Prospex Oil and Gas PLC Final Results

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Emisora : Prospex Oil And Gas Plc (PXOG)
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Prospex Oil and Gas PLC Final Results

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TIDMPXOG

RNS Number : 0394C

Prospex Oil and Gas PLC

13 June 2019

Prospex Oil and Gas Plc / Index: AIM / Epic: PXOG / Sector: Oil and Gas

13 June 2019

Prospex Oil and Gas Plc ('Prospex' or the 'Company')

Final Results

Prospex Oil and Gas Plc, the AIM quoted investment company, is pleased to announce its Final Results for the year ended 31 December 2018. The Company also gives notice that its Annual General Meeting ('AGM') will be held at the offices of Charles Russell Speechlys, 5 Fleet Place, London, EC4M 7RD at 9 a.m. on 4 July 2019. The Financial Results for the year ended 31 December 2018 ('Accounts') together with the Notice of AGM will be available to download today from the Company's website and will also be posted to shareholders on or around 14 June 2019.

HIGHLIGHTS

-- Significant progress made across portfolio of late stage onshore European projects focused on the European foredeep play

   --    EIV-1 Suceava Concession, onshore Romania: 

o Commencement of first gas production at Bainet-1 well within 10 months of drilling - completion of permitting process and installation of connection to existing production facility

o Anticipated average flow rate of 15,000 m3/day for budgeting purposes based on more than six months of production

o Post period end enlargement of the concession area includes new high priority Bainet lookalike gas prospect - preparations underway to drill an exploration well in June/July 2019

   --    Podere Gallina Exploration Permit, onshore Italy: 

o Commercial gas discovery confirmed following testing of Podere Maiar-1d well - peak flow rates of 148,136 scm/day (5.2mmscf/d) and 129,658 scm/day (4.6 mmscf/d) from two gas-bearing reservoirs achieved

o Post period end preliminary award of production concession keeps first gas on track to commence at Selva in 2020

o Post period end Competent Person's Reports assign 2P reserves / 2C resources / prospective resources of 2.26 bcf / 2.40 bcf / 15.56 bcf respectively net to Prospex's 17% interest

   --    Tesorillo Gas Project, onshore Spain: 

o Increase in interest to 15% from 2.5% as part of staged earn-in option to acquire 49.9% interest following 2018 field programme centred on de-risking up to 830 billion cubic feet of gas (Best Estimate) of gross unrisked Prospective Resources

o Results of ongoing work programmes to determine well location and an updated Competent Person's Report

o Strong local and regional support garnered through community engagement programmes

FINANCIAL HIGHLIGHTS

-- GBP779,904 maiden net profit after taxation from continuing operations (2017: loss - GBP3,161,241)

   --    77% increase in the net book value of investments to GBP4,307,617 (2017: GBP2,426,789) 
   --    GBP1,710,418 unrealised gains on financial assets (2017: loss - GBP613,723) 

-- GBP1,061,451 administrative expenses, before bad debt provisions, broadly in line with 2017's GBP1,003,630

-- GBP1.2 million raised via placing of 200,000,000 new ordinary shares to fund 2018 work programmes

-- GBP480,000 raised via the issue of loan notes, primarily to fund the Company's share of the budgeted early stage development costs (including environmental monitoring) at the Selva gas discovery

-- Post period end GBP800,000 raised via placing of 400,000,000 new ordinary shares, primarily to fund the Company's share of costs for the 2019 Suceava work programme, including drilling the Bainet West prospect

Edward Dawson, Managing Director of Prospex, said, "A maiden net profit of GBP779,000 is testament to the progress made on the ground across our portfolio of late stage European projects during the year under review. This includes first gas production in Romania, confirmation of a commercial gas discovery in Italy and an increase in our interest in the up to 830bcf Tesorillo gas project in Spain to 15% from 2.5%, following completion of 2018 work programmes. Our objective remains to expose our shareholders to a continuous stream of high impact activity, and in line with this we are focused on ensuring 2019 builds on the success we have had over the past two years. 2019 is expected to see us participate in the drilling of a second well in Romania targeting a prospect that is a lookalike to the producing Bainet field, and further advance our work programmes in Spain and Italy. I look forward to providing further updates on our progress as we focus on ensuring the underlying value of our assets is more fully reflected in our share price."

This announcement contains inside information for the purposes of Article 7 of EU Regulation 596/2014.

* *S * *

For further information visit www.prospexoilandgas.com or contact the following:

 
Edward Dawson    Prospex Oil and Gas Plc       Tel: +44 (0) 20 3948 
                                                1619 
Rory Murphy      Strand Hanson Limited         Tel: +44 (0) 20 7409 
 Ritchie Balmer                                 3494 
 Jack Botros 
Colin Rowbury    Novum Securities Limited      Tel: +44 (0) 20 7399 
 John Belliss                                   9427 
Duncan Vasey     Peterhouse Corporate Finance  Tel: +44 (0) 20 7469 
                                                0932 
Frank Buhagiar   St Brides Partners Ltd        Tel: +44 (0) 20 7236 
 Priit Piip                                     1177 
 

CHAIRMAN'S STATEMENT

The discovery of commercial hydrocarbon accumulations, the commencement of production, the generation of first revenues, the acquisition of an interest in a high impact project - all are key objectives for any oil and gas company, let alone a junior investment company such as Prospex Oil & Gas. It is therefore noteworthy that Prospex's 2018 report card includes all the above: a commercial gas discovery at the Selva field on the Podere Gallina permit, Italy; the commencement of gas production and first revenues at the Bainet field on the Suceava Concession, Romania; and the acquisition of a further 12.5% interest in the large Tesorillo gas project, Spain, on which there is a historic discovery and 830bcf of gross unrisked prospective resources.

Success on the ground has been reflected in the Company's full year financial results which include a maiden net profit after taxation from continuing operations of GBP779,904, compared to 2017's loss of GBP3,161,241, and a 77% increase in the net book value of our investments to GBP4,307,617 as at 31 December 2018 (2017: GBP2,426,789). Comparing this last figure to the Company's current sub GBP3million market capitalisation highlights how Prospex is not only a fast-growing junior oil and gas investment company, but also a value play trading at a significant discount to net assets. Due to the progress made to date in de-risking two of our three projects via the drill bit and the considerable run room they offer, we would argue there is a strong case for our shares to trade at a premium to net book value rather than a discount.

One of these substantially de-risked projects is the Podere Gallina Exploration Permit in Italy. Here we have reported (post period end) maiden gas 2P reserves of 2.26Bcf net to Prospex's 17% interest, as contingent resources previously assigned to the Selva gas field were reclassified as reserves following the successful testing of the Podere Maiar well ('PM-1') in January 2018. This represents the first time that reserves have been assigned to one of our projects by an independent third party, in this case via a Competent Person's Report produced by geophysical services consultancy, CGG Services (UK) Limited ('CGG'). Being assigned first reserves is a major milestone. Not only does it provide Prospex with significant asset backing, particularly when compared to our current market valuation, it also opens up new channels of non-dilutive funding, such as reserves-based lending. Additionally, production from these reserves will lead to a step up in our internally generated revenues which in turn will provide another source of funding for investment in late stage onshore European opportunities both inside and outside our existing portfolio.

January 2019's preliminary award of a production concession for Podere Gallina keeps first production at Selva on course to commence in 2020 at a gross rate of up to 150,000m3/day. At this level and at current gas prices, Selva alone promises to generate significant cash flow for reinvestment across our asset base. This includes Podere Gallina where multiple follow-up targets, many larger than Selva, have already been identified. The scale of the additional run room at Podere Gallina was quantified by the substantial resource upgrade we reported post period end. In addition to 13.3Bcf of gross 2P reserves, Selva's two historic gas producing North Flank and South Flank reservoirs are estimated by CGG to have a 60% - 70% chance of holding 14.1Bcf of gross contingent resources ('2C'). At the same time, aggregate gross prospective resources (best estimate) for four large prospects (East Selva, Fondo Perino, Cembalina, and Riccardina) have increased by 74% to 91.5Bcf from 52.7Bcf. Following the upgrade, our 17% interest in Podere Gallina now translates into net 2P reserves / 2C resources / prospective resources of 2.26Bcf / 2.40Bcf / 15.56Bcf respectively. The joint venture partners are keen to prove up Podere Gallina's potential and bring Selva online.

This is what we are doing in Romania where our wholly-owned subsidiary PXOG Massey Limited has a 50% non-operated interest in the EIV-1 Suceava Concession, onshore Romania. A proven hydrocarbon basin, multiple targets, access to existing infrastructure, and a supportive regulatory environment - we recognised from the outset that Suceava has the potential to deliver fast track, low cost exploration and development opportunities. The successful Bainet-1 well, in which we participated in late 2017, provides proof of concept. In less than 12 months of the discovery being made in November 2017, the field was brought into production in September 2018. Between discovery and first production, a 2.2km flowline was successfully laid connecting Bainet-1 to the existing Bilca production facility, which in turn indirectly connected the field to Romania's Transgaz-owned national gas grid. At the same time, the relevant Government approvals required to commence production were sought and subsequently secured. In all Bainet-1 was drilled and tied into production in line with the original EUR800,000 gross cost estimate (EUR400,000 net to Prospex).

Production at Bainet-1 commenced in September 2018 and averaged 18,000m3/day during the period to the end of the year. Moving forward the Joint Venture is assuming an average production rate of 15,000m3/day for 2019 budgeting purposes.

In terms of production, Bainet-1 is relatively small. However, when the low costs and short timelines are considered alongside the presence of multiple copycat structures, the potential to rapidly build Suceava into a highly cash flow generative platform becomes clear. We are looking to do just this, and post period end we announced the enlargement of the Exploration Area of the Concession, which automatically added a new Bainet-1 lookalike gas prospect to our inventory of targets. The new gas prospect, Bainet-West, is well defined on 2D seismic and has similar seismic attributes to Bainet-1 which was drilled to a total depth of 600m and encountered 9m of reservoir with 8m of net gas pay consisting of a good quality Sarmatian sandstone reservoir also found in producing fields in and around the Concession. Lying at a similar depth to Bainet-1, the new gas prospect, which is similarly positioned in relation to a fault, is a priority target and the operator has commenced work on securing the relevant permits in order to drill an exploration well. Based on our experience with Bainet-1, we are confident that drilling operations will be able to commence later this year.

Drilling is also a priority at the 38,000ha Tesorillo Project in southern Spain. Tesorillo lies in a proven hydrocarbon region and comprises two petroleum exploration permits, Tesorillo and Ruedalabola. Tesorillo holds the 1956 Almarchal-1 discovery well and has multi-Tcf potential over a thick section of possible gas pay, including zones which flowed gas to surface on testing. Drill stem tests and log analysis also confirmed 48m of gas play from two Miocene Aljibe Formation sandstone intervals, whilst a further 492m of potential gas play has been interpreted from logs but unconfirmed by testing. Ruedalabola contains the 1957 Puerto de Ojen-1 well, which is located 15km to the east of Almarchal and has displayed similar gas reservoir zones to Almarchal-1 but could not be tested for mechanical reasons.

As with Podere Gallina and Suceava, Tesorillo has excellent access to infrastructure being located 3.9km from the European landing point of the North African Maghreb gas pipeline, providing access to high priced European gas markets. Unlike Podere Gallina and Suceava, Prospex is acquiring an up to 49.9% interest in the project via an to earn-in option based on the results of work programmes centred on de-risking targets ahead of drilling to test a historic gas discovery and prove up the potentially significant resources. A report undertaken by Netherland Sewell and Associates in 2015 estimated that Tesorillo could hold gross unrisked Prospective Resources of 830Bcf of gas (Best Estimate), with upside in excess of 2Tcf. Following favourable progress on the 2018 work programme, in December 2018 the Company decided to increase its interest in the project from 2.5% to 15% for a net consideration of EUR153,250.

There were three strands to the 2018 work programme, the first of which was general field studies to populate the Environmental and Social Impact Assessment ('ESIA') report on Tesorillo, which is required for the permitting of two new wells, the first of which is likely to twin the Almarchal-1 discovery. As at the end of the reporting period, ca.70% of the overall fieldwork required for the ESIA had been completed with the remaining work to be carried out once a well location has been decided. The second strand was centred on a detailed surface structural geology mapping exercise by a leading expert from Granada University. The new map and related cross-sections show that the structural subsurface geometry of the exploration target, the Aljibe sandstone in the Lowermost Miocene, is possibly formed by several folds and thrust ramps of 3 to 5km length which are inferred to be potential gas traps. The third strand involved an Audio Magneto Telluric survey to help evaluate the subsurface geology of the permit area and test for resistivity as a further indication of the presence of hydrocarbons. This has been completed over key areas of interest and the raw field data acquired is currently being processed.

The results of strands two and three will increase our geological and geophysical understanding of the permit area and will be used to decide the location of the new exploration wells. The final results will also likely be fed into an updated Competent Person's Report. A further work stream is underway to reprocess raw 2D seismic data acquired by Repsol in 1991 using modern depth migration techniques. This data includes a line that intersects the Almarchal-1 well.

Financial Review

For the year ended 31 December 2018, the Company is reporting a net profit after taxation from continuing operations of GBP779,904 (2017: loss - GBP3,161,241). Unrealised gains arising on financial assets at fair value totalled GBP1,710,418 (2017: loss - GBP613,723). Administrative expenses of GBP1,064,151 for the year, before bad debt provisions for continuing operations, remained in line with those incurred during the previous year (2017: GBP1,003,630). No bad debt provisions were taken against amounts due from subsidiary undertakings during the year (2017: GBP1,543,888).

During the year, the Company raised GBP1.2m via an oversubscribed placing of 200,000,000 ordinary shares to fund the Company's share of costs of work programmes across its portfolio. This included the successful flow testing of the Podere Maiar well in Italy in Q1 2018; the tie in at the Bainet-1 gas discovery in Romania in Q2 2018; and work to further delineate the gas discovery at Tesorillo in Spain.

In October the Company raised GBP480,000 of debt capital through the issue of loan notes. These funds were raised primarily to fund the Company's share of the budgeted early stage development costs (including environmental monitoring) at the Selva gas discovery ('Selva') on the Podere Gallina Permit in Italy ('Podere Gallina'). The loan notes bear interest at 10% per annum, capitalised to 30 June 2019, with the first biannual cash payment on 31 December 2019. Capital repayments start in December 2020 with final repayment on 30 June 2022 (four equal payments).

As at 31 December 2018, the Company held cash and cash equivalents of GBP233,138 (2017: GBP850,060). Subsequent to the reporting period, in March 2019, the Company raised GBP800,000 gross via an oversubscribed placing of 400,000,000 new ordinary shares primarily to fund the Company's share of costs for the 2019 work programme at Suceava which includes plans to drill the Bainet-West prospect.

Outlook

In little more than 18 months, we have acquired material interests in three European onshore projects, drilled two wells, resulting in two commercial gas discoveries, brought one of these onto production, booked maiden gas reserves for the other, and now we have reported our first net profit. The rapid progress we have made is testament to the quality of our asset base and the rigorous screening process we apply to all potential new ventures. Our focus on late stage projects in proven hydrocarbon regions with drill-ready prospects, multiple follow-up targets, access to existing infrastructure and short timelines to activity has served us well. We intend to build on this success going forward and while there is still much to go for with our existing assets, we continue to evaluate potential new projects to grow our portfolio further.

Key to delivering shareholder value is hitting the milestones we set ourselves. Drilling success, first production and acquisitions do not happen overnight. An investment of considerable time and resources lie behind all these achievements. The seeds of the successes disclosed over the course of 2018 were very much planted in prior reporting periods. With an eye on future value generating activity, the year under review has been no different. Much work has taken place to ensure that 2018's success is no one-off and that, importantly, our shareholders continue to be exposed to the consistent flow of high impact, activity that we set out to deliver. Thanks to the work carried out over the course of the year, shareholders can expect more of the same in 2019 and beyond.

Finally, I would like to take this opportunity to thank the Board and the management team for their continued hard work and support over the course of the year. I look forward to working with them all in the year ahead, as we focus on delivering on our overriding objective which remains to generate value for all our shareholders.

Bill Smith

Non-Executive Chairman

June 2019

Consolidated Statement of Profit or Loss and Other Comprehensive Income

for the year ended 31 December 2018

 
                                       Notes                    2018                    2017 
                                                                 GBP                     GBP 
 CONTINUING OPERATIONS 
 Revenue                               4                           -                       - 
 
 Other operating income                5                      60,601                       - 
 Administrative expenses                                 (1,064,151)             (2,547,518) 
                                              ----------------------  ---------------------- 
 
 OPERATING LOSS                                          (1,003,550)             (2,547,518) 
 
 Gain/(loss) on revaluation 
  of investments                                           1,710,418               (613,723) 
 
 Loss on disposal of investments                             (8,407)                       - 
                                              ----------------------  ---------------------- 
 
                                                             698,461             (3,161,241) 
 
 Finance costs                                              (10,840)                       - 
 
 Finance income                        7                      92,283                       - 
                                              ----------------------  ---------------------- 
 
 PROFIT/(LOSS) BEFORE INCOME 
  TAX                                  8                     779,904             (3,161,241) 
 
 Income tax                            9                           -                       - 
                                              ----------------------  ---------------------- 
 
 PROFIT/(LOSS) FOR THE YEAR                                  779,904             (3,161,241) 
 
 Other comprehensive income                                        -                       - 
                                              ----------------------  ---------------------- 
 
 TOTAL COMPREHENSIVE INCOME/(LOSS) 
  FOR THE YEAR                                               779,904             (3,161,241) 
                                              ======================  ====================== 
 
 Earnings per share expressed 
  in pence per share:                  10 
 Basic                                                        0.065p                (0.580)p 
                                              ======================  ====================== 
 

Consolidated Statement of Financial Position

31 December 2018

 
                                        Note                    2018                    2017 
                                                                 GBP                     GBP 
 ASSETS 
 NON-CURRENT ASSETS 
 Property, plant and equipment          11                         -                     429 
 Investments                            12                 4,307,617               2,426,789 
 Loans and other financial assets       13                 1,013,129               1,062,587 
 Trade and other receivables            14                   897,371                       - 
                                              ----------------------  ---------------------- 
 
                                                           6,218,117               3,489,805 
                                              ----------------------  ---------------------- 
 
 CURRENT ASSETS 
 Trade and other receivables                                 396,626                 149,231 
 Cash and cash equivalents              16                   233,138                 850,060 
                                              ----------------------  ---------------------- 
 
                                                             629,764                 999,291 
                                              ----------------------  ---------------------- 
 
 TOTAL ASSETS                                              6,847,881               4,489,096 
                                              ======================  ====================== 
 
 EQUITY 
 SHAREHOLDERS' EQUITY 
 Called up share capital                                   6,035,587               5,835,587 
 Share premium                                             9,756,759               8,862,779 
 Merger reserve                                            2,416,667               2,416,667 
 Capital redemption reserve                                   43,333                  43,333 
 Retained earnings                                      (11,955,212)            (12,735,116) 
                                              ----------------------  ---------------------- 
 
 TOTAL EQUITY                                              6,297,134               4,423,250 
                                              ----------------------  ---------------------- 
 
 LIABILITIES 
 NON-CURRENT LIABILITIES 
 Financial liabilities - borrowings 
  Interest bearing loans and 
   borrowings                                                360,000                       - 
                                              ----------------------  ---------------------- 
 
 CURRENT LIABILITIES 
 Trade and other payables               17 
 Financial liabilities - borrowings     18                    70,747                  65,846 
  Interest bearing loans and 
   borrowings                                                120,000                       - 
                                              ----------------------  ---------------------- 
 
                                                             190,747                  65,846 
                                              ----------------------  ---------------------- 
 
 TOTAL LIABILITIES                                           550,747                  65,846 
                                              ----------------------  ---------------------- 
 
 TOTAL EQUITY AND LIABILITIES                              6,847,881               4,489,096 
                                              ======================  ====================== 
 

Consolidated Statement of Changes in Equity

for the Year Ended 31 December 2018

 
                                                                                                            Capital 
                                      Share                   Share                  Merger              redemption                Retained 
                                    capital                 premium                 reserve                 reserve                earnings                   Total 
                                        GBP                     GBP                     GBP                     GBP                     GBP                     GBP 
 
 Balance at 1 
  January 2017                    5,107,779               6,740,144               2,416,667                  43,333             (9,754,371)               4,553,552 
 
 Changes in 
 equity                                                                                                                                                           - 
 Loss for the year                        -                       -                       -                       -             (3,161,241)             (3,161,241) 
 Issue of shares                    727,808               2,372,193                       -                       -                       -               3,100,001 
 Costs of share 
  issue                                   -               (239,416)                       -                       -                       -               (239,416) 
 Equity-settled 
  share-based 
  payments                                -                (10,142)                       -                       -                 180,496                 170,354 
                     ----------------------  ----------------------  ----------------------  ----------------------  ----------------------  ---------------------- 
 
 Balance at 31 
  December 2017                   5,835,587               8,862,779               2,416,667                  43,333            (12,735,116)               4,423,250 
                     ----------------------  ----------------------  ----------------------  ----------------------  ----------------------  ---------------------- 
 
 Changes in 
 equity 
 Profit for the 
  year                                    -                       -                       -                       -                 779,904                 779,904 
 Issue of shares                    200,000               1,000,000                       -                       -                       -               1,200,000 
 Costs of share 
  issue                                   -               (106,020)                       -                       -                       -               (106,020) 
 Equity-settled 
 share-based 
 payments                                 -                       -                       -                       -                       -                       - 
                     ----------------------  ----------------------  ----------------------  ----------------------  ----------------------  ---------------------- 
 
 Balance at 31 
  December 2018                   6,035,587               9,756,759               2,416,667                  43,333            (11,955,212)               6,297,134 
                     ======================  ======================  ======================  ======================  ======================  ====================== 
 

Share capital

Represents the nominal value of the issued share capital.

Share premium account

Represents amounts received in excess of the nominal value on the issue of share capital less any costs associated with the issue of shares.

Merger reserve

Represents the difference between the nominal value of the share capital issued by the Company and the fair value of the subsidiary at the date of acquisition.

Capital redemption reserve

A reserve into which amounts are transferred following the redemption or purchase of the company's own shares.

Retained earnings

Represents accumulated comprehensive income for the year and prior periods.

Consolidated Statement of Cash Flows

for the year ended 31 December 2018

 
                                                           2018                    2017 
                                                            GBP                     GBP 
 Cash flows from operating activities 
 Cash generated from operations                     (2,062,306)               (972,151) 
                                           --------------------  ---------------------- 
 
 Net cash used in operating 
  activities                                        (2,062,306)               (972,151) 
                                           --------------------  ---------------------- 
 
 Cash flows from investing activities 
 Purchase of fixed asset investments                  (246,040)             (1,504,787) 
 Sale of fixed asset investments                         67,223                       - 
 Interest received                                            2                       - 
 Dividends received                                       5,261                       - 
                                           --------------------  ---------------------- 
 
 Net cash used in investing 
  activities                                          (173,554)             (1,504,787) 
                                           --------------------  ---------------------- 
 
 Cash flows from financing activities 
 New loans in year                                      480,000                       - 
 Loan repayments in year                                 44,958                       - 
 Share issue                                          1,200,000               3,100,001 
 Costs of shares issued                               (106,020)               (239,416) 
                                           --------------------  ---------------------- 
 
 Net cash from financing activities                   1,618,938               2,860,585 
                                           --------------------  ---------------------- 
 
 (Decrease)/increase in cash 
  and cash equivalents                                (616,922)                 383,647 
 
 Cash and cash equivalents at 
  beginning of year                                     850,060                 466,413 
                                           --------------------  ---------------------- 
 
 Cash and cash equivalents at 
  end of year                                           233,138                 850,060 
                                           ====================  ====================== 
 

Reconciliation of operating loss to cash generated from operating activities

 
                                                         2018                    2017 
                                                          GBP                     GBP 
 Profit/(loss) before income 
  tax                                                 779,904             (3,161,241) 
 Depreciation charges                                     429                     420 
 Loss on disposal of fixed assets                       8,407                       - 
 (Gain)/loss on revaluation 
  of fixed assets                                 (1,797,438)                 613,723 
 Equity-settled share-based 
  payments                                                  -                 170,354 
 Bad debt provision                                         -               1,543,888 
 Finance costs                                         10,840                       - 
 Finance income                                       (5,263)                       - 
                                       ----------------------  ---------------------- 
 
                                                  (1,003,121)               (832,856) 
 Increase in trade and other 
  receivables                                     (1,057,746)               (117,465) 
 Decrease in trade and other 
  payables                                            (1,439)                (21,830) 
                                       ----------------------  ---------------------- 
 
 Cash used in operations                          (2,062,306)               (972,151) 
                                       ======================  ====================== 
 

Notes to the Consolidated Financial Statements

for the year ended 31 December 2018

   1.            STATUTORY INFORMATION 

Prospex Oil and Gas Plc is registered in England and Wales and is quoted on the AIM Market of the London Stock Exchange Plc. The Company's registered number and registered office address can be found on the Company Information page.

The presentation currency of the financial statements is the Pound Sterling (GBP).

   2.            ACCOUNTING POLICIES 

Basis of preparation

The Company financial statements have been prepared in accordance with International Financial Reporting Standards as adopted by the European Union, (IFRSs) and International Financial Reporting Interpretations Committee ('IFRIC') interpretations issued by the International Accounting Standards Board (IASB) as adopted by the European Union and with those parts of the Companies Act 2006 applicable to companies reporting under IFRS.

The Company financial statements have been prepared under the historical cost convention or fair value where appropriate.

Preparation of consolidated financial statements

Subsidiaries include all entities over which the Company has the power to govern financial and operating policies. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Company controls another entity. Subsidiaries are consolidated from the date on which control commences until the date that control ceases. Intra-group balances and any unrealised gains and losses on income or expenses arising from intra-group transactions, are eliminated in preparing the consolidated financial statements.

The Company is an investment entity and, as such, does not consolidate the investment entities it controls. The Company's interests in subsidiaries are recognised at fair value through profit and loss.

Going concern

The current economic environment is challenging, and the Company has reported an operating loss for the year of GBP1,003,550. These operating losses are expected to continue in the current accounting year to 31 December 2019.

The Company regularly carries out fund-raising exercises in order that it can provide the necessary working capital and investment funds for the Company. As detailed in note 21, since the year end, the Company has raised GBP800,000 before expenses, through the issue of new ordinary shares. The board expects to continue to raise additional funding as and when required to cover the Group's development, primarily from the issue of further shares.

The Directors have prepared detailed financial forecasts and cash flows looking beyond 12 months from the date of the approval of these financial statements. In developing these forecasts, the Directors have made assumptions based upon their view of the current and future economic conditions that are expected to prevail over the forecast period. The Directors estimate that the cash held by the Company together with known receivables will be sufficient to support the current level of activities into the second quarter of 2020. The Directors are continuing to explore sources of finance available to the Company and based upon initial discussions with a number of existing and potential investors they have a reasonable expectation that they will be able to secure sufficient cash inflows for the Company to continue its activities for not less than 12 months from the date of approval of these financial statements; they have therefore prepared the financial statements on a going concern basis.

Property, plant and equipment

Depreciation is provided at the following annual rates in order to write off the cost less estimated residual value of each asset over its estimated useful life.

 
  Computer equipment  -  25% per annum on reducing balance 
 

Financial instruments

Financial assets and financial liabilities are recognised on the balance sheet when the Company becomes a party to the contractual provisions of the instrument.

Loans and receivables

These assets are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. The principal financial assets of the company are loans and receivables, which arise principally through the provision of goods and services to customers (e.g. trade receivables) but also incorporate other types of contractual monetary asset. They are included in current assets, except for maturities greater than 12 months after the balance sheet date. These are classified as non-current assets.

The Company's loans and receivables are recognised and carried at the lower of their original amount less an allowance for any doubtful amounts. An allowance is made when collection of the full amount is no longer considered possible.

The Company's loans and receivables comprise trade and other receivables and cash and cash equivalents in the consolidated statement of financial position.

Financial liabilities and equity

Financial liabilities and equity instruments are classified according to the substance of the contractual arrangements entered into. An equity instrument is any contract that evidences a residual interest in the assets of the entity after deducting all of its financial liabilities.

Where the contractual obligations of financial instruments (including share capital) are equivalent to a similar debt instrument, those financial instruments are classed as financial liabilities. Financial liabilities are presented as such in the balance sheet. Finance costs and gains or losses relating to financial liabilities are included in the profit and loss account. Finance costs are calculated so as to produce a constant rate of return on the outstanding liability.

Where the contractual terms of share capital do not have any terms meeting the definition of a financial liability then this is classed as an equity instrument. Dividends and distributions relating to equity instruments are debited direct to equity.

Equity comprises the following:

- Share capital represents the nominal value of equity shares;

- Share premium represents the excess over nominal value of the fair value of consideration received for equity shares, net of expenses of the share issue;

- Profit and loss reserve represents retained deficit;

- Other reserve represents the capital redemption reserve arising on redemption of shares in previous years and own share reserve.

Taxation

Current taxes are based on the results shown in the financial statements and are calculated according to local tax rules, using tax rates enacted or substantially enacted by the statement of financial position date.

Deferred tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. Deferred tax is determined using tax rates that have been enacted or substantially enacted at the balance sheet date and are expected to apply when the related deferred income tax asset is realised, or the deferred tax liability is settled. Deferred tax is charged or credited in the income statement, except when it relates to items charged or credited to equity, in which case the deferred tax is also dealt with in equity. Deferred tax assets are only recognised to the extent that it is probable that future taxable profit will be available against which the asset can be utilised.

Cash and cash equivalents

Cash and cash equivalents include cash at bank and in hand and short-term deposits with an original maturity of three months or less.

Trade and other payables

Trade and other payables are initially measured at fair value and subsequently measured at amortised cost using the effective interest rate method.

Hire purchase and leasing commitments

Rentals paid under operating leases are charged to the statement of comprehensive income on a straight-line basis over the period of the lease.

Employee benefit costs

The company operates a defined contribution pension scheme. Contributions payable to the company's pension scheme are charged to the income statement in the period to which they relate.

Equity-settled share-based payment

The Company makes equity-settled share-based payments. The fair value of options granted is recognised as an expense, with a corresponding increase in equity. The fair value is measured at grant date and spread over the vesting period, which is the period over which all of the specified vesting conditions are to be satisfied. The fair value of the options granted is measured based on the Black-Scholes framework, taking into account the terms and conditions upon which the instruments were granted. At each balance sheet date, the Company revises its estimate of the number of options that are expected to become exercisable. It recognises the impact of the revision to original estimates, if any, in the income statement, with a corresponding adjustment to equity.

Accounting standards issued but not yet effective and/or adopted

As at the date of approval of these financial statements, the following standards were in issue but not yet effective. These standards have not been adopted early by the company as they are not expected to have a material impact on the company's financial statements.

 
                                                                                Effective 
                                                                             date (period 
                                                                                beginning 
                                                                             on or after) 
  ---------                ----------------------------------------      ---------------- 
 IFRS 3,        Amendments resulting from Annual                               01/01/2019 
 IFRS 11         Improvements 2015-17 cycle 
 IAS 12, 
 IAS 23 
 IFRS 3         Amendments - Definition of a Business                          01/01/2020 
                Amendment - Prepayment features 
 IFRS 9          with negative compensation                                    01/01/2019 
                Leases - recognition, measurement, 
 IFRS 16         presentation and disclosure                                   01/01/2019 
 IFRS 17        Insurance contracts                                            01/01/2021 
 IAS 1 
 and IAS 
 8              Amendments - Definition of Material                            01/01/2020 
                Amendment - Plan Amendment, Curtailment 
 IAS 19         or Settlement                                                  01/01/2019 
                Amendment - Long term interests 
 IAS 28          in Associates and Joint Ventures                              01/01/2019 
-----------    ----------------------------------------------------        -------------- 
 

The International Financial Reporting Interpretations Committee has also issued interpretations which the company does not consider will have a significant impact on the financial statements.

   3.            CRITICAL ACCOUNTING JUDGEMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY 

The preparation of the financial information in conformity with IFRS requires the use of certain critical accounting estimates that affect the reported amounts of assets and liabilities at the date of the financial information and the reported amounts of revenue and expenses during the reporting period. Although these estimates are based on management's best knowledge of the amounts, events or actions, actual results ultimately may differ from these estimates. The estimates and underlying assumptions are as follows:

Investment entities

The judgements, assumptions and estimates involved in the Company's accounting policies that are considered by the Board to be the most important to the portrayal of its financial condition are the fair valuation of the investment and the assessment regarding investment entities. The investment portfolio is held at fair value. The Directors review the valuations policies, process and application to individual investments.

Entities that meet the definition of an investment entity within IFRS 10 are required to account for most investments in controlled entities, as well as investments in associates and joint ventures, at fair value through profit and loss. The Board has concluded that the Company continues to meet the definition of an investment entity as its strategic objective of investing in portfolio investments for the purpose of generating returns in the form of investment income and capital appreciation remains unchanged.

Fair value is the underlying principle and is defined as "the price that would be received to sell an asset in an orderly transaction between market participants at the measurement date". Fair value is therefore an estimate and, as such, determining fair value requires the use of judgement. The quoted assets in our portfolio are valued at their closing bid price at the balance sheet date. The largest investment in the portfolio, however, is represented by an unquoted investment.

Impairment of assets

The Company's principal investments are in wholly owned unquoted subsidiaries which each have a minority interest in overseas entities with oil and gas assets.

The Company is required to test, on an annual basis, whether its non-current assets have suffered any impairment. Determining whether these assets are impaired requires an estimation of the value in use of the cash-generating units to which the assets have been allocated. The value in use calculation requires the Directors to estimate the future cash flows expected to arise from the cash-generating unit and a suitable discount rate to calculate the present value. Subsequent changes to the cash generating unit allocation or to the timing of cash flows could impact on the carrying value of the respective assets.

The calculation of value-in-use for oil and gas assets under development or in production is most sensitive to the following assumptions:

- Commercial reserves

- production volumes;

- commodity prices;

- fixed and variable operating costs;

- capital expenditure; and

- discount rates.

A potential change in any of the above assumptions may cause the estimated recoverable value to be lower than the carrying value, resulting in an impairment loss. The assumptions which would have the greatest impact on the recoverable amounts of the fields are production volumes and commodity prices

Recoverability of other financial assets

The majority of the Company's financial assets represent loans provided to its subsidiaries, which are associated with funding of mineral exploration and development projects. The recoverability of such loans is dependent upon the discovery of economically recoverable reserves, the ability of the Company to maintain necessary financing to complete the development of the reserves and future profitable production or proceeds from the disposition thereof.

Share based payments

The estimates of share-based payments requires that management selects an appropriate valuation model and make decisions on various inputs into the model including the volatility of its own share price, the probable life of the options before exercise, and behavioural consideration of employees.

Deferred tax assets

Deferred taxation is provided for using the liability method. Deferred tax assets are recognised in respect of tax losses where the Directors believe that it is probable that future profits will be relieved by the benefit of tax losses brought forward. The Board considers the likely utilisation of such losses by reviewing budgets and medium-term plans for the Company. The Directors have decided that no deferred tax asset should be recognised at 31 December 2018. If the actual profits earned by the Company differs from the budgets and forecasts used then the value of such deferred tax assets may differ from that shown in these financial statements.

   4.            REVENUE 

Segmental reporting

The Company is an Investing Company. The results for this continuing operation, all of which were carried out in the UK, are disclosed in the Income Statement. The net assets as at 31 December 2018 as shown on the Statement of Financial Position all relate to the Investment activity.

   5.            OTHER OPERATING INCOME 
 
                                      2018                      2017 
                                       GBP                       GBP 
 Sundry receipts                    60,601                         - 
                        ==================    ====================== 
 
   6.            EMPLOYEES AND DIRECTORS 
 
                                        2018              2017 
                                         GBP               GBP 
 Wages and salaries                  406,603           283,879 
 Social security costs                42,293            30,088 
 Other pension costs                  20,892            13,500 
                            ----------------  ---------------- 
 
                                     469,788           327,467 
                            ================  ================ 
 

Under the Pensions Act 2008, every UK employer must put certain staff into a pension scheme and contribute to it. The Company auto-enrolled its eligible employees in a defined contribution scheme. The charge to the Statement of Profit or Loss represents the amounts paid to the scheme. At the year end, the amount due to the pension scheme was GBPnil (2017: GBPnil)

The average number of employees during the year was as follows:

 
                                2018                    2017 
 
 Directors                         4                       4 
 Staff                             3                       - 
                --------------------  ---------------------- 
 
                                   7                       4 
                ====================  ====================== 
 
 
                                                  2018             2017 
                                                   GBP              GBP 
 Directors' remuneration                       183,400          147,133 
 Directors' pension contributions               13,083           12,350 
                                       ---------------  --------------- 
 
                                               196,483          159,483 
                                       ===============  =============== 
 

Details of Directors' remuneration can be found in note 24.

   7.            NET FINANCE INCOME 
 
                                                     2018                      2017 
                                                      GBP                       GBP 
 Finance income: 
 Dividend received                                  5,261                         - 
 Interest receivable on group 
  loan                                             87,020                         - 
 Deposit account interest                               2                         - 
                                     --------------------    ---------------------- 
 
                                                   92,283                         - 
                                     ====================    ====================== 
 
 Finance costs: 
 Loan interest payable                             10,840                         - 
                                     ====================    ====================== 
 
 Net finance income                                81,443                         - 
                                     ====================    ====================== 
 
                  8.    PROFIT/(LOSS) BEFORE INCOME TAX 

The profit before income tax (2017 - loss before income tax) is stated after charging/(crediting):

 
                                                           2018                2017 
                                                            GBP                 GBP 
 Other operating leases                                  42,841              31,927 
 Depreciation - owned assets                                429                 420 
 Auditors' remuneration                                  20,000              16,250 
 Foreign exchange differences                           (4,315)            (10,572) 
 Bad debt provision against amounts 
  due from subsidiaries                                       -           1,543,888 
                                         ======================  ================== 
 
   9.            INCOME TAX 

Analysis of tax expense

No liability to UK corporation tax arose for the year ended 31 December 2018 nor for the year ended 31 December 2017.

Factors affecting the tax expense

The tax assessed for the year is lower (2017 - higher) than the standard rate of corporation tax in the UK. The difference is explained below:

 
                                                                 2018                    2017 
                                                                  GBP                     GBP 
 Profit/(loss) before income 
  tax                                                         779,904             (3,161,241) 
                                               ======================  ====================== 
 
 Profit/(loss) multiplied by the standard 
  rate of corporation tax in the UK of 
  19.00% (2017 - 19.25%)                                      148,182               (608,539) 
 
 Effects of: 
 Non-deductible expenses                                        2,222                 330,280 
 Depreciation add back                                             82                      81 
 Losses used for group relief                                   5,124                       - 
 Tax losses not utilised                                      168,772                 164,720 
 Unrealised chargeable (gains)/losses                       (324,979)                 113,458 
 Loss on sale of investments                                    1,597                       - 
 Other tax adjustments                                        (1,000)                       - 
                                               ----------------------  ---------------------- 
 
                                                                    -                       - 
                                               ======================  ====================== 
 

There is no provision for UK Corporation Tax due to adjusted losses for tax purposes, subject to agreement with HM Revenue and Customs. The deferred asset of approximately GBP0.98m (2017: GBP0.93m) arising from the accumulated tax losses of approximately GBP5.7m (2017: GBP4.8m) carried forward has not been recognised but may become recoverable against future trading profits.

Changes in the applicable tax rates

The main rate of UK corporation tax is 19% effective from 1 April 2017. The main rate will reduce from 19% to 17% from 1 April 2020.

   10.         EARNINGS PER SHARE 

The loss and number of shares used in the calculation of earnings per ordinary share are set out below:

 
                                                    2018          2017 
                                                     GBP           GBP 
 Basic: 
 Profit/(loss)for the financial 
  period                                         779,904   (3,161,241) 
                                     ===================  ============ 
 
 Weighted average number of 
  ordinary shares                          1,202,086,287   544,580,539 
                                     ===================  ============ 
 

The loss and the weighted average number of shares used for calculating the diluted loss per share are identical to those for the basic profit/loss per share. The outstanding share options and share warrants (note 23) exercise prices are above the average market price of the shares and would therefore not be dilutive under IAS 33 'Earnings per Share'.

   11.         PROPERTY, PLANT AND EQUIPMENT 
 
                                                 Computer 
                                                equipment 
                                                      GBP 
 COST 
 At 1 January 2018 and 31 
  December 2018                                     1,699 
                                   ---------------------- 
 
 DEPRECIATION 
 At 1 January 2018                                  1,270 
 Charge for year                                      429 
                                   ---------------------- 
 
 At 31 December 2018                                1,699 
                                   ---------------------- 
 
 NET BOOK VALUE 
 At 31 December 2018                                    - 
                                   ====================== 
 
 At 31 December 2017                                  429 
                                   ====================== 
 

Computer

   12.         INVESTMENTS 
 
                                Shares in group 
                                   undertakings      Listed investments    Unlisted investments          Total 
                                            GBP                     GBP                     GBP            GBP 
 COST OR VALUATION 
 At 1 January 2017                    2,308,600                 131,712                 100,000      2,540,312 
 Additions                              500,200                       -                       -        500,200 
 Revaluations                         (665,553)                  51,830                       -      (613,723) 
                        -----------------------  ----------------------  ----------------------  ------------- 
 
 At 1 January 2018                    2,143,247                 183,542                 100,000      2,426,789 
 Additions                              246,040                       -                       -        246,040 
 Disposals                                    -                (75,630)                       -       (75,630) 
 Revaluations                         1,764,778                (29,360)                (25,000)      1,710,418 
                        -----------------------  ----------------------  ----------------------  ------------- 
 
 At 31 December 2018                  4,154,065                  78,552                  75,000      4,307,617 
                        -----------------------  ----------------------  ----------------------  ------------- 
 
 NET BOOK VALUE 
 At 31 December 2018                  4,154,065                  78,552                  75,000      4,307,617 
                        =======================  ======================  ======================  ============= 
 
 At 31 December 2017                  2,143,247                 183,542                 100,000      2,426,789 
                        =======================  ======================  ======================  ============= 
 

The company's investments at the Statement of Financial Position date in the share capital of companies include the following:

 
 PXOG County Limited 
 Registered office: England 
  & Wales 
 Nature of business: Investment 
  entity 
 
 Class of shares:                      % holding 
 Ordinary                               100.00 
                                                        2018                    2017 
                                                         GBP                     GBP 
 Aggregate capital and reserves                         (26)                    (13) 
 Loss for the year                                      (13)             (3,852,501) 
                                                  ==========  ====================== 
 
 PXOG Massey Limited 
 Registered office: England 
  & Wales 
 Nature of business: Investment 
  entity 
 
 Class of shares:                      % holding 
 Ordinary                               100.00 
                                                        2018                    2017 
                                                         GBP                     GBP 
 Aggregate capital and reserves                      585,094                (48,323) 
 Profit/(loss) for the year                          633,417                (48,423) 
                                                  ==========  ====================== 
 
 PXOG Marshall Limited 
 Registered office: England 
  & Wales 
 Nature of business: Investment 
  entity 
 
 Class of shares:                      % holding 
 Ordinary                               100.00 
                                                        2018                    2017 
                                                         GBP                     GBP 
 Aggregate capital and reserves                    3,568,671               2,142,947 
 Profit for the year                               1,179,684               1,642,947 
                                                  ==========  ====================== 
 
 PXOG Muirhill Limited 
 Registered office: England 
  & Wales 
 Nature of business: Investment 
  entity 
 
 Class of shares:                      % holding 
 Ordinary                               100.00 
                                                        2018                    2017 
                                                         GBP                     GBP 
 Aggregate capital and reserves                        (413)                     100 
 Loss for the year                                     (513)                       - 
                                                  ==========  ====================== 
 

Investments are recognised and de-recognised on the date when their purchase or sale is subject to a relevant contract and the associated risks and rewards have been transferred. The Company manages its investments with a view to profiting from the receipt of investment income and capital appreciation from changes in the fair value of investments.

All investments are initially recognised at the fair value of the consideration given and are subsequently measured at fair value through profit and loss.

Unquoted investments, including both equity and loans are designated at fair value through profit and loss and are subsequently carried in the statement of financial position at fair value. Fair value is determined in line with the fair value guidelines under IFRS.

In accordance with IFRS 10, the proportion of the investment portfolio held by the Company's unconsolidated subsidiaries is presented as part of the fair value of investment entity subsidiaries, along with the fair value of their other assets and liabilities.

The holding period of the Company's investment portfolio is on average greater than one year. For this reason, the portfolio is classified as non-current. It is not possible to identify with certainty investments that will be sold within one year.

Investments in investment entity subsidiaries are accounted for as financial instruments at fair value through profit and loss and are not consolidated in accordance with IFRS10.

These entities hold the Company's interests in investments in portfolio companies. The fair value can increase or reduce from either cash flows to/from the investment entities or valuation movements in line with the Company's valuation policy. The fair value of these entities is their net asset values.

The Directors determine that in the ordinary course of business, the net asset values of an investment entity subsidiary are considered to be the most appropriate to determine fair value. At each reporting period, they consider whether any additional fair value adjustments need to be made to the net asset values of the investment entity subsidiaries. These adjustments may be required to reflect market participants' considerations about fair value that may include, but are not limited to, liquidity and the portfolio effect of holding multiple investments within the investment entity subsidiary.

 
 13.                    LOANS AND OTHER FINANCIAL ASSETS 
                                          Loans to group undertakings 
                                                                  GBP 
 At 1 January 2018                                          1,062,587 
 New in year                                                 (49,458) 
                                     -------------------------------- 
 
 At 31 December 2018                                        1,013,129 
                                     ================================ 
 
 
   14.   TRADE AND OTHER RECEIVABLES 
 
                                                       2018                    2017 
                                                        GBP                     GBP 
 Current: 
 Amounts owed by group undertakings                 338,398                 113,364 
 Other debtors                                       36,035                       - 
 Rent deposit                                        10,242                   2,026 
 VAT                                                  9,121                  28,408 
 Prepayments and accrued income                       2,830                   5,433 
                                           ----------------  ---------------------- 
 
                                                    396,626                 149,231 
                                           ================  ====================== 
 
 Non-current: 
 Amounts owed by group undertakings                 897,373                       - 
                                           ================  ====================== 
 
 Aggregate amounts                                1,293,999                 149,231 
                                           ================  ====================== 
 

The loss and the weighted average number of shares used for calculating the diluted loss per share are identical to those for the basic profit/loss per share. The outstanding share options and share warrants (note 23) exercise prices are above the average market price of the shares and would therefore not be dilutive under IAS 33 'Earnings per Share'.

   15.         CASH AND CASH EQUIVALENTS 
 
                               2018           2017 
                                GBP            GBP 
 Bank accounts              233,138        850,060 
                      =============  ============= 
 

The Directors consider that the carrying amount of cash and cash equivalents approximates to their fair value. All of the Company's cash and cash equivalents are at floating rates of interest.

   16.         CALLED UP SHARE CAPITAL 
 
                                                  2018                    2017            2018            2017 
                                                Number                  Number             GBP             GBP 
 Allotted, issued and fully 
  paid 
 Ordinary shares of 0.1p each            1,213,593,136           1,013,593,136       1,213,593       1,013,593 
 Deferred shares of 0.1p each              942,462,000             942,462,000         942,462         942,462 
 Deferred shares of GBP24 
  each                                          54,477                  54,477       1,307,459       1,307,459 
 Deferred shares of 0.9p each              285,785,836             285,785,836       2,572,073       2,572,073 
                                 =====================  ======================  --------------  -------------- 
 
                                                                                     6,035,587       5,835,587 
                                                                                ==============  ============== 
 

On 22 January 2018, the Company raised GBP1,200,000 gross via a placing of 200,000,000 ordinary shares of GBP0.001 each at a price of 0.6 pence per ordinary share. The net proceeds of the Placing ensured that the Company was fully funded for its 2018 work programmes across its portfolio of investments in late stage European onshore oil and gas projects.

The deferred shares have no rights to vote, attend or speak at general meetings of the Company or to receive any dividend or other distribution and have limited rights to participate in any return of capital on a winding-up or liquidation of the Company.

   17.   TRADE AND OTHER PAYABLES 
 
                                                            2018                   2017 
                                                             GBP                    GBP 
 Current: 
 Trade creditors                                          20,513                 28,681 
 Amounts owed to group undertakings                            -                      3 
 Social security and other 
  taxes                                                   15,394                 11,362 
 Accruals and deferred income                             34,840                 25,800 
                                           ---------------------  --------------------- 
 
                                                          70,747                 65,846 
                                           =====================  ===================== 
 

The Directors consider that the carrying amount of trade and other payables approximates to their fair value.

 
18.  FINANCIAL LIABILITIES - BORROWINGS 
                                                 2018                      2017 
                                                  GBP                       GBP 
      Current: 
      Unsecured loan notes                    120,000                         - 
                                      ===============    ====================== 
 
      Non-current: 
      Unsecured loan notes                    360,000                         - 
                                      ===============    ====================== 
 
 
                                  1 year or less       1-2 years          Totals 
                                             GBP             GBP             GBP 
 Unsecured loan notes                    120,000         360,000         480,000 
                           =====================  ==============  ============== 
 

Terms and debt repayment schedule

The Company raised GBP480,000 via the issue of unsecured Loan Notes ('the Loan Notes') to new and existing investors ('the Subscribers'). In addition, the Subscribers have been issued with 55 warrants ('the Warrants') for each GBP1 of Loan Note subscribed. Each Warrant confers to the Subscriber the right to acquire one Ordinary Share at 0.6p (note 23).

The proceeds of the Loan Notes will be used to fund the Company's share of the budgeted early stage development costs (including environmental monitoring) at the Selva gas discovery on the Podere Gallina Permit in Italy in 2019 and cover the Company's general expenditure in 2019. The Company anticipates being able to fund the full development of the gas discovery and further exploration in the proposed production concession from this and further non-equity funding as the project progresses.

The Loan Notes will pay 10% interest per annum, every six months, capitalised to 30 June 2019, with the first cash payment to be made on 31 December 2019. Repayments start in December 2020 with final repayment on 30 June 2022 (four equal payments) and fit conservatively with expected first production at Selva in mid-2020.

19. FINANCIAL INSTRUMENTS

The principal financial instruments used by the Company, from which financial instrument risk arises are as follows:

- Trade and other receivables

 
                                                2018               2017 
                                                 GBP                GBP 
 Financial assets 
 Loans and receivables: 
 Trade and other receivables                  58,225              5,433 
 Cash and cash equivalents                   233,622            850,060 
                                    ----------------  ----------------- 
 
                                             291,847            855,493 
                                    ================  ================= 
 
 Other assets at amortised 
  costs: 
 Amounts owed to group 
  undertakings                             2,253,420          1,175,951 
                                    ================  ================= 
 
 Financial liabilities 
 Trade and other payables                     70,747             65,846 
                                    ================  ================= 
 

- Cash and cash equivalents

- Trade and other payables

A summary of the financial instruments held by category is provided below:

Financial assets at fair value through profit or loss

 
                                             Fair value measurement 
                          ----------------------------------------------------------- 
 
                                       Level                   Level            Level 
                                           1                       2                3 
                                         GBP                     GBP              GBP 
 
 At 31 December 2018                  78,552                       -        4,229,065 
                          ==================  ======================  =============== 
 
 At 31 December 2017                 183,542                       -        2,243,247 
                          ==================  ======================  =============== 
 

The financial assets at fair value through profit and loss are the Company's holdings in subsidiary undertakings, quoted securities and one unquoted security. The quoted security falls within Level 1 of the fair value hierarchy as defined by IFRS 13 whereas the investments in subsidiary undertakings and unquoted security fall within Level 3.

Financial risk management

The Company's activities expose it to a variety of risks including market risk (foreign currency risk and interest rate risk), credit risk and liquidity risk. The Company manages these risks through an effective risk management programme and through this programme, the Board seeks to minimise potential adverse effects on the Company's financial performance.

The Board provides written objectives, policies and procedures with regards to managing currency and interest risk exposures, liquidity and credit risk including guidance on the use of certain derivative and non-derivative financial instruments

Credit risk

Credit risk is the risk of financial loss to the Company if a customer or counterparty to a financial instrument fails to meet its contractual obligations. The Company's credit risk is primarily attributable to its receivables and its cash deposits. It is Company policy to assess the credit risk of new customers before entering contracts. The credit risk on liquid funds is limited because the counterparties are banks with high credit-ratings assigned by international credit-rating agencies.

Liquidity risk and interest rate risk

Liquidity risk arises from the Company's management of working capital. It is the risk that the Company will encounter difficulty in meeting its financial obligations as they fall due. The Board regularly receives cash flow projections for a minimum period of 12 months, together with information regarding cash balances monthly.

The Company is principally funded by equity and invests in short-term deposits, having access to these funds at short notice. The Company's policy throughout the period has been to minimise interest rate risk by placing funds in risk free cash deposits but also to maximise the return on funds placed on deposit.

All cash deposits attract a floating rate of interest. The benchmark rate for determining interest receivable and floating rate assets is linked to the UK base rate.

Foreign currency exposure

At 31 December 2018, the Company's monetary assets and liabilities are denominated in GBP Sterling, the functional currency of the Company, other than EUR76,034 (GBP68,015) of cash at bank. This exposure gives rise to net currency gains and losses recognised in the Statement of Comprehensive Income. A 10% fluctuation in the GBP sterling rate compared to the Euro would give rise to a GBP6,802 gain or loss in the Company's Statement of Comprehensive Income.

Although the Company has a Euro bank account it has no formal policies in place to hedge the Company's activities to the exposure to currency risk. It is the Company's policy to ensure that it enters into transactions its functional currency wherever possible.

Management regularly monitor the currency profile and obtain informal advice to ensure that the cash balances are held in currencies which minimise the impact on the results and position of the Company from foreign exchange movements.

20. RELATED PARTY DISCLOSURES

Included in loans to group undertakings is an amount of GBP1,543,888 (2017: GBP1,543,888) due from PXOG County Limited, the company's wholly owned subsidiary. At the year end, a provision of GBP1,543,888 (2017: GBP1,543,888) was made against this balance. Included in trade and other receivables is an amount of GBP14,526 (2017: GBP13) due from PXOG County Limited.

Included in loans to group undertakings is an amount of GBP1,013,129 (2017: GBP1,062,587) due from PXOG Massey Limited, the company's wholly owned subsidiary. Included in trade and other payables is an amount of GBP4,500 (2017: GBPnil) due to PXOG Massey Limited.

Included in trade and other receivables - non-current - is an amount of GBP897,371 (2017: current - GBP113,350) due from PXOG Marshall Limited, the company's wholly owned subsidiary. Interest receivable of GBP87,020 (2017: GBPnil) has been accounted for through the Statement of Profit or Loss.

Included in trade and other receivables is an amount of GBP 323,872 (2017: payable - GBP3) due from PXOG Muirhill Limited, the company's wholly owned subsidiary.

During the year, there were consultancy fees of GBP15,000 (2017: GBP12,000) and GBP7,800 (2017: GBP16,000) charged by Sallork Limited and Sallork Legal and Commercial Consulting Limited ("Sallork") respectively. Included in trade payables at the year end is GBP1,500 (2017: GBP6,674) and GBP800 (2017: GBPnil) owing to Sallork Limited and Sallork Legal and Commercial Consulting Limited respectively. Richard Mays is a director and shareholder of of both these companies.

Included in trade and other payables are the following balances due to Directors as at 31 December 2018.

 
                                       2018                      2017 
                                        GBP                       GBP 
 
 William Smith                        7,745                         - 
                          =================    ====================== 
 

The following Directors subscribed to the unsecured loan notes (note 18):

 
                                     2018                      2017 
                                      GBP                       GBP 
 
 Richard Mays                      50,000                         - 
 William Smith                     50,000                         - 
 James Smith                       25,000                         - 
                          ===============    ====================== 
 

21. EVENTS AFTER THE REPORTING PERIOD

In March 2019, the Company raised GBP800,000 before expenses by way of a placing of 400,000,000 new ordinary shares of GBP0.001 each in the Company at a price of 0.2 pence per share (the "Placing Price") (the "Placing"). The Placing was undertaken with new and existing investors.

The net proceeds of the Placing should ensure Prospex is fully funded for its basic 2019 work programmes across its portfolio of investments in late stage European onshore oil and gas projects.

The Placing was completed by Novum Securities Limited ("Novum"), which was issued with 8,125,000 warrants to subscribe for, in aggregate, 8,125,000 new Ordinary Shares at an exercise price of 0.4 pence per new Ordinary Share for a period of 3 years from Admission.

22. ULTIMATE CONTROLLING PARTY

In the opinion of the Directors, there is no ultimate controlling party.

23. SHARE-BASED PAYMENT TRANSACTIONS

Share options

At 31 December 2017 and 31 December 2018 outstanding awards to subscribe for ordinary shares of 1p each in the Company, granted in accordance with the rules of the share option scheme, were as follows:

 
                                                         Weighted            Weighted 
                                                          average             average 
                                                        remaining            exercise 
                                       Shares         contractual               price 
                                 under option        life (years)             (pence) 
 31 December 2018 
 Brought forward                   95,653,810                2.80                0.78 
 Granted                                    -                   -                   - 
 Lapsed                             (812,000)                                  (3.05) 
                       ----------------------  ------------------  ------------------ 
 
 Carried forward                   94,841,810                1.76                0.76 
                       ======================  ==================  ================== 
 
                                                         Weighted            Weighted 
                                                          average             average 
                                                        remaining            exercise 
                                       Shares         contractual               price 
                                 under option        life (years)             (pence) 
 31 December 2017 
 Brought forward                   24,632,061                3.59                2.74 
 Granted                           71,226,149                3.00                0.52 
 Lapsed                             (204,400) 
                       ----------------------  ------------------  ------------------ 
 
 Carried forward                   95,653,810                1.76                0.78 
                       ======================  ==================  ================== 
 

All options were exercisable at the year end. No options were exercised during the year.

The following share-based payment arrangements were in existence at the year-end.

 
                                                                                Fair 
                                                                               value 
                                                       Expiry   Exercise    at grant 
 Options                                  Number         date      price        date 
 1. Granted 30 April 
  2012                                    40,000   30/04/2022    125.00p      47.50p 
 2. Granted 16 April 
  2015                                 2,847,116   15/04/2025      3.05p       1.94p 
 3. Granted 22 September 
  2016                                 1,434,209   22/09/2019      1.00p       0.53p 
 4. Granted 22 September 
  2016                                13,694,336   22/09/2019      1.00p       0.31p 
 5. Granted 22 September 
  2016                                 4,164,000   22/09/2019      1.10p       0.29p 
 6. Granted 23 December 
  2016                                 1,436,000   23/12/2019      1.10p       0.53p 
 7. Granted 13 November 
  2017                                71,226,149   13/11/2020      0.52p       0.29p 
                            ====================  ===========  =========  ========== 
 

The fair value of remaining share options has been calculated using the Black Scholes model. The assumptions used in the calculation of the fair value of the share options outstanding during the year are as follows:

 
                       Grant 
                        date                             Expected   Risk-free 
                       share   Exercise      Expected      option    interest 
 Options               price      price    volatility        life        rate 
 1. Granted 30                                                      0.24% 
  April 2012         175.00p    125.00p        32.00%   3.5 years    - 0.43% 
 2. Granted 16 
  April 2015           4.00p      3.05p        71.50%     3 years       0.71% 
 3. Granted 22 
  September 2016       1.70p      1.00p        71.00%     3 years       0.10% 
 4. Granted 22 
  September 2016 
  *                    1.70p      1.00p        71.00%     3 years       0.10% 
 5. Granted 22 
  September 2016 
  *                    1.70p      1.10p        71.00%     3 years       0.10% 
 6. Granted 23 
  December 2016 
  *                    2.50p      1.10p        79.00%     3 years       0.28% 
 7. Granted 13 
  November 2017        0.51p      0.52p        96.80%     3 years       0.56% 
                    ========  =========  ============  ==========  ========== 
 

* These options vest once the share price of the Company has closed at 5p or higher for 5 consecutive trading days.

The fair value has been calculated assuming that there will be no dividend yield.

Volatility was determined by reference to the standard deviation of expected share price returns based on a statistical analysis of daily share prices over a 3 year period to grant date. All of the above options are equity settled and the charge for the year is GBPnil (2017: GBP170,354).

Warrants

At 31 December 2018, outstanding warrants to subscribe for ordinary shares of 0.1p each in the Company, granted in accordance with the warrant instruments issued by Prospex, were as follows. There are no comparatives as no warrants were in existence prior to this year. Following the year end, the company which was granted these warrants entered Administration, at which point the warrants lapsed.

 
                                                        Weighted 
                                                         average           Weighted 
                                                       remaining            average 
                                       Shares        contractual           exercise 
                                        under               life              price 
                                      warrant            (years)            (pence) 
 31 December 2018 
 Brought forward                    8,500,000               1.14               1.25 
 Granted                           26,400,000               2.00               0.60 
 Lapsed                                     - 
                       ----------------------  -----------------  ----------------- 
 
 Carried forward                   34,900,000               1.38               0.76 
                       ======================  =================  ================= 
 
                                                        Weighted 
                                                         average           Weighted 
                                                       remaining            average 
                                       Shares        contractual           exercise 
                                        under               life              price 
                                      warrant            (years)            (pence) 
 31 December 2017 
 Brought forward                            - 
 Granted                            8,500,000               2.00               1.25 
 Lapsed                                     - 
                       ----------------------  -----------------  ----------------- 
 
 Carried forward                    8,500,000               1.14               0.78 
                       ======================  =================  ================= 
 

All warrants were exercisable at the year end.

The following warrants were in existence at the year end.

 
                                                                           Fair 
                                                                          value 
                                                  Expiry   Exercise    at grant 
 Warrants                            Number         date      price        date 
 1. Granted 20 February 
  2017                            8,500,000   21/02/2019      1.25p       0.22p 
 2. Granted 12 October 2018      26,400,000   12/10/2021      0.60p         N/A 
                               ============  ===========  =========  ========== 
 

The fair value of the remaining warrants has been calculated using the Black-Scholes model. The assumptions used in the calculation of the fair value of the share options outstanding during the year are as follows:

 
                             Grant 
                              date                            Expected   Risk-free 
                             share   Exercise      Expected     option    interest 
 Options                     price      price    volatility       life        rate 
 1. Granted 20 February 
  2017                       0.52p      1.25p        98.00%    2 years       0.13% 
 2. Granted 12 October 
  2018                       0.32p      0.60p           N/A        N/A         N/A 
                           =======  =========  ============  =========  ========== 
 

The warrants granted on 12 October 2018 fall outside the scope of IFRS and as such no charge is made.

The fair value has been calculated assuming that there will be no dividend yield.

Volatility was determined by reference to the standard deviation of expected share price returns based on a statistical analysis of daily share prices over a 3-year period to grant date.

All of the warrants are equity settled and the charge for the year is GBPnil (2017: GBP10,142). As the warrants relating to the charge for 2017 were all in consideration of shares issued during that year, it was taken directly to equity and charged against the share premium as costs in respect of the issue of shares.

   24.         DIRECTORS' EMOLUMENTS 

Key management personnel are those persons having authority and responsibility for planning, directing and controlling activities of the Company, including all directors of the Company.

 
                                          2018              2017 
                                           GBP               GBP 
 Directors' emoluments                 183,400           147,333 
 Benefit in kind                         4,200             4,200 
 Pension contributions                  13,083            12,350 
                              ----------------  ---------------- 
 
                                       200,683           163,883 
                              ================  ================ 
 
 
                   Salaries                 Benefit                 Pension 
                   and fees                 in kind           contributions             2018              2017 
                        GBP                     GBP                     GBP              GBP               GBP 
 Edward 
  Dawson            130,000                   4,200                  13,083          147,283           127,883 
 William 
  Smith              18,000                       -                       -           18,000            12,000 
 Richard 
  Mays               15,000                       -                       -           15,000            12,000 
 James 
  Smith              20,400                       -                       -           20,400            12,000 
            ---------------  ----------------------  ----------------------  ---------------  ---------------- 
 
                    183,400                   4,200                  13,083          200,683           163,883 
            ===============  ======================  ======================  ===============  ================ 
 

The number of directors for whom retirement benefits are accruing under money purchase pension schemes amounted to 1 (2017: 1).

The Directors interests in share options as at 31 December 2018 are as follows:

 
                          Options 
                            at 31                                First        Final 
                         December   Exercise      Date of      date of      date of 
 Director                    2018      price        grant     exercise     exercise 
 Edward Dawson            680,212      3.05p   14/04/2015   14/04/2015   14/04/2025 
 Edward Dawson            971,663      1.00p   22/09/2016   22/09/2016   22/09/2019 
 Edward Dawson 
  *                     4,438,000      1.00p   22/09/2016   22/09/2016   22/09/2019 
 Edward Dawson 
  *                     1,292,000      1.10p   22/09/2016   22/09/2016   22/09/2019 
 Edward Dawson         16,940,273      0.52p   13/11/2017   13/11/2017   13/11/2020 
 Richard Mays             541,726      3.05p   14/04/2015   14/04/2015   14/04/2025 
 Richard Mays              20,196      1.00p   22/09/2016   22/09/2016   22/09/2019 
 Richard Mays 
  *                     2,327,418      1.00p   22/09/2016   22/09/2016   22/09/2019 
 Richard Mays 
  *                     1,436,000      1.10p   22/09/2016   22/09/2016   22/09/2019 
 Richard Mays          10,395,168      0.52p   13/11/2017   13/11/2017   13/11/2020 
 William Smith            541,726      3.05p   14/04/2015   14/04/2015   14/04/2025 
 William Smith             20,196      1.00p   22/09/2016   22/09/2016   22/09/2019 
 William Smith 
  *                     2,327,418      1.00p   22/09/2016   22/09/2016   22/09/2019 
 William Smith 
  *                     1,436,000      1.10p   22/09/2016   22/09/2016   22/09/2019 
 William Smith         10,395,168      0.52p   13/11/2017   13/11/2017   13/11/2020 
 James Smith *          1,436,000      1.10p   23/12/2016   23/12/2016   23/12/2019 
 James Smith           10,395,168      0.52p   13/11/2017   13/11/2017   13/11/2020 
                  ===============  =========  ===========  ===========  =========== 
 

* These options vest once the share price of the Company has closed at 5p or higher for 5 consecutive trading days.

The options awarded to Richard Mays are held in the name of Sallork Limited, a company he owns and controls.

The Directors interests in share warrants as at 31 December 2018 are as follows:

 
                           Warrants                                  Final 
                     at 31 December   Exercise         Date           date 
                               2018      price     of grant    of exercise 
 Richard Mays             2,750,000      0.60p   22/10/2018     22/10/2020 
 William Smith            2,750,000      0.60p   03/10/2018     03/10/2020 
 James Smith              1,375,000      0.60p   12/10/2018     12/10/2020 
                   ================  =========  ===========  ============= 
 
   25.         PUBLICATION OF REPORT AND ACCOUNTS 

The report and accounts for the year ended 31 December 2018 will be posted to shareholders shortly and will be available from the Company's website: http://www.prospexoilandgas.com .

This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.

END

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