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FOR IMMEDIATE RELEASE	15 May 2009
Ref:  0904

SOVEREIGN OILFIELD GROUP Plc

('Sovereign' or 'the Company' or 'the Group')

INTERIM RESULTS FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2008

Sovereign Oilfield Group Plc ('Sovereign' or 'the Group'), the Aberdeen-based diversified oilfield services group, has announced its unaudited financial results for the six month period to 30 September 2008.

Financial Highlights

	2008	2007
Turnover	£47.7m	£46.0m	(up 4%)
EBITDA	£2.0m	£2.9m	(down 31%)
Operating (loss) / profit	(£0.5m)	£2.1m	(down 124%)
(Loss) / profit before tax	(£3.2m)	£nil
Adjusted losses per share	7.87p	0.15p

Graham Burgess, Chief Executive Officer of Sovereign, said:

'Our Fabrication businesses continue to meet expectations on turnover and profitability in a slowing market, while DDS has continued to distinctly under-perform and pulled down the performance of the Drilling Division for this period.  

Difficult banking conditions during and since the end of the period hindered refinancing so finance costs for the period are high, however the company has recently agreed revised terms with existing Lenders that significantly reduce the cost of our debt and improve cash flow in future. 

In addition asset disposals during and since the end of period have yielded cash to pay down debt and your Board remain confident about the Group's prospects.' 

  Executive Chairman's Statement

I am pleased to present the Group's unaudited interim results for the period ended 30 September 2008.

The Group has today issued its audited financial statements for the year ended 31 March 2008 and shareholders will be aware that following the publication of the year-end results and this Interim Statement it is expected that restoration to trading of our Ordinary Shares on AIM will commence shortly pending posting of the 2008 Annual report to Shareholders.

The delay in publication of our accounts is well documented in the 2008 Annual Report and therefore I propose to restrict this statement to the trading performance of the Group for the half year to 

30 September 2008.

The sales for the half year were £47.7m (2007: £46.0m) and gross contribution was £11.3m (2007: £12.5m). Our overheads, including exceptional costs of £0.5m, were £12.8m (2007: £10.4m) resulting in an operating loss of £0.5m (2007: profit £2.1m).  Exceptional costs relate to abortive deal costs and bank refinancing.  The Group disposed of certain buildings during the period resulting in a surplus of £1.0m (2007: £nil). Finance costs amounted to £2.7m (2007: £2.1m) resulting in a half year loss before taxation of £3.2m (2007: £nil).

All of our Group fabrication companies continued to perform well in a slowing market with turnover of £34.3m and operating profit of £3.7m, comparable to the prior periods. The division continued to deliver first class products to a blue chip customer base in the North Sea and Middle East.

Our drilling businesses had slightly increased turnover at £13.4m (2007: £11.9m) but an operating loss of £2.0m (2007: profit £0.3m) as the drilling companies continued to have mixed results. Diamant Drilling Services SA, ('DDS') our Belgian based drill bit business, which we have since sold, accounted for the bulk of this underperformance.  DDS has been classified as a discontinued operation in these financial statements. 

Central costs, including exceptional costs of £0.4m, were £2.2m for the half year (2007: £1.8m). Reduction of overhead costs, both centrally and throughout the operating subsidiaries, remains a focus of your Board.

Our basic and diluted loss per ordinary share amounted to 6.9p (2007: 0.15p). 

The Directors are unable to recommend the payment of a dividend.

Trading conditions throughout the Group were affected by falling oil prices, a slowdown in the progress of projects and subsequently by the world-wide recession. The oil sector and the business area of, in particular, our fabrication businesses, has seen less impact than other sectors.

The suspension of our listing in September caused some customers and suppliers to question the financial stability of the Group, and removal of credit insurance by some insurers exacerbated this. High interest charges also added to the stress on the business, however continued strict cash management and good levels of trading, as well as the support of Lenders, have allowed most of the Group companies to continue to trade profitably.

The publication of the 2008 Annual Report and these Interim Statements, together with recently agreed new banking facilities, will hopefully restore any loss of confidence in the Group.

As reported, DDS was sold in March 2009. The Board have undertaken a full strategic review of both of our trading divisions and have already agreed to dispose of Vertec Engineering Ltd and some assets of Labtech Services Ltd, details of which have been announced.  In addition it is expected that further strategic disposals will be announced in due course.  

The year-end results for 2009 will continue to reflect the tough trading conditions but the Board remains committed to returning the Group to profitability as quickly as possible.

Graham Burgess                                    

Executive Chairman

          Condensed Group Income Statement

        For the six months ended 30 September 2008

	Unaudited Interim September 2008				Unaudited Interim September 2007	Audited Full Year March 2008
		Continued Operations	Discontinued Operations	Total
	Note	£m	£m	£m	£m	£m
Revenue	2	44.6	3.1	47.7	46.0	94.6
Cost of sales		(34.1)	(2.3)	(36.4)	(33.5)	(71.0)
Gross profit		10.5	0.8	11.3	12.5	23.6
Administrative expenses		(10.1)	(2.2)	(12.3)	(10.4)	(23.7)
Other expenses		(0.4)	(0.1)	(0.5)	-	-
Other operating income		-	-	-	-	0.2
Group trading (loss) / profit		-	(1.5)	(1.5)	2.1	0.1
Gain on sale of property, plant and equipment		1.0	-	1.0	-	-
Group operating (loss) / profit	2	1.0	(1.5)	(0.5)	2.1	0.1
Finance revenue		-	-	-	-	0.2
Finance costs		(2.6)	(0.1)	(2.7)	(2.1)	(7.8)
		(2.6)	(0.1)	(2.7)	(2.1)	(7.6)
Loss before taxation		(1.6)	(1.6)	(3.2)	-	(7.5)
Tax credit	3	0.4	-	0.4	-	0.1
Loss  for the financial period attributable to equity holders of the parent		(1.2)	(1.6)	(2.8)	-	(7.4)
Loss per share (pence)
Basic, for loss for the period attributable to ordinary equity holders of the parent	4			(6.91)	(0.15)	(43.46)
Diluted, for loss for the period attributable to ordinary equity holders of the parent	4			(6.91)	(0.15)	(43.46)
Adjusted loss per share (pence)
Basic, for loss for the period attributable to ordinary equity holders of the parent	4			(7.87)	(0.15)	(14.48)
Diluted, for loss for the period attributable to ordinary equity holders of the parent	4			(7.87)	(0.15)	(14.48)

  Condensed Group Statement of Recognised Income and Expense

For the six months ended 30 September 2008

	Unaudited Interim September 2008	Unaudited Interim  September 2007	Audited Full Year March  2008
	£m	£m	£m
Income and expense recognised directly in equity
Exchange differences on retranslation of foreign operations	1.2	0.8	0.8
Net income recognised directly in equity	1.2	0.8	0.8
Loss for the period	(2.8)	-	(7.4)
Total recognised income and expense for the period	(1.6)	0.8	(6.6)
Attributable to:
Equity holders of the parent	(1.6)	0.8	(6.6)
Minority interest	-	-	-
	(1.6)	0.8	(6.6)

 Condensed Group Balance Sheet

As at 30 September 2008

		Unaudited Interim September 2008	Unaudited Interim September 2007	Audited Full Year March 2008
	Note	£m	£m	£m
Assets
Non-current assets
Property, plant and equipment	5	11.3	13.1	14.2
Intangible assets		13.9	15.7	14.2
Financial assets		0.1	0.1	0.1
Deferred tax asset		-	0.3	-
		25.3	29.2	28.5
Current assets
Trade and other receivables		23.7	25.3	25.7
Inventories		5.6	8.1	6.2
Cash and short-term deposits		0.7	3.7	1.4
		30.0	37.1	33.3
Assets of discontinued operations		5.5	-	-
Total assets		60.8	66.3	61.8
Current liabilities
Trade and other payables		21.4	19.4	19.7
Interest-bearing loans and other borrowings	6	30.7	0.5	33.2
Income tax payable		-	1.0	0.2
		52.1	20.9	53.1
Non-current liabilities
Interest-bearing loans and other borrowings	6	0.3	30.4	1.0
Deferred tax liabilities		1.6	2.5	2.4
Provisions		0.1	0.1	0.1
		2.0	33.0	3.5
Liabilities of discontinued operations		3.6	-	-
Total liabilities		57.7	53.9	56.6
Net assets		3.1	12.4	5.2
Capital and Reserves
Equity share capital		11.7	10.7	11.7
Treasury shares		(0.3)	(0.3)	(0.3)
Currency translation		1.2	0.8	0.7
Other reserves		0.2	-	-
Retained earnings		(9.7)	1.2	(6.9)
Sovereign Oilfield Group shareholders' equity and total equity		3.1	12.4	5.2

  Condensed Group Cash Flow Statement

For the six months ended 30 September 2008

		Unaudited  Interim  September  2008	Unaudited Interim September 2007	Audited Full Year March 2008
		£m	£m	£m
Operating activities
Loss for the period		(2.8)	-	(7.4)
Adjustments to reconcile loss for the period to net cash flow from operating activities
Tax on continuing operations		(0.4)	-	(0.1)
Net finance costs		2.7	2.1	7.6
Gain on disposal of property, plant and equipment		(1.0)	-	-
Depreciation and impairment of property, plant and equipment		0.8	0.6	1.5
Amortisation and impairment of intangible assets		0.3	0.3	1.4
Share-based payments		-	0.2	0.1
Receipt of treasury shares		-	-	(0.3)
(Increase) / decrease in inventories		(1.0)	(1.5)	0.7
Increase in trade and other receivables		(1.4)	(2.1)	(1.9)
Increase in trade and other payables		4.4	0.5	1.0
Cash generated from operations		1.6	0.1	2.6
Income taxes paid		-	(0.4)	(1.1)
Net cash flow from operating activities		1.6	(0.3)	1.5
Investing activities
Sale of property, plant and equipment		4.7	0.4	0.8
Outflow on acquisition of subsidiary undertakings		-	(8.2)	(8.3)
Payments to acquire property, plant and equipment		(2.1)	(2.0)	(4.1)
Payments to acquire intangible assets		(0.1)	(0.3)	(0.3)
Net cash flow from investing activities		2.5	(10.1)	(11.9)
Financing activities
Purchase of own shares		-	(0.3)	(0.3)
Interest paid		(2.0)	(0.9)	(3.2)
Refinancing costs		-	(0.3)	(0.4)
Repayment of factored debt		-	(0.9)	(0.9)
New borrowings		-	12.0	14.5
Repayments of borrowings		(2.9)	-	(2.4)
New finance leases and hire purchase contracts		-	0.2	0.2
Repayment of capital element of finance leases and hire purchase contracts		(0.2)	(0.2)	(0.3)
Net cash flow from financing activities		(5.1)	9.6	7.2
Decrease in cash and cash equivalents		(1.0)	(0.8)	(3.2)
Effect of exchange rates on cash and cash equivalents		0.3	(0.1)	-
Opening cash and cash equivalents		1.4	4.6	4.6
Closing cash and cash equivalents		0.7	3.7	1.4

 

Notes to the Financial Statements

1.  Accounting policies for the six months ended 30 September 2008

Basis of preparation

The financial statements have been prepared in accordance with IFRS and IFRIC interpretations endorsed by the European Union (EU) and with those parts of the Companies Act 1985, applicable to companies reporting under IFRS.

The Directors have prepared the financial statements on the going concern basis which assumes that the Company will continue in operational existence for the foreseeable future. 

The Company and the Group meet their day to day working capital requirements and medium term funding requirements through banking facilities. At 30 September 2008 the Group owed £30.4m to its Lenders and was in breach of its banking covenants. As at that date the Group had obtained a standstill from its Lenders in the form of an amendment and waiver letter regarding the defaults at 30 September 2008.  Subsequent to the period end, as disclosed in Note 6, the Group has agreed to an amendment of terms in respect of debt facilities in place at 30 September 2008.  

The new banking terms agreed (subject to the conditions below) provide for a waiver of all outstanding defaults and a standstill regarding the repayment of debt until 31 May 2010 and the resumption of the normal debt repayment profile thereafter, a reduction in margin payable on both senior and mezzanine facilities and a revised covenant package.  

The revised covenant package incorporates financial covenants with regard to quarterly revenue and EBITDA.  The failure of these covenant tests renders the entire facilities repayable on demand at the option of the lenders.

The Directors have prepared trading and cash flow forecasts for a period in excess of one year from the date of approval of these financial statements which project that covenant tests will be met and facility limits will not be exceeded over the duration of the forecasts.  The forecasts prepared make assumptions about the Group's ability to sustain its business model and the Directors have been actively monitoring the trading position in relation to the continued volatility in the financial markets. The forecasts also assume an element of cost reduction, particularly with regard to corporate overhead.  

The Group's business model has been subject to independent analysis, and sensitivities conducted to flex the assumptions to assess the robustness of the model.  

As part of the revised banking terms and conditions subsequent to the refinancing, the Group agreed to the disposal of one of its subsidiaries Vertec Engineering Limited and to dispose of certain assets of Labtech Services Limited.  

Although the proposed terms are fully valid and binding, if this condition is not fulfilled prior to end May 2009 the revised terms will become invalid.

The Group was pleased to issue an announcement on 11 May 2009 stating that we concluded the sale of these businesses, subject to shareholder approval. A general meeting is due to be held on 27 May 2009 to ratify this transaction, which requires a majority vote. The Directors intend to vote in favour of the resolutions, amounting to 10,084,900 Ordinary Shares representing 58.24 per cent of the issued Ordinary Shares. John Graham Burgess and Dr Peter Gjedboe Felter have provided irrevocable undertakings to vote in favour of the Resolutions, their combined shareholding amounting to 56.895 percent of the issued Ordinary Shares, which will result in the resolution being carried.

Taking in to account the above, until the shareholder vote has been conducted an uncertainty exists as to whether the Group will meet the conditions under which new facilities have been agreed. The Directors have a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future and have therefore concluded that it is appropriate to adopt the going concern basis in preparing these financial statements.

The Group has chosen not to adopt IAS 34 Interim Financial Statements, in preparing these interim financial statements, and therefore this information is not wholly compliant with IFRS. The accounting policies are consistent with those of the annual financial statements for the year ended 31 March 2008.

New standards, amendments to standards and interpretations, which are applicable for the financial year ending 31 March 2009, have had no impact on the accounting policies.

Taxes on income in the interim periods are accrued using the tax rate that would be applicable to expected total annual earnings.

The comparative figures for the year ended 31 March 2008 do not constitute statutory financial statements for the purpose of section 240 of the Companies Act 1985. They have been extracted from the Company's published accounts. The Report of the Auditors on those accounts was unqualified and did not contain a statement under either section 237(2) or (3) of the Companies Act 1985. These financial statements should be read in conjunction with the 2008 financial statements.

Net current liabilities

At 30 September 2008 the Company had net current liabilities, excluding discontinued operations, of £22.1m. This was due to the reclassification of the entire amount of interest-bearing loans and other borrowings of £30.4m being classified as current on the basis that the Company's Lenders were in a position to serve the Company notice to repay the bank loans on demand at 30 September 2008. Had it not been for such classification, the Company would have had net current assets, excluding discontinued operations, of £7.8m.

2. Segmental reporting 

Primary segment - business segments

Drilling Services - selling or renting drilling equipment and contracting personnel for the oil and gas industry

Fabrication Services - selling fabrication and manufacturing services for the oil and gas industry

Corporate and other - Sovereign head office and other non-trading company costs

  

Segment results

	Drilling £m	Fabrication £m	Corporate /  other £m	Total £m
At 30 September 2008
Revenue	13.4	34.3	-	47.7
Operating profit / (loss)	(2.0)	3.7	(2.2)	(0.5)

At 30 September 2007
Revenue	11.9	34.1	-	46.0
Operating profit / (loss)	0.3	3.6	(1.8)	2.1

At 31 March 2008
Revenue	26.0	68.6	-	94.6
Operating profit / (loss)	(1.8)	6.2	(4.3)	0.1

 

3. Income tax expense 

The current income tax charge is £nil (2007: £nil). There is a tax charge of £0.4m relating to capital gains on the property disposals and a subsequent release of provision for deferred tax liabilities of £0.7m. No provision has been made for tax losses incurred in the period. 

4.(Loss) / Earnings per ordinary share

Basic (loss) / earnings per share amounts are calculated by dividing (loss) / profit for the period attributable to ordinary equity holders of the parent by the weighted average number of Ordinary Shares outstanding during the period.

Diluted (loss) / earnings per share amounts are calculated by dividing the (loss) / profit for the period attributable to ordinary equity holders of the parent by the weighted average number of Ordinary Shares outstanding during the period plus the weighted average number of Ordinary Shares that would be issued on the conversion of all the dilutive potential Ordinary Shares into Ordinary Shares.  

  The following reflects income and share data used in the basic and diluted (loss) / earnings per share computations:

	Six months ended 30 September 2008 Unaudited £m	Six months ended 30 September 2007  Unaudited £m	Year ended 31 March 2008 Audited £m
Loss for the period from continuing operations	(1.2)	-	(7.4)
Diluted loss attributable to equity holders of the Company	(1.2)	-	(7.4)

	Six months ended 30 September 2008 Unaudited million	Six months ended 30 September 2007  Unaudited million	Year ended  31 March 2008 Audited million
Basic weighted average number of Shares	16.9	17.0	17.1
Dilutive potential ordinary shares:
Deferred consideration	-	-	-
Diluted weighted average number of Shares	16.9	17.0	17.1

There have been no other transactions involving Ordinary Shares or potential Ordinary Shares between the reporting date and the date of completion of these financial statements.  

Loss per share from continuing operations before exceptional items

The Group presents as exceptional items on the face of the income statement, those material items of income and expense which, because of the nature and expected frequency of the events giving rise to them, merit separate presentation to allow shareholders to understand better the elements of financial performance in the period, so as to facilitate comparison with prior periods and to assess better trends in financial performance.

To this end, basic and diluted (loss)/earnings from continuing operations per share is also presented on this basis and using the weighted average number of Ordinary Shares for both basic and diluted amounts as per the table above. The amounts for earnings per share from continuing operations before exceptional items are as follows:

	Six months ended 30 September 2008 Unaudited	Six months ended 30 September 2007  Unaudited	Year ended  31 March 2008 Audited
Basic loss per share from continued operations (pence)	(6.91)	(0.15)	(43.46)
Diluted loss per share from continued operations (pence)	(6.91)	(0.15)	(43.46)

  Net profit from continuing operations before exceptional items and attributable equity holders of the parent is derived as follows:

	Six months ended 30 September 2008 Unaudited	Six months ended 30 September  2007  Unaudited	Year ended  31 March 2008 Audited
	£m	£m	£m
Loss attributable to equity holders of the parent - continuing operations	(1.2)	-	(7.4)
Exceptional items after tax - attributable to equity holders of the parent	(0.1)	-	5.6
Diluted loss from continued operations before exceptional items attributable to equity holders of the parent	(1.3)	-	(1.8)

5.    Property, plant and equipment

Capital expenditure during the period amounted to £2.1m (2007: £2.0m) and property sold on a leaseback arrangement netted a gain of £1.0m.  

6.    Interest-bearing loans and borrowings

The bank overdrafts and loans are secured by a floating charge over certain of the Group's assets and pledges over the shares of the parent company and its subsidiaries. 

The Group breached its banking covenants during the year ended 31 March 2008 and new  banking arrangements  were put in place by the Group's Lenders as part of a standstill agreement at 31 March 2008. The  classification            of  the   Company's bank loans are based on the contractual position at 31 March 2008. 

The Group continues to classify repayments of principal as current on the basis that the Company's Lenders are in position to serve the Company with a notice to repay the bank loans on demand. No such notices have been served and the Group has waivers in place for the breaches which occurred during the period to 30 September 2008.   The loans are due for repayment in January 2012. 

The Group has senior facilities of £15.8m and mezzanine facilities of £14.6m. The senior facilities bear interest at six-month LIBOR plus 3.5% to 8.5% (2007: LIBOR plus 3.5%) whilst the mezzanine facilities bear interest at six-month LIBOR plus 6% to 11% (2007: LIBOR plus 6%), plus a payment in kind of 6% to 7% (2007: 6%). The payment in kind is not payable until January 2012 and £1.4m is included for the payment in kind in current instalments due on bank loans. Commitment fees of 0.625% were payable on undrawn facilities until these facilities were withdrawn.  The Group's borrowings are floating rate and the effective interest rate is six-month LIBOR plus 13.1%.  

Subsequent to the period end, the Group has agreed revised banking terms with its Lenders which are set out in Note 28 of the annual financial statements for the year ended 31 March 2008. 

The main risks arising from the Group's financial instruments remain unchanged from those reported in Note 23 of the annual financial statements.

7.    Post Balance Sheet Event 

Restructuring of Financing Arrangements

At 31 March 2008 the Group obtained a standstill from its Lenders in the form of an amendment and waiver letter regarding defaults at 31 March 2008. Contained within the letter were amendments to the terms of the Senior Facility Agreement and the Mezzanine Facility Agreement with reference to the ratcheting of interest margins from 3.5% to 8.5% on the senior facility and from 6% to 11% on the mezzanine facility over a period of time. In addition, the Company was required to pay a fee equal to 1% of the aggregate commitments, being £0.5m.  Conditions relating to the disposal of DDS were also included. 

Existing financial covenants were revised as part of the amendment and waiver letter, such covenants including tests around interest cover, senior leverage, leverage and capital expenditure.

Further to the amendment and waiver letter issued in respect of defaults at 31 March 2008, deferral letters were received on 30 May 2008 and 24 September 2008 which deferred these defaults, including covenant test dates in respect of the financial covenants for the period expiring 31 March 2008 and 30 June 2008 to a maximum longstop date of 17 October 2008.

Subsequent to the period end, prior to the date of issue of the interim financial statements, the Group has agreed to an amendment of terms in respect of credit facilities in place at 31 March 2008. The new terms agreed provide for a waiver of all outstanding defaults until 31 May 2010, a reduction in margin payable on both senior and mezzanine facilities and a revised covenant package. No restructuring or arrangement fees are payable with regard to the negotiation of new commercial terms.

Under the new terms, for the period from 1 June 2009 to 31 March 2010 the senior facilities will bear interest at LIBOR plus 4%, whilst the mezzanine facilities will bear interest at a payment in kind of 6.5%. For the period from 1 April 2010 to 31 March 2011 the senior facilities will bear interest at LIBOR plus 5%, whilst the mezzanine facilities will bear interest at LIBOR plus 6.5%, plus a payment in kind of 3.5%.  

We estimate that the revised terms which cover the period to 31 March 2011, will result in net savings in finance costs of £3.4m.

The revised covenant package incorporates financial covenants with regard to quarterly revenue and EBITDA, which the Board believe are acceptable. 

As part of the conditions subsequent, the Group agreed to the disposal of Vertec and certain Labtech assets. The Group was pleased to issue an announcement on 11 May 2009 that we agreed the sale of the shares of Vertec and rental cabin assets of Labtech for £5.45m, subject to shareholder approval. A general meeting is due to be held on 27 May 2009 to ratify this transaction. The Directors unanimously recommend Shareholders vote in favour of the Resolutions as the Directors intend to do in respect of their beneficial shareholdings amounting to 10,084,900 Ordinary Shares representing 58.24 per cent of the issued Ordinary Shares. All proceeds will be used to pay down existing debt levels.

  

Disposal of Diamant Drilling Services SA

In March 2009, the Group announced the sale of DDS, which was consistently loss making, to Logan Oil Tools Inc for consideration of up to approximately Euros 527,000. The consideration of up to Euros 250,000 cash will be paid in 3 months from the date of disposal and a further contribution of up to Euros 277,000, dependent on certain performance criteria, will become due within 6 months following completion. At the Balance Sheet date the recoverable amount has been determined on its fair value less costs to sell. The goodwill associated with this company of £0.7m was written off in full, in the year to 31 March 2008.  Operating losses of £2.1m incurred in the financial year 2008/9 prior to the company's disposal will be included in the consolidated results for the 2008/9 financial year.

Further information:

Sovereign Oilfield Group Plc                                                            Tel: 01224 261900

Graham Burgess, Executive Chairman 

Julie Cowie, Finance Director

Buchanan Communications                                                              Tel: 0207 466 5000

Tim Thompson/Catherine Breen

Charles Stanley Securities - Nominated Advisor                                   Tel: 0207 149 6000

Mark Taylor/Freddy Crossley

ENDIR SFDFILSUSEII