PROVIDENCE RESOURCES Plc

Condensed consolidated statement of cash flows    

for the year ended 31 December 2021

PROVIDENCE RESOURCES Plc

Note 1

Reporting entity

Providence Resources Plc ("the Company") is a company domiciled in Ireland.  The registered number of the Company is 268662 and the address of its registered office is Paramount Court, Corrig Road, Sandyford Business Park, Dublin 18, D18 R9C7. 

Basis of preparation

The consolidated preliminary financial results announcement of the Company, for the year ended 31 December 2021 comprises of the Company and its subsidiaries (together referred to as the "Group"). 

The financial information included in this consolidated preliminary financial results announcement has been extracted from the Group's Financial Statements for the year ended 31 December 2021 and is prepared based on the accounting policies set out therein, which are consistent with those applied in the prior year with the exception of the effect of the new accounting standards listed below. As permitted by European Union (EU) law and in accordance with AIM and Euronext Growth Market rules, the Group Financial Statements have been prepared in accordance with International Financial Reporting Standards (IFRSs) and their interpretations issued by the International Accounting Standards Board (IASB) as adopted by the EU.

The financial information prepared in accordance with IFRSs as adopted by the EU included in this report does not include all the information and disclosures required in the full statutory financial statements. The Group Financial Statements will be filed with the Company's annual return in the Companies Registration Office and circulated to shareholders in due course.

The information included has been derived from the Group Financial Statements which were approved by the Board of Directors on 23 June 2022. The auditors have reported on the financial statements for the year ended 31 December 2021 and their report was unqualified and contains a "material uncertainty related to going concern" paragraph (see going concern note below for further details). The financial information for the year ended 31 December 2020 represents an abbreviated version of the Group's statutory financial statements on which an unqualified audit report was issued and which have been filed with the Companies Registration Office. The financial information is presented in Euro, rounded to the nearest thousand where applicable.

The preparation of the condensed consolidated preliminary financial information requires management to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses. Actual results could differ materially from these estimates.  In preparing this financial information, the significant judgements made by management in applying the Company's accounting policies and the key sources of estimation uncertainty are the same as those that applied to the consolidated financial statements as at and for the year ended 31 December 2020, except as noted below.

Changes in significant accounting policies

New and Amended Standards and Interpretations effective during 2021

New and amended standards and interpretations

The following new standards and amendments were adopted by the Group for the first time in the current financial reporting period with no resulting impact to the consolidated financial statements:

• Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16 Interest Rate Benchmark Reform - Phase 2.

PROVIDENCE RESOURCES Plc

Note 1 (continued)

New and amended standards and interpretations (continued)

• Amendments to IFRS 16, COVID-19 Related Rent Concessions beyond 30 June 2021;

• Amendments to IFRS 4 Insurance Contracts - deferral of effective date of IFRS 9;

Forthcoming requirements

A number of new standards, amendments to standards and interpretations issued are not yet effective and have not been applied in preparing these financial statements. These new standards, amendments to standards and interpretations are not expected to have a material impact on the Group's financial statements as the Group has no transactions that would be affected by these new standards and amendments.

The principal new standards, amendments to standards and interpretations are as follows:

• Amendments to IAS 1 Classification of Liabilities as Current or Non-current;

• Amendments to IFRS 17, Insurance contracts: Initial application of IFRS 17 and IFRS 9;

• Amendments to IAS 1 and IFRS Practice Statement 2, Disclosure of Accounting Policies;

• Amendments to IAS 8, Definition of Accounting Estimates;

• Amendments to IAS 12, Deferred Tax related to Assets and Liabilities arising from a single transaction;

• Amendments to IFRS 10 and IAS 28, Sale of contribution of Assets between an investor and its Associate or Joint Venture.

New and Amended Standards and Interpretations Issued but not yet Effective or Early Adopted

A number of new standards and interpretations have been issued but are not yet effective for the Group. These standards are either not expected to have a material effect on the Consolidated Financial Statements or they are not currently relevant for the Group.

Warrants

The warrants liability amounts to €0.460 million at 31 December 2021 (2020: €6.713 million). The warrant liability is due to the warrants being issued in GBP while the functional currency of the Parent Company was EUR.

The warrants were issued as part of the share placing in May 2020. There were two sets of warrants attached to each share. The duration for the £0.03 was one year and for the £0.09 was two years. The £0.03 warrants expired on 6 May 2021. At 31 December 2021, the warrants valuation amount to €0.46m and represents management's best estimates of the liability for the £0.09 warrants. The key estimate in the valuation of warrants is the volatility rate applied. The period of 18 months was used for the volatility calculation for the £0.09 warrants which expired on 6 May 2022. The 4-month period for the £0.09 warrants was determined by management as too short and would distort the volatility calculation as it is a key component when calculating the fair value using Black Scholes; see note 19. The fair value movement of the warrants is recognised in the income statement as either finance income or finance expense, depending on the movement.

Going concern     

The Directors have prepared the financial statements on a going concern basis, which assumes that Group and Company will continue in operational existence for at least twelve months from the date of the approval of these financial statements.

At 31 December 2021, the Group had net assets of €61.737m, including cash on hand of €1.923m, having recorded a net cash outflow of €0.228m during the year. Having no source of operating revenues, in June 2022, the Company raised gross proceeds of $1.8 million (equivalent to approximately STG£1.5 million) through the subscription for 45,312,316 Placing Securities and 51,686,693 Subscription Securities (each of which shall comprise one New Ordinary Share and one STG1.5p Warrant) (note 12), demonstrating again the ongoing support of shareholders. Together with existing resources, this additional funding is sufficient to meet the anticipated working capital requirements of the Group for at least the next 12 months.

PROVIDENCE RESOURCES Plc

Note 1 (continued)

Going concern (continued)

In April 2021, the Group applied for a Lease Undertaking for the Barryroe Joint Venture, as the follow-on permit from the Standard Exploration Licence, SEL 1/11, which expired in July 2021. The proposed work programme centres on drilling an appraisal well, targeted for completion in 2023. The Directors note that the Irish Government has stated that all existing licences will be allowed to run their full life cycle. The Group has fulfilled all obligations relating to SEL 1/11 and the Directors believe the Barryroe Joint Venture has complied with all the requirements for Government approval of the Lease Undertaking, which would be backdated to run for upto four years from July 2021. Notwithstanding the delay thus far in securing Government consent, the Directors continue to expect that this next phase of the Barryroe Licence, and the associated proposed work programme, will finally receive approval in the coming months.

The work programme proposed under the Lease Undertaking, if granted, entails significant capital expenditure by the Barryroe Joint Venture. Consequently, prior to the letting of major commercial contracts for the appraisal well and related studies, the Directors have considered the Group's options available to fund its expenditure commitments, both current and contingent upon securing the Lease Undertaking. In particular, upon confirmation of approval of the Lease Undertaking, the Directors expect to raise substantial additional equity funding to meet the Group's share of the related obligations.

The Directors have carefully considered the current financial position of the Group and have prepared cash flow forecasts for the period to 30 June 2023, being the 12-month period from the date of approval of these financial statements. They note that the main risk factors in these forecasts are the granting of the Barryroe Lease Undertaking on acceptable terms and conditions and the completion of an appropriate further equity funding round during the period. Based on their consideration of the Group's cash flow forecasts, and the underlying assumptions, the Directors are satisfied that the Group will have access to sufficient funds to cover its working capital and capital expenditure expected over this 12-month period.

The Directors have considered the matters set out above and determined that the outstanding Government consent to the Barryroe Lease Undertaking and the requirement, contingent thereon, to secure additional funding to pursue the related Barryroe appraisal work programme in the next 12 months, constitute material uncertainties that may cast significant doubt upon the Group's and Company's ability to continue as a going concern. Should the Lease Undertaking not be approved, or appropriate additional funding not then be secured, the Directors note that the Group and Company may be unable to realise its assets and discharge its liabilities in the normal course of business.

Nevertheless, after making enquiries and considering the uncertainties described above, the Directors have a reasonable expectation that the Group and Company will have adequate resources to continue in operational existence for the foreseeable future. The Directors expect that the Barryroe Lease Undertaking will be approved and, noting that the Group and Company has continued to have ongoing support from shareholders, that an appropriate further fundraising will be successful. For these reasons, the Directors have adopted the going concern basis in preparing these annual financial statements, which do not include any adjustments that would be necessary if this basis were inappropriate.

Operating segments

All exploration and evaluation assets held by the Group are located in the Republic of Ireland and, accordingly, the Group has identified one reporting segment, being:

Republic of Ireland exploration assets: oil and gas exploration assets in the Republic of Ireland.

PROVIDENCE RESOURCES Plc

Note 2

Administration expenses

Note 3

Finance Income

Note 4

Finance Expense

Note 5

Exploration and evaluation asset

The exploration and evaluation asset balance at 31 December 2021 relates to the Barryroe asset. 

The directors assessed all activities ongoing within exploration and evaluation assets and determined that no impairment charge (2020: €0.27 million charge) was required at 31 December 2021. 

The directors recognise that the future realisation of the Barryroe asset is dependent on the granting of the lease undertaking which is subject to government approval, future successful appraisal activities and the subsequent economic production of hydrocarbons. 

Note 6

Share Capital and Share Premium

(a)     The deferred shares do not entitle the shareholder to receive a dividend or other distribution, do not entitle the shareholder to receive notice of or vote at any general meeting of the Company, and do not entitle the shareholder to any proceeds on a return of capital or winding up of the Company.

PROVIDENCE RESOURCES Plc

Note 6

Share Capital and Share Premium (continued)

On 5 May 2020, the Company issued 177,973,004 ordinary shares as part of a placing and subscription agreement which raised c.€3.1m before expenses. Each security instrument comprised one ordinary share of €0.001, one £0.03 warrant and one £0.09 warrant.

On issuance, a fair value of €1.9m was attributed to the ordinary shares (share capital/share premium outlined above) and €1.2m to the Warrant instruments based on the effective share price at that date. In line with the Group's accounting policies these Warrants are presented as financial liabilities. The holder of each warrant could exercise its rights under the instrument which allowed that holder to convert the warrant into one ordinary share, with a par amount of €0.001, by payment of the exercise price of £0.03 or £0.09, as applicable. The warrants are non-transferrable.

On 28 May 2020, the company issued 6,116,208 Ordinary shares through a subscription agreement which raised approx. €0.2m. During 2020, 47,288,814 £0.03 warrants were exercised. The fair value of these exercised warrants was €2.021m.

The share capital and share premium total increase of €5.7m in 2020 comprised:

·      €1.9m on 5 May from the placing of shares;

·      €0.2m on the 28 May 2020 from the additional subscription;

·      €1.557m being cash received upon the exercise of warrants; and

·      €2.021m being the fair value of the warrants exercised.

During 2021, there were 86,061,529 £0.03 warrants exercised which raised approx. €2.974m. The remaining 44,622,661 £0.03 warrants expired on the 6 May 2021. No £0.09 warrants have been exercised and the £0.09 warrants expired on 6 May 2022.

The fair value of the £0.03 warrants that were exercised was recalculated at the time exercise. The fair value of 86,061,529 warrants of £0.03 exercised was calculated as €0.610m. This fair value is added to the actual cash raised of €2.974m to give a total increase in share capital and share premium of €3.585m.

PROVIDENCE RESOURCES Plc

Note 7

Decommissioning provisions

During 2021, the Board undertook a strategic review of Barryroe. The outcome of this is that an appraisal well is planned to be drilled in 2023 preparatory to a phased development, with first oil production expected by the end of 2026 subject to Ministerial approval.

The Group anticipates that a decommissioning programme for other licence areas (since relinquished) will be undertaken at the same time as the Group's Barryroe wells, subject to regulatory consent and approval. Accordingly, all decommissioning is projected to take place in 2047.

The decommissioning provision is made up of a total of six wells. Five of the wells are held in the Parent Company, Providence Resources Plc, making up €4.633m of the decommissioning provision while the remaining well is held in Exola DAC for which the decommissioning provision is €1.423m.

The decommissioning provision has been calculated assuming industry established oilfield decommissioning techniques and technology at current prices, based on external expert reports where available and is discounted at 1.3% (2020: 10%) per annum, reflecting the associated risk profile.

The Group undertook a review of the discount rate applied to the projected costs to derive the net present value. The Board used the 20-year Irish Government Bond rates of 1.30% as an appropriate discount rate. In relation to cost inflation, experience over the last decade indicates that advances in technology and operations in the decommissioning of wells, suggests that cost inflation may reasonably be expected to be offset by gains in efficiency so the net effective cost inflation rate used was zero.

As a result of the updated calculation, there was a net €0.769 million adjustment to the decommissioning provision at the end of 2021. €1.056 million credit was adjusted through the Parent Company. The offset to this figure was registered in the income statement as finance income. The remaining sum of €0.287 million charge related to the Barryroe well and was capitalised in the Exploration and Evaluation assets.

PROVIDENCE RESOURCES Plc

Note 8

Earnings per share

Earnings per share are calculated by dividing the loss attributable to equity holders of the Company by the weighted average number of ordinary shares in issue during the year. 

There is a difference between the basic profit per ordinary share and the diluted profit per ordinary share for the current year.  However, for the prior year all potentially dilutive ordinary shares outstanding are anti-dilutive in relation to continuing operations.  There were 39,683,000 (2020: 37,850,000) anti-dilutive share options in issue at 31 December 2021.  There were 177,973,004 (2020: 308,657,194) anti-dilutive warrants.

PROVIDENCE RESOURCES Plc

Note 9

Share options and warrants

The Group operates employee share schemes as follows:

2009 Scheme

In 2009, the directors adopted a share option scheme which contains share growth performance criteria.  The option price is the market price immediately preceding the date of grant.  The "2009 scheme" operates as an equity-settled share option scheme and the options are granted subject to the following conditions:

(i)      50% of total options granted are exercisable after one year from the date of grant provided that the market price of the Company's shares has increased by a minimum of 25% and has maintained such increase over a period of three months prior to the exercise of any option.

(ii)     The remaining 50% of the total options granted are exercisable after two years from the grant date provided the market price of the Company's shares has increased by a minimum of 50% from date of grant and has maintained such increase over a period of three months prior to the exercise of any option.

At 31 December 2021, options over 3,850,000 (2020: 3,850,000) shares remained outstanding at subscription prices ranging from €0.14 to €0.17, with a weighted average price of €0.152 (2020: €0.152).  These options expire at varying dates up to June 2024, with none exercisable at year end.

2020 Scheme

In 2020, the directors adopted a share option scheme which contains certain performance criteria.  No options can be issued after 10 years of the scheme.  The option price is the market price immediately preceding the date of the grant.  The "2020 scheme" operates as an equity-settled share option scheme and the options granted are subject to certain conditions.  No option is exercisable more than seven years after grant date and no option is exercisable within one year of grant. 

During 2021, 18,000,000 share options were granted under the 2020 Share options scheme to directors.

The applicable criteria for the exercise of the options are;

(i)    33% of the total number of options granted are exercisable after one year of grant.

(ii)   33% of the total number of options granted are exercisable after two years of grant.

(iii)  The remaining 33% of the total number of options granted are exercisable after a further year has elapsed.

PROVIDENCE RESOURCES Plc

Note 9

Share options and warrants (continued)

During the prior year, 36,500,000 share options were granted under the 2020 Share option scheme. Of that total,  31,500,000 options were granted to the then directors and 5,000,000 options were granted to employees.

The applicable criteria for the exercise of the options are;

(i)      33% of the total number of options granted are exercisable after one year of grant provided that the criteria agreed by the Remuneration committee have been met.

(ii)     33% of the total number of options granted are exercisable after two years of grant provided that the criteria agreed by the Remuneration committee have been met.

(iii)    The remaining 33% of the total number of options granted are exercisable after a further year has elapsed provided that the criteria agreed by the Remuneration committee have been met.

At 31 December 2021, the closing share price was €0.0376 resulting in 9,500,000 options being exercisable.

Charge

The share-based payment charge for the year was €338,000 (2020: €448,000).

Warrants

On 5 May 2020, the Company raised €3.1m by the issue of security instruments with each security instrument comprising one ordinary share, with a par amount of €0.001, one £0.03 warrant (expires in May 2021) and one £0.09 warrant (expires in May 2022).  The fair value of the warrants was calculated using Black Scholes model.  The following key input assumptions were applied to the initial valuation on issuance of these instruments:

PROVIDENCE RESOURCES Plc

Note 9

Share options and warrants (continued)

The €3.1m raised before expenses, from previous and new shareholder investors, for the security instruments in May 2020 was considered the transaction price fair value.  The split of this fair value on issuance of these security instruments, based on a placing effective share price of €0.01068, was €0.531m for the £0.03 Warrants, €0.622m for the £0.09 Warrants and €1.901m for the Ordinary Shares (split between share capital and share premium account (note 6)).

During 2021, 86,061,529 of the £0.03 warrants were exercised. There were a number of warrant transactions exercised in each of the months before they expired on 6 May 2021. The key assumptions used in the calculation of their fair value at the exercise date are included in the table below. The weighted average closing price was used to reflect the number of transactions in each month.

The fair value of the warrants exercised during the year is recognised in the movement of the warrant liability with a corresponding increase in share premium.

The fair value of the warrants exercised during the year is recognised as a finance expense of €2.021m in the income statement with a corresponding increase in share premium.

On 31 December 2020, the warrants were fair valued using appropriate inputs including the closing share price on that day of €0.055. The period of 18 months has been used for the volatility calculation for the £0.09 warrants which expired on 6 May 2022 and the £0.03 which expired on 6 May 2021. The 4-month period for the £0.03 warrants was too short and would distort the volatility calculation as it a key component when calculating the fair value using Black Scholes. The fair value movement being the difference between initial valuation and 31 December 2020 valuation in the amount of €5.56m is recorded as a finance expense in the Income statement.

PROVIDENCE RESOURCES Plc

Note 9

Share options and warrants (continued)

The following table shows the fair value movement:

PROVIDENCE RESOURCES Plc

Note 10

Related party transactions

The Group contracted NRG Well Management International Limited to carry out technical studies relating to Barryroe in 2021.  The value of the work undertaken was €198,893 (2020: €14,305) and was procured on an arm's length basis.  The balance outstanding as at 31 December 2021 was €177,564.

Andrew Mackay who is a non-executive Director of Providence Resources Plc, is Chairman and part owner of NRG.

AM O'Sullivan PR was engaged by the Group in 2021 to develop and coordinate a stakeholder management and communication strategy to improve the understanding of the Barryroe project.  The amount paid under the contract in 2021 was €27,972 (2020: €nil) procured on an arm's length basis.  There was no balance outstanding as at 31 December 2021.

Ann-Marie O'Sullivan, who is a non-executive Director of Providence Resources Plc, is the owner of AM O'Sullivan PR Limited.

Note 11

Commitments

The Group has capital commitments of approximately €0.183 million in respect of its share of costs of exploration and evaluation and appraisal activities to be incurred in 2022 However and subject to the timing of the Barryroe Lease Undertaking grant then the Group could have additional commitments of €1.3m for 2022 which comprise two years of Lease Undertaking fees (backdated to July 2021).

Note 12

Post Balance Sheet Events

On 6 May 2022, the 177,973,004 remaining £0.09 warrants expired. The warrants were issued as part of the fund raising in May 2020. No £0.09 warrants were exercised.

In June 2022, the Company raised gross proceeds of $1.8 million (equivalent to approximately STG£1.5 million) through the subscription for 45,312,316 Placing Securities and 51,686,693 Subscription Securities (each of which shall comprise one New Ordinary Share and one STG1.5p Warrant).

The total of 96,999,009 New Ordinary Shares have been issued pursuant to the Fundraising, representing less than 10 per cent of the Company's issued Ordinary Share Capital. In addition 96,999,009 warrants ("the STG 1.5p Warrants") will be issued to Placees and Subscribers. The allotment and issue of the Warrants is subject to and conditional upon the passing of certain resolutions in relation to the Warrants (the "Warrant Resolutions") at the AGM by the requisite number of shareholders as required pursuant to the Companies Act (the "Warrant Condition"). If the Warrant Condition is not satisfied, the Warrants will not be issued to the Placees and Subscribers. The issue of the Placing Shares and Subscription Shares is not conditional on the passing of the Warrant Resolutions.

On issue, the Warrants will entitle holders to subscribe for one new Ordinary Share for each Warrant held at an exercise price of STG£0.015 per Ordinary Share at any time for a period of 12 months following the date of satisfaction of the Warrant Condition.

There have been no other significant events since the balance sheet date which would require disclosure in or amendment of these financial statements apart from the above.