PETREL RESOURCES PLC

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2019

PETREL RESOURCES PLC

CONSOLIDATED BALANCE SHEET AS AT 31 DECEMBER 2019

PETREL RESOURCES PLC

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2019

** For further information refer to Note 5.

Share premium

Share premium reserve comprises of a premium arising on the issue of shares. Share issue expenses are expensed through the statement of comprehensive income when incurred.

Capital redemption reserve

On 25 July 2018 the shareholders approved the buy back and cancellation of 16,747,368 shares for nominal consideration from Amira Petroleum N.V., Amira International Holdings Limited and their advisors.  These shares were immediately cancelled upon their repurchase and the cost of these shares were transferred into the Capital redemption reserve.

Capital conversion reserve fund

The ordinary shares of the company were renominalised from €0.0126774 each to €0.0125 each in 2001 and the amount by which the issued share capital of the company was reduced was transferred to the capital conversion reserve fund.

Share based payment reserve

The share based payment reserve arises on the grant of share options under the share option plan.

Translation Reserve

The translation reserve arises from the translation of foreign operations.

Retained deficit

Retained deficit comprises of losses incurred in the current and prior years.

PETREL RESOURCES PLC

CONSOLIDATED CASH FLOW STATEMENT

FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2019

NOTES:

1.    ACCOUNTING POLICIES

There were no changes in accounting policies from those used to prepare the Group's Annual Report for financial year ended 31 December 2018.  The financial statements have been prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union.

2.    LOSS PER SHARE

Basic loss per share

The earnings and weighted average number of ordinary shares used in the calculation of basic loss per share are as follows:

Basic and diluted loss per share are the same as the effect of the outstanding share options is anti-dilutive.

3.    GOING CONCERN

The Group and Company incurred a loss for the financial year of €1,959,099 (2018: loss of €239,042) and had a retained earnings deficit of €23,328,048 (2018 deficit of €21,368,949), at the balance sheet date leading to doubt about the Group and Company's ability to continue as a going concern.

The Group and Company had a cash balance of €367,777 (2018: €329,503) at the balance sheet date.  The Group has an operating partner in their Irish licence and all exploration costs are shared between the Group and their partner. The directors have prepared cashflow projections for a period of at least twelve months from the date of approval of these financial statements. The cashflow projections include any anticipated impacts of the Covid-19 pandemic on the Group and Company. As the Group and the Company are not revenue or cash generating they rely on raising capital from the public market. The Group completed capital raisings during the year and post year end and the cash flow projections prepared by the Group and Company indicate that the funds available are sufficient to meet the obligations of the Group and Company for a period of at least twelve months from the date of approval of these financial statements.

Accordingly the directors are satisfied that it is appropriate to continue to prepare the financial statements of the Group and Company on the going concern basis, as the Group and Company have sufficient cash resources that can be used to develop exploration projects along with funding the day to day running of the Group and Company. The financial statements do not include any adjustment to the carrying amount, or classification of assets and liabilities, which would be required if the Group or Company was unable to continue as a going concern.

4.    INTANGIBLE ASSETS

Exploration and evaluation assets relate to expenditure incurred in exploration in Ireland and Ghana. The directors are aware that by its nature there is an inherent uncertainty in Exploration and evaluation assets and therefore inherent uncertainty in relation to the carrying value of capitalized exploration and evaluation assets.

Due to legislative uncertainty since 2017, exacerbated by the Taoiseach's public statements in September 2019 against the issue of new Atlantic oil exploration licences, Petrel has discontinued farm-out discussions with a gas super-major.  Also, the board reluctantly dropped our 100% owned and operated Frontier Exploration Licence (FEL) 3/14, despite multiple identified targets. Similarly, the board decided not to apply to convert our prospective Licensing Option (LO) 16/24 into a Frontier Exploration Licence. Accordingly, the directors have impaired in full all expenditure relating to the above mentioned licences, resulting in an impairment charge of €1,613,591 in the current year. 

Petrel continues as a 10% working interest partner with Woodside in Frontier Exploration Licence (FEL) 11/18, in the Irish Atlantic's Porcupine Basin.

Relating to the remaining exploration and evaluation assets at the financial year end, the directors believe there were no facts or circumstances indicating that the carrying value of the intangible assets may exceed their recoverable amount and thus no impairment review was deemed necessary by the directors. The realisation of these intangible assets is dependent on the successful discovery and development of economic reserves and is subject to a number of significant potential risks, as set out below:

·    Licence obligations;

·    Funding requirements;

·    Political and legal risks, including title to licence, profit sharing and taxation;

·    Exchange note risk;

·    Political risk;

·    Financial risk management; and

·    Geological and development risks.

Directors' remuneration of €30,000 (2018: €30,000) and salaries of €15,000 (2018: €15,000) were capitalised as exploration and evaluation expenditure during the financial year.

5.    SHARE CAPITAL

Movements in share capital

On 25 July 2018 the company received shareholder approval for the following transaction:

(i)          the contract between Amira Petroleum N.V., Amira International Holding Limited and the Company for the purchase of 16,147,368 ordinary shares of €0.0125 each in the capital of the Company for nominal consideration; and

(ii)         the contract between Hannam & Partners (Advisory) Group Services Ltd and the Company for the purchase of 600,000 ordinary shares of 0.0125 each in the capital of the Company for nominal consideration.

The aggregate 16,747,368 ordinary shares of €0.0125 each were immediately cancelled upon their repurchase by the Company.

The purchase consideration of £20 was funded by the issue of 1000 Ordinary shares of €0.0125 at 2p per share.

On 11 October 2018 a total of 21,621,622 shares were placed at a price of 1.85 pence per share. Proceeds were used to provide additional working capital and fund development costs.

On 30 July 2019 a total of 44,788,913 shares ("tranche 1 shares") were placed at a price of 1.25 cents per share. Proceeds were used to provide additional working capital and fund development costs.

**On 21 November 2019 the company held an Extraordinary General Meeting and received shareholder approval for the following transaction:

"64,035,976 Ordinary Shares of 1.25 cent each were to be issued to the Tamraz group at the placing price of 1.25 cent each."

These shares (known as the "tranche 2 shares") were issued and allotted to the Tamraz group on 21 November. The share certificates were retained by the Company until payment was received from the Tamraz group.

It became known to Petrel that prior to 31 December 2019 the Tamraz group had offered the tranche 1 shares in Petrel as collateral to lenders. This was in breach of lock in terms which were attached to those shares. In addition during December part of the tranche 1 shares were transferred to a third party, further breaching the terms of the lock in agreement in relation to those shares.  

The Tamraz group also failed to pay proceeds due in relation to the tranche 2 shares within the timeline required by Petrel. As a result of these factors the tranche 2 shares were considered forfeited and were cancelled by the Group subsequent to year end.

Although the shares were not legally cancelled until after year end, they are considered to be forfeited as of year-end given the circumstances noted above and in particular, the fact that Tamraz were considered to be in default of funding arrangements and lock in terms.

Had these circumstances been known to the Group on 21 November 2019 the shares would not have been allotted or issued. The Group did not suffer any economic loss due to the transaction as they were able to cancel the tranche 2 shares. As a result the shares are considered to be economically forfeited at year end and have been deducted from share capital on the balance sheet.

6.    POST BALANCE SHEET EVENTS

On 8 January 2020 the company informed shareholders that the payment for the second tranche (tranche 2) of 64,035,976 shares to the Tamraz group, expected by 6^th January 2020, had not yet been received.  The shares were issued, but not yet delivered in the form of share certificates to the intended shareholders.  These certificates were retained by Petrel Resources plc until payment was received.

It became known to Petrel that prior to 31 December 2019 the Tamraz group had offered the tranche 1 shares in Petrel as collateral to lenders. This was in breach of lock in terms which were attached to those shares. In addition during December part of the tranche 1 shares were transferred to a third party, further breaching the terms of the lock in agreement in relation to those shares.  

The Tamraz group also failed to pay proceeds due in relation to the tranche 2 shares within the timeline required by Petrel. As a result of these factors the tranche 2 shares were considered forfeited and were cancelled by the Group subsequent to year end.

Although the shares were not legally cancelled until after year end, they are considered to be forfeited as of year-end given the circumstances noted above and in particular, the fact that Tamraz were considered to be in default of funding arrangements and lock in terms.

Had these circumstances been known to the Group on 21 November 2019 the shares would not have been allotted or issued. The Group did not suffer any economic loss due to the transaction as they were able to cancel the tranche 2 shares. As a result the shares are considered to be economically forfeited at year end and have been deducted from share capital on the balance sheet.

Separately, the directors believe from their analysis of the Register that circa 5.25 million tranche 1 shares may have been sold during January 2020 in a possible breach of a lock-in entered into by the Tamraz group over their existing holdings of shares previously subscribed as a condition of the second tranche.

On 17 January 2020 the company made a successful ex parte application to the High Court in Dublin for an interim injunction.  This prevents the named parties (being Roger Tamraz, Michel Fayad, Said Mehraik and Chase Nominees) from disposing or otherwise dealing with shares in breach of the share lock-in.

On 24 January 2020 the company made a successful application to the High Court in Dublin for a broader interlocutory injunction.  This injunction now blocks all trading in the locked-in-shares pending a full hearing and/or a full resolution to the satisfaction of the board. Neither Chase Nominees (which were represented), nor Michel Fayad, and Said Mehraik (who both attended court) contested the application. This injunction remains in place as of the date of signing of these financial statements.  

On 26 May 2020 the Company raised £250,000 via the issue of 7,692,308 new ordinary shares at a placing price of 3.25p.

In the period since 31 December 2019, the emergence and spread of Covid-19 has not had a significant impact on the Group's operations. Although some high level discussions originally scheduled to take place in March in Ghana in relation to the Group's projects were postponed due to the Covid-19 pandemic, they are expected to be rescheduled over the coming months. The Group continues to progress its interests in Ghana and Ireland and do not believe that its prospects will be negatively impacted by Covid-19.

7.    ANNUAL GENERAL MEETING

The Company's Annual General Meeting will be held on 24^th July 2020 in the Hotel Riu Plaza The Gresham, 23 O'Connell Street Upper, Dublin 1, D01 C3W7 at 10.30 am.

8.    GENERAL INFORMATION

The financial information set out above does not constitute the Company's financial statements for the year ended 31 December 2019.  The financial information for 2018 is derived from the financial statements for 2018 which have been delivered to the Companies Registration Office.  The auditors have reported on 2018 statements; their report was unqualified with an emphasis of matter in respect of considering the adequacy of the disclosures made in the financial statements concerning the valuation of intangible assets, investment in subsidiaries and amounts due by group undertakings. The financial statements for 2019 will be delivered to the Companies Registration Office.

A copy of the Company's Annual Report and Accounts for 2019 will be mailed shortly only to those shareholders who have elected to receive it. Otherwise shareholders will be notified that the Annual Report will be available on the website at www.petrelresources.com.  Copies of the Annual Report will also be available for collection from the Company's registered office, 162 Clontarf Road, Dublin 3, Ireland.