s	policy	is	to	maintain	levels	of	remuneration	so	as	to	 attract,	motivate	and	retain	executive	directors	of	the	highest	calibre	 who	can	contribute	their	experience	and	views	to	the	Group’s	 business.
Executive directors’ terms, conditions and remuneration
The	elements	of	the	remuneration	package	consist	of	basic	salary,	 benefits	including	car	allowances	and	private	health	insurance,	 defined	pension	contributions,	share	option	scheme,	and	both	 	 short-	and	long-term	incentive	plans.	Details	of	the	individual	 executive	directors’	remuneration	are	given	on	page	24	and	25.
Pension scheme
The	executive	directors	do	not	participate	in	the	Group	pension	 scheme;	each	executive	director	is	entitled	to	receive	10%	of	their	 basic	salary	into	their	own	private	pension	scheme.
Short-Term Incentive Plan (STIP)
On	20	October	2005,	the	Remuneration	Committee	approved	the	 adoption	of	an	STIP	for	executive	directors	and	other	key	managers	 	 (14	people	in	total).	Under	the	terms	of	the	STIP,	annual	awards	will	 	 be	made	to	participants	dependent	upon	the	achievement	of	 corporate	and	individual	performance	targets,	such	achievement	 	 to	be	agreed	by	the	Remuneration	Committee.	Performance	targets	 	 will	be	reviewed	annually.	The	maximum	level	of	annual	award	as	a	 percentage	of	basic	salary	for	each	executive	director	is:
	 	 	 	 % 	 of	 	 	 	 	 	 basic 	 salary
Roland	 Wessel	 	 	 	 	 	 75
Colin	 Judd	 	 	 	 	 50
Melvyn	 Horgan	 	 	 	 	 50
Adrian	 Fernando	 	 	 	 	 50
Roger	 Pearson	 	 	 	 	 50
The	maximum	level	of	annual	award	as	a	percentage	of	basic	salary	 for	the	key	managers	is	in	the	range	of	25%	to	35%.	 Long-Term Incentive Plan (LTIP)
On	23	September	2005,	the	Company	established	the	LTIP.	On	 	 11	October	2005,	the	Remuneration	Committee	made	awards	 	 under	the	LTIP	over	Ordinary	shares	in	the	Company	to	the	following	 executive	directors	(the	relevant	percentages	of	the	Company’s	 issued	share	capital	are	given	adjacent	to	each	award):
	 	 	 	 Number	 	 	 	 	 of 	 shares	 %
Roland	 Wessel	 	 	 	 	 135,868	 0.17
Colin	 Judd	 	 	 78,324	 0.10
Melvyn	 Horgan	 	 	 67,136	 0.08
Adrian	 Fernando	 	 	 63,298	 0.08
Roger	 Pearson	 	 	 59,942	 0.08
In	addition,	awards	were	also	made	on	11	October	2005	under	the	 LTIP	to	nine	other	key	managers	on	the	same	terms	with	the	result	 that	a	total	of	527,470	shares	(0.66%	of	issued	share	capital)	were	 placed	under	award	to	all	participants	(14	in	total).	 Under	the	terms	of	the	LTIP,	the	number	of	shares	awarded	to	a	 participant	is	divided	into	two	equal	numbers	of	shares:	First	Tranche	 shares	and	Second	Tranche	shares,	respectively.	 	 22 	 Star	Energy	Group	plc	 Annual	Report	and	Accounts	2005	 www.starenergy.co.uk 23 	 www.starenergy.co.uk	 Annual	Report	and	Accounts	2005	 Star	Energy	Group	plc 23
For	awards	made	on	11	October	2005,	First	Tranche	shares	can	vest	 at	the	end	of	a	three-year	performance	period	commencing	on	 	 1	September	2005.	If	the	Company’s	Total	Shareholder	Return	(TSR)	 is	in	the	top	quartile	of	companies	in	the	FTSE	Small	Cap	Index,	the	 full	number	of	First	Tranche	shares	will	be	received.	For	performance	 between	median	and	upper	quartile,	vesting	will	occur	on	a	straight-
line	basis	so	that	25%	of	the	First	Tranche	shares	are	received	 	 for	median	performance	and	full	vesting	occurs	for	top	quartile	 performance.	No	shares	will	be	received	if	the	Company’s	TSR	 	 is	below	the	median	in	that	Index.	 Receipt	of	the	Second	Tranche	shares	will	be	subject	to	the	same	 conditions	except	that	performance	will	be	measured	over	a	four-year	 period	beginning	on	1	September	2005,	and	no	shares	can	be	 received	until	the	end	of	that	period.	 Awards	will	normally	be	forfeited	if	a	recipient	leaves	the	Group’s	 employment	before	vesting.	As	of	the	date	of	this	report,	one	of	the	 participants	has	left	the	Company	and	has	forfeited	their	awards	 under	the	LTIP.
Shares	are	intended	to	be	acquired	by	the	Company’s	employee	 benefit	trust	(using	funding	provided	or	procured	by	the	Company)	 	 as	and	when	shares	are	to	be	transferred	to	participants.	Bedell	 Trustees	Limited,	the	trustee	of	the	Company’s	employee	benefit	 trust,	was	granted	an	option	on	11	October	2005	to	acquire	up	to	 527,470	shares	by	subscription	so	as	to	be	able	to	satisfy	the	awards.	 Share options
Star	Energy	Group	plc	operates	an	Approved	Share	Option	Scheme.	 Details	of	directors’	share	options	are	given	on	page	26.
The	Star	Energy	Group	plc	Approved	Share	Option	Scheme	 	 was	adopted	by	the	Company	by	a	resolution	of	the	directors	 	 passed	on	29	April	2004,	and	approved	by	the	Inland	Revenue	 	 on	10	November	2004.
Under	the	scheme	rules,	options	were	initially	granted	to	the	 Executive	directors	and	all	eligible	employees	of	the	Group	on	 	 3	December	2004,	on	the	basis	of	their	length	of	service	with	 	 the	Group:
	 Length	 of	 service	 	 	 	 Share 	 options	 granted
Up	 to	 5	 years	 	 	 	 5,000
Between	 5	 and	 10	 years	 	 	 	 10,000
Over	 10	 years	 	 	 	 15,000
Further	grants	of	share	options	are	made	annually	to	directors	and	 eligible	employees	who	are	either	new	to	the	Group	or	whose	length	 of	service	is	such	that	an	incremental	grant	has	been	earned.	 Under	the	scheme	rules,	the	right	to	exercise	the	share	options	is	not	 contingent	upon	any	performance	criteria.
During	the	year,	the	Remuneration	Committee	recommended	 	 the	grant	of	449,773	options	to	68	employees	at	a	price	of	276p.	 Following	the	grant	of	these	options	on	2	December	2005,	the	total	 number	of	options	outstanding	was	1,213,106	(763,333	at	185p	and	 449,773	at	276p).
Employment agreements
Each	executive	director	agreement	is	based	on	similar	terms,	with	 	 no	fixed	duration.
All	executive	directors’	employment	agreements	can	be	terminated	 by	either	the	director	concerned	or	the	Group	on	giving	12	months	 written	notice	of	termination.	The	Group	may,	in	its	absolute	 discretion,	terminate	an	executive	director’s	employment	agreement	 without	prior	notice,	and	make	a	payment	in	lieu	of	127%	of	gross	 basic	salary	to	which	the	executive	director	would	have	been	entitled	 during	the	period	of	notice.
Each	employment	agreement	sets	out	restrictions	on	the	ability	 	 of	the	director	to	participate	in	businesses	competing	with	those	 	 of	the	Group	or	to	entice	or	solicit	away	from	the	Group	any	senior	 employees	of	the	Group	for	a	period	of	twelve	months	after	the	 termination	of	their	employment.
Non-executive directors’ terms, conditions and fees
The	non-executive	directors	have	been	engaged	under	the	terms	of	 letters	of	appointment.	Their	engagements	can	be	terminated	upon	 three	months	notice	by	either	party.	Re-appointment	is	subject	to	 	 the	Group’s	Articles	of	Association,	which	provide	for	retirement	by	 rotation	every	three	years.	Compensation	arrangements	are	limited	 	 to	fees	due	for	the	notice	period;	however,	if	a	takeover	occurs,	 compensation	is	due	amounting	to	50%	of	annual	fees.
The	remuneration	of	the	non-executive	directors	(other	than	the	 Chairman)	is	a	matter	for	the	Chairman	of	the	Board	and	the	Chief	 	 Executive	while	the	remuneration	of	the	Chairman	is	a	matter	for	the	 Chairman	of	the	Remuneration	Committee	and	the	Chief	Executive.	 	 The	remuneration	of	the	non-executive	directors	was	reviewed	and	 adjusted	at	the	end	of	September	2005.	All	fees	paid	to	the	non-
executive	directors	were	in	cash.	 	 24 	 Star	Energy	Group	plc	 Annual	Report	and	Accounts	2005	 www.starenergy.co.uk
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Directors’ Remuneration Report continued
Material contracts
Charles	Carter,	a	non-executive	director	of	the	Company,	is	employed	by	Vitol	Services	Limited,	an	associated	company	of	Vitol	Holding	S.a.r.l.	 which	had	a	5.2%	shareholding	in	the	Company	as	at	14	March	2006.	In	addition,	Vitol	SA,	another	company	within	the	Vitol	group	of	 companies,	has	entered	into	a	Gas	Storage	Agreement	with	Star	Energy	HG	Gas	Storage	Limited	for	the	exclusive	use	of	the	Humbly	Grove	 gas	storage	facility	until	1	May	2009.	Vitol	SA	has	the	option	to	extend	the	contract	for	up	to	an	additional	five	years.	 Directors’ remuneration
The Company
The	remuneration	of	the	directors	for	the	year	ending	31	December	2005	was:
	 	 	 	 	 	 	 	 Aggregate 	 	 	 	 	 	 	 	 	 remuneration 	 	 	 	 	 	 	 	 Aggregate 	 (excluding	 	 Aggregate 	 	 	 	 	 	 	 	 remuneration 	 pension) 	 	 	 remuneration 	 	 	 	 	 	 	 	 for	 the	 year	 for 	 the	 year	 	 for 	 the	 year	 	 	 	 	 	 	 	 ending	 31	 ending 	 31	 	 ending 	 31	 	 	 	 	 	 	 Taxable	 	 December 	 December 	 	 	 December
	 	 	 	 Salary/fees	 benefits
1
	 Pension 	 	 2005	 2004
2
	 Pension	 2004
2
	 	 	 	 £	 £	 £	 £	 £	 £	 £
Executive	 directors	 	 	 	 	 	 	 Roland	 Wessel	 	 	 	 173,471	 16,208	 17,347	 207,026	 116,439	 6,371	 122,810
Michael	 Garland
3
	 	 	 	 –	 –	 –	 –	 75,447	 2,204	 77,651
Melvyn	 Horgan	 	 	 	 142,858	 12,259	 14,286	 169,403	 96,027	 6,371	 102,398
Colin	 Judd	 	 	 	 142,858	 13,622	 14,286 	 170,766 	 96,027	 6,371	 102,398
Adrian	 Fernando	 	 	 	 134,695	 12,370	 13,470 	 160,535 	 90,930	 6,371	 97,301
Roger	 Pearson
4
	 	 	 	 33,187	 4,031	 3,319	 40,537	 –	 –	 –
Sub	 total	 	 	 	 627,069	 58,490	 62,708 	 748,267	 474,870	 27,688	 502,558
	 	 	 	 	 	 	 Non-executive	 directors	 	 	 	 	 	 	 Stephen	 Gutteridge	 	 	 	 	 45,750	 –	 –	 45,750	 30,346	 –	 30,346
Charles	 Carter
5	 	 	 	 	 25,250	 –	 –	 25,250	 16,750	 –	 16,750
Stephen	 East	 	 	 	 25,875	 –	 –	 25,875	 6,250	 –	 6,250
David	 Wertheim	 	 	 	 25,875	 –	 –	 25,875	 6,250	 –	 6,250
Sub	 total	 	 	 	 122,750	 –	 –	 122,750	 59,596	 –	 59,596
Total	 	 	 	 749,819	 58,490	 62,708	 871,017	 534,466	 27,688	 562,154 	 24 	 Star	Energy	Group	plc	 Annual	Report	and	Accounts	2005	 www.starenergy.co.uk 25 	 www.starenergy.co.uk	 Annual	Report	and	Accounts	2005	 Star	Energy	Group	plc 25
The Group
The	remuneration	of	the	directors	for	the	year	end	31	December	2005	was:
	 	 	 	 	 	 	 	 Aggregate 	 	 	 	 	 	 	 	 	 remuneration 	 	 	 	 	 	 	 	 Aggregate 	 (excluding	 	 Aggregate 	 	 	 	 	 	 	 	 remuneration 	 pension) 	 	 	 remuneration 	 	 	 	 	 	 	 	 for	 the	 year	 for 	 the	 year	 	 for 	 the	 year	 	 	 	 	 	 	 	 ending	 31	 ending 	 31	 	 ending 	 31	 	 	 	 	 	 	 Taxable	 	 December 	 December 	 	 	 December
	 	 	 	 Salary/fees	 benefits
1
	 Pension 	 	 2005	 2004
2
	 Pension	 2004
2
	 	 	 	 £	 £	 £	 £	 £	 £	 £
Executive	 directors	 	 	 	 	 	 	 Roland	 Wessel	 	 	 	 173,471	 16,208	 17,347	 207,026	 162,728	 13,824	 176,552
Michael	 Garland
3
	 	 	 	 –	 –	 –	 –	 111,579	 4,539	 116,118
Melvyn	 Horgan	 	 	 	 142,858	 12,259	 14,286	 169,403	 131,869	 11,232	 143,101
Colin	 Judd	 	 	 	 142,858	 13,622	 14,286 	 170,766	 133,812	 11,369	 145,181
Adrian	 Fernando	 	 	 	 134,695	 12,370	 13,470	 160,535	 126,772	 10,723	 137,495
Roger	 Pearson
4
	 	 	 	 33,187	 4,031	 3,319	 40,537	 –	 –	 –
Sub	 Total	 	 	 	 627,069	 58,490	 62,708	 748,267	 666,760	 51,687	 718,447
	 	 	 	 	 	 	 Non-executive	 directors	 	 	 	 	 	 	 Stephen	 Gutteridge	 	 	 	 	 45,750	 –	 –	 45,750	 30,346	 –	 30,346
Charles	 Carter
5
	 	 	 	 25,250	 –	 –	 25,250	 16,750	 –	 16,750
Stephen	 East
6
	 	 	 	 25,875	 –	 –	 25,875	 6,250	 –	 6,250
David	 Wertheim
6
	 	 	 	 25,875	 –	 –	 25,875	 6,250	 –	 6,250
Sub	 Total	 	 	 	 122,750	 –	 –	 122,750	 59,596	 –	 59,596
Total	 	 	 	 749,819	 58,490	 62,708	 871,017	 726,356	 51,687	 778,043
1	 Taxable	benefits	include	private	health	insurance	and	car	allowance.
2		The	remuneration	for	the	year	ending	on	31	December	2004	is	not	directly	comparable	to	that	of	the	year	ending	31	December	2005	due	to	the	directors	being	appointed	 part	way	through	2004.	Dates	of	appointment	were:
	 Charles	Carter		 29	April	2004	
	 Stephen	Gutteridge		 29	April	2004
	 Stephen	East		 1	October	2004	
	 David	Wertheim		 1	October	2004
	 Roland	Wessel		 24	February	2004	
	 Colin	Judd		 24	February	2004
	 Melvyn	Horgan		 29	April	2004	
	 Adrian	Fernando		 29	April	2004
	 Michael	Garland		 29	April	2004
3		Michael	Garland	resigned	on	31	July	2004	under	the	terms	of	a	compromise	agreement.
4	 Roger	Pearson	was	appointed	to	the	Board	on	21	October	2005.	His	remuneration	disclosed	above	reflects	payments	from	that	date.
5	 Amounts	in	respect	of	Charles	Carter	were	paid	to	Vitol	Services	Limited	to	make	available	his	services.
6	 Stephen	East	and	David	Wertheim	receive	an	annual	fee	of	£2,500	in	respect	of	their	chairmanships	of	the	Audit	Committee	and	Remuneration	Committee	respectively. 	 26 	 Star	Energy	Group	plc	 Annual	Report	and	Accounts	2005	 www.starenergy.co.uk
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Directors’ interests in the share capital of the Company
The	interests	of	the	directors	who	held	office	at	31	December	2005	were:
	 	 	 	 	 	 	 	 	 	 Number 	 of	 	 	 	 	 	 	 	 	 	 	 	 shares 	 as	 at	 	 	 	 	 	 	 	 	 	 	 	 1 	 January	 	 	 	 	 	 	 	 	 	 	 Number 	 of	 2005 	 or	 	 	 	 	 	 	 	 	 	 	 shares 	 as	 at	 date 	 of	 	 	 	 	 	 	 	 	 	 	 31 	 December	 appointment	 	 Ordinary	 10p	 shares	 	 	 	 	 	 	 	 	 	 2005	 if 	 later
Roland	 Wessel	 	 	 	 	 	 	 	 	 813,740	 813,740
Melvyn	 Horgan	 	 	 	 	 	 	 	 	 558,420	 558,420
Colin	 Judd	 	 	 	 	 	 	 	 	 463,840 	 463,840
Adrian	 Fernando	 	 	 	 	 	 	 	 	 452,010	 452,010
Roger	 Pearson	 	 	 	 	 	 	 	 	 –	 –
Stephen	 Gutteridge	 	 	 	 	 	 	 	 	 –	 –
Charles	 Carter	 	 	 	 	 	 	 	 	 –	 –
Stephen	 East	 	 	 	 	 	 	 	 	 –	 –
David	 Wertheim
1
	 	 	 	 	 	 	 	 	 50,000	 –
Total	 	 	 	 	 	 	 	 	 2,338,010 	 2,288,010
1	 David	Wertheim	is	deemed	to	be	interested	in	these	shares	by	virtue	of	a	discretionary	trust.
There	has	been	no	change	in	the	interest	of	any	director	between	1	January	2006	and	the	date	of	this	report.
Details of share options
	 	 	 	 	 	 	 At	 	 	 	 	 At 	 start	 of	 Granted	 Exercised	 	 31	 December	 Option 	 price	 Date 	 	 Expiry 	 Ordinary	 10p	 shares	 	 	 Grant 	 date	 period	 in 	 period	 in 	 period	 2005	 (pence)	 exercisable	 date
Roland	 Wessel	 	 	 03.12.04	 10,000	 –	 – 	 10,000 	 185	 03.12.07	 02.12.14
Melvyn	 Horgan	 	 	 03.12.04	 10,000	 –	 –	 10,000	 185	 03.12.07	 02.12.14
Colin	 Judd	 	 	 03.12.04	 10,000	 –	 –	 10,000	 185	 03.12.07	 02.12.14
Adrian	 Fernando	 	 	 03.12.04	 5,000	 –	 –	 5,000	 185	 03.12.07	 02.12.14
Roger	 Pearson	 	 	 03.12.04	 5,000	 –	 –	 5,000	 185	 03.12.07	 02.12.14
Roger	 Pearson	 	 	 02.12.05	 –	 5,000	 –	 5,000	 276	 02.12.08	 01.12.15
Total	 	 	 	 40,000	 5,000	 –	 45,000	 During	2005,	the	highest	mid-market	price	of	the	Group	was	292.5p	and	the	lowest	was	187.5p.	The	year-end	price	was	285.5p.
On	behalf	of	the	Board	of	Directors	of	Star	Energy	Group	plc
David Wertheim
Chairman	of	the	Remuneration	Committee
31	March	2006
Directors’ Remuneration Report continued 	 26 	 Star	Energy	Group	plc	 Annual	Report	and	Accounts	2005	 www.starenergy.co.uk 27 	 www.starenergy.co.uk	 Annual	Report	and	Accounts	2005	 Star	Energy	Group	plc 27
Although	the	Company,	as	an	AIM	quoted	company,	is	not	required	 to	comply	with	the	Combined	Code	on	Corporate	Governance,	the	 directors	support	high	standards	of	corporate	governance	and,	in	so	 far	as	is	practical	given	the	Company’s	size,	have	established	the	 following	corporate	governance	provisions:
A	non-executive	Chairman	of	the	Board,	a	senior	independent	 non-executive	director,	and	two	further	non-executive	directors,	 thus	providing	the	Board	with	four	non-executive	and	five	 executive	directors.
An	Audit	Committee,	comprising	three	non-executive	directors,	 having	documented	terms	of	reference,	and	chaired	by	an	 independent	non-executive	director	with	recent	and	relevant	 financial	experience.
A	Remuneration	Committee,	comprising	all	non-executive	 directors,	having	documented	terms	of	reference,	and	chaired	by	 the	senior	independent	non-executive	director.
A	Nominations	Committee,	comprising	all	non-executive	directors	 and	the	Chief	Executive	Officer,	having	documented	terms	of	 reference,	and	chaired	by	the	non-executive	Chairman.
Board of directors
The	Board	currently	comprises	a	non-executive	Chairman,	three	 non-executive	directors	and	five	executive	directors.	Biographies	 	 of	the	Board	members	are	set	out	on	page	18.
Whilst	there	is	a	clear	division	of	responsibilities	between	the	 Chairman	and	the	Chief	Executive	Officer,	Stephen	Gutteridge	 	 plays	a	role	in	the	strategic	development	of	the	Group,	and	is	not	 considered	independent	for	the	purposes	of	the	Combined	Code.
Charles	Carter’s	position	as	a	non-executive	director	is	pursuant	 	 to	the	right	of	Vitol	Holding	S.a.r.l.	as	a	significant	shareholder	in	the	 Group,	and	consequently	is	not	considered	to	be	independent	for	 	 the	purposes	of	the	Combined	Code.	 Both	Stephen	East	and	David	Wertheim	in	their	capacities	as	non-
executive	director	and	senior	independent	director,	respectively,	bring	 considerable	financial	and	commercial	expertise	to	the	Group,	and	 both	are	considered	independent	for	the	purposes	of	the	Combined	 Code.	In	the	role	of	senior	independent	director,	David	Wertheim	is	 available	to	shareholders	to	discuss	matters	which	they	consider	 cannot	be	addressed	to	the	Chairman	or	other	Board	members.
•
•
•
•
The	Board	met	13	times	in	2005	(2004:	eight	times	following	 admission	to	AIM).	Board	meeting	attendance	is	detailed	below:
	 	 Meetings	 attended
	 	 	 2005	 2004
Executive	 directors
Roland	 Wessel	 	 	 12	 8
Melvyn	 Horgan	 	 	 10	 8
Colin	 Judd	 	 	 11	 8
Adrian	 Fernando	 	 	 10	 7
Roger	 Pearson
1
	 	 	 2	 –
Non-executive	 directors
Stephen	 Gutteridge	 	 	 	 13	 8
Charles	 Carter	 	 	 11	 7
Stephen	 East
2
	 	 	 13	 2
David	 Wertheim
2
	 	 	 11	 1
1	 Appointed	21	October	2005
2	 Appointed	1	October	2004
All	necessary	information	is	supplied	to	the	directors	on	a	timely	 	 basis	to	enable	them	to	discharge	their	duties	effectively,	and	all	 directors	have	access	to	independent	professional	advice,	at	the	 Company’s	expense,	as	and	when	required.	 The	Articles	of	Association	require	that	at	least	one-third	of	the	 directors	retire	and	may	submit	themselves	for	re-election	at	the	 	 AGM	each	year.	In	addition,	the	Articles	state	that	all	directors	 	 should	 submit	 themselves	 for	 re-election	 at	 least	 every	 three	 years.
Corporate Governance 	 28 	 Star	Energy	Group	plc	 Annual	Report	and	Accounts	2005	 www.starenergy.co.uk
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Committees
Each	of	the	Audit,	Remuneration	and	Nomination	Committees	has	its	 own	terms	of	reference.	 Audit Committee
The	Audit	Committee	comprises	Stephen	East	(Chairman),	Charles	 Carter	and	David	Wertheim.	 The	Audit	Committee	is	responsible	for	monitoring	the	integrity	of	 	 the	financial	statements	of	the	Group,	assessing	the	effectiveness	 	 of	the	Group’s	internal	controls	and	risk	management	systems,	and	 reviewing	the	scope	and	effectiveness	of	the	external	audit	function.	 The	Committee	met	four	times	during	2005	(2004:	twice	following	 admission	to	AIM)	to	review	the	interim	financial	statements	and	 	 the	Group’s	internal	controls.	The	Audit	Committee	meetings	were	 attended	by	all	Committee	members.	Representatives	from	KPMG	 Audit	Plc,	the	Group’s	former	external	auditors,	attended	two	of	 	 the	meetings.	The	Audit	Committee	did	not	meet	between	the	 appointment	of	BDO	Stoy	Hayward	LLP	as	the	Group’s	external	 auditors	and	the	year-end,	but	like	their	predecessors,	the	 	 current	auditors	have	unrestricted	access	to	the	Chairman	 	 of	the	Audit	Committee.	 Remuneration Committee
The	Remuneration	Committee	is	responsible	for	making	 recommendations	to	the	Board	on	the	Company’s	remuneration	 policy	and	for	determining	remuneration	of	the	executive	directors	 and	senior	employees.	The	Committee	met	formally	four	times	during	 2005	(2004:	twice	following	admission	to	AIM).	The	Remuneration	 Committee	meetings	held	during	the	year	were	attended	by	all	 Committee	members	except	on	one	occasion	where	Charles	Carter	 was	absent.	The	first	meeting	was	also	attended	by	Mercer	Human	 Resource	Consulting	Limited	(Mercer)	which	provided	advice	on	the	 structure	of	overall	remuneration	and	on	incentive	plans	for	directors	 and	key	managers.	 The	Remuneration	Committee	comprises	David	Wertheim	 (Chairman),	Stephen	East,	Stephen	Gutteridge	and	Charles	Carter.
Nominations Committee
The	Nominations	Committee	comprises	Stephen	Gutteridge	 (Chairman),	David	Wertheim,	Stephen	East,	Charles	Carter	and	 Roland	Wessel.
The	 Committee	 is	 responsible	 for	 the	 composition	 of	 the	 Board	 and	 makes	 recommendations	 on	 the	 appointment	 of	 new	 directors	 as	 well	 as	 making	 recommendations	 to	 the	 Board	 on	 succession	 planning.
The	Committee	met	once	in	2005	(2004:	twice	following	admission	 to	AIM)	to	ratify	the	appointment	of	Roger	Pearson	as	Group	 Operations	Director.
Shareholder relations
Communications	with	shareholders	is	undertaken	through	face-to-
face	meetings,	general	presentations	at	the	time	of	the	release	of	 interim	and	full	year	results,	and	news	releases.	The	Group’s	website	 (www.starenergy.co.uk)	facilitates	the	publication	of	results	and	the	 posting	of	news	regarding	the	Group	and	its	developments.
The	Chairman	is	available	to	meet	with	institutional	shareholders	to	 discuss	any	issues	and	concerns	regarding	the	Group’s	governance.	 	 Non-executive	directors	can	also	attend	meetings	with	major	 shareholders	if	requested.
The	participation	of	both	private	and	institutional	investors	at	the	AGM	 is	welcomed	by	the	Board.	 Internal controls
The	directors	acknowledge	their	responsibility	for	the	Company’s	 	 and	the	Group’s	systems	of	internal	control,	which	are	designed	to	 safeguard	the	assets	of	the	Group	and	ensure	the	reliability	of	 financial	information	for	both	internal	use	and	external	publication.	 The	Group’s	internal	control	procedures	include	Board,	technical	and	 financial	approval	for	all	significant	projects.	All	major	expenditures	 require	senior	management	approval	at	the	appropriate	stages	of	 each	transaction.	Overall	control	is	ensured	by	a	regular	detailed	 reporting	system	covering	both	technical	progress	of	a	project	and	 the	state	of	the	Group’s	financial	affairs.	The	Board	has	put	in	place	 procedures	for	identifying,	evaluating	and	managing	any	significant	 risks	that	face	the	Group.
Any	system	of	internal	control	can	provide	only	reasonable,	and	 	 not	absolute,	assurance	that	material	financial	irregularities	will	be	 detected	or	that	the	risk	of	failure	to	achieve	business	objectives	is	 eliminated.	The	directors,	having	reviewed	the	effectiveness	of	the	 system	of	internal	financial,	operational	and	compliance	controls	 	 and	risk	management,	consider	that	the	system	of	internal	control	 operated	effectively	throughout	the	financial	year	and	up	to	the	 	 date	the	financial	statements	were	signed.
Going concern
After	making	enquiries,	the	directors	have	a	reasonable	expectation	 that	the	Company	and	the	Group	as	a	whole	have	adequate	 resources	to	continue	in	operational	existence	for	the	foreseeable	 future.	For	this	reason,	they	continue	to	adopt	the	going	concern	 basis	in	preparing	the	financial	statements.
Corporate Governance continued 	 28 	 Star	Energy	Group	plc	 Annual	Report	and	Accounts	2005	 www.starenergy.co.uk 29 	 www.starenergy.co.uk	 Annual	Report	and	Accounts	2005	 Star	Energy	Group	plc 29
Company	law	requires	the	directors	to	prepare	financial	statements	 for	each	financial	year	which	give	a	true	and	fair	view	of	the	state	of	 affairs	of	the	Company	and	Group	and	of	the	profit	or	loss	for	that	 year.	In	preparing	those	financial	statements,	the	directors	are	 required	to:
select	suitable	accounting	policies	and	then	apply	them	 consistently;
make	judgements	and	estimates	that	are	reasonable	and	prudent;
state	whether	applicable	accounting	standards	have	been	 followed,	subject	to	any	material	departures	disclosed	and	 explained	in	the	financial	statements;	and
prepare	the	financial	statements	on	the	going	concern	basis	 unless	it	is	inappropriate	to	presume	that	the	Group	will	continue	 in	business.	 The	directors	are	responsible	for	keeping	proper	accounting	records	 which	disclose	with	reasonable	accuracy	at	any	time	the	financial	 position	of	the	Group	and	to	enable	them	to	ensure	that	the	financial	 statements	comply	with	the	Companies	Act	1985.	They	have	general	 responsibility	for	taking	such	steps	as	are	reasonably	open	to	them	to	 safeguard	the	assets	of	the	Company	and	the	Group	and	to	prevent	 and	detect	fraud	and	other	irregularities.
•
•
•
•
Statement of Directors’ Responsibilities in Respect 
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We	have	audited	the	Group	and	parent	company	financial	statements	 (the	‘financial	statements’)	of	Star	Energy	Group	plc	for	the	year	 ended	31 	 December	 2005	 which	 comprise	 the	 Group	 Profit	 and	 Loss	 Account,	 the	 Reconciliation	of	Movements	in	Group	Shareholders’	 Funds,	the	Group	and	Company	Balance	Sheets,	the	Consolidated	 Cash	 Flow	 Statement,	 and	 the	 related	 notes.	 These	 financial	 statements	 have	been	prepared	under	the	accounting	policies	set	out	therein.
Respective responsibilities of directors and auditors
The	 directors’	 responsibilities	 for	 preparing	 the	 Annual	 Report	 and	 the	 financial	 statements	 in	 accordance	 with	 applicable	 law	 and	 United	 Kingdom	 Accounting	Standards	(United	Kingdom	Generally	 Accepted	Accounting	Practice)	are	set	out	in	the	Statement	of	 Directors’	Responsibilities.	 Our	responsibility	is	to	audit	the	financial	statements	in	accordance	 with	relevant	legal	and	regulatory	requirements	and	International	 Standards	on	Auditing	(UK	and	Ireland).	 We	report	to	you	our	opinion	as	to	whether	the	financial	statements	 give	a	true	and	fair	view	and	are	properly	prepared	in	accordance	 with	the	Companies	Act	1985.	We	also	report	to	you	if,	in	our	opinion,	 the	Directors’	Report	is	not	consistent	with	the	financial	statements,	if	 the	Company	has	not	kept	proper	accounting	records,	if	we	have	not	 received	all	the	information	and	explanations	we	require	for	our	audit,	 or	if	information	specified	by	law	regarding	directors’	remuneration	 and	other	transactions	is	not	disclosed.
We	read	the	other	information	contained	in	the	annual	report,	and	to	 consider	 whether	 it	 is	 consistent	 with	 the	 audited	 financial	 statements.	 This	other	information	comprises	the	Directors’	Report,	Directors’	 Remuneration	Report	and	Corporate	Governance	Statement.	We	 consider	the	implications	for	our	report	if	we	become	aware	of	any	 apparent	misstatements	or	material	inconsistencies	with	the	financial	 statements.	 Our	 responsibilities	 do	 not	 extend	 to	 any	 other	 information.
Our	report	has	been	prepared	pursuant	to	the	requirements	of	the	 Companies	Act	1985	and	for	no	other	purpose.	No	person	is	entitled	 to	rely	on	this	report	unless	such	a	person	is	a	person	entitled	to	rely	 upon	this	report	by	virtue	of	the	Companies	Act	1985	or	has	been	 expressly	authorised	to	do	so	by	our	prior	written	consent.	Save	as	 above,	we	do	not	accept	responsibility	for	this	report	to	any	other	 person	or	for	any	other	purpose	and	we	hereby	expressly	disclaim	 any	and	all	such	liability.	 Basis of audit opinion
We	 conducted	 our	 audit	 in	 accordance	 with	 International	 Standards	 on	 Auditing	 (UK	 and	 Ireland)	 issued	 by	 the	 Auditing	 Practices	 Board.	 An	 audit	 includes	 examination,	 on	 a	 test	 basis,	 of	 evidence	 relevant	 to	 the	 amounts	 and	 disclosures	 in	 the	 financial	 statements.	 It	 also	 includes	 an	 assessment	 of	 the	 significant	 estimates	 and	 judgements	 made	 by	 the	 directors	 in	 the	 preparation	 of	 the	 financial	 statements,	 and	 of	 whether	 the	 accounting	 policies	 are	 appropriate	 to	 the	 Group’s	 and	 Company’s	 circumstances,	 consistently	 applied	 and	 adequately	 disclosed.
We	planned	and	performed	our	audit	so	as	to	obtain	all	the	 information	and	explanations	which	we	considered	necessary	 	 in	order	to	provide	us	with	sufficient	evidence	to	give	reasonable	 assurance	that	the	financial	statements	are	free	from	material	 misstatement,	whether	caused	by	fraud	or	other	irregularity	or	error.	 In	forming	our	opinion	we	also	evaluated	the	overall	adequacy	of	the	 presentation	of	information	in	the	financial	statements.
Opinion
In	our	opinion:
•	 the	financial	statements	give	a	true	and	fair	view,	in	accordance	 with	United	Kingdom	Generally	Accepted	Accounting	Practice,	 	 of	the	state	of	the	Group’s	and	the	parent	Company’s	affairs	 	 as	at	31	December	2005	and	of	the	Group’s	profit	for	the	year	 then	ended;	and	 •	 the	financial	statements	have	been	properly	prepared	in	 accordance	with	the	Companies	Act	1985.	 BDO Stoy Hayward LLP
Chartered	Accountants	and	Registered	Auditors
London
31	March	2006
Independent Auditors’ Report to the Members  
of Star Energy Group plc 	 30 	 Star	Energy	Group	plc	 Annual	Report	and	Accounts	2005	 www.starenergy.co.uk 31 	 www.starenergy.co.uk	 Annual	Report	and	Accounts	2005	 Star	Energy	Group	plc 31
	 	 	 	 	 	 	 	 	 Year	 ended	 	 Year 	 ended	 	 	 	 	 	 	 	 	 	 31	 December	 31 	 December	 	 	 	 	 	 	 	 	 Continuing	 Acquired	 2005	 2004 	 	 	 	 	 	 	 	 operations	 operations	 Total	 Total	 	 	 	 	 	 	 	 Note	 £’000	 £’000	 £’000	 £’000
Turnover	 	 	 	 	 	 1	 18,275	 6,437	 24,712	 	 17,144
Depletion	 and	 depreciation	 	 	 	 	 	 	 (4,527)	 (1,244)	 (5,771)	 (4,166)
Other	 cost	 of	 sales	 	 	 	 	 	 	 (10,421)	 (2,145)	 (12,566)	 (9,342)
Total	 cost	 of	 sales	 	 	 	 	 	 	 (14,948)	 (3,389)	 (18,337)	 (13,508)
Gross	 profit	 	 	 	 	 	 	 3,327	 3,048	 6,375	 	 3,636
Corporate	 AIM	 admission	 and	 restructuring	 costs	 	 	 	 2	 –	 –	 –	 (1,452)
Other	 administrative	 expenses	 	 	 	 	 	 2	 (2,449)	 (575)	 (3,024)	 (3,547)
Administrative	 expenses	 	 	 	 	 	 	 (2,449)	 (575)	 (3,024)	 (4,999)
Other	 income	 	 	 	 	 	 	 210	 78	 288	 	 15
Operating	 profit/(loss)	 	 	 	 	 	 2	 1,088	 2,551	 3,639	 (1,348)
Interest	 receivable	 and	 similar	 income	 	 	 	 	 4	 	 	 528 	 	 700
Interest	 payable	 and	 similar	 charges	 	 	 	 	 5	 	 	 (2,108) 	 (1,460)
Profit/(loss)	 on	 ordinary	 activities	 before	 taxation	 	 	 	 	 	 	 2,059	 (2,108)
Tax	 charge	 on	 profit/(loss)	 on	 ordinary	 activities	 	 	 	 6	 	 	 (795)	 (742)
Profit/(loss)	 for	 the	 year	 	 	 	 	 	 	 	 	 1,264	 (2,850)
Finance	 costs	 on	 non-equity	 shares	 	 	 	 	 8	 	 	 –	 (658)
Retained	 profit/(loss)	 for	 the	 financial	 year	 	 	 	 	 21	 	 	 1,264	 (3,508)
	 	 	 	 	 	 	 	 	 Pence	 Pence
Basic	 profit/(loss)	 per	 share	 	 	 	 	 	 7	 	 	 1.82	 (6.85)
Diluted	 profit/(loss)	 per	 share	 	 	 	 	 	 7	 	 	 1.81	 (6.85)
The	notes	on	pages	36	to	55	form	an	integral	part	of	these	financial	statements.
Consolidated Profit and Loss Account
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	 2005	 2004
	 	 	 	 	 	 Note	 £’000	 £’000 	 £’000	 £’000
Fixed	 assets
Intangible	 assets	 	 	 	 	 	 9	 	 205 	 	 –
Tangible	 assets	 	 	 	 	 	 10	 	 173,852	 	 	 53,298
Current	 assets	 	 Stocks	 	 	 	 	 	 12	 361	 	 297
Debtors	 	 	 	 	 	 13	 8,118	 	 6,390
Cash	 in	 hand	 and	 at	 bank	 	 	 	 	 	 24	 17,283	 	 12,357	 	 	 	 	 	 	 	 	 25,762	 	 19,044
Creditors:	 amounts	 falling	 due	 within	 one	 year	 	 	 	 14	 (32,983)	 	 (9,344)	 Net	 current	 (liabilities)/assets	 	 	 	 	 	 	 	 (7,221) 	 	 	 9,700
Total	 assets	 less	 current	 liabilities	 	 	 	 	 	 	 166,836	 	 	 62,998
Creditors:	 amounts	 falling	 due	 after	 more	 than	 one	 year	 	 	 	 15	 	 (57,693) 	 	 (413)
Provisions	 for	 liabilities	 and	 charges	 	 	 	 	 18	 	 (18,099) 	 	 (5,812)
Net	 assets	 	 	 	 	 	 	 	 91,044	 	 	 56,773
Capital	 and	 reserves
Called	 up	 share	 capital	 	 	 	 	 	 19	 	 7,937	 	 	 6,025
Share	 premium	 account	 	 	 	 	 	 21	 	 125,457 	 	 	 94,604
Merger	 reserve	 	 	 	 	 	 21	 	 (45,093)	 	 (45,093)
Profit	 and	 loss	 account	 	 	 	 	 	 21	 	 2,743 	 	 	 1,237
Equity	 shareholders’	 funds	 	 	 	 	 	 	 	 91,044 	 	 	 56,773
These	financial	statements	were	approved	by	the	Board	of	directors	and	authorised	for	issue	on	31	March	2006	and	were	signed	on	 	 its	behalf	by:
Colin Judd
Financial	Director
The	notes	on	pages	36	to	55	form	an	integral	part	of	these	financial	statements.
Consolidated Balance Sheet
at	 31	 December	 2005 	 32 	 Star	Energy	Group	plc	 Annual	Report	and	Accounts	2005	 www.starenergy.co.uk 33 	 www.starenergy.co.uk	 Annual	Report	and	Accounts	2005	 Star	Energy	Group	plc 33
	 2005	 2004
	 	 	 	 	 	 Note	 £’000	 £’000 	 £’000	 £’000
Fixed	 assets	 	 Investments	 	 	 	 	 	 11	 	 100,372 	 	 60,183	 Current	 assets	 	 Debtors	 	 	 	 	 	 13	 100,818	 	 	 36,996
Cash	 in	 hand	 and	 at	 bank	 	 	 	 	 	 	 11,143	 	 	 3,608	 	 	 	 	 	 	 	 	 111,961	 	 	 40,604
Creditors:	 amounts	 falling	 due	 within	 one	 year	 	 	 	 14	 (21,438)	 	 	 (139)
Net	 current	 assets	 	 	 	 	 	 	 	 90,523 	 	 	 40,465
Total	 assets	 less	 current	 liabilities	 	 	 	 	 	 	 190,895 	 	 	 100,648
Creditors:	 amounts	 falling	 due	 after	 more	 than	 one	 year	 	 	 	 15	 	 (57,612) 	 	 –
Net	 assets	 	 	 	 	 	 	 	 133,283 	 	 	 100,648
Capital	 and	 reserves
Called	 up	 share	 capital	 	 	 	 	 	 19	 	 7,937 	 	 	 6,025
Capital	 reserve	 account	 	 	 	 	 	 21	 	 190	 	 –
Share	 premium	 account	 	 	 	 	 	 21	 	 125,457 	 	 	 94,604
Profit	 and	 loss	 account	 	 	 	 	 	 21	 	 (301)	 	 	 19
Equity	 shareholders’	 funds	 	 	 	 	 	 	 	 133,283 	 	 	 100,648
These	financial	statements	were	approved	by	the	Board	of	directors	and	authorised	for	issue	on	31	March	2006	and	were	signed	on	 	 its	behalf	by:
Colin Judd
Financial	Director
The	notes	on	pages	36	to	55	form	an	integral	part	of	these	financial	statements.
	 Company Balance Sheet
at	 31	 December	 2005 	 34 	 Star	Energy	Group	plc	 Annual	Report	and	Accounts	2005	 www.starenergy.co.uk
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	 2005	 2004
	 	 	 	 	 	 Note	 £’000	 £’000 	 £’000	 £’000
Cash	 flow	 from	 operating	 activities	 	 	 	 	 23	 	 19,219	 	 	 2,013	 Returns	 on	 investments	 and	 servicing	 of	 finance	 	 	 	 	 	 	 Interest	 received	 	 	 	 	 	 	 528	 	 	 392	 	 	 Interest	 paid	 	 	 	 	 	 	 (1,710)	 	 (710)
	 Interest	 element	 of	 finance	 lease	 rental	 payments	 	 	 	 	 (77)	 	 (129)	 	 	 	 	 	 	 	 	 	 (1,259) 	 	 (447)
Taxation	 	 	 	 	 	 	 	 (215) 	 	 (163)
Capital	 expenditure	 and	 financial	 investment	 	 	 Purchase	 of	 tangible	 fixed	 assets	 	 	 	 	 	 	 (69,922)	 	 (10,716)
Acquisitions	 	 	 	 	 	 	 	 (45,845) 	 	 	 —	 Cash	 outflow	 before	 management	 of	 liquid	 resources	 and	 financing	 	 	 	 (98,022) 	 	 (9,313)	 Financing
	 Issue	 of	 ordinary	 share	 capital	 	 	 	 	 	 	 35,000	 	 	 78,250
	 Issue	 costs	 of	 equity	 shares	 	 	 	 	 	 	 (3,060)	 	 (4,806)
	 Redemption	 of	 shares	 	 	 	 	 	 	 –	 	 (32,948)	 	 	 Increase	 in	 long-term	 borrowing	 	 	 	 	 	 72,230 	 	 	 –	 	 	 Repayment	 of	 debt	 due	 after	 more	 than	 one	 year	 	 	 	 	 –	 	 (17,638)
	 Debt	 arrangement	 fee	 	 	 	 	 	 	 –	 	 (863)
	 Capital	 element	 of	 finance	 lease	 rental	 payments	 	 	 	 	 (1,064)	 	 (921)	 	 	 	 	 	 	 	 	 	 103,106 	 	 	 21,074
Increase	 in	 cash	 in	 the	 year	 	 	 	 	 	 24	 	 5,084	 	 	 11,761
The	notes	on	pages	36	to	55	form	an	integral	part	of	these	financial	statements.
Consolidated Cash Flow Statement
for	 the	 year	 ended	 31	 December	 2005 	 34 	 Star	Energy	Group	plc	 Annual	Report	and	Accounts	2005	 www.starenergy.co.uk 35 	 www.starenergy.co.uk	 Annual	Report	and	Accounts	2005	 Star	Energy	Group	plc 35
	 	 	 	 	 	 	 	 	 2005	 	 2004	 	 	 	 	 	 	 	 	 	 £’000	 	 £’000
Retained	 profit/(loss)	 for	 the	 financial	 year		 	 	 	 	 	 	 1,264	 (3,508)
Add	 back	 undeclared	 dividends	 on	 non-equity	 shares	 (Note	 8)	 	 	 	 	 	 –	 	 494
Add	 back	 premium	 paid	 on	 redemption	 of	 redeemable	 preference	 10p	 shares	 (Note	 8)	 	 	 	 –	 	 164
Issue	 of	 shares	 	 	 	 	 	 	 	 	 34,999	 	 78,250
Share	 issue	 costs	 	 	 	 	 	 	 	 	 (2,234)	 (4,806)
Redemption	 of	 ‘B’	 ordinary	 shares	 	 	 	 	 	 	 	 –	 (16,781)
Redemption	 of	 redeemable	 preference	 10p	 shares	 	 	 	 	 	 	 –	 (16,167)
Costs	 relating	 to	 share	 incentive	 plans	 	 	 	 	 	 	 	 	 242 	 –
Net	 addition	 to	 shareholders’	 funds	 	 	 	 	 	 	 	 34,271 	 37,646
Opening	 shareholders’	 funds	 	 	 	 	 	 	 	 	 	 56,773	 19,127
Closing	 shareholders’	 funds	 	 	 	 	 	 	 	 	 91,044	 56,773
The	notes	on	pages	36	to	55	form	an	integral	part	of	these	financial	statements.
Reconciliation of Movements in  
Group Shareholders’ Funds
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1. Accounting policies
The	following	accounting	policies	have	been	applied	consistently	in	 dealing	with	items	which	are	considered	material	in	relation	to	the	 Group’s	financial	statements.	 Basis of preparation
The	 financial	 statements	 have	 been	 prepared	 on	 a	 going	 concern	 	 basis	 in	 accordance	 with	 applicable	 accounting	 standards	 and	 under	 the	 historical	 cost	 accounting	 rules,	 and	 in	 accordance	 with	 Statement	 of	 Recommended	 Practice:	 Accounting	 for	 Oil	 and	 Gas	 Exploration,	 Development,	 Production	 and	 Decommissioning	 Activities.	 The	Group	and	Company	have	taken	advantage	of	the	exemption	 contained	in	FRS	8:	Related	party	disclosures,	and	has	therefore	not	 disclosed	transactions	or	balances	with	entities	which	form	part	of	 the	Group	(or	investees	of	the	Group	qualifying	as	related	parties).
Changes in accounting policies
The	Group	has	adopted	FRS	20:	Share-based	payments,	 	 FRS	21:	Events	after	the	balance	sheet	date,	FRS	22:	Earnings	per	 share,	the	presentation	component	of	FRS	25:	Financial	Instruments:	 Disclosure	and	presentation	and	FRS	28:	Corresponding	amounts	 	 in	these	financial	statements.	The	adoption	of	each	of	these	 standards	represents	a	change	in	accounting	policy,	however,	 	 none	necessitated	the	comparative	figures	being	restated.
Basis of consolidation
The	consolidated	financial	statements	include	the	financial	 statements	of	the	Company	and	its	subsidiary	undertakings	 	 made	up	to	31	December	2005.	 In	respect	of	subsidiaries	controlled	indirectly	by	the	Company	 through	Star	Energy	Limited,	its	100%	owned	subsidiary,	the	 acquisition	method	of	accounting	has	been	adopted.	Under	this	 method,	the	results	of	subsidiary	undertakings	acquired	or	disposed	 of	in	the	year	are	included	in	the	Consolidated	Profit	and	Loss	 Account	from	the	date	of	acquisition	or	up	to	the	date	of	disposal.	 Under	 section	 230(4)	 of	 the	 Companies	 Act	 1985	 the	 Company	 	 is	 exempt	 from	 the	 requirement	 to	 present	 its	 own	 profit	 and	 	 loss	 account.	 The	Company	was	incorporated	as	Star	Energy	Group	Ltd	on	 	 24	Febuary	2004,	changed	its	name	to	Star	Energy	Group	plc	 	 and	re-registered	as	a	public	limited	company	on	4	May	2004.	 Effective	12	May	2004	the	Company	acquired	100%	of	the	 	 issued	share	capital	of	Star	Energy	Limited	by	means	of	a	 	 share-for-share	exchange.
The	share-for-share	exchange	has	been	accounted	for	in	accordance	 with	the	principles	of	merger	accounting.	As	a	result,	the	comparative	 Consolidated	Profit	and	Loss	Account	combines	the	results	of	the	 Company	with	those	of	the	Star	Energy	Limited	group	for	the	year	 ended	31	December	2004.	The	cost	of	the	investment	on	merger	 was	recorded	in	the	Company	balance	sheet	at	fair	value	at	the	time	 of	the	transaction	and,	based	upon	legal	advice	received	by	the	 directors,	a	corresponding	amount	of	share	premium	was	booked.	 The	difference	arising	on	shares	issued	has	been	recorded	as	a	 separate	merger	reserve	in	the	Group	financial	statements.
The	fair	value	of	the	consideration	other	than	the	issue	of	equity	 shares,	which	included	the	issue	of	redeemable	preference	shares,	 given	by	the	Company	in	the	share-for-share	exchange,	exceeded	 10%	of	the	nominal	value	of	the	equity	shares	issued	pursuant	to	that	 arrangement.	The	Companies	Act	1985	would	therefore	require	the	 share-for-share	exchange	to	be	accounted	for	as	an	acquisition.	In	 the	opinion	of	the	directors,	the	share-for-share	exchange	is	a	Group	 reconstruction	rather	than	an	acquisition,	since	the	shareholders	of	 the	Company	were	the	same	as	the	former	shareholders	in	Star	 Energy	Limited	and	the	rights	of	each	shareholder,	relative	to	the	 others,	were	unchanged	and	no	minority	interest	in	the	net	assets	 	 of	the	Group	is	altered.	Hence	the	shareholders	had	a	continuing	 interest	in	Star	Energy	Limited	both	before	and	after	the	share-for-
share	exchange.	Consequently,	the	directors	consider	that	to	record	 the	share-for-share	exchange	as	an	acquisition	by	the	Company,	to	 attribute	fair	values	to	the	assets	and	liabilities	of	the	Group	and	to	 reflect	only	the	post	share-for-share	exchange	results	within	these	 accounts	would	fail	to	give	a	true	and	fair	view	of	the	Group’s	results	 and	financial	position.
Accordingly,	 having	 regard	 to	 the	 overriding	 requirement	 under	 section	 227(6)	 of	 the	 Companies	 Act	 1985	 for	 the	 accounts	 to	 give	 a	 true	 and	 fair	 view	 of	 the	 Group’s	 results	 and	 financial	 position,	 the	 directors	 adopted	 merger	 accounting	 principles	 in	 drawing	 up	 these	 accounts.	 The	 directors	 consider	 that	 it	 is	 not	 practicable	 to	 quantify	 the	 effect	 of	 this	 departure	 from	 the	 Companies	 Act	 1985	 requirements.	 Investments
In	the	Company’s	financial	statements,	investments	in	subsidiary	 undertakings,	associates	and	joint	ventures	are	stated	at	cost.
Notes to the Financial Statements 	 36 	 Star	Energy	Group	plc	 Annual	Report	and	Accounts	2005	 www.starenergy.co.uk 37 	 www.starenergy.co.uk	 Annual	Report	and	Accounts	2005	 Star	Energy	Group	plc 37
1. Accounting policies continued
Consortium accounting
The	Group’s	exploration,	development	and	production	activities	are	 generally	conducted	as	co-licensee	in	joint	operations	with	other	 companies.	The	financial	statements	reflect	the	relevant	proportions	 of	production,	capital	expenditure	and	operating	costs	applicable	 	 to	the	Group’s	interest.	Where	a	Group	company	is	party	to	a	joint	 arrangement	which	is	not	an	entity,	that	company	accounts	directly	 for	its	part	of	the	income	and	expenditure,	assets,	liabilities	and	cash	 flows.	Such	arrangements	are	reported	in	the	consolidated	financial	 statements	on	the	same	basis.	 Tangible fixed assets 
The	Group	follows	the	full	cost	method	of	accounting	for	oil	and	gas	 operations.	Under	this	method	all	expenditure	in	connection	with	the	 acquisition,	exploration,	appraisal	and	development	of	oil	and	gas	 assets,	including	interest	payable,	exchange	differences	incurred	on	 borrowings	 in	 respect	 of	 development	 projects	 and	 direct	 overheads	 are	 capitalised	 and	 accumulated	 in	 full	 cost	 pools	 on	 a	 geographical	 basis.
Cost	pools	are	determined	on	the	basis	of	the	fields	possessing,	to	 	 a	significant	degree,	common	characteristics	in	at	least	one	of	the	 following	factors:	geological	area,	interdependence	of	infrastructure,	 common	environment	or	common	development	of	markets.
Any	impairment	in	the	value	of	the	cost	pool	is	charged	through	the	 profit	and	loss	account	as	additional	depletion	where	it	is	considered	 that	an	impairment	of	the	asset	value	has	occurred.
Proceeds	from	the	disposal	of	oil	and	gas	assets	are	credited	against	 the	relevant	pool.	Any	overall	surplus	arising	in	the	cost	pool	is	 credited	to	the	profit	and	loss	account.
Depletion and depreciation
Capitalised	expenditure	within	each	separate	cost	pool	is	depleted	 	 on	a	unit	of	production	basis.	The	depletion	charge	is	based	 	 on	estimates	of	proven	and	probable	reserves.	The	costs	of	 undeveloped	acreage	and	exploration	assets	are	excluded	from	 	 the	capitalised	cost	pool	to	be	depleted,	pending	determination	 	 of	the	recoverable	reserves	attributable	to	such	assets.	 Other	tangible	fixed	assets	are	stated	at	historical	cost,	net	of	 depreciation	and	any	provision	for	impairment.	Depreciation	is	 calculated	on	all	other	tangible	fixed	assets,	other	than	freehold	land,	 on	a	straight-line	basis	at	rates	calculated	to	write	off	the	cost	or	 valuation	of	those	assets,	less	estimated	residual	value,	over	its	 expected	useful	life	of	between	three	and	25	years.	 Impairment tests
Where	there	is	an	indication	that	the	value	of	an	oil	and	gas	cost	pool	 may	be	impaired,	the	net	amount	at	which	the	pool	is	recorded	is	 assessed	for	recoverability	against	the	discounted	future	estimated	 net	cash	flows	expected	to	be	generated	from	the	estimated	 remaining	commercial	reserves.	This	assessment	is	made	on	the	 basis	of	future	oil	and	gas	prices,	exchange	rates	and	cost	levels	as	 forecast	at	the	balance	sheet	date.	A	provision	is	made,	by	way	of	 	 an	additional	depletion	charge,	where	the	carrying	value	of	the	pool	 exceeds	the	discounted	future	net	cash	flows	to	be	derived	from	its	 estimated	remaining	commercial	reserves.
Decommissioning provision and asset
Licensees	have	an	obligation	to	restore	producing	fields	to	a	 condition	acceptable	to	the	relevant	authorities	at	the	end	of	their	 commercial	lives.	Under	FRS	12:	Provisions,	Contingent	Liabilities	 and	Contingent	Assets,	the	discounted	present	value	of	this	future	 cost	has	been	provided	for	and	capitalised	within	the	respective	cost	 pool.	The	capitalised	cost	is	amortised	through	the	cost	pool	on	a	 unit	of	production	basis	and	the	increase	in	the	net	present	value	of	 the	future	cost	(the	unwinding	of	the	discount)	is	included	within	 interest	payable	and	other	similar	charges.	 The	gas	storage	assets	are	considered	to	have	infinite	useful	 economic	lives	and	therefore	no	provision	is	made.	Annual	 assessments	are	conducted	to	support	the	continuation	of	 	 this	policy.	 Derivative financial instruments
The	 Group	 uses	 derivative	 financial	 instruments	 to	 reduce	 its	 exposure	 to	 fluctuations	 in	 foreign	 exchange	 rates,	 interest	 rates	 and	 movements	 in	 oil	 and	 gas	 prices.
Premiums	paid	to	enter	into	such	derivative	financial	instruments	are	 charged	to	the	profit	and	loss	account	over	the	period	of	the	hedge.	 Payments	and	receipts	arising	under	the	financial	instruments	are	 recognised	in	the	profit	and	loss	account	in	the	same	periods	as	the	 hedged	transactions.
The	Group	does	not	hold	or	issue	derivative	financial	instruments	for	 speculative	purposes	and	it	is	the	Group’s	policy	that	no	trading	in	 financial	instruments	shall	be	undertaken. 	 38 	 Star	Energy	Group	plc	 Annual	Report	and	Accounts	2005	 www.starenergy.co.uk
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1. Accounting policies continued
Foreign currencies
Transactions	in	foreign	currencies	are	recorded	using	the	rate	of	 exchange	ruling	at	the	date	of	the	transaction	or,	if	hedged	forward,	 at	the	rate	of	exchange	under	the	related	forward	currency	contract.	 Monetary	assets	and	liabilities	denominated	in	foreign	currencies	are	 translated	using	the	rate	of	exchange	ruling	at	the	balance	sheet	date.	 Exchange	gains	or	losses	on	translation	are	included	in	the	profit	and	 loss	account.
Post retirement benefits
The	Group	operates	a	defined	contribution	pension	scheme.	The	 assets	of	the	scheme	are	held	separately	from	those	of	the	Group	in	 an	independently	administered	fund.	The	amount	charged	against	 profits	represents	the	contributions	payable	to	the	scheme	in	respect	 of	the	accounting	year.
Short-term incentive plan
The	Group	operates	a	short-term	incentive	plan	for	Executive	 directors	and	other	key	managers.	Under	the	terms	of	the	plan,	 annual	awards	are	made	to	plan	participants	dependent	upon	the	 achievement	of	individual	performance	targets.	The	performance	 targets	are	determined	by	the	Remuneration	Committee	and	 reviewed	annually.	 Share-based payment
In	accordance	with	FRS	20:	Share-based	payment,	the	Group	 reflects	the	economic	cost	of	awarding	shares	and	share	options	 	 to	 employees	 by	 recording	 an	 expense	 in	 the	 profit	 and	 loss	 account	 equal	to	the	fair	value	of	the	benefit	awarded.	The	expense	is	 recognised	in	the	profit	and	loss	account	over	the	vesting	period	 	 of	the	award.
Stocks
Stocks	are	stated	at	the	lower	of	cost	and	net	realisable	value.	 Taxation
The	charge	for	taxation	is	based	on	the	result	for	the	year	and	takes	 into	account	taxation	deferred	because	of	timing	differences	between	 the	treatment	of	certain	items	for	taxation	and	accounting	purposes.
Deferred	tax	is	recognised,	without	discounting,	in	respect	of	all	 timing	differences	between	the	treatment	of	items	for	taxation	and	 accounting	purposes	which	have	arisen	but	not	reversed	by	the	 balance	sheet	date,	except	as	otherwise	required	by	FRS	19.	 Turnover
Turnover	is	derived	from	sales	of	oil	and	electricity	to	third	party	 customers	and	from	the	rental	of	gas	storage	facilities.	Forward	 contracts	are	sometimes	used	by	the	Group	to	hedge	the	price	at	 which	oil	is	sold.	In	such	circumstances	turnover	is	recorded	at	the	 actual	hedged	amount.
Turnover	relating	to	oil	is	recognised	when	the	oil	is	transferred	 	 into	customer	tanks.	Electricity	turnover	is	recognised	on	a	monthly	 basis	calculated	from	meter	readings.	Gas	storage	rental	income	 	 is	recognised	in	accordance	with	the	relevant	lease	agreement.
Gas storage
Gas	storage	facilities	are	considered	to	be	leased	to	customers	under	 operating	leases.	The	total	income	arising	over	the	duration	of	the	 contract	is	recognised	evenly	throughout	the	course	of	the	contract	 subsequent	to	the	gas	storage	asset	being	completed	and	becoming	 	 fully	operational.
Leases
Operating	leases	and	the	corresponding	rental	charges	are	charged	 to	the	profit	and	loss	account	on	a	straight-line	basis	over	the	life	of	 the	lease.
Assets	under	finance	leases	are	included	under	tangible	fixed	assets	 at	their	capital	value	and	depreciated	over	their	useful	lives.	Lease	 payments	consist	of	capital	and	finance	charge	elements,	and	the	 finance	charge	element	is	charged	to	the	profit	and	loss	account.
Emissions credits
The	Group	participates	in	the	EU	Emissions	Trading	Scheme.	This	 	 is	a	‘cap	and	trade’	scheme	under	which	organisations	are	awarded	 emissions	credits	to	cover	carbon	dioxide	emissions.	Under	this	 scheme,	the	Group	receives	an	allocation	of	emissions	credits	for	 each	calendar	year	within	a	phase.	These	emissions	credits	can	be	 used	against	carbon	dioxide	production	or	sold	either	in	the	current	 calendar	year	or	in	other	calendar	years	within	the	same	phase.	 	 The	emissions	credits	are	included	in	the	balance	sheet	as	both	 	 an	intangible	fixed	asset	and	a	government	liability,	recorded	at	the	 market	price	and	exchange	rate	prevailing	on	the	first	day	of	the	 calendar	year.	No	policy	to	revalue	or	mark-to-market	has	been	 adopted.	The	Group’s	actual	carbon	dioxide	production	against	the	 emissions	credits	allocation	for	each	year	is	reflected	in	the	profit	and	 loss	account	together	with	any	profit/loss	on	credits	sold	and	any	 cost	of	additional	credits	purchased.
Cash
Cash,	for	the	purpose	of	the	cash	flow	statement,	comprises	cash	 	 in	hand	and	deposits	repayable	on	demand,	less	overdrafts	payable 	 on	demand.
Notes to the Financial Statements continued 	 38 	 Star	Energy	Group	plc	 Annual	Report	and	Accounts	2005	 www.starenergy.co.uk 39 	 www.starenergy.co.uk	 Annual	Report	and	Accounts	2005	 Star	Energy	Group	plc 39
2 (i). Operating profit/(loss) 
	 	 	 	 	 	 	 	 	 2005	 2004 	 	 	 	 	 	 	 	 	 	 £’000	 £’000
Profit/(loss)	 on	 ordinary	 activities	 before	 taxation	 is	 stated	 after	 charging/(crediting):	 Auditors’	 remuneration:
	 Group	 (including	 company):
	 	 Audit	 –	 current	 auditors	 	 	 	 	 	 	 	 	 168	 –
	 	 	 	 	 –	 previous	 auditors	 	 	 	 	 	 	 	 	 63	 206
	 	 Fees	 paid	 to	 the	 auditor	 and	 its	 associates	 in	 respect	 of	 other	 services	 –	 previous	 auditors	 	 	 	 58	 245
	 Company	 only:
	 	 Audit	 –	 current	 auditors	 	 	 	 	 	 	 	 	 57	 –
	 	 	 	 	 –	 previous	 auditors	 	 	 	 	 	 	 	 	 58	 83
	 	 Fees	 paid	 to	 the	 auditor	 and	 its	 associates	 in	 respect	 of	 other	 services	 –	 previous	 auditors	 	 	 	 33	 58
Depletion,	 depreciation	 and	 other	 amounts	 written	 off	 tangible	 fixed	 assets:
	 	 Oil	 and	 gas	 assets	 	 	 	 	 	 	 	 	 	 	 5,697	 4,166
	 	 Other	 fixed	 assets	 –	 owned	 	 	 	 	 	 	 	 	 227	 156
	 	 Other	 fixed	 assets	 –	 leased	 	 	 	 	 	 	 	 	 12	 9
Operating	 lease	 charges:
	 	 Land	 and	 buildings	 	 	 	 	 	 	 	 	 132	 98	 	 	 Rentals	 receivable	 under	 operating	 leases	 	 	 	 	 	 	 	 (810)	 –
In	addition	to	the	fees	paid	by	the	Group	to	the	previous	auditor	in	respect	of	other	services	above,	£nil	(2004:	£300,000)	of	costs	relating	 	 to	the	admission	to	AIM	have	been	charged	to	the	share	premium	account	and	£603,000	included	in	the	costs	of	acquisition	of	Pentex	 Management	Limited.	 Included	 in	 corporate	 AIM	 admission	 and	 restructuring	 costs	 are	 £nil	 (2004:	 £906,000)	 of	 advisory	 costs	 for	 restructuring	 the	 senior	 debt	 facility	 arrangement	 and	 £nil	 (2004:	 £546,000)	 of	 costs	 in	 respect	 to	 the	 AIM	 admission.	 Included	 in	 other	 administrative	 expenses	 are	 £nil	 (2004:	 £272,000)	 relating	 to	 the	 write-down	 of	 development	 costs	 for	 the	 wind	 turbine	 project,	 and	 £nil	 (2004:	 £250,000)	 of	 other	 one-off	 professional	 advisory	 costs.
2 (ii). Segmental analysis of turnover, operating profit/(loss) and net assets
All	turnover	is	derived	from	UK	based	operations.
	 	 	 	 	 2005	 	 	 	 	 	 2004
	 Oil	 Electricity	 Gas 	 storage	 Corporate	 Group 	 Oil	 Electricity	 Gas 	 storage	 Corporate	 Group 	 	 £’000	 £’000	 £’000	 £’000	 £’000 	 £’000	 £’000	 £’000	 £’000	 £’000
Turnover	 21,885	 1,959	 810	 58	 24,712 	 15,422	 1,722	 –	 –	 17,144
Operating	 profit/(loss)	 7,002	 (15)	 (699)	 (2,649)	 3,639 	 3,731	 (395)	 (23)	 (4,661)	 (1,348)
Net	 assets	 72,993	 7,002	 68,492	 577	 148,024 	 27,946	 3,275	 14,014	 565	 45,800
3. Directors’ remuneration, staff numbers and costs
	 	 	 	 	 	 	 	 	 2005	 2004 	 	 	 	 	 	 	 	 	 	 £’000	 £’000
Directors’	 emoluments	 	 	 	 	 	 	 	 	 809	 676
Company	 contributions	 to	 pension	 schemes	 	 	 	 	 	 	 	 63	 52
Amount	 paid	 to	 former	 director	 	 	 	 	 	 	 	 	 –	 50
	 	 	 	 	 	 	 	 	 872	 778
Amount	attributable	to	the	highest	paid	director:
	 	 	 	 	 	 	 	 	 2005	 2004 	 	 	 	 	 	 	 	 	 	 £’000	 £’000
Director’s	 emoluments	 	 	 	 	 	 	 	 	 190	 163
Company	 contributions	 to	 pension	 scheme	 	 	 	 	 	 	 	 17	 14
	 	 	 	 	 	 	 	 	 207	 177
	 	 	 Number	 of	 directors
	 	 	 	 	 	 	 	 	 2005	 2004
Retirement	 benefits	 accruing	 to	 directors	 under:
Defined	 contribution	 pension	 scheme	 	 	 	 	 	 	 	 5	 4
None	of	the	directors	exercised	their	options	in	the	current	or	prior	year. 	 40 	 Star	Energy	Group	plc	 Annual	Report	and	Accounts	2005	 www.starenergy.co.uk
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3. Directors’ remuneration, staff numbers and costs continued
The	average	number	of	persons	employed	by	the	Group	(including	directors)	during	the	year,	analysed	by	category,	was	as	follows:
	 Number	 of	 employees
	 2005	 2004
	 	 	 	 	 	 	 Group	 Company 	 Group	 Company	 Technical	 	 	 	 	 	 	 	 115	 – 	 72	 –	 Administrative	 	 	 	 	 	 	 33	 9 	 	 17	 6
	 	 	 	 	 	 	 148	 9 	 	 89 	 	 	 6	 The	aggregate	payroll	costs	of	these	persons	were	as	follows:
	 2005	 2004
	 	 	 	 	 	 	 Group	 Company 	 Group	 Company	 	 	 	 	 	 	 	 £’000	 £’000	 £’000	 £’000
Wages	 and	 salaries	 	 	 	 	 	 	 4,350	 891 	 3,401	 480	 Social	 security	 costs	 	 	 	 	 	 	 480	 106 	 390	 62
Other	 pension	 costs	 	 	 	 	 	 	 306	 72 	 302	 28	 	 	 	 	 	 	 	 5,136	 1,069 	 4,093 	 	 	 620	 4. Interest receivable and similar income — Group
	 	 	 	 	 	 	 	 	 2005	 2004 	 	 	 	 	 	 	 	 	 	 £’000	 £’000
Bank	 interest	 receivable	 	 	 	 	 	 	 	 	 528	 392
Foreign	 exchange	 gains	 	 	 	 	 	 	 	 	 –	 308
	 	 	 	 	 	 	 	 	 528	 700
5. Interest payable and similar charges — Group
	 	 	 	 	 	 	 	 	 2005	 2004 	 	 	 	 	 	 	 	 	 	 £’000	 £’000
On	 bank	 loans	 and	 overdrafts	 	 	 	 	 	 	 	 	 1,035 	 526
Other	 exchange	 losses	 	 	 	 	 	 	 	 	 442	 –
Other	 interest	 payable	 and	 similar	 charges	 	 	 	 	 	 	 	 277	 562
Finance	 charges	 payable	 in	 respect	 of	 finance	 leases	 and	 hire	 purchase	 contracts	 	 	 	 	 77	 128
Unwinding	 of	 discount	 and	 effect	 of	 change	 of	 timing	 of	 decommissioning	 (Note	 18)	 	 	 	 	 277	 244
	 	 	 	 	 	 	 	 	 2,108	 1,460
Included	in	interest	payable	and	similar	charges	for	2005	is	£nil	(2004:	£219,000)	in	respect	of	the	write-off	of	arrangement	fees	in	the	course	 of	the	loan	restructuring.
6. Taxation
Analysis	of	the	Group	tax	charge	in	year:
	 	 	 	 	 	 	 	 	 2005	 2004 	 	 	 	 	 	 	 	 	 	 £’000	 £’000
UK	 Corporation	 tax	 charge:
Current	 charge	 at	 tax	 rate	 of	 40%	 	 	 	 	 	 	 	 	 760	 167
Deferred	 tax	 charge:	 	 Origination/reversal	 of	 timing	 differences	 	 	 	 	 	 	 	 35	 575
Tax	 charge	 on	 profit/(loss)	 on	 ordinary	 activities.	 	 	 	 	 	 	 795	 742
Notes to the Financial Statements continued 	 40 	 Star	Energy	Group	plc	 Annual	Report	and	Accounts	2005	 www.starenergy.co.uk 41 	 www.starenergy.co.uk	 Annual	Report	and	Accounts	2005	 Star	Energy	Group	plc 41
6. Taxation continued
Factors affecting the Group current tax charge for the current period
The	Group	records	a	current	tax	charge	for	the	period	compared	to	an	expected	tax	credit	on	the	pre-tax	profits.	The	standard	rate	of	 Corporation	tax	including	supplementary	charge	is	40%	(2004:	40%).	The	differences	are	explained	below:
	 	 	 	 	 	 	 	 	 2005	 2004 	 	 	 	 	 	 	 	 	 	 £’000	 £’000
Current	 tax	 reconciliation
Profit/(loss)	 on	 ordinary	 activities	 before	 tax	 	 	 	 	 	 	 	 2,059	 (2,108)
Current	 tax	 at	 40%	 (2004:	 40%)	 	 	 	 	 	 	 	 	 (824)	 843
	 Effects	 of:
	 Expenses	 not	 deductible	 for	 tax	 purposes	 	 	 	 	 	 	 	 (188)	 (387)
	 Depreciation	 in	 excess	 of	 capital	 allowances	 	 	 	 	 	 	 3,139	 –
	 Capital	 allowances	 in	 excess	 of	 depreciation	 	 	 	 	 	 	 –	 	 67
	 Losses	 (generated)/utilised	 	 	 	 	 	 	 	 	 	 (2,661)	 (422)
	 Interest	 not	 allowed	 for	 supplementary	 charge	 	 	 	 	 	 	 (152)	 (155)
	 Tax	 rate	 differences	 on	 profits/losses	 outside	 ring	 fence	 activities	 	 	 	 	 	 (30)	 (113)
	 Deferred	 tax	 gains	 	 	 	 	 	 	 	 	 (42)	 –
	 Loan	 relationship	 debt	 	 	 	 	 	 	 	 	 (2)	 –
Total	 current	 tax	 charge	 (see	 above)	 	 	 	 	 	 	 	 (760)	 (167)
Factors that may affect Group future tax charges
The	future	tax	charge	will	depend	on	a	number	of	factors:	the	generation	of	profits	from	oil	and	gas	activities	which	will	utilise	brought	forward	 tax	losses	in	Star	Energy	UK	Onshore	Limited;	the	mix	of	activities	going	forward	as	the	tax	rate	will	change	due	to	the	supplementary	charge	 only	affecting	oil	extraction	activities;	and	the	amount	of	non-qualifying	expenditure	incurred	and	amortised	in	the	profit	and	loss	account.
	 	 	 	 	 	 	 	 	 	 2005	 2004 	 	 	 	 	 	 	 	 	 	 £’000	 £’000
Group	 deferred	 tax	 liability
At	 beginning	 of	 year	 	 	 	 	 	 	 	 	 (1,610)	 (1,035)
Arising	 on	 acquisition	 of	 Pentex	 Management	 Limited	 (Note	 25)	 	 	 	 	 	 (8,791)	 –
Profit	 and	 loss	 charge	 for	 the	 year	 	 	 	 	 	 	 	 (35)	 (575)
At	 end	 of	 year	 	 	 	 	 	 	 	 	 (10,436)	 (1,610)
Accelerated	 capital	 allowances	 	 	 	 	 	 	 	 	 (18,374)	 (7,521)
Trade	 losses	 –	 ring	 fence	 	 	 	 	 	 	 	 	 3,240	 2,626
Trade	 losses	 –	 non	 ring	 fence	 	 	 	 	 	 	 	 	 2,001 	 790
Trade	 losses	 –	 supplementary	 charge	 	 	 	 	 	 	 	 1,027	 814
Abandonment	 provision	 	 	 	 	 	 	 	 	 2,934	 1,681
Excess	 management	 fees	 	 	 	 	 	 	 	 	 252	 –
Non-trade	 deficit	 	 	 	 	 	 	 	 	 (29)	 –
Deferred	 gains	 	 	 	 	 	 	 	 	 (315) 	 –
Decommissioning	 asset	 	 	 	 	 	 	 	 	 (1,172)	 –
	 	 	 	 	 	 	 	 	 (10,436)	 (1,610)
At	31	December	2005,	a	deferred	tax	asset	of	£6,269,000	(2004:	£4,230,000)	arising	in	relation	to	brought	forward	trading	losses	has	been	 recognised	based	on	business	projections	of	future	profits.
At	31	December	2005,	a	deferred	tax	asset	of	£566,000	(2004:	£566,000)	arising	in	relation	to	brought	forward	capital	losses	has	not	been	 recognised	in	the	balance	sheet.	This	would	be	recognised	if	the	realisation	of	capital	gains	could	be	foreseen	for	the	purposes	of	FRS	19.
At	31	December	2005,	a	deferred	tax	asset	of	£nil	(2004:	£355,000)	arising	in	relation	to	brought	forward	and	current	year	excess	 management	expenses	in	the	parent	company	has	not	been	recognised	in	the	Group	or	Company	balance	sheets.	This	would	be	recognised	 	 if	profits	in	the	parent	company	could	be	foreseen	for	the	purposes	of	FRS	19.
At	31	December	2005,	the	Company	had	a	£158,000	(2004:	£nil)	deferred	tax	asset	arising	in	relation	to	current	year	excess	management	 	 fees	and	non	trade	deficit.	This	deferred	tax	asset	has	been	recognised	based	on	business	projections	of	future	profits. 	 42 	 Star	Energy	Group	plc	 Annual	Report	and	Accounts	2005	 www.starenergy.co.uk
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7. Earnings per share (EPS)
	 	 	 	 	 	 2005	 	 	 2004
	 	 	 	 	 	 Weighted	 	 	 Weighted 	 	 	 	 	 	 	 average	 Per 	 share	 	 average	 Per 	 share	 	 	 	 	 	 Earnings	 number	 amount 	 Earnings	 number 	 	 amount 	 	 	 	 	 	 £	 of 	 shares	 Pence 	 £	 of 	 shares	 Pence
Basic	 EPS	 	 	 	 	 1,264,000	 69,261,413	 1.82 	 (3,508,000)	 51,219,990	 (6.85)	 Diluted	 EPS	 	 	 	 	 1,264,000	 69,972,958	 1.81 	 (3,508,000)	 51,219,990	 (6.85 )
The	dilutive	elements	of	the	issued	share	capital	relate	to	Share	Incentive	Plans	and	an	Approved	Share	Option	Scheme	as	detailed	within	 Share	Incentive	Plans	(Note	20).	The	calculation	of	the	diluted	EPS	assumes	all	criteria	giving	rise	to	the	dilution	of	the	EPS	are	achieved	and	 	 all	outstanding	share	options	are	exercised.
8. Share finance costs
The	directors	do	not	propose	the	payment	of	a	dividend	in	respect	of	the	year	ended	31	December	2005	(2004:	nil).	 	 	 	 	 	 	 	 	 	 2005	 2004 	 	 	 	 	 	 	 	 	 	 £’000	 £’000
Dividends	on	non-equity	share	capital
Undeclared	 cumulative	 preference	 share	 appropriation	 including	 interest	 	 	 	 	 –	 494
Premium	 paid	 on	 redemption	 of	 redeemable	 preference	 10p	 shares	 	 	 	 	 	 –	 164
	 	 	 	 	 	 	 	 	 –	 658
9. Intangible fixed assets
Group 
	 	 	 	 	 	 	 	 	 Emissions	 credits	 	 	 	 	 	 	 	 	 	 £’000
Cost	 	 At	 beginning	 of	 year	 	 	 	 	 	 	 	 	 	 –	 Additions	 	 	 	 	 	 	 	 	 	 374	 At	 end	 of	 year	 	 	 	 	 	 	 	 	 	 374	 Accumulated	 amortisation	 	 At	 beginning	 of	 year	 	 	 	 	 	 	 	 	 	 –
Charge	 for	 year	 	 	 	 	 	 	 	 	 	 169
At	 end	 of	 year	 	 	 	 	 	 	 	 	 	 169
Net	 book	 value	 at	 31	 December	 2005	 	 	 	 	 	 	 	 	 205	 Net	 book	 value	 at	 31	 December	 2004	 	 	 	 	 	 	 	 	 –	 10. Tangible fixed assets
Group 
	 	 	 	 	 	 East 	 Midlands	 Weald 	 Basin	 Gas 	 storage	 Other 	 fixed	 	 	 	 	 	 	 	 	 asset 	 pool	 asset 	 pool	 assets	 assets	 Total 	 	 	 	 	 	 	 £’000	 £’000	 £’000	 £’000	 £’000
Cost	 	 At	 beginning	 of	 year	 	 	 	 	 	 34,312	 57,002	 18,124	 3,047	 112,485	 Additions	 	 	 	 	 	 1,302	 4,820	 60,921	 468	 67,511
Acquisition	 of	 subsidiary	 undertakings	 	 	 	 	 34,149	 24,595	 –	 267	 59,011
Disposals	 and	 credits	 to	 cost	 pool	 	 	 	 	 (31)	 –	 –	 (27)	 (58)	 Reassessment	 of	 abandonment	 liabilities	 	 	 	 	 22	 (37)	 –	 –	 (15)
At	 end	 of	 year	 	 	 	 	 	 69,754	 86,380	 79,045	 3,755	 238,934
Depletion	 and	 depreciation	 	 At	 beginning	 of	 year	 	 	 	 	 	 13,623	 44,445	 246	 873	 59,187	 Charge	 for	 year	 	 	 	 	 	 3,144	 2,293	 260	 239	 5,936
Disposals	 	 	 	 	 	 	 (13)	 –	 –	 (28)	 (41)
At	 end	 of	 year	 	 	 	 	 	 16,754	 46,738	 506	 1,084 	 	 65,082
Net	 book	 value	 at	 31	 December	 2005	 	 	 	 	 53,000	 39,642	 78,539	 2,671	 173,852	 Net	 book	 value	 at	 31	 December	 2004	 	 	 	 	 20,689	 12,557	 17,878	 2,174 	 	 53,298	 Included	within	the	net	book	value	of	Weald	Basin	asset	pool	is	£490,000	(2004:	£1,080,000)	relating	to	gas	turbines,	and	within	 	 East	Midlands	asset	pool	is	£2,962,000	(2004:	£3,654,000)	relating	to	plant	and	machinery.
Notes to the Financial Statements continued 	 42 	 Star	Energy	Group	plc	 Annual	Report	and	Accounts	2005	 www.starenergy.co.uk 43 	 www.starenergy.co.uk	 Annual	Report	and	Accounts	2005	 Star	Energy	Group	plc 43
10. Tangible fixed assets continued
Net	 book	 value	 for	 gas	 storage	 assets	 includes	 assets	 under	 construction	 of	 £77,523,000	 (2004:	 £16,879,000)	 in	 respect	 of	 the	 Humbly	 Grove	 	 gas	 store	 (Star	 Energy	 HG	 Gas	 Storage	 Limited)	 and	 £1,016,000	 (2004:	 £999,000)	 in	 respect	 of	 the	 Welton	 gas	 store	 (Star	 Energy	 (East	 Midlands)	 Limited).	 Additions	 to	 gas	 storage	 assets	 in	 2005	 include	 £60,904,000	 (2004:	 £12,912,000)	 in	 respect	 of	 the	 Humbly	 Grove	 gas	 store	 (Star	 Energy	 	 HG	 Gas	 Storage	 Limited)	 and	 £17,000	 (2004:	 £317,000)	 in	 respect	 of	 the	 Welton	 gas	 store	 (Star	 Energy	 (East	 Midlands)	 Limited).
Included	within	the	net	book	value	of	other	fixed	assets	is	£1,894,000	(2004:	£1,658,000)	relating	to	land	and	buildings,	£219,000	(2004:	 £184,000)	relating	to	motor	vehicles,	£248,000	(2004:	£242,000)	relating	to	fixtures,	fittings,	tools	and	equipment,	and	£91,000	(2004:	£90,000)	 relating	to	assets	in	the	course	of	construction.	Also	included	within	other	fixed	assets	is	an	amount	of	£58,000	(2004:	£58,000)	which	relates	 to	freehold	land	on	which	no	depreciation	has	been	charged	in	2005	(2004:	£nil).
Included	in	the	total	net	book	value	of	fixed	assets	is	£817,000	(2004:	£1,323,000)	in	respect	of	assets	held	under	finance	leases	and	similar	 hire	purchase	contracts.	Depreciation	for	the	year	on	these	assets	was	£696,000	(2004:	£632,000).
Included	in	the	cost	of	tangible	fixed	assets	is	£1,735,000	(2004:	£57,000)	in	respect	of	capitalised	interest	cost.	Depreciation	for	the	year	on	 these	assets	was	£17,000	(2004:	£6,000).	Net	book	value	for	capitalised	interest	is	£1,721,000	(2004:	£37,000).
The	£15,000	(2004:	£911,000)	relating	to	the	reassessment	of	abandonment	liabilities	is	in	respect	of	a	decrease	in	the	estimated	recoverable	 reserves	which	has	reduced	the	economic	life	of	certain	fields.
Included	within	the	total	net	book	value	of	total	fixed	assets	is	£79,045,000	(2004:	£nil)	of	costs	and	£506,000	(2004:	£nil)	of	depreciation	in	 respect	of	assets	held	for	use	in	operating	leases.
As	at	the	year	end,	ceiling	tests	were	performed	in	accordance	with	FRS	11:	‘Impairment	of	Fixed	Assets	and	Goodwill’	over	a	period	of	 	 34	years.	The	results	indicate	that	there	has	been	no	impairment	and	that	the	carrying	value	of	fixed	assets	is	appropriate.	The	assumptions	 made	by	the	directors	in	performing	the	tests	were:
	 	 	 	 	 2005	 2004
Oil	 price	 	 	 	 	 $42.39	 per	 bbl	 to	 end	 of	 2006,	 $32.00 	 per	 bbl	 to	 end	 of	 2006,
	 	 	 	 	 $44.00	 per	 bbl	 in	 2007,	 $35.00	 per	 bbl	 in	 2007,
	 	 	 	 	 $40.00	 per	 bbl	 in	 2008	 and	 2009,	 inflated	 thereafter.
	 	 	 	 	 inflated	 thereafter.
Electricity	 price	 	 	 	 	 £24.77	 per	 MWhr	 £24.77	 per	 MWhr
Exchange	 rate	 	 	 	 	 £/$1.75	 £/$1.70–£/$1.85
Inflation	 rate	 	 	 	 	 3.5%	 3.5%
The	oil	price	of	$42.39	shown	for	2005	(2004:	$32.00)	is	the	average	of	hedged	and	unhedged	sales	to	the	end	of	2006	based	on	a	market	 rate	of	$50.00	(2004:	$35)	bbl.	There	are	hedges	in	place	as	shown	in	Note	17	(Financial	instruments).
11. Investments
Company
	 	 	 	 	 	 	 	 	 Shares	 in	 Group	 	 	 	 	 	 	 	 	 	 	 undertakings	 	 	 	 	 	 	 	 	 	 £’000
Fixed	 asset	 investments
Cost
At	 beginning	 of	 year	 	 	 	 	 	 	 	 	 	 60,183
Additions	 	 	 	 	 	 	 	 	 	 40,189
At	 end	 of	 year	 	 	 	 	 	 	 	 	 	 100,372 	 44 	 Star	Energy	Group	plc	 Annual	Report	and	Accounts	2005	 www.starenergy.co.uk
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11. Investments continued
The	principal	undertakings	in	which	the	Company’s	interest	at	the	year	end	is	more	than	20%	are	as	follows	(these	undertakings	are	held	 directly	by	the	Company	and	are	included	on	consolidation):
	 	 	 Class 	 and	 percentage	 	 	 Country	 of	 incorporation	 Principal	 activity	 of	 shares	 held
Subsidiary	 undertakings	 	 	 held	 by	 parent	 company:
Star	 Energy	 Limited	 	 United	 Kingdom	 Holding	 company	 100% 	 of	 ordinary	 	 	 	 of	 £1	 each
Star	 Energy	 Management	 Limited	 	 	 United 	 Kingdom	 	 Investment 	 holding	 company	 100% 	 of	 ordinary	 (formerly	 Pentex	 Management	 Limited)	 	 	 	 	 	 of	 10p	 each
Held	 by	 intermediate	 subsidiary:
Star	 Energy	 UK	 Onshore	 Limited	 	 United	 Kingdom	 Oil 	 and	 gas	 exploration,	 development	 and	 100% 	 of	 ordinary	 	 	 production,	 and	 electricity	 generation	 of	 5p	 each
Star	 Energy	 (East	 Midlands)	 Limited	 United	 Kingdom	 Oil 	 and	 gas	 exploration,	 development	 and	 100% 	 of	 ordinary	 	 	 production,	 and	 electricity	 generation	 of	 £1	 each	 Star	 Energy	 HG	 Gas	 Storage	 Limited	 United	 Kingdom	 Gas	 storage	 services	 100% 	 of	 ordinary	 	 	 	 of	 £1	 each
Star	 Energy	 Gas	 Storage	 Services	 Limited	 United 	 Kingdom	 Gas	 storage	 services	 100% 	 of	 ordinary	 	 	 	 	 of	 £1	 each
Star	 Energy	 Oil	 &	 Gas	 Limited	 	 United	 Kingdom	 Oil 	 and	 gas	 development	 and	 production	 100% 	 of	 ordinary	 (formerly	 Pentex	 Oil	 &	 Gas	 Limited)	 	 	 of	 £1	 each
Star	 Energy	 Oil	 UK	 Limited	 	 United	 Kingdom	 Oil 	 and	 gas	 development	 and	 production	 100% 	 of	 ordinary	 (formerly	 Pentex	 Oil	 UK	 Limited)	 	 	 of	 £1	 each
Star	 Energy	 Oil	 Limited	 	 United	 Kingdom	 Investment	 holding	 company	 100% 	 of	 ordinary	 (formerly	 Pentex	 Oil	 Limited)	 	 	 	 of	 10p	 each
Star	 Energy	 Holdings	 Limited	 	 United	 Kingdom	 Intermediate	 holding	 company	 100% 	 of	 ordinary	 (formerly	 Pentex	 Energy	 Limited)	 	 	 of	 1p	 each
Star	 Energy	 Employee	 Benefits	 Trust	 Jersey	 Holding 	 shares	 for	 Star	 Energy	 Employee	 	 *	 	 	 Benefit	 Scheme	 	 *	Star	Energy	Limited	controls	100%	of	assets,	liabilities	and	capital	reserve.
12. Stock
	 	 	 	 	 	 	 	 	 2005	 2004 	 	 	 	 	 	 	 	 	 	 £’000	 £’000
Oil	 stock	 	 	 	 	 	 	 	 	 251 	 160
Drilling	 materials	 	 	 	 	 	 	 	 	 110	 137
	 	 	 	 	 	 	 	 	 361	 297
13. Debtors
	 Group	 Company
	 	 	 	 	 	 	 2005	 	 2004	 2005	 	 2004	 	 	 	 	 	 	 	 £’000	 	 £’000	 £’000	 	 £’000
Trade	 debtors	 	 	 	 	 	 	 4,075	 2,162	 –	 	 –
Other	 debtors	 	 	 	 	 	 	 2,172 	 	 2,084	 168	 1	 Amounts	 owed	 by	 Group	 undertakings	 	 	 	 	 	 –	 –	 100,599	 	 36,970
Prepayments	 and	 accrued	 income	 	 	 	 	 	 	 1,871	 2,144	 51	 25
	 	 	 	 	 	 	 8,118 	 6,390	 100,818	 	 36,996	 Included	 in	 Other	 debtors	 relating	 to	 the	 Group	 are	 amounts	 due	 from	 joint	 venture	 partners	 in	 joint	 ventures	 that	 are	 not	 entities	 totalling	 £1,050,000	 (2004:	 £68,000)	 in	respect	of	VAT,	time	writing	and	short-term	financing.
Included	in	Other	debtors	relating	to	the	Company	is	£158,000	(2004:	£nil)	deferred	tax	debtor.
All	debtors	fall	due	within	one	year.
Notes to the Financial Statements continued 	 44 	 Star	Energy	Group	plc	 Annual	Report	and	Accounts	2005	 www.starenergy.co.uk 45 	 www.starenergy.co.uk	 Annual	Report	and	Accounts	2005	 Star	Energy	Group	plc 45
14. Creditors: amounts falling due within one year
	 Group	 Company
	 	 	 	 	 	 	 2005	 	 2004	 2005	 	 2004	 	 	 	 	 	 	 	 £’000	 	 £’000	 £’000	 	 £’000
Bank	 loans	 and	 overdrafts	 	 	 	 	 	 	 13,146	 –	 13,146	 	 –
Obligations	 under	 finance	 leases	 and	 HP	 contracts	 	 	 	 	 617	 	 971	 –	 –	 Trade	 creditors	 	 	 	 	 	 	 14,855	 1,584 	 	 15	 	 5
Amount	 owed	 by	 Group	 undertaking	 	 	 	 	 	 –	 –	 7,962	 –
Other	 creditors	 	 	 	 	 	 	 182	 	 5,885	 –	 	 	 –
Taxation	 and	 social	 security	 	 	 	 	 	 	 188	 	 158	 33	 	 36
UK	 Corporation	 tax	 	 	 	 	 	 	 1,663	 164	 –	 –
Accruals	 and	 deferred	 income	 	 	 	 	 	 	 	 2,332	 582	 282	 98
	 	 	 	 	 	 	 	 32,983	 9,344	 21,438	 	 139	 15. Creditors: amounts falling due after more than one year
	 Group	 Company
	 	 	 	 	 	 	 2005	 	 2004	 2005	 	 2004	 	 	 	 	 	 	 	 £’000	 	 £’000	 £’000	 	 £’000
Bank	 loans	 (secured)	 	 	 	 	 	 	 	 57,612	 –	 57,612	 	 –
Obligations	 under	 finance	 leases	 and	 HP	 contracts	 	 	 	 	 81	 	 413	 –	 –	 	 	 	 	 	 	 	 57,693	 413 	 	 57,612	 	 –
Analysis	 of	 debt:	 	 	 	 	 	 	 Debt	 can	 be	 analysed	 as	 falling	 due:	 	 	 	 	 Within	 one	 year	 or	 on	 demand		 	 	 	 	 	 13,763	 971 	 13,146 	 –
	 Between	 one	 and	 two	 years	 	 	 	 	 	 	 12,360 	 413	 12,279	 –
	 Between	 two	 and	 five	 years	 	 	 	 	 	 	 39,257	 –	 39,257	 	 –
	 In	 five	 years	 or	 more	 	 	 	 	 	 	 7,548 	 – 	 7,548 	 –
	 	 	 	 	 	 	 72,928	 1,384	 72,230	 –
Security	is	given	for	all	debt	falling	due	within	one	year	and	after	more	than	one	year.	There	are	fixed	and	floating	charges	over	the	assets	of	 	 the	Group	relative	to	the	total	amount	of	debt	outstanding,	with	mortgages	over	the	shares	of	the	subsidiaries,	and	cross	guarantees	between	 	 all	Group	companies	with	the	exception	of	Star	Energy	Gas	Storage	Services	Limited	and	Star	Energy	Employee	Benefits	Trust.
Please	refer	to	Note	17	(Financial	instruments)	for	loan	facility	available	but	undrawn	at	year	end.
Netted	off	against	the	liability	in	the	creditors	amounts	is	£1,473,000	(2004:	£nil)	which	relates	to	the	arrangement	cost	of	debt.	In	2004,	 arrangement	fees	of	£791,000	were	included	within	Other	debtors	due	to	the	loan	not	being	drawn	down.
16. Obligations under finance leases and hire purchase contracts
	 Group	 Company
	 	 	 	 	 	 	 2005	 	 2004	 2005	 	 2004	 	 	 	 	 	 	 	 £’000	 	 £’000	 £’000	 	 £’000
Amounts	 payable	 	 Within	 one	 year	 	 	 	 	 	 	 617	 	 971	 –	 –	 In	 second	 to	 fifth	 years	 exclusive	 	 	 	 	 	 	 81	 413 	 	 –	 	 –
	 	 	 	 	 	 	 698	 1,384	 –	 	 – 	 46 	 Star	Energy	Group	plc	 Annual	Report	and	Accounts	2005	 www.starenergy.co.uk
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17. Financial instruments
The	Financial	Review	provides	an	explanation	of	the	role	that	financial	instruments	have	had	during	the	year.	The	explanation	summarises	the	 Group’s	policies	for	holding	or	issuing	financial	instruments.	The	strategies	for	achieving	these	policies	have	been	followed	during	the	year.
The	principal	external	factors	affecting	the	Group’s	results,	which	are	reported	in	sterling,	are	the	price	of	oil,	which	is	denominated	in	 	 US	dollars,	the	sterling/US	dollar	exchange	rate,	the	sterling/euro	exchange	rate,	and	the	interest	rate.
Commodity risk
The	Group’s	objective	is	to	protect	its	exposure	to	falls	in	the	oil	price	by	entering	into	hedge	contracts.	The	effect	of	current	and	future	 hedging	arrangements	are	outlined	in	section	(v)	of	this	note.	The	Group’s	policy	is	to	protect	a	percentage	of	the	oil	produced.
Currency risk
The	Group’s	objective	is	to	protect	its	exposure	to	the	fluctuations	of	the	US	dollar	to	sterling,	although	no	amounts	were	sold	forward	at	 	 31	December	2005	(2004:	the	Group	had	sold	forward	$1.75	million	per	month	for	2005	at	an	average	rate	of	$1.8671).	 Interest rate risk
To	mitigate	the	Group’s	exposure	to	increases	in	interest	rates	the	Group	entered	into	a	hedging	agreement	to	fix	the	interest	rate	at	7.535%	for	 75%	of	the	debt	outstanding	under	the	senior	debt	facility	of	£57.5	million	for	the	Gas	Storage	project.	This	is	in	place	until	December	2008.
The	numerical	disclosures	in	this	note	deal	with	financial	assets	and	liabilities	as	defined	by	FRS	13	‘Derivatives	and	Other	Financial	 Instruments:	Disclosures’.	As	permitted	by	FRS	13,	short-term	debtors	and	creditors	have	been	excluded	from	certain	disclosures.
With	the	exception	of	the	above,	the	Group	has	no	material	financial	assets	other	than	short-term	debtors	and	cash,	and	no	financial	liabilities	 other	than	short-term	creditors,	bank	loans	and	overdrafts	and	finance	lease	obligations.	There	are	no	material	differences	between	 	 the	carrying	amounts	of	the	financial	assets	and	liabilities	and	their	fair	values,	with	the	exception	of	hedging	instruments	as	disclosed	in	 	 Note	17	(v).
(i) Interest rate profile
The	interest	rate	profile	of	the	Group’s	financial	assets	and	liabilities	at	31	December	2005	was	as	follows:
	 	 	 	 	 	 	 	 Sterling 	 	 Euro	 US$	 Total	 	 	 	 	 	 	 	 £’000	 £’000	 £’000	 £’000
Cash	 at	 bank	 at	 floating	 interest	 rate	 	 	 	 	 	 16,154	 7	 –	 16,161
Cash	 at	 bank	 on	 which	 no	 interest	 is	 received		 	 	 	 	 1,068	 –	 54 	 	 1,122
Fixed	 rate	 debt	 	 	 	 	 	 	 (698)	 –	 – 	 	 (698)
Floating	 rate	 debt	 	 	 	 	 	 	 (72,230)	 –	 –	 (72,230)
Net	 (debt)/cash	 	 	 	 	 	 	 (55,706)	 7	 54	 (55,645)
The	profile	at	31	December	2004	for	comparison	purposes	was	as	follows:
	 	 	 	 	 	 	 Sterling 	 	 Euro	 US$	 Total 	 	 	 	 	 	 	 	 £’000	 £’000	 £’000	 £’000
Cash	 at	 bank	 at	 floating	 interest	 rate	 	 	 	 	 	 4,904	 7,290	 –	 12,194
Cash	 at	 bank	 on	 which	 no	 interest	 is	 received		 	 	 	 	 126	 –	 37 	 	 163
Fixed	 rate	 debt	 	 	 	 	 	 	 (1,384)	 –	 – 	 	 (1,384)
Floating	 rate	 debt	 	 	 	 	 	 	 –	 –	 –	 –
Net	 cash	 	 	 	 	 	 	 3,646	 7,290	 37	 10,973
Cash	at	bank	floating	rate	consisted	of	deposits	which	earn	interest	at	rates	set	in	advance	from	periods	ranging	from	one	night	to	one	month	 by	reference	to	sterling	or	US	dollars	LIBOR.
Floating	rate	debt	comprises	bank	borrowing	at	interest	rates	fixed	in	advance	from	overnight	up	to	a	maximum	of	six	months	at	rates	 determined	by	sterling	LIBOR.	The	effect	of	the	interest	rate	hedge	was	to	increase	interest	paid	by	£277,000	(2004:	£7,000).
Fixed	rate	debt	consists	of	obligations	under	finance	leases	and	hire	purchase	contracts	at	rates	set	at	the	inception	of	the	contracts.	 	 The	average	interest	rate	on	these	contracts	for	the	year	is	4.601%	(2004:	6.324%).
Notes to the Financial Statements continued 	 46 	 Star	Energy	Group	plc	 Annual	Report	and	Accounts	2005	 www.starenergy.co.uk 47 	 www.starenergy.co.uk	 Annual	Report	and	Accounts	2005	 Star	Energy	Group	plc 47
17. Financial instruments continued
(ii) Currency risk disclosures
Wherever	possible	the	Group	conducts	and	manages	its	business	in	sterling,	euro,	and	US	dollars.
The	currency	risk	disclosures	at	31	December	2005	are	as	follows:
	 	 	 	 	 	 	 	 	 Euro	 US$	 Total	 	 	 	 	 	 	 	 	 £’000	 £’000	 £’000
Cash	 	 	 	 	 	 	 	 6	 53	 59
Debtors	 	 	 	 	 	 	 	 198	 3,703 	 	 3,901
Creditors	 	 	 	 	 	 	 	 1	 308 	 	 309
	 	 	 	 	 	 	 	 205	 4,064	 4,269
The	currency	risk	disclosures	at	31	December	2004	were	as	follows:
	 	 	 	 	 	 	 	 	 Euro	 US$	 Total 	 	 	 	 	 	 	 	 	 £’000	 £’000	 £’000
Cash	 	 	 	 	 	 	 	 7,290	 37	 7,327
Debtors	 	 	 	 	 	 	 	 –	 2,028 	 	 2,028
Creditors	 	 	 	 	 	 	 	 (13)	 (247) 	 	 (260)
	 	 	 	 	 	 	 	 7,277	 1,818	 9,095
(iii) Maturity of financial liabilities
The	maturity	of	financial	liabilities	at	31	December	2005	is	shown	in	Note	15.	All	financial	liabilities	are	shown	in	sterling.
(iv) Undrawn committed borrowing facility
The	maximum	debt	availability	under	the	credit	facility	is	determined	semi-annually	by	reference	to	the	net	present	value	of	the	assets,	 	 using	various	technical	and	economic	assumptions,	subject	to	inclusion	under	the	credit	facility	as	well	as	certain	other	financial	tests.	 	 At	31	December	2005	the	maximum	debt	available	was	£77.5	million	(2004:	£57.5	million).
This	credit	facility	incurs	a	commitment	fee	for	undrawn	balances	0.6%	and	interest	on	outstanding	debt	at	LIBOR	plus	2%.	The	outstanding	 debt	is	repayable	in	variable	amounts	(determined	semi-annually)	until	the	Humbly	Grove	gas	storage	facility	achieves	technical	completion	as	 defined	by	the	credit	facility	agreement.	This	was	not	achieved	prior	to	31	December	2005.	Thereafter	the	interest	rate	will	be	LIBOR	plus	 1.75%	until	final	maturity	on	31	December	2012	or	earlier	if	the	debt	has	been	repaid.	The	credit	facility	is	hedged	for	75%	of	the	interest	 exposure	to	sterling	LIBOR	at	a	rate	of	7.535%,	based	on	the	expected	borrowings	for	the	life	of	the	facility	until	31	December	2008.
The	maturity	of	the	undrawn	committed	borrowing	facility	at	31	December	2005	is	as	follows:
	 	 	 	 	 	 	 	 	 2005	 2004 	 	 	 	 	 	 	 	 	 	 £’000	 £’000
Within	 one	 year	 	 	 	 	 	 	 	 	 959 	 –
After	 one	 but	 within	 two	 years	 	 	 	 	 	 	 	 	 896	 10,063
After	 two	 years	 but	 within	 five	 years	 	 	 	 	 	 	 	 2,864	 26,162
After	 more	 than	 five	 years	 	 	 	 	 	 	 	 	 551	 21,275
	 	 	 	 	 	 	 	 	 5,270	 57,500
(v) Derivative financial instruments
The	Group	policy	is	such	that:
10%	of	production	should	remain	unhedged	or	hedged	on	an	uncapped	basis	(a	put	option)	at	all	times	during	the	year	in	question;	 in	any	three-year	period,	a	minimum	of	40%	of	annual	production	for	each	of	the	three	years	should	be	subject	to	hedging;	and
the	maximum	percentage	of	forecasted	production	subject	to	hedges	is:
	 	 	 	 	 	 	 	 Fixed	 (swap)	 and	 	 	 	 	 	 	 	 	 Fixed	 price	 hedge	 capped 	 (collar)	 hedges	 Number	 of	 years	 ahead	 	 	 	 	 	 	 (% 	 of	 forecasted	 production)	 (% 	 of	 forecasted	 production)
One	 	 	 	 	 	 	 75	 90	 Two	 	 	 	 	 	 	 	 50	 75	 Three	 	 	 	 	 	 	 25	 	 60
•
•
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17. Financial instruments continued
Prior	to	1	January	2005,	the	Group	entered	into	oil	price	swaps	for	2005	(based	on	Dated	Brent)	covering	820,000	bbl	at	an	average	fixed	 price	of	$28.00	per	barrel.	In	addition,	the	Group’s	acquisition	during	2005	of	Pentex	Management	Limited	(see	Note	25)	gave	rise	to	further	 	 oil	price	swaps	for	2005	which	were	committed	to	prior	to	acquisition	of	168,387	bbl	at	an	average	fixed	price	of	$44.75.	Overall,	the	oil	price	 included	in	profits	for	2005	reduced	turnover	by	£13.5	million	(2004:	£7.8	million)	and	reduced	for	the	year	average	revenues	by	$11.63	 (2004:	$12.91)	per	barrel.	Further	swaps	have	been	entered	into	for	2006	to	2008	as	detailed	below:
	 	 	 	 	 	 	 	 	 As	 at	 	 	 	 	 	 	 	 	 	 	 31 	 December	 	 	 	 	 	 	 	 	 	 	 2005	 Average	 price	 Period	 	 	 	 	 	 	 	 	 bbl	 $/bbl
2006	 	 	 	 	 	 	 	 	 1,142,000 	 37.47
2007	 	 	 	 	 	 	 	 	 949,000 	 39.86
Derivative	financial	instruments	held	at	the	year	end	to	manage	its	exposure:
	 	 	 	 	 	 2005	 	 	 2004 	 	 	 	 	 	 	 	Unrecognised 	 	 	 Unrecognised	 	 	 	 	 	 	 Book	 value	 Fair 	 value	 gain/(loss) 	 Book 	 value	 Fair 	 value	 gain/(loss)	 	 	 	 	 	 	 £’000	 £’000	 £’000 	 £’000	 £’000	 £’000
Oil	 swaps	 	 	 	 	 –	 (25,968)	 (25,968) 	 –	 (11,788)	 (11,788)	 Currency	 exchange	 	 	 	 	 	 –	 –	 – 	 –	 267	 267
Interest	 rate	 	 	 	 	 –	 (1,164)	 (1,164) 	 –	 (1,058)	 (1,058)
Total	 	 	 	 	 –	 (27,132)	 (27,132) 	 –	 (12,579)	 (12,579)
Of	 which:
Expected	 to	 be	 recognised	 in	 2005	 	 	 	 	 	 – 	 	 	 (5,278)
Expected	 to	 be	 recognised	 in	 2006	 	 	 	 	 	 (14,528) 	 	 	 (3,892)
Expected	 to	 be	 recognised	 in	 2007	 	 	 	 	 	 (12,216)	 	 	 (3,189)
Expected	 to	 be	 recognised	 in	 2008	 	 	 	 	 	 (383) 	 	 	 (220)
Total	 	 	 	 	 	 	 (27,132) 	 	 	 (12,579)
18. Provisions for liabilities and charges
Decommissioning provision — Group
	 	 	 	 	 	 	 	 	 2005	 2004 	 	 	 	 	 	 	 	 	 	 £’000	 £’000
At	 beginning	 of	 year	 	 	 	 	 	 	 	 	 4,202 	 4,985
Acquisition	 of	 subsidiary	 undertakings	 	 	 	 	 	 	 	 3,131	 –
Charge	 for	 the	 year:
Unwinding	 of	 discount	 	 	 	 	 	 	 	 	 277	 244
Reassessment	 of	 abandonment	 liabilities	 	 	 	 	 	 	 	 (15)	 (911)
Effect	 of	 change	 in	 timing	 of	 abandonment	 	 	 	 	 	 	 	 161	 –
Abandoned	 field	 	 	 	 	 	 	 	 	 (93)	 (40)
Write-back	 of	 over-provision	 of	 abandoned	 field	 	 	 	 	 	 	 –	 (76)
At	 end	 of	 year	 	 	 	 	 	 	 	 	 7,663	 4,202
Deferred	 tax	 provision	 –	 Group	 (Note	 6)	 	 	 	 	 	 	 	 10,436 	 1,610
	 	 	 	 	 	 	 	 	 18,099 	 5,812
Provision	has	been	made	for	the	discounted	future	cost	of	restoring	producing	fields	to	a	condition	acceptable	to	the	relevant	authorities.	 	 The	abandonment	of	the	fields	is	expected	to	happen	in	one	to	31	years.
The	£15,000	(2004:	£911,000)	relating	to	the	reassessment	of	abandonment	liabilities	is	in	respect	of	a	decrease	in	the	estimated	recoverable	 reserves	which	has	reduced	the	economic	life	of	certain	fields.
Notes to the Financial Statements continued 	 48 	 Star	Energy	Group	plc	 Annual	Report	and	Accounts	2005	 www.starenergy.co.uk 49 	 www.starenergy.co.uk	 Annual	Report	and	Accounts	2005	 Star	Energy	Group	plc 49
19. Called up share capital
	 	 	 	 	 	 	 	 	 2005	 2004
Authorised
142,000,000	 ordinary	 10p	 shares	 	 	 	 	 	 	 	 	 14,200,000	 14,200,000
	 	 	 	 	 	 	 	 	 14,200,000	 14,200,000
Authorised	 and	 issued
Equity:
	 Ordinary	 shares	 of	 10p	 each	 at	 beginning	 of	 year	 	 	 	 	 	 	 6,024,876 	 –
	 Conversion	 of	 352,144	 ‘A’	 ordinary	 £1	 shares	 to	 3,521,440	 ordinary	 10p	 shares	 	 	 	 	 –	 352,144
	 Conversion	 of	 1,204,173	 ‘B’	 ordinary	 £1	 shares	 to	 12,041,730	 ordinary	 10p	 shares	 	 	 	 –	 1,204,173
	 Issue	 of	 44,685,592	 ordinary	 shares	 of	 10p	 each	 	 	 	 	 	 	 –	 4,468,559
	 Issue	 of	 19,125,684	 ordinary	 shares	 of	 10p	 each	 	 	 	 	 	 	 1,912,568	 –
	 Ordinary	 shares	 of	 10p	 each	 at	 end	 of	 year	 	 	 	 	 	 	 7,937,444	 6,024,876
	 352,144	 ‘A’	 ordinary	 shares	 of	 £1	 each	 at	 beginning	 of	 year	 	 	 	 	 	 –	 352,144
	 Conversion	 of	 352,144	 ‘A’	 ordinary	 £1	 shares	 to	 3,521,440	 ordinary	 10p	 shares	 	 	 	 	 –	 (352,144)
	 ‘A’	 ordinary	 £1	 shares	 at	 end	 of	 year	 	 	 	 	 	 	 	 –	 –
	 3,169,300	 ‘B’	 redeemable	 preferred	 ordinary	 shares	 of	 £1	 each	 at	 beginning	 of	 year	 	 	 	 –	 3,169,300
	 Conversion	 of	 1,204,173	 ‘B’	 redeemable	 preferred	 ordinary	 shares	 	 	 	 	 	 –	 (1,204,173)
	 Redemption	 of	 1,965,127	 ‘B’	 redeemable	 preferred	 ordinary	 shares	 	 	 	 	 	 –	 (1,965,127)
	 ‘B’	 redeemable	 preferred	 ordinary	 shares	 at	 end	 of	 year	 	 	 	 	 	 –	 –
Non-equity:
	 Redeemable	 preference	 shares	 of	 10p	 each	 at	 beginning	 of	 year	 	 	 	 	 	 –	 1,128,781
	 500,000	 redeemable	 preference	 shares	 of	 10p	 each	 	 	 	 	 	 	 –	 50,000
	 Bonus	 issue	 of	 4,829,180	 redeemable	 preference	 shares	 of	 10p	 each	 	 	 	 	 –	 482,918
	 Redemption	 of	 16,616,990	 redeemable	 preference	 shares	 of	 10p	 each	 	 	 	 	 –	 (1,661,699)
	 Redeemable	 preference	 shares	 of	 10p	 each	 at	 end	 of	 year	 	 	 	 	 	 –	 –
	 	 	 	 	 	 	 	 	 7,937,444 	 6,024,876
The	Company	was	incorporated	on	24	February	2004	with	the	name	Star	Energy	Group	Limited	as	a	private	company	limited	by	shares,	 	 and	was	re-registered	as	a	public	company	on	4	May	2004	to	permit	the	Company’s	admission	to	AIM.	At	incorporation,	the	Company	had	 authorised	share	capital	of	£2	consisting	of	two	ordinary	shares	of	£1	each.
Under	the	terms	of	a	re-organisation	agreement	dated	4	May	2004,	and	subject	to	the	Company’s	admission	to	AIM,	the	shareholders	of	 	 Star	Energy	Limited	agreed	to	a	share-for-share	exchange	in	shares	of	the	Company.	The	share-for-share	exchange	required	the	share	 	 capital	structures	of	the	Company	and	Star	Energy	Limited	to	mirror	each	other	immediately	prior	to	the	Company’s	admission	to	AIM,	 	 and	necessitated	the	following	steps	for	this	to	be	achieved:
Dividends	and	interest	accrued	but	unpaid	to	date	amounting	to	£4,829,180	in	respect	of	the	redeemable	preference	shares	in	Star	Energy	 Limited	were	capitalised	by	way	of	a	bonus	issue	of	4,829,180	redeemable	preference	shares	with	a	nominal	of	10p	each,	£1	paid.	 A	further	500,000	redeemable	preference	shares	in	Star	Energy	Limited	were	issued	with	a	nominal	and	paid	value	of	10p	to	mirror	the	 legal	minimum	share	capital	required	in	the	Company,	with	the	funds	being	credited	to	the	Company.
On	4	May	2004,	the	Company’s	shareholders	approved	the	increase	in	the	authorised	share	capital	from	£2	to	£5,183,143.10	to	reflect	the	 share	matching.	 Immediately	prior	to	the	Company’s	admission	to	AIM,	both	the	Company	and	Star	Energy	Limited	had	share	capital	structures	comprising	 352,144	‘A’	ordinary	£1	shares,	3,169,300	‘B’	redeemable	preferred	£1	ordinary	shares,	and	16,616,991	redeemable	preference	10p	shares,	 totalling	£5,183,143.10.	 •
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19. Called up share capital continued
Contingent	upon	the	Company’s	admission	to	AIM,	the	following	share	transactions	were	approved	by	the	Company’s	shareholders	on	 	 4	May	2004:
The	authorised	share	capital	of	the	Company	was	increased	from	£5,183,143	to	£14,200,000	by	the	creation	of	an	additional	90,168,569	 ordinary	shares	of	10p	each.
An	additional	44,685,592	ordinary	shares	were	issued	at	£1.75	per	share	in	connection	with	the	admission	to	AIM.
The	new	articles	of	association	of	Star	Energy	Group	Limited	contain	an	agreement	between	the	shareholders	whereby	the	proportion	 	 in	issue	of	‘A’	ordinary	shares	to	the	total	ordinary	shares	of	Star	Energy	Group	Limited	is	increased	in	a	prescribed	method	through	the	 redemption	of	‘B’	redeemable	preferred	ordinary	shares	upon	an	exit	event,	as	defined	by	the	articles	but	including	an	admission	of	the	 business	to	AIM,	occurring	for	the	‘B’	redeemable	preferred	ordinary	shareholders.	In	accordance	with	the	article’s	prescribed	method,	 1,062,505	‘B’	redeemable	preferred	ordinary	shares	in	the	Star	Energy	Group	Limited	were	redeemed	at	£1	each	from	the	proceeds	of	 	 the	new	issue	of	shares.
902,622	‘B’	redeemable	preferred	ordinary	shares	were	redeemed	out	of	the	proceeds	of	the	issue	of	the	new	shares	at	a	total	price	 	 of	£15,718,431.
1,204,173	‘B’	redeemable	preferred	ordinary	shares	were	sub-divided	into	12,041,730	ordinary	shares	of	10p	each.
352,144	‘A’	ordinary	£1	shares	were	sub-divided	into	3,521,440	ordinary	shares	of	10p	each.
16,116,991	redeemable	preference	10p	shares	were	redeemed	at	£1	per	share	out	of	the	proceeds	of	the	issue	of	the	new	shares.
500,000	redeemable	preference	10p	shares	were	redeemed	at	10p	per	share	out	of	the	proceeds	of	the	issue	of	new	shares	to	reimburse	 the	redeemable	preference	shareholders	for	the	funds	contributed	to	Star	Energy	Group	Limited	by	way	of	minimum	share	capital.
The	Company	was	admitted	to	AIM	on	12	May	2004	with	an	issued	share	capital	of	60,248,762	10p	ordinary	shares.
On	8	August	2005,	the	Group	placed	a	further	19,125,684	ordinary	shares	of	10p	each	for	a	gross	consideration	of	£35,000,000.	These	shares	 rank	pari	passu	with	those	already	in	issue.	 	 	 	 	 	 	 	 	 	 2005	 2004
Allotted,	 called	 up	 and	 fully	 paid
Equity:	 Ordinary	 shares	 of	 10p	 each	 	 	 	 	 	 	 	 7,937,444 	 6,024,876
The	ordinary	shares	confer	the	right	to	vote	at	general	meetings	of	the	Company,	to	a	repayment	of	capital	in	the	event	of	liquidation	or	winding	 up	and	certain	other	rights	as	set	out	in	the	Company’s	articles	of	association.
The	ordinary	shares	also	confer	the	right	to	receive	dividends	if	declared	by	the	directors	and	approved	by	the	Company.
20. Share incentive plans
During	the	period	ended	31	December	2005,	the	Company	operated	two	Share	Incentive	Plans,	The	Approved	Share	Option	Scheme	and	the	 Long-Term	Incentive	Plan	(LTIP).	The	following	share	options	and	share	awards	have	been	granted	under	these	schemes:
	 	 	Outstanding 	 at	 Granted	 	 	Outstanding 	 at	 	 	 Additional	 	 	 	 1 	 January	 during	 	 	 31 	 December	 	 Exercise	 vesting 	 	 Date	 granted	 2005	 the 	 period	 Exercised	 Forfeited	 2005	 Exercisable 	 from/to	 price	 conditions
Approved	 Share		 	 Option	 Scheme
Options	 	 3	 Dec	 2004	 778,333	 –	 –	 15,000	 763,333	 3 	 Dec	 2007	 to	 	 185p	 None 	 	 	 	 	 	 	 	 2	 Dec	 2014
Options	 2	 Dec	 2005	 –	 449,773	 –	 –	 449,773	 2 	 Dec	 2008	 to	 276p	 None 	 	 	 	 	 	 	 	 1	 Dec	 2015
Long-Term	 	 Incentive	 Plan
‘Tranche	 1’	 	 11 	 Oct	 2005	 –	 263,775	 –	 –	 263,775	 1	 Sept	 2008	 –	 TSR 	 restricted	 	 	 	 	 	 	 	 	 performance	 share	 awards	 	 	 	 	 	 	 	 	 condition
	 ‘Tranche	 2’	 	 11	 Oct	 2005	 –	 263,775	 –	 –	 263,775	 	 1 	 Sept	 2009	 –	 TSR 	 restricted	 	 	 	 	 	 	 	 	 	 performance	 share	 awards	 	 	 	 	 	 	 	 	 	 condition
•
•
•
•
•
•
•
•
Notes to the Financial Statements continued 	 50 	 Star	Energy	Group	plc	 Annual	Report	and	Accounts	2005	 www.starenergy.co.uk 51 	 www.starenergy.co.uk	 Annual	Report	and	Accounts	2005	 Star	Energy	Group	plc 51
20. Share incentive plans continued
The	Total	Shareholder	Return	(TSR)	performance	conditions	of	the	LTIP	are	as	follows:
First	Tranche	shares	can	vest	at	the	end	of	a	three	year	performance	period	commencing	1	September	2005.	If	the	Company’s	TSR	 	 is	in	the	top	quartile	of	companies	in	the	FTSE	Small	Cap	Index	(‘the	Index’),	the	full	number	of	First	Tranche	shares	will	be	received.	For	 performance	between	median	and	upper	quartile,	vesting	will	occur	on	a	straight-line	basis	so	that	25%	of	the	First	Tranche	shares	are	 received	for	median	performance	and	full	vesting	occurs	for	top	quartile	performance.	No	shares	will	be	received	if	the	Company’s	TSR	 	 is	below	the	median	in	that	index.
Receipt	of	the	Second	Tranche	shares	are	subject	to	the	same	conditions	other	than	that	performance	is	measured	over	a	four	year	period	 beginning	on	1	September	2005,	and	no	shares	can	be	received	until	the	end	of	that	period.
Fair value of options
Inputs to the valuation model
The	fair	values	of	awards	granted	under	the	Approved	Share	Option	Scheme	and	the	LTIP	have	been	calculated	using	a	variation	of	the	 binomial	option	pricing	model	that	takes	into	account	factors	specific	to	share	incentive	plans	such	as	the	vesting	periods	of	the	two	Share	 Incentive	Plans,	the	expected	dividend	yield	on	the	Company’s	shares	and	expected	early	exercise	of	share	options.	The	TSR	performance	 condition	attached	to	the	LTIP	has	been	incorporated	into	the	measurement	of	the	fair	value	by	means	of	actuarial	modelling.	The	following	 principal	assumptions	were	used	in	the	valuation.
	 	 Approved	 Share	 	 Performance	 	 Option	 Scheme	 Share	 Plan
Grant	 date	 	 	 	 3	 Dec	 2004	 2 	 Dec	 2005	 11 	 Oct	 2005	 11 	 Oct	 2005
Share	 price	 at	 date	 of	 grant	 	 	 	 185p	 276p	 260p	 260p
Exercise	 price	 	 	 	 185p	 276p	 –	 –
Volatility	 	 	 	 30%	 30%	 30%	 30%
Option	 life	 	 	 	 10	 years	 10 	 years	 3 	 years	 4 	 years
Dividend	 yield	 	 	 	 0%	 0%	 0%	 0%
Risk-free	 investment	 rate	 	 	 	 4.5%	 4.5%	 4.5%	 4.5%
Employee	 turnover	 	 	 	 10%	 15%	 5%	 7%
Volatility	has	been	based	on	the	following:
(i)	 The	annualised	volatility	of	the	Company’s	shares	since	its	flotation	on	the	AIM	market.
(ii)	 The	volatility	of	comparable	listed	companies	in	the	oil	and	gas	sector,	based	on	historical	share	price	information	from	the	London	 Business	School	for	a	ten	year	period	dating	back	to	1995.
Based	on	the	above	assumptions,	and	after	allowing	for	the	effects	of	the	TSR	performance	criteria,	the	fair	values	of	the	options	granted	are	 estimated	to	be:
	 Approved	 Share	 	 	 Performance	 	 Option	 Scheme	 	 Share	 Plan
Grant	 date	 	 	 	 	 3 	 Dec	 2004	 	 2 	 Dec	 2005	 11 	 Oct	 2005	 11 	 Oct	 2005
Fair	 value	 68p	 102p	 153p	 171p
Expense arising from share-based payments
Based	on	the	above	fair	values	and	the	Company’s	expectations	of	employee	turnover,	the	expense	arising	from	equity-settled	share	options	 and	share	awards	made	to	employees	was	£242,213	(comprising	the	2005	charge	of	£228,897	and	an	immaterial	2004	charge	of	£13,316)	for	 the	period	(2004:	£nil).	There	were	no	other	share-based	payment	transactions. 	 52 	 Star	Energy	Group	plc	 Annual	Report	and	Accounts	2005	 www.starenergy.co.uk
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21. Share premium and reserves
Group
	 	 	 	 	 	 	 	 Merger 	 	 Share	 Profit 	 	 	 	 	 	 	 	 	 reserve	 premium	 and 	 loss	 	 	 	 	 	 	 	 	 account	 account	 account 	 	 	 	 	 	 	 	 	 £’000	 £’000	 £’000
At	 1	 January	 2005	 	 	 	 	 	 	 	 (45,093)	 94,604	 1,237	 Profit	 retained	 for	 the	 year	 for	 equity	 shareholders	 	 	 	 	 	 –	 –	 1,264	 Charge	 relating	 to	 share	 based	 payments	 	 	 	 	 	 	 –	 –	 242
Issue	 of	 19,125,684	 ordinary	 shares	 of	 10p	 each	 fully	 paid	 	 	 	 	 	 –	 33,087	 –
Share	 issue	 costs	 	 	 	 	 	 	 	 –	 (2,234)	 –
At	 31	 December	 2005	 	 	 	 	 	 	 	 (45,093)	 125,457	 2,743	 Company
	 	 	 	 	 	 	 	 Capital	 Share	 Profit 	 	 	 	 	 	 	 	 	 reserve	 premium	 and 	 loss	 	 	 	 	 	 	 	 	 account	 account	 account 	 	 	 	 	 	 	 	 	 £’000	 £’000	 £’000
At	 1	 January	 2005	 	 	 	 	 	 	 	 –	 94,604	 19	 Loss	 retained	 for	 the	 year	 for	 equity	 shareholders	 	 	 	 	 	 –	 –	 (372)	 Charge	 relating	 to	 share	 based	 payments	 	 	 	 	 	 	 190	 –	 52
Issue	 of	 19,125,684	 ordinary	 shares	 of	 10p	 each	 fully	 paid	 	 	 	 	 	 –	 33,087	 –
Share	 issue	 costs	 	 	 	 	 	 	 	 –	 (2,234)	 –
At	 31	 December	 2005	 	 	 	 	 	 	 	 190	 125,457	 (301)	 22. Pension scheme
The	Group	operates	a	defined	contribution	pension	scheme.	The	pension	cost	charge	for	the	year	ended	31	December	2005	represents	 contributions	payable	by	the	Group	to	pension	funds	and	amounted	to	£305,514	(2004:	£301,838).
There	was	a	prepaid	contribution	of	£859	(2004:	£nil)	at	31	December	2005.
Contributions	amounting	to	£nil	(2004:	£893)	were	accrued	at	31	December	2005	and	are	included	in	creditors.
23. Reconciliation of operating profit to operating cash flows
	 	 	 	 	 	 	 	 	 2005	 2004 	 	 	 	 	 	 	 	 	 	 £’000	 £’000
Operating	 profit/(loss)	 	 	 	 	 	 	 	 	 3,639	 (1,348)
Non	 cash	 items	 	 	 	 	 	 	 	 	 (46)	 118
Depreciation,	 depletion	 and	 impairment	 charges	 	 	 	 	 	 	 5,936	 4,331
(Increase)/decrease	 in	 stock	 	 	 	 	 	 	 	 	 (15)	 120
(Increase)	 in	 debtors	 	 	 	 	 	 	 	 	 (1,175) 	 (1,260)
Increase	 in	 creditors	 	 	 	 	 	 	 	 	 10,880	 52
Net	 cash	 inflow	 from	 operating	 activities	 	 	 	 	 	 	 	 19,219 	 2,013
Notes to the Financial Statements continued 	 52 	 Star	Energy	Group	plc	 Annual	Report	and	Accounts	2005	 www.starenergy.co.uk 53 	 www.starenergy.co.uk	 Annual	Report	and	Accounts	2005	 Star	Energy	Group	plc 53
24. Analysis of net debt
	 	 	 	 	 	 At	 	 	 Other 	 	 	 	 	 	 	 beginning 	 	 	 non 	 cash	 Exchange	 At 	 end	 	 	 	 	 	 	 of 	 year	 Cash 	 flow	 	 charges	 movement	 of 	 year	 	 	 	 	 	 	 £’000	 £’000	 £’000	 £’000	 £’000
Cash	 in	 hand	 and	 at	 bank	 	 	 	 	 	 12,357	 5,084	 –	 (158)	 17,283	 	 	 	 	 	 	 	 	 	 Debt	 due	 within	 one	 year	 	 	 	 	 	 –	 (13,421)	 –	 –	 (13,421)	 Debt	 due	 after	 one	 year	 	 	 	 	 	 –	 (58,809)	 1,473	 –	 (57,336)
Obligations	 under	 finance	 leases	 and	 HP	 contracts	 	 	 	 (1,384)	 1,064	 (377)	 –	 (697)
Total	 	 	 	 	 	 10,973	 (66,082)	 1,096	 (158)	 (54,171 )
During	the	year	the	Group	entered	into	finance	lease	arrangements	in	respect	of	assets	with	a	total	capital	value	at	the	inception	of	the	leases	 of	£nil	as	at	31	December	2005	(2004:	£48,500).	 	 	 	 	 	 	 	 	 	 2005	 2004 	 Reconciliation	 of	 net	 cash	 flow	 to	 movement	 in	 net	 debt	 	 	 	 	 	 £’000	 £’000
Increase	 in	 cash	 in	 the	 year	 	 	 	 	 	 	 	 	 5,084	 11,761
Cash	 (inflow)/	 outflow	 from	 (increase)/decrease	 in	 debt	 financing	 	 	 	 	 	 (71,166)	 18,559
Change	 in	 net	 debt	 resulting	 from	 cash	 flows	 	 	 	 	 	 	 	 (66,082)	 30,320
Finance	 leases	 acquired	 on	 acquisition	 of	 Pentex	 Management	 Limited	 	 	 	 	 	 (377)	 –
New	 finance	 leases	 	 	 	 	 	 	 	 	 –	 (48)
Translation	 differences	 	 	 	 	 	 	 	 	 (158)	 317
Debt	 fees	 reclassified	 	 	 	 	 	 	 	 	 1,473	 –
5%	 compounding	 interest	 	 	 	 	 	 	 	 	 –	 (72)
Movement	 in	 net	 debt	 in	 the	 year	 	 	 	 	 	 	 	 (65,144)	 30,517
Net	 debt	 at	 the	 start	 of	 the	 year	 	 	 	 	 	 	 	 10,973	 (19,544)
Net	 debt	 at	 the	 end	 of	 the	 year		 	 	 	 	 	 	 	 (54,171) 	 10,973
25. Acquisitions
On	8	August	2005,	Star	Energy	Group	completed	the	acquisition	of	100%	of	the	share	capital	of	Pentex	Management	Limited	and	 	 its	subsidiaries,	a	company	incorporated	in	the	United	Kingdom	whose	principal	activity	is	that	of	oil	and	gas	exploration,	for	an	initial	 consideration	of	£38,469,000.	A	further	consideration	of	£5,100,000	is	contingent	on	planning	permission	being	granted	in	respect	of	 	 a	gas	storage	project	at	Gainsborough.	 The	acquisition	method	of	accounting	has	been	adopted	for	the	acquisition	and	the	results	have	been	consolidated	since	8	August	2005.	 	 The	completed	acquisition	includes	all	of	Pentex	Management	Limited’s	subsidiary	companies,	as	detailed	in	the	Shareholders’	Circular	 	 dated	13	July	2005. 	 54 	 Star	Energy	Group	plc	 Annual	Report	and	Accounts	2005	 www.starenergy.co.uk
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25. Acquisitions continued
The	details	of	the	transaction,	results	and	fair	value	adjustments	arising	from	the	change	in	ownership	are	shown	below:
	 	 	 	 	 	 	 	 Book	 	 	 	 	 	 	 	 	 value	 Revaluations	 Other	 Fair 	 value	 	 	 	 	 	 	 	 £’000	 £’000	 £’000	 £’000
Intangible	 fixed	 assets	 	 	 	 	 	 	 (5,385)	 –	 5,385	 	 –
Tangible	 fixed	 assets	 	 	 	 	 	 	 26,326	 32,685	 –	 59,011	 Stock	 	 	 	 	 	 	 47	 –	 –	 	 47	 Debtors	 	 	 	 	 	 	 2,707	 –	 –	 2,707
Creditors	 	 	 	 	 	 	 (2,838)	 –	 –	 (2,838)
Provisions	 	 	 	 	 	 	 (1,248)	 (1,759)	 –	 (3,007)
Taxation:	 	 	 	 	 	 	 	 	 	 	 Current	 	 	 	 	 	 	 (1,284)	 –	 –	 (1,284)
	 Deferred	 	 	 	 	 	 	 (8,791)	 –	 –	 (8,791)
Cash	 	 	 	 	 	 	 2,156	 –	 –	 2,156
Overdrafts	 	 	 	 	 	 	 (8,002)	 –	 –	 (8,002)
Net	 assets	 acquired	 	 	 	 	 	 	 3,688	 30,926	 5,385	 39,999
Consideration	 	 	 	 	 	 	 	 	 	 39,999
Consideration	 satisfied	 by:
Cash	 	 	 	 	 	 	 	 	 	 38,469
Related	 costs	 of	 acquisition	 	 	 	 	 	 	 	 	 	 1,530
	 	 	 	 	 	 	 	 	 	 39,999
Other	revaluation	adjustments	in	respect	of	intangible	fixed	assets	reflect	the	write-off	of	negative	goodwill.
The	fair	value	adjustments	to	the	fixed	assets	acquired	were	determined	by	the	directors,	having	regard	to	a	report	compiled	by	independent	 consultants	specialising	in	petroleum	reservoir	evaluations	and	economic	analysis.
No	deferred	tax	has	been	recognised	on	fair	value	adjustments	on	non-monetary	assets	as	there	is	no	intention	to	sell	the	assets	concerned.	 From	the	effective	date	of	acquisition	of	8	August	2005,	the	Pentex	group	has	contributed	an	operating	profit	of	£2,931,000	to	the	Group	and	 	 a	profit	of	£2,225,000	to	the	Group’s	profit	on	ordinary	activities	before	taxation.	 The	results	of	Pentex	Management	Limited	and	its	subsidiaries	prior	to	acquisition,	excluding	fair	value	adjustments	from	1	January	2005	to	 	 8	August	2005	and	for	the	year	ended	31	December	2004	were:
	 	 	 	 	 	 	 	 	 1	 January	 	 Audited 	 	 	 	 	 	 	 	 	 	 2005	 to	 Year 	 ended	 	 	 	 	 	 	 	 	 	 	 8	 August	 	 31 	 December	 	 	 	 	 	 	 	 	 	 2005	 2004 	 	 	 	 	 	 	 	 	 	 £’000	 £’000
Turnover	 	 	 	 	 	 	 	 	 8,173	 10,975
Operating	 profit	 	 	 	 	 	 	 	 	 3,586	 5,837
Profit	 before	 taxation	 	 	 	 	 	 	 	 	 3,159 	 6,678
Taxation	 	 	 	 	 	 	 	 	 (735)	 (5,579)
Profit	 after	 taxation	 	 	 	 	 	 	 	 	 2,424	 1,099
Exchange	 difference	 on	 translation	 of	 oil	 and	 gas	 and	 related	 borrowings	 	 	 	 	 1,115 	 (1,337)
Total	 recognised	 gains	 and	 losses	 relating	 to	 the	 period	 	 	 	 	 	 	 3,539	 (238)
26. Operating lease commitments
	 	 	 		 	 	 	 Land	 and	 buildings	 	 	 	 	 	 	 	 	 	 2005	 2004 	 	 	 	 	 	 	 	 	 	 £’000	 £’000
Operating	 lease	 which	 expire:
	 Within	 one	 year	 	 	 	 	 	 	 	 	 –	 –
	 In	 the	 second	 to	 fifth	 years	 inclusive	 	 	 	 	 	 	 	 132	 98
	 After	 more	 than	 five	 years	 	 	 	 	 	 	 	 	 –	 –
Total	 operating	 lease	 commitments	 	 	 	 	 	 	 	 132	 98
Notes to the Financial Statements continued 	 54 	 Star	Energy	Group	plc	 Annual	Report	and	Accounts	2005	 www.starenergy.co.uk 55 	 www.starenergy.co.uk	 Annual	Report	and	Accounts	2005	 Star	Energy	Group	plc 55
27. Capital commitments and contingent liabilities
Capital	commitments	at	the	end	of	the	financial	year,	for	which	no	provision	has	been	made,	are	as	follows:
	 Group	 Company
	 	 	 	 	 	 	 2005	 	 2004	 2005	 	 2004	 	 	 	 	 	 	 	 £’000	 	 £’000	 £’000	 	 £’000
Contracted	 	 	 	 	 	 	 6,110	 25,154	 –	 –	 As	part	of	the	acquisition	of	Pentex	Management	Limited,	the	Company	issued	the	zero	coupon	loan	notes	to	the	principal	amount	of	 £5,127,036.	These	loan	notes	are	redeemable	contingent	on	the	granting	of	planning	permission	for	the	installation	of	surface	works	which	 	 are	necessary	for	the	development	or	operation	of	a	gas	storage	facility	at	the	gas	cap	at	Gainsborough.	 The	principal	amount	becomes	payable	on	the	later	of	the	fifth	anniversary	of	the	application	for	planning	permission	being	submitted	and	the	 determination	of	any	appeal	process	in	relation	to	planning	permission	which	was	ongoing	at	the	fifth	anniversary.	 As	yet,	no	planning	permission	application	has	been	submitted.
28. Related party disclosures
Charles	Carter,	a	non-executive	director	of	the	Company,	is	employed	by	Vitol	Services	Limited,	an	associated	company	of	Vitol	Holding	S.a.r.l.	 which	had	a	5.2%	(2004:	9.5%)	shareholding	in	the	Company	at	14	March	2006.	In	addition,	Vitol	SA,	another	company	within	the	Vitol	group	 of	companies,	has	entered	into	a	Gas	Storage	Agreement	with	Star	Energy	HG	Gas	Storage	Limited	for	the	exclusive	use	of	the	Humbly	Grove	 gas	storage	facility. 	 56 	 Star	Energy	Group	plc	 Annual	Report	and	Accounts	2005	 www.starenergy.co.uk
Unaudited Statement of Net Commercial Oil and 
Gas Reserve Quantities — Proven and Probable 
for	 the	 year	 ended	 31	 December	 2005
The	reserve	estimates	shown	in	this	report	are	based	on	the	joint	reserve	and	resource	definitions	of	the	Society	of	Petroleum	Engineers,	 	 the	World	Petroleum	Congress,	and	the	American	Association	of	Petroleum	Geologists.
	 	 Total	 Weald	 East	Midlands 	 	 	 	 	 Oil	 Gas	 Boe	 Oil	 Gas	 Oil	 Gas 	 	 	 	 	 ’000 	 bbl	 mmscf	 ’000
1
	 ’000 	 bbl	 mmscf	 ’000 	 bbl	 mmscf
Net	 commercial	 reserves	 as	 at	 1	 January	 2005	 	 14,157	 3,107	 14,674	 7,233	 3,107	 6,924	 –
Changes	 during	 the	 year
Revisions	 of	 previous	 estimates	 	 	 	 (3,195)	 (713)	 (3,314)	 (2,226)	 (579)	 (969)	 (134)	 	 	 	 	 	 	 	 	 	 Purchases	 of	 reserves-in-place
2
	 	 	 	 15,057	 8,382	 16,454	 6,434	 –	 8,623	 8,382
Extensions,	 discoveries	 and	 other	 additions	 	 	 –	 1,000	 167	 –	 1,000	 –	 –	 	 	 	 	 	 	 	 	 	 	 	 Production	 	 	 	 (1,555)	 (776)	 (1,684)	 (693)	 (228)	 (862)	 (548)
Total	 changes	 during	 the	 year	 	 	 	 10,307	 7,893	 11,623	 3,515	 193	 6,792	 7,700	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 Net	 commercial	 reserves	 as	 at	 31	 December	 2005	 	 24,464	 11,000	 26,297	 10,748	 3,300	 13,716	 	 7,700
1	 ’000	boe	equals	bcf	divided	by	6.
2	 Resulting	from	the	purchase	of	Pentex	Management	Limited	and	its	subsidiaries.
As	at	1	January	2006,	the	Group	has	assessed	its	proven	and	probable	reserves	at	24.5	million	boe	based	on	an	assessment	undertaken	by	 RPS	Energy	as	at	31	December	2005.	The	principal	reasons	for	the	revisions	to	the	2004	assessment	are:
Moving	from	management’s	estimates	to	those	of	RPS	Energy	regarding	incremental	oil.
Initial	production	rates	from	Singleton	additional	wells	do	not	support	previous	estimates.
Conversion	of	main	oil	producers	at	Humbly	Grove	to	gas	storage	wells.
Shrinkage	between	production	and	sales	volumes	for	acquired	companies	not	recognised	prior	to	acquisition.
•
•
•
• Star Energy is an integrated energy  
group with a distinctive business model.
Star Energy’s primary focus is to build a  
significant multi-site gas storage business.  
We aim to consolidate our existing oil and gas  
production business to provide the depleted  
reservoirs that form the basis of future gas  
stores. We will exploit our expertise in operating  
onshore oil and gas fields safely and responsibly  
in environmentally sensitive areas. Star Energy  
will take advantage of opportunities to expand  
its asset base in the UK and, if possible,  
continental Europe.
01 Highlights 2005
02  Chairman’s Statement
03  Chief Executive’s Statement
04  Our Group at a Glance
06  Exciting Potential
08  Responding to Market Demand
10  A Portfolio of Opportunities
12  Powering Ahead
14  Continual Improvement
16  Financial Review
18  Board of Directors
20 Shareholder Information
21 Directors’ Report
22 Directors’ Remuneration Report
27 Corporate Governance
29 Statement of Directors’ Responsibilities
30 Independent Auditors’ Report
31 Consolidated Profit and Loss Account
32 Consolidated Balance Sheet
33 Company Balance Sheet
34 Consolidated Cash Flow Statement
35 Reconciliation of Movements in Group 
Shareholders’ Funds
36 Notes to the Financial Statements
56 Unaudited Statement of Net  
Commercial Oil and Gas Reserve  
Quantities — Proven and Probable
bbl barrels
bcf billion (10
9
) cubic feet 
boe barrels of oil equivalent
bopd barrels of oil per day
boepd barrels of oil equivalent per day
km kilometre
mmbbl millions of barrels
mmscf million standard cubic feet
MW Mega (10
6
) Watt
MWh Mega (10
6
) Watt-hour
probable reserves  those reserves which are not yet proven but 
which are estimated to have a 50% chance of 
being technically and economically producible
proven reserves  those reserves which, on the available evidence, 
are reasonably certain to be technically and 
economically producible: that is, having a 
90% chance of being produced
EPC Engineering, Procurement and Construction
Glossary
Photography by Giles Barnard Star Energy Group plc
Annual Report and Accounts
for the year ending 31 December 2005
Star Energy Group plc
6th Floor
5 Lower Belgrave Street
London SW1W 0NR 
T. +44 (0) 20 7730 6663  
F. +44 (0) 20 7730 7774
Star Energy Ltd
6th Floor
5 Lower Belgrave Street
London SW1W 0NR 
T. +44 (0) 20 7730 6663  
F. +44 (0) 20 7730 7774
Star Energy UK Onshore Ltd
Humbly Grove Oilfield
Weston Common
The Avenue
Lasham
Alton
Hampshire GU34 5SY 
T. +44 (0) 1256 381 621
F. +44 (0) 1256 381 524
Star Energy (East Midlands) Ltd
Welton Gathering Centre
Barfield Lane, off Wragby Rd
Sudbrooke
Lincoln LN2 2QU 
T. +44 (0) 1522 754 040
F. +44 (0) 1522 596 502
Star Energy HG Gas Storage Ltd
Humbly Grove Oilfield
Weston Common
The Avenue
Lasham
Alton
Hampshire GU34 5SY 
T. +44 (0) 1256 381 621
F. +44 (0) 1256 381 524
Star Energy Gas Storage
Services Ltd
Humbly Grove Oilfield
Weston Common
The Avenue
Lasham
Alton
Hampshire GU34 5SY
T. +44 (0) 1256 381 621
F. +44 (0) 1256 381 524
Star Energy Management Ltd
Oil Depot
Ramper Road
Gainsborough
Lincolnshire DN21 1AY
T. +44 (0) 1427 811 155
F. +44 (0) 1427 811 156
Star Energy Oil & Gas Ltd
Oil Depot
Ramper Road
Gainsborough
Lincolnshire DN21 1AY
T. +44 (0) 1427 811 155
F. +44 (0) 1427 811 156
Star Energy Oil UK Ltd
Larkwhistle Farm Site
Crawley Down
Winchester
Hampshire SO21 2RJ
T. +44 (0) 1962 883 978
F. +44 (0) 1962 881 976
www.starenergy.co.uk
Star Energy Group plc Annual Report and Accounts for the year ending 31 December 2005