PENNPETRO ENERGY PLC
ANNUAL REPORT AND FINANCIAL STATEMENTS
FOR THE YEAR ENDED
31 DECEMBER 2017
PENNPETRO ENERGY PLC
CONTENTS
Officers and Professional Advisers
Chairman’s Statement
Executive Director’s Statement
Operations Report
Financial Report
Strategic Report
Report of the Directors
Statement of Directors’ Responsibilities
Corporate Governance Report
Directors Remuneration Report
Audit Committee Report
Report of the Independent Auditor
Consolidated Statement of Comprehensive Income
Consolidated Statement of Financial Position
Company Statement of Financial Position
Consolidated Statements of Changes in Equity
Company Statements of Changes in Equity
Consolidated Statements of Cash Flows
Company Statements of Cash Flows
Notes to the Financial Statements
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PENNPETRO ENERGY PLC
OFFICERS AND PROFESSIONAL ADVISORS
Directors
Keith Graeme Edelman (Non-Executive Chairman)
Olof Nils Anders Rapp (Senior Non-Executive Director)
Thomas Martin Evans (Executive Director)
Philip Tudor Nash (Non-Executive and Finance Director)
Secretary
Arty Maharaj, FHF Corporate Finance Limited
Technical Adviser
Eur. Ing. Dr. Michael Smith, FIMMM, C.Eng.
Registered Office
Legal Advisers
1/88 Whitfield Street
London
W1T 4EZ
UK Legal Advisers
Birketts LLP
22 Station Road,
Cambridge
Cambridgeshire, CB1 2JD UK. Louisiana, LA 70130 USA.
US Legal Adviser
Phelps Dunbar LLP.
365 Canal Street
New Orleans,
Fladgate LLP
16 Great Queen Street,
London, WC2B 5DG, UK.
One Allen Centre
500 Dallas Street,
Suite 1300
Houston, TX 7702, USA.
Independent Auditor
PKF Littlejohn LLP
Statutory Auditor
1 Westferry Circus
Canary Wharf
London
E14 4HD
Registrars
Computershare Investor Services Plc,
The Pavilions,
Bridgewater Road,
Bristol,
BS13 8AE
Registered Number
10166359
2
PENNPETRO ENERGY PLC
CHAIRMAN’S STATEMENT
Chairman’s Statement
I am pleased to present the first set of annual results for Pennpetro energy plc (“Pennpetro”) since we
listed on the Main Board of the London Stock Exchange (“LSE”) in December 2017.
During the period under review, the Company successfully acquired Nobel Petroleum UK Limited (“Nobel
UK”) and its US-based subsidiary companies, Nobel Petroleum US, Inc. and Nobel Petroleum LLC, ahead
of listing the Company on the LSE. This acquisition resulted in Pennpetro becoming the holding company
for an oil and gas development Group, with assets in Texas, US.
Pennpetro acquired Nobel UK in May 2017 with the issue of 45,00,000 Ordinary shares and a mandatory
convertible note to the Seller, which is convertible into 19,000,000 Ordinary shares. The shares were
issued at a price of 25 pence, which represented the value of the underlying oil assets that had been
acquired by Pennpetro as a result of the acquisition.
The acquisition of Nobel UK in May 2017 valued the Group at that time at £16 million and Pennpetro later
went on to list on the LSE, at the same valuation, on 21 December 2017.
Nobel UK’s US-based subsidiaries own a portfolio of leasehold petroleum mineral interests centred on the
City of Gonzales, in southeast Texas, comprising the undeveloped central portion of the Gonzales Oil Field.
The petroleum assets include approximately 1,000 leases covering 2,500 acres of land and contain proven
oil condensates. The Competent Persons Report (“CPR”) prepared in advance of the acquisition estimated
that, as a result of the acquisition, Pennpetro Group would have a Working Interest in the portfolio of
petroleum mineral leases of 2,000 MBBL of oil and 1,000 MMcf of gas.
The most recent CPR prepared in December 2017, estimates that the Group’s undiscounted Net Revenue
Interest in the Gonzales petroleum leases amounts to $62 million.
The acquisition of Noble Petroleum UK Limited by Pennpetro fell outside the Scope of IFRS 3 (“Business
Combinations”). As a result, the Consolidated Financial Statements have been treated as being a
continuation of the Consolidated Financial Statements of Nobel UK, with Pennpetro being treated as the
acquired entity for accounting purposes. Further acquisitions are expected to be accounted for within the
Scope of IFRS 3.
Moving on to our oil assets, our US-operating teams began drilling the first horizontal well during the year
and aim to complete the well and commence production in the summer of 2018.
The year under review has been one of real progress and the Company is now well placed to capitalise on
the recovery in sentiment within the US and global petroleum sectors.
We remain confident in our petroleum assets, our US operations and the Board, to continue to build upon
what has been a very successful and busy first year for the Group.
Keith Edelman
Non-Executive Director, Chairman
30 April 2018
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PENNPETRO ENERGY PLC
EXECUTIVE DIRECTOR’S STATEMENT
Executive Director’s Statement
Pennpetro’s intention is to become an active independent North American development production
company.
The key elements of Pennpetro’s strategy for achieving this goal are:
• The creation of value through production development success and operational strengths,
commencing with the Group's COGLA assets.
• Focusing on commercialisation and monetisation of oil and gas discoveries, and potentially utilising
cash flows from initial projects to fund the acquisition or development of future projects.
• Active asset portfolio management.
• Positioning the Company as a competent partner of choice to maximise opportunities and value
throughout the E&P lifecycle.
Our focus during 2017 was to develop our proven reserve base at our licences in Gonzalez.
According to the Group's Competent Person's Report ("CPR"), prepared in December 2017, Pennpetro
has a working interest in 2,000 Mbbl of oil and 1,000 MMcf of gas across its Gonzalez leases.
The low oil price environment since mid-2014 presented the opportunity to acquire leases in our core areas
of focus, most notably the prolific Austin Chalk and Eagleford Shale in South Texas. To this, we have been
able to add additional reserves from the Buda Formation from the drilling of an initial horizontal well, which
we are in the process of completing.
These highly active plays are well suited to thrive in today’s stronger oil price environment. The wells we
are drilling and plan to drill are economic at oil prices sub US$30/bbl; record production rates have been
reported as the horizontal laterals are extended and the amount of pay in each well has increased; drilling
and completion costs have been significantly reduced; and initial decline rates during the first 12-18 months
of production are lower than those in other US plays. Over the last two years, we have taken advantage
of depressed market conditions to increase our exposure to these areas.
West Texas Intermediate (“WTI”) averaged US$50.88/bbl during 2017, more than 17% higher than
US$43.33/bbl averaged during 2016. The value of WTI as at 27 April 2018 was US$68 (source: Bloomberg
Markets).
Operations
In terms of our operations, our focus has been on drilling our initial horizontal well, which was spudded in
June. The drilling unit was released in August 2017, having successfully encountered good oil shows with
a lateral extension to some 10,300 feet. However, the onset of Hurricane Harvey later that month led to
severe flooding in South Texas, prohibiting further operations and delaying initiation of our completion
operations until mid-December. We have now begun those operations and are in the process of pump
testing to remove water from the reservoirs, while at the same time recovering oil as the oil-cut increases.
Our operator is preparing to file formal completion certificates with the Texas Railroad Commission
confirming that the COG#1-H well is being completed as a producer, albeit full testing is ongoing.
Financially, the Company used 2017 to lay the foundations for future revenue generation.
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PENNPETRO ENERGY PLC
EXECUTIVE DIRECTOR’S STATEMENT
A sustained rally in the oil price was triggered in Q4 2016 by the agreement between members and non-
members of OPEC to cut production. In this stronger oil price environment, Pennpetro has emerged from
the downturn as a low-cost, asset-backed US onshore oil and gas business. Subject to oil prices, market
conditions and sentiment, I remain confident that we can deliver our strategy by acquiring leases in active
and producing US onshore plays and proving up the reserves by drilling new wells.
This platform is one that has, at its core, the active management of all types of risk associated with the oil
and gas industry. Broadly speaking development risk is managed by focusing on proven formations;
execution risk is managed by participating in drilling activities alongside established industry partners and
operators such as our joint venture partners, Av-Tech Oil & Gas, LLC, who have an extensive history in
South Texas operations, as well as our operations offsetting those of major industry players, such as EOG
Resources, Inc., a $67.5 billion goliath; individual well risk is managed by building a diversified portfolio of
leases and wells and limiting the amount of interest the Group holds in any one well; meanwhile oil price
risk is managed by focusing on areas that require relatively low oil prices to breakeven and ensuring our
cost base, capital commitments and financing costs remain low, manageable and flexible.
Pennpetro’s Board currently comprises four Directors, who collectively have extensive international
experience and a proven track record in investment, corporate finance and business acquisition, operation
and development and are well placed to implement the Company's business objectives and strategy.
In February 2018, we were pleased to appoint Dr. Michael Smith as a technical consultant to the Company.
Graduating from University of Durham in 1965 with a degree in Geology (First Class Honours), and
thereafter taking a PhD at University of Edinburgh (Application of Probability and Systems Theory – direct
application to the risk and probability aspects of oil and gas reservoir development). Michael started his
career as a consultant to the British National Oil Corporation in 1975, before moving to become VP
Exploration for American Barrick Resources and thereafter embarking upon on a worldwide career within
the resources sector. Michael has numerous years of experience as an exploration and production
geologist and geoscientist, particularly exploring and developing onshore US fields in Oklahoma and South
Texas.
We believe the Company’s Board and US management team is strong in terms of having the right mix of
industry expertise covering all key areas of the business, including lease acquisition, geology, engineering,
and finance.
Outlook
In line with our strategy, all our operations are in highly active plays where the economics of drilling and
producing remain attractive at sub-US$30 oil prices. This highlights the success we have had in taking
advantage of the prior industry downturn to accelerate the positioning of our South Texas leasehold
position in favour of the Austin Chalk and Eagleford Shale. With a strategic foothold in these prolific, low-
cost plays established and a proven management team in place, we will look to further expand our position
in this US onshore sweet spot, as and when management considers it most advantageous to do so.
For 2018, our main objectives are to commence full production of the COG#1-H well, acquire additional
land leases and to carry out a 3-D seismic survey of our land interests. I look forward to providing updates
on our progress in the year ahead.
Finally, I would like to thank the Board, management team and all our advisers for their hard work over the
last twelve months and also to our shareholders for their continued support.
Thomas Evans
Executive Director
30 April 2018
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PENNPETRO ENERGY PLC
OPERATIONS REPORT
Operations Report
Summary
Nobel Petroleum USA, Inc., has operational teams on the ground working from its offices in the City of
Gonzales. During the period, one new horizontal well in which the Group has an interest commenced
completion activity. The Group is planning to initiate an encompassing 3D seismic survey in 2018 with
Dawson Geophysical Company to complement its comprehensive well logs geological analysis, together
with an enhanced programme of additional new petroleum leasing contiguous to the area, with proposed
planning to provide a further seven permitted drilling locations by year end.
SOUTH TEXAS
The Company, through its indirect wholly-owned subsidiary, Nobel Petroleum USA, Inc., holds interests in
acreage within active oil and gas plays within the County of Gonzales, State of Texas: The Austin Chalk,
and Eagleford Shale horizontal development and vertical development of the Buda formation. Nobel
Petroleum USA, Inc. has observed an increase in the value of its interests within its project acreage, due
in part to higher energy price parameters and increased consolidation of its acreage positions.
Austin Chalk
The play covers an extensive area with over a million acres yet to be developed and runs all the way from
the Pearsale Field south of Gonzales to the giant Giddings Oil Field, the largest oilfield found in Texas in
the past 50 years to the north of Gonzales, and further north onto the North Rayou Jack Field. The Austin
Chalk overlays the oil rich Eagleford Shale, with both formations capable of interacting with each other,
and is a low permeability fractured reservoir that has been the target for horizontal drilling since the mid-
1980s and consists of interbedded chalks, volcanic ash and marls. It is located at drill depths from 7,000
to 8,000 feet. It can be a liquids-rich play, yielding high volumes of oil and condensate. Initial production
rates can range over 1,000 bopd with ultimate reserves exceeding 500 MBO per well.
• EOG Resources operating in Karnes County immediately to the southwest of Gonzales, completed
five wells in the first quarter 2017, with an average per well production of 2,605 boed (1,895 bopd,
360 bpd of NGLs and 2.1 MMcfd of natural gas).
•
In second quarter of 2017, EOG completed 9 wells in Karnes County with initial production rates
of 2,150 bopd, 355 NGLs and 2.1 MMcfd of natural gas.
Eagleford Shale
This play is classified as a petroleum system in that it is a self-sourced reservoir with seals. Migration of
Eagleford hydrocarbons was primarily along bedding planes during the expulsion phase. Absent of traps,
hydrocarbons migrated up-dip or north where vertical natural fractures were encountered. These natural
fractures were associated with the regional fault trends. Here, the hydrocarbons migrated into the
extensively fractured Austin Chalk. Initial production rates with laterals exceed 1,000 bopd. Listed below
are examples of recent wells drilled by EOG.
•
•
•
In Gonzales County, EOG Resources completed a four-well pattern, the Olympic A 1H-D 4H, with
initial production rates per well of 2,910 boed or 2,160 bopd, 380 bpd of NGLs and 2.2 MMcfd of
natural gas.
In Dewitt County to the immediate south of Gonzales, EOG completed a five-well pattern, the Dio
Unit 11H-15H with initial production rates per well of 2,135 bopd, 355 bpd of NGLs and 2.1 MMcfd
of natural gas.
In the fourth quarter 2017, EOG completed a further four-well package in De Witt County, the
Hendrix 8H-10H and Hendrix 12H with average production of 2,545 bopd, 420 bpd of NGLs and
2.4 MMcfd of natural gas.
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PENNPETRO ENERGY PLC
OPERATIONS REPORT
Buda Formation
The Buda is a biomicritic limestone lying below the Eagleford Shale and above the Del Rio Shale. There
has been an increase in the focus on, and the development of, the Buda formation by a number of US
operators in South Texas, with a number of horizontal wells having been completed.
While the Buda has always been acknowledged as a resource play in South Texas, it sits at the bottom of
our drilling prognosis, as it can be drilled as a separate vertical completion and added to our overall
horizontal programme. Furthermore, its unit spacing can be brought significantly down to 40 acres, thereby
fulfilling a separate in-fill operation alongside our horizontal drilling focus.
Thomas Evans
Executive Director
30 April 2018
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PENNPETRO ENERGY PLC
FINANCIAL REPORT
Financial Report
The financial results for the year ended 31 December 2017 show a loss after tax of $153,269 (2016
($17,838).
As the Company is yet to commence production, it generated no revenue during the period.
The costs incurred by the Group were primarily legal and professional fees and included the costs
associated with listing the Company on the LSE.
External loans were used in the reporting period to enable the Group to acquire leases in Gonzales, Texas
and to fund development of the first horizontal well.
The Group’s borrowings at 31 December 2017 were $6,021,575 (2016: $1,185,000).
The Group also had cash balances at 31 December 2017 of $22,073 (2016: $20,904) and short term
investments of $2,073,299 (2016: $NIL). In addition, the Group had a receivables balance of $1,537,448
(2016: $28,112).
Land lease costs of $1,219,215 (2016: $1,158,199) were capitalised in Property, Plant and Equipment and
Drilling-related expenditure of $1,908,751 (2016: $Nil) was capitalised in intangible assets.
The Group expects to generate revenue in 2018 from its first horizontal well and intends to use its cash
balances and cashflow from oil production to fund additional development of its lease interests in Gonzales.
Philip Nash
Finance Director
30 April 2018
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PENNPETRO ENERGY PLC
STRATEGIC REPORT
Strategic Report
The Directors of the Company and its subsidiaries (which together comprise “the Group”) present their
Strategic Report on the Group for the year ended 31 December 2017.
Principal Activities
On 17 May 2017, the Company successfully completed the acquisition of Nobel Petroleum UK Limited
which resulted in Pennpetro becoming the holding company for an oil and gas development Group, with
assets in Texas, US.
The principal activity of the Group is onshore oil and gas exploration and production in the United States
of America. Pennpetro Energy Plc acts as a holding company and provides direction and other services to
its subsidiary.
The Company’s UK wholly-owned subsidiary is Nobel Petroleum UK Limited, which holds 100% of the US
operational subsidiary Nobel Petroleum USA, Inc. (“Nobel USA”), an independent oil and gas production
company based in the City of Gonzales, Gonzales County, Texas, USA. Nobel USA took over the activities
of Nobel Petroleum LLC, the Company’s other subsidiary entity in December 2017 pursuant to a seamless
internal re-organisation of operational activities and taxation advice. Nobel USA’s core area of business is
in the Austin Chalk and Eagleford Shale oil and gas horizontal formations together with the lower oil and
gas reservoir, the Buda Formation in South Texas, United States.
The review of business and future developments is included in the Executive Directors’ Statement and the
Operations Report.
Organisation Review
The Board is responsible for providing strategic direction for the Group. This incorporates setting out
objectives, management policies and performance criteria. The Board assesses its performance against
these on a monthly basis.
Composition of the Board at 31 December 2017 was one Executive Director and three Non-Executive
Directors. The Board believes that the present composition provides an appropriate mix to conduct the
Group’s affairs.
Strategic Approach
The Board’s strategic intent is to maximise shareholder value through the continuing investment into new
wells and leases in proven US onshore formations and participating alongside established operators in
multiple wells, while further reducing costs, where applicable.
The Company provides shareholders with exposure to the high growth associated with the producing oil
and gas sector. This is achieved with a low overhead base.
Key Performance Indicators
In its first year of operations, the Board monitored the overall performance of the Group by reference to
certain key milestones These milestones were the listing of Pennpetro on the LSE and commencing drilling
of the first well. Both milestones were achieved during the year under review.
Participation in well drilling programmes are monitored on an individual project basis in terms of revenue
and cost per barrel of oil or Mcf (one thousand cubic feet) of gas, together with the anticipated payback
period on each project.
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PENNPETRO ENERGY PLC
STRATEGIC REPORT
Risks and Uncertainties
The Group’s activities expose it to a variety of risks and uncertainties.
Market risk
The Group operates in an international market for hydrocarbons and is exposed to risk arising from
variations in the demand for and price of the hydrocarbons. Oil and gas prices historically have fluctuated
widely and are affected by numerous factors over which the Group does not have any control, including
world production levels, international economic trends, currency exchange fluctuations, inflation,
speculative activity, consumption patterns and global or regional political events.
Non-operator risk
On non-operated interests, the Group, in most instances, will depend on operators to initiate and supervise
the drilling and operation of such wells. As such the Group cannot always accurately predict the timing of
the cash flows associated with the drilling of these wells. If the Group is unable or unwilling to comply with
its payment obligations, it would seek to negotiate a farm-out with some sort of back-in upon pay-out or
sell down a portion of its leasehold interests and participate with a smaller interest. This could reduce the
Group’s future revenues and earnings.
Oil and gas exploration and production risks
The Group is primarily a non-operator working interest owner and is reliant on the operator for managing
all aspects of its production activities in its non-operated interests. Although it does not engage in
exploration activities, per se, it might engage in some limited exploration activity if it was in an area
offsetting producing assets and the Company decided such activity was worthwhile on a minimised risk
basis to enhance its lease profile. There are significant risks and hazards inherent in the exploration and
production of oil and gas, including environmental hazards, industrial incidents, labour disputes, fire,
drought, flooding and other acts of God. The occurrence of any of these hazards can delay or interrupt
production and increase production costs. There is no guarantee that oil and/or gas will be discovered in
any of the Group’s existing or future licences/permitted acreage or that commercial quantities of oil and/or
gas can be recovered.
The Group currently holds less than a 100 per cent working interest in its yet to be completed wells and in
wells which are being drilled. It is also likely to hold less than 100 per cent in wells which may be drilled in
the future. The Group could be held liable for the joint activity obligations of the other working interest
owners, such as non-payment of costs and liabilities arising from the actions of those other working interest
owners. In the event that other working interest owners do not pay their share of such costs, the Group
would be likely to have to pay those costs but would pick up an additional proportionate interest in the well.
Environmental risk
The Group’s operations are subject to environmental regulation in all the jurisdictions in which it operates.
The Group is unable to predict the effect of additional environmental laws and regulations which may be
adopted in the future, including whether any such laws or regulations would adversely affect the Group’s
operations. There can be no assurance that such new environmental legislation once implemented will not
oblige the Group to incur significant expenses and undertake significant investments.
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PENNPETRO ENERGY PLC
STRATEGIC REPORT
Licences and title
The leases in which the Group has or is seeking to have an interest will be subject to termination after the
primary term of such leases unless there is current production of oil and/or gas in commercial quantities.
If a lease is not extended after the primary term, the Group may lose the opportunity to develop and
discover any hydrocarbon resources on that lease area. In taking an assignment of an oil and/or gas lease,
the Group would, in accordance with industry practice, rely on the warranty provisions.
This report was approved by the Board on 30 April 2018 and signed on its behalf:
Keith Edelman
Non-Executive Director, Chairman
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PENNPETRO ENERGY PLC
REPORT OF THE DIRECTORS
The Directors present their Annual Report and the audited Financial Statements for the year ended
31 December 2017.
The Company’s ordinary shares are listed on the London Stock Exchange, on the Official List pursuant to
Chapter 14 of the Listing Rules, which sets out the requirements for Standard Listings.
Directors and Directors’ interests
The Directors who held office during the year to the date of approval of these Financial Statements,
together with their beneficial interests in the ordinary shares of the Company, are shown below.
Shares
Keith Edelman (Appointed 2 May 2017)
1,000,000
Olof Rapp
2,000,000
Philip Nash (Appointed 15 June 2017)
-
Thomas Evans (1)
5,000,000
31 December 2017
Ordinary
Options and
warrants
1 January 2017
(or later date of
appointment)
Ordinary
Shares
Options and
warrants
-
-
-
-
-
-
-
-
-
-
-
-
(1) Thomas Martin Evans shares are held by FHF Securities (A’Asia) Limited.
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PENNPETRO ENERGY PLC
REPORT OF THE DIRECTORS
Board of Directors
Keith Graeme Edelman, Non-Executive Chairman
Keith Edelman graduated from UMIST (University of Manchester Institute Science and Technology) in
1971 with a BSc (Hons) in Management Sciences. He worked for Rank Xerox, IBM and Fiat before joining
Bank of America in 1978. Starting as Planning Manager, EMEA Division and then Finance Director, UK
and Nordic Region, he eventually became Managing Director of Bank of America Finance.
In 1983 he joined Grand Metropolitan as a UK Strategic Director/Director of Finance, Foods Division. In
1985 he joined the Ladbroke Group as Corporate Planning Director and completed a number of major
acquisitions and disposals for that group these included the acquisitions of Hilton International, Texas
Homecare Plc, Thomson T Line Plc and Gable House Properties Plc and disposals of many leisure
businesses including Ladbroke Holidays, Seenews, the 20% stake in Central TV, Laskys to name but a
few. Following the acquisition of Hilton International he became Chairman of Texas Homecare, a chain
of DIY stores. In 1991 he left to become Managing Director of Carlton Communications and in 1993 Group
Chief Executive of Storehouse plc, which included Mothercare and BHS.
He also held a number of executive and non-executive appointments, including Eurotunnel (Audit &
Remuneration Committees 1994–2004), Haberdashers' Aske's School (Governor 1994–2005), where he
was a pupil from prep school through A Levels, Include (Director (Charity) 1997 – 2001), Glenmorangie
(Chairman 2002–2005), Qualceram Shires plc (Director 2005 to 2009) and Arnotts Holdings (2009-2010).
Currently he is Chairman of Revolution Bars Group Plc, Chairman of Bullion by Post Limited, senior
Independent Director of Supergroup Plc and a Director of the London Legacy Development Corporation
and E20 LLP.
In 2000 he joined Arsenal Football Club as Managing Director, bringing his financial and business
experience to the Club. Mr. Edelman was responsible for all commercial and administrative activities at
the club. In a period of increased commercialisation of football, he completed the first strategic partnership
the Club entered into since its formation, selling a 10 percent stake to Granada Media for £77 million. He
oversaw the club's re-branding and crest redesign to create copyright protection and was subsequently
involved in a sponsorship deal with Nike, valued at £130 million over 10 years.
He was instrumental in the club's development of its new stadium and he arranged all the funding raising
over £380 million of banking facilities. He refinanced these projects finance borrowings with a credit
wrapped AAA rated bond and in so doing established Arsenal as the very first Club to achieve an
investment grade rating from the world’s rating agencies. He also completed one of the largest football
sponsorship deals with Emirates Airlines for over £100 million, including naming rights to the Emirates
Stadium. He opened the stadium in August 2006 both on time and on budget and set up all the
operational aspects of the stadium that has made Emirates so successful. He oversaw the development
of Highbury Square and pre-sold over 90% of all units and brought the project in on time and on budget.
In 2007 Keith became club President of the Arsenal Ladies team. He has always been pragmatic about
the club's future and did not rule out the club eventually going public or the major shareholders eventually
deciding to sell their stakes. He resigned as a Director at Arsenal Holdings plc on 1 May 2008 and
continued until May 2009 as a consultant.
Thomas Martin Evans, Executive Officer
Thomas Evans started his career as a financial executive with Extel Financial Ltd, moving to equity sales
at Barclays de Zoete Wedd Ltd and RBC Dominion Securities Limited, director CIBC World Markets
Limited prior to founding Bishopsgate Capital Management Ltd in 2000 dealing in institutional fund
management which was merged with Athanor Capital Partners Ltd assuming the role of Chief Investment
Officer, expanding all the combined entities FSA regulated permitted businesses. Established TME
Consulting creating UCITS compliant umbrella structure to be marketed to both retail and wholesale
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PENNPETRO ENERGY PLC
REPORT OF THE DIRECTORS
Board of Directors (continued)
clients. CEO and founder of the Caplain group created to acquiring stockbroking and wealth management
entities and Aerarius PCC Ltd (Guernsey) fund structure for European investment strategies. Financial
Services Authority (UK) Ltd previously approved for the following control functions – CF1 Director, CF3
Chief Executive, CF8 Appointment & Oversight, CF27 Investment Management.
Olof Nils Anders Rapp, Senior Non-Executive Director
Olof Rapp joined VistaJet International as Senior Vice President in 2015 after 34 years with Rolls- Royce
International and Volvo Truck Corporation. He has vast international experience and has held leading
managerial positions in various parts of the world, from South America to Asia (Brazil, Iran, Turkey,
Singapore, Thailand and Malaysia). His last position at Rolls Royce was as Regional Director, Malaysia,
with overall responsibility for Rolls-Royce’s business in Malaysia and Brunei (Civil & Defence Aviation,
Marine, Civil Nuclear and Energy) and represented the company at the highest level, leading and
facilitating the company’s interest and activities. His last position at Volvo was Managing Director of Volvo
Malaysia, where he led a successful restructuring of the company.
He was born in Gothenburg, Sweden, and studied International Business at IHM Business School. Olof
is actively involved in several start-up companies and serves as a committee member of the Malaysian
Swedish Business Association.
Philip Tudor Nash, Non-Executive Financial Director
Philip Nash qualified as a Chartered Accountant in 1997 and went on to join Hambros Bank, holding a
number of finance positions in its Insurance arm, including Group Financial Controller of Cunningham
Lindsey, a leading loss adjusting group. In 2001 he joined Arsenal Football Club as Stadium Project
Director, reporting to the CEO. He was involved in all aspects of the successful Emirates Stadium Project
including raising finance, financial control, project management and commercial activities. In 2008 Philip
joined Liverpool Football Club as CFO and played a significant role in the transformation of the Club. He
was involved in the sale of the Club to Fenway Sports Group in 2010. He strengthened the Club’s finance
and technology functions, improved governance and lead on a variety of major projects including the
appraisal of the Anfield Stadium redevelopment. In 2014 Philip worked with Rangers International Football
Club PLC which was listed on AIM. He initially joined as a consultant and was subsequently appointed
Interim COO and a Board Director. Whilst at the Club, Philip identified and implemented a number of cost
saving initiatives and raised over £3 million from a share issue. In 2015 he worked with the British Horse
Racing Authority, where he developed a three-year business plan and led a business transformation
program. Philip currently provides business consulting and advisory services to a number of different
companies across several industries. Philip holds a Psychology degree from the University of Reading
and is a member of the ICAEW.
14
PENNPETRO ENERGY PLC
REPORT OF THE DIRECTORS
Directors’ Remuneration
The Board assesses the appropriateness of the nature and amount of emoluments of its Directors on a
periodic basis by reference to relevant employment market conditions with the overall objective of ensuring
maximum stakeholder benefit from the retention of a high quality Board and senior executive team.
No fees and benefits in kind were payable to Directors who held office during the year ended 31 December
2017 (2016: $Nil).
Director Thomas Evans received a loan of £10,000 during the current reporting period which was
outstanding as at 31 December 2017. The loan is repayable within 12 months.
Directors’ and Officers’ Indemnity Insurance
The Company has made qualifying third-party indemnity provisions for the benefit of its Directors and
Officers. These were made during the previous period and remain in force at the date of this report.
Dividends
The Directors do not recommend the payment of a dividend (2016: $Nil).
Share capital and major shareholdings
The issued share capital of the Company as at 31 December 2017 comprised 70,900,000 1p ordinary
shares (2016: 8,600,000).
The Company has only one class of share capital formed of ordinary shares. All shares forming part of
the ordinary share capital have the same rights and each carries one vote.
As at 27 April 2017 the Company had been notified of the following interests in the Company’s ordinary
share capital:
York Energy Group Limited
International Immobiliare Ltd
FHF Securities (A’Asia) Limited
Nomura PB Nominees Limited
Nobel Petroleum Ireland Limited
FHF Corporate Finance Limited
Invictorium Limited
Mrs. B. Shaw
Mrs. P. Evans
Number of shares
Percentage
19,000,000
16,300,000
5,000,000
3,605,000
3,400,000
3,300,000
3,200,000
3,200,000
3,100,000
26.80
22.99
7.05
5.08
4.80
4.65
4.51
4.51
4.37
To the best of the Directors’ knowledge, no shareholder directly or indirectly, exercises or could exercise
control over the Company.
15
PENNPETRO ENERGY PLC
REPORT OF THE DIRECTORS
Going Concern
The Group has prepared cashflow forecasts for 12 months from the date of signing the Financial
Statements. The forecast includes consideration as to the date when oil and gas are expected to flow and
revenues generated and the cost of the delays incurred due to the adverse weather experienced by the
US operation.
The Directors have a reasonable expectation that the Group has adequate resources to continue in
operational existence though 31 December 2018, as projected. However, this expectation is subject to
material adverse unforeseen events that may occur, including but not limited to oil and gas prices and non-
operations control of wells.
Events after the Reporting Period
There were no significant events after the Reporting Period.
Provision of Information to Auditor
So far as each of the Directors is aware at the time this report is approved:
•
there is no relevant audit information of which the Company's auditor is unaware; and
•
the Directors have taken all steps that they ought to have taken to make themselves aware of any
relevant audit information and to establish that the auditor is aware of that information.
Independent Auditor
The auditor, PKF Littlejohn LLP will be proposed for reappointment in accordance with section 485 of the
Companies Act 2006. PKF Littlejohn LLP has signified its willingness to continue in office as auditor.
This report was approved by the board on 30 April 2018 and signed on its behalf:
Keith Edelman
Non-Executive Director, Chairman
16
PENNPETRO ENERGY PLC
STATEMENT OF DIRECTORS’ RESPONSIBILITIES
The Directors are responsible for preparing the Annual Report and the Financial Statements in accordance
with applicable law and regulations. Company law requires the Directors to prepare financial statements
for each financial year. Under that law the Directors have elected to prepare the Group and Parent
Company Financial Statements in accordance with International Financial Reporting Standards (IFRSs)
as adopted by the European Union.
Under company law the Directors must not approve the Financial Statements unless they are satisfied that
they give a true and fair view of the state of affairs of the Company and Group as at the end of the financial
year and of the profit or loss of the Group for that period. In preparing these Financial Statements, the
Directors are required to:
• select suitable accounting policies and then apply them consistently;
• make judgments and accounting estimates that are reasonable and prudent;
• state whether the applicable IFRS’s as adopted by the European Union have been followed; subject
to any material departures disclosed and explained in the Financial Statements; and
• prepare the Financial Statements on a going concern basis unless it is inappropriate to presume
that the Company will continue in business.
The Directors are responsible for keeping adequate accounting records that are sufficient to show and
explain the Company’s transactions and disclose with reasonable accuracy at any time the financial
position of the Company and the Group and enable them to ensure that the Financial Statements comply
with the Companies Act 2006. They are also responsible for safeguarding the assets of the Company and
Group and hence for taking reasonable steps for the prevention and detection of fraud and other
irregularities.
The maintenance and integrity of the website is the responsibility of the Directors. The work carried out by
the auditors does not involve consideration of these matters and, accordingly, the auditors accept no
responsibility for any changes that may have occurred to the information contained in the Financial
Statements since they were initially presented on the website. Legislation in the United Kingdom governing
the preparation and dissemination of the Financial Statements and other information included in annual
reports may differ from legislation in other jurisdictions.
The Company is compliant with the London Stock Exchange regarding the Company’s website.
This Statement was approved by the board on 30 April 2018 and signed on its behalf:
Keith Edelman
Non-Executive Director, Chairman
17
PENNPETRO ENERGY PLC
CORPORATE GOVERNANCE REPORT
Introduction
The Company recognises the importance of, and is committed to, high standards of corporate governance.
Corporate Governance Practices
As a company with a Standard Listing, the Company is not required to comply with the provisions of the
Corporate Governance Code. However, in the interests of observing best practice on corporate
governance, the Company intends to comply with the provisions of the Corporate Governance Code insofar
as is appropriate having regard to the size and nature of the Company and the size and composition of the
Board, except that:
• given the size of the Board and the Company’s current limited operational status, certain provisions of
the Corporate Governance Code (in particular the provisions relating to the composition of the Board and
the division of responsibilities between the Chairman and chief executive and executive compensation),
are not being complied with by the Company as the Board does not consider these provisions to be
appropriate for the Company;
• the Board as a whole will review audit, remuneration and risk matters, on the basis of adopted terms of
reference governing the matters to be reviewed and the frequency with which such matters are considered.
The Board as a whole will also take responsibility for the appointment of auditors and payment of their
audit fee, monitor and review the integrity of the Company’s financial statements and take responsibility
for any formal announcements on the Company’s financial performance;
• the Board as a whole will be responsible for the appointment of executive and non-executive Directors.
The Company does not currently believe it is necessary to have a separate nominations committee at this
time. The requirement for a nominations committee will be considered on an ongoing basis;
• the Board as a whole will consider the Board’s size, structure and composition and the scale and structure
of the Directors’ fees, taking into account the interests of Shareholders and the performance of the
Company;
• the Board does not comply with the provision of the Corporate Governance Code that at least half of the
Board, excluding the Chairman, should comprise non-executive directors determined by the Board to be
sufficiently independent;
• the Company has in place procedures ensuring compliance with the new Market Abuse Regulation and
the Board will be responsible for taking all proper and reasonable steps to ensure compliance with the
Market Abuse Regulation by the Directors; and
• the Company will not seek Shareholder approval at a general meeting in respect of any further
acquisitions it may make, unless it is required to do so for the purposes of facilitating the financing
arrangements or for other legal or regulatory reasons.
The Board of Directors
As at 31 December 2017, the Board of Directors comprised four members: one Executive Director and
three Non-Executive Directors. Keith Edelman was appointed to the Board on 2 May 2017, as Non-
Executive Chairman. Philip Nash was appointed to the Board on 15 June 2017, as Non-Executive Finance
Director. The Executive Director has a wealth of experience analytically covering the oil and gas industry.
Similarly, the Non-Executive Directors together have extensive corporate and financial experience.
The Company has policy of appraising Board performance annually and had adopted an internal policy of
regular face to face meetings in which all Board members discuss any issues as and when they arise in
relation to the Board or any individual member’s performance.
18
PENNPETRO ENERGY PLC
CORPORATE GOVERNANCE REPORT
Corporate Governance Practices (continued)
Board Meetings
The Board ordinarily meets on a bi-monthly basis and as and when further required, providing effective
leadership and overall management of the Group’s affairs by reference to those matters reserved for its
decision. This includes the approval of the budget and business plan, major capital expenditure,
acquisitions and disposals, risk management policies and the approval of the financial statements. Formal
agendas, papers and reports are sent to the Directors, in a timely manner, prior to the Board meetings.
Number held and entitled to
attend
6
6
6
6
Number attended
6
6
6
6
Keith Edelman
Thomas Evans
Olof Rapp
Philip Nash
Internal Controls
The Board recognises the importance of both financial and non-financial controls and has reviewed the
Group's control environment and any related shortfalls during the year. Since the Group was established,
the Directors are satisfied that, given the current size and activities of the Group, adequate internal controls
have been implemented. Whilst they are aware that no system can provide absolute assurance against
material misstatement or loss, in light of the current activity and proposed future developments of the
Group, continuing reviews of internal controls will be undertaken to ensure that they are adequate and
effective.
Relations with Shareholders
The Board is committed to providing effective communication with the shareholders of the Company.
Significant developments are disseminated through stock exchange announcements and regular updates
on the Company website. The Board views the Annual General Meeting as a forum for communication
between the Group and its shareholders and encourages their participation in its agenda.
Keith Edelman
Non-Executive Director, Chairman
30 April 2018
19
PENNPETRO ENERGY PLC
DIRECTORS REMUNERATION REPORT
Introduction
Board Meetings
Directors’ Remuneration Report
The Company’s Remuneration Committee comprises two Non-Executive Directors: Keith Edelman
(Chairman) and Olof Rapp.
Pennpetro’s Remuneration Committee operates within the terms of reference approved by the Board.
In the year to 31 December 2017, the two members of the Remuneration Committee have not met.
The items included in this report are unaudited unless otherwise stated.
Committee’s main responsibilities
•
•
•
•
•
The Remuneration Committee considers the remuneration policy, employment terms and
remuneration of the Executive Directors;
The Remuneration Committee’s role is advisory in nature and it makes recommendations to the
Board on the overall remuneration packages for Executive Directors in order to attract, retain and
motivate high quality executives capable of achieving the Company’s objectives;
The Remuneration Committee also reviews proposals for any share option plans and other incentive
plans, makes recommendations for the grant of awards under such plans as well as approving the
terms of any performance-related pay schemes;
The Board’s policy is to remunerate the Company’s executives fairly and in such a manner as to
facilitate the recruitment, retention and motivation of suitably qualified personnel; and
The Remuneration Committee, when considering the remuneration packages of the Company’s
executives, will review the policies of comparable companies in the industry.
Consideration of shareholder views
The Remuneration Committee considers shareholder feedback received and guidance from shareholder
bodies. This feedback, plus any additional feedback received from time to time, is considered as part of
the Company’s periodic reviews of its policy on remuneration.
Statement of policy on Directors’ remuneration
The Company’s policy is to maintain levels of remuneration so as to attract, motivate, and retain Directors
and Senior Executives of the highest caliber who can contribute their experience to deliver industry leading
performance with the Company’s operations. Currently Director’s remuneration is not subject to specific
performance targets.
In future periods the Company intends to implement a remuneration policy so that a meaningful proportion
of Executive remuneration is structured so as to link rewards to corporate and individual performance, align
their interests with those of shareholders and to incentivise them to perform at the highest levels. The
Remuneration Committee considers remuneration policy and the employment terms and remuneration of
the Executive Directors and makes recommendations to the Board of Directors on the overall remuneration
packages for the Executive Directors. No Director takes part in any decision directly affecting their own
remuneration.
20
PENNPETRO ENERGY PLC
DIRECTORS REMUNERATION REPORT
Directors Remuneration Report (continued)
Directors’ remuneration
The Directors who held office at 31 December 2017 are summarised as follows:
Name of Director
Position
Keith Edelman
Thomas Evans
Philip Nash
Olof Rapp
Chairman, Non-Executive Director
Executive Director
Finance Director and Non-Executive Director
Senior Non-Executive Director
Each of the Directors entered into service agreements when they were appointed as Directors of the
Company. Details of those service agreements are set out below. The remuneration aspects of the service
agreements only commenced after the Company was listed, which occurred on 21 December 2017. There
were no other major remuneration decisions in the period.
Keith Edelman was appointed as a Non-Executive Director and Chairman of the Company on 2 May 2017
and entered into a letter of appointment with the Company. Pursuant to his letter of appointment Mr.
Edelman is entitled to an annual fee of £35,000 for a minimum of 2 days’ work per month, which includes
consideration for chairing the Remuneration Committee. He will be entitled to an additional fee if he is
required to perform any specific and additional services. The Chairman is not entitled to receive any
compensation on termination of his appointment (other than payment in respect of a notice period where
notice is served) and is entitled to be reimbursed all reasonable out-of-pocket expenses incurred in the
proper performance of his duties. Mr. Edelman is entitled to participate in a share option pool, which will
be established in 2018. Mr. Edelman’s appointment is for an initial term of three years unless terminated
earlier by either party giving to the other three month’s prior written notice.
Thomas Evans was appointed as Executive Director of the Company on 17 June 2016 and entered into a
letter of appointment with the Company. Pursuant to his letter of appointment Mr. Evans is entitled to an
annual fee of £30,000 for a minimum of 2 days’ work per month. He will be entitled to an additional fee if
he is required to perform any specific and additional services. The Director is not entitled to receive any
compensation on termination of his appointment (other than payment in respect of a notice period where
notice is served) and is entitled to be reimbursed all reasonable out-of-pocket expenses incurred in the
proper performance of his duties. Mr. Evans is entitled to participate in a share option pool, which will be
established in 2018. Mr. Evans’ appointment is for an initial term of three years unless terminated earlier
by either party giving to the other three month’s prior written notice.
Philip Nash was appointed as a Non-Executive Director and Finance Director of the Company on 17 June
2017 and entered into a letter of appointment with the Company. Pursuant to his letter of appointment Mr.
Nash is entitled to an annual fee of £30,000 for a minimum of 2 days’ work per month, which includes being
a member of the Audit Committee. He will be entitled to an additional fee if he is required to perform any
specific and additional services. The Director is not entitled to receive any compensation on termination of
his appointment (other than payment in respect of a notice period where notice is served) and is entitled
to be reimbursed all reasonable out-of-pocket expenses incurred in the proper performance of his duties.
Mr. Nash is entitled to participate in a share option pool, which will be established in 2018. Mr. Nash’s
appointment is for an initial term of three years unless terminated earlier by either party giving to the other
three month’s prior written notice.
Olof Rapp was appointed as Senior Non-Executive Director of the Company on 6 May 2016 and entered
into a letter of appointment with the Company. Pursuant to his letter of appointment Mr. Rapp is entitled to
an annual fee of £30,000 for a minimum of 2 days’ work per month, which includes being a member of the
Remuneration Committee and the Audit Committee. He will be entitled to an additional fee if he is required
to perform any specific and additional services. The Director is not entitled to receive any compensation
on termination of his appointment (other than payment in respect of a notice period where notice is served)
and is entitled to be reimbursed all reasonable out-of-pocket expenses incurred in the proper performance
of his duties. Mr. Rapp is entitled to participate in a share option pool, which will be established in 2018.
Mr. Rapp’s appointment is for an initial term of three years unless terminated earlier by either party giving
to the other three month’s prior written notice.
21
PENNPETRO ENERGY PLC
DIRECTORS REMUNERATION REPORT
Directors Remuneration Report (continued)
Remuneration components
None of the Directors earned any emoluments in the year ended 31 December 2017.
Directors beneficial share interests (audited)
The interests of the Directors who served during the year in the share capital of the Company at 31
December 2017 and at the date of this report were as follows:
Shares
Keith Edelman (Appointed 2 May 2017)
1,000,000
Olof Rapp
2,000,000
Philip Nash (Appointed 15 June 2017)
-
Thomas Evans (1)
5,000,000
31 December 2017
Ordinary
Options and
warrants
1 January 2017
(or later date of
appointment)
Ordinary
Shares
Options and
warrants
-
-
-
-
-
-
-
-
-
-
-
-
(1) Thomas Martin Evans shares are held by FHF Securities (A’Asia) Limited.
Total pension entitlements (audited)
The Company does currently not have any pension plans for any of the Directors and does not pay pension
amounts in relation to their remuneration.
The Company has not paid out any excess retirement benefits to any Directors or past Directors.
Payments to past directors (audited)
The Company has not paid any compensation to past Directors.
Payments for loss of office (audited)
No payments were made for loss of office during the year.
Directors interests in share warrants (audited)
None of the Directors had interests in share warrants.
22
PENNPETRO ENERGY PLC
DIRECTORS REMUNERATION REPORT
Directors Remuneration Report (continued)
Policy for new appointments
Base salary levels will take into account market data for the relevant role, internal relativities, the
individual’s experience and their current base salary. Where an individual is recruited at below market
norms, they may be re-aligned over time (e.g. two to three years), subject to performance in the role.
Benefits will generally be in accordance with the approved policy.
For external and internal appointments, the Committee may agree that the Company will meet certain
relocation and/or incidental expenses as appropriate.
Policy on payment for loss of office
Payment for loss of office would be determined by the remuneration committee, taking into account
contractual obligations.
Other matters
The Company does not currently have any annual or long-term incentive schemes in place for any of the
Directors and as such there are no disclosures in this respect.
Share performance graph
The Company only commenced trading on 21 December 2017 and given that there were only 5 trading
days in the year under review, the Directors do not consider that there is sufficient data to provide
meaningful information. Consequently, a graph is not included in this Report.
Approved by the Board on 30 April 2018.
Keith Edelman
Non-Executive Director, Chairman
23
PENNPETRO ENERGY PLC
AUDIT COMMITTEE REPORT
Audit Committee Report
The Audit Committee comprises two Non-Executive Directors (Olof Rapp and Philip Nash). It oversees
the Company’s financial reporting and internal controls and provides a formal reporting link with the external
auditors. The ultimate responsibility for reviewing and approving the annual report and accounts and the
half-yearly report remains with the Board.
Main Responsibilities
The Audit Committee acts as a preparatory body for discharging the Board’s responsibilities in a wide
range of financial matters by:
•
•
•
•
•
•
•
monitoring the integrity of the financial statements and formal announcements relating to the
Company’s financial performance;
reviewing significant financial reporting issues, accounting policies and disclosures in financial
reports, which are considered to be in accordance with the key audit matters identified by the external
auditors;
overseeing that an effective system of internal control and risk management systems are maintained;
ensuring that an effective whistle-blowing, anti-fraud and bribery procedures are in place;
overseeing the Board’s relationship with the external auditor and, where appropriate, the selection of
new external auditors;
approving non-audit services provided by the external auditor, or any other accounting firm, ensuring
the independence and objectivity of the external auditors is safeguarded when appointing them to
conduct non-audit services; and
ensuring compliance with legal requirements, accounting standards and the Listing Rules and the
Disclosure and Transparency Rules;
Governance
The Code requires that at least one member of the Audit Committee has recent and relevant financial
experience. Philip Nash, who was appointed to the Audit Committee in 2017 has been a qualified Chartered
Accountant with extensive experience of high level finance roles. As a result, the Board is satisfied that
the Audit Committee has recent and relevant financial experience.
Members of the Audit Committee are appointed by the Board and whilst shareholders, the Company
believes they are considered to be independent in both character and judgement.
The Company’s external auditor is PKF Littlejohn LLP and the Audit Committee will closely monitor the
level of audit services they provide to the Company.
The audit committee believes that the Company does not require an internal audit function due to the
current size of the organisation and its operations.
Meetings
In the year to 31 December 2017 the two members of the Audit Committee have met once.
The key work undertaken by the Audit Committee is as follows;
•
•
•
•
•
•
interview of external auditors and recommendation to the Board
review of audit planning and update on relevant accounting developments;
consideration and approval of the risk management framework, appropriateness of key performance
indicators;
consideration and review of full-year results;
review of the effectiveness of the Audit Committee; and
review of internal controls
24
PENNPETRO ENERGY PLC
AUDIT COMMITTEE REPORT
Audit Committee Report (continued)
The Code states that the Audit Committee should have primary responsibility for making a recommendation
on the appointment, reappointment or removal of the external auditor.
External auditor
The Company’s external auditor is PKF Littlejohn LLP. The external auditor has unrestricted access to the
Audit Committee Chairman. The Committee is satisfied that PKF Littlejohn LLP has adequate policies and
safeguards in place to ensure that auditor objectivity and independence are maintained. The external
auditors report to the Audit Committee annually on their independence from the Company. In accordance
with professional standards, the partner responsible for the audit is changed every five years. The current
auditor, PKF Littlejohn LLP were first appointed by the Company in 2017 following a tender process later
in the year, and therefore the current partner is due to rotate off the engagement after completing the
December 2021 audit. Having assessed the performance objectivity and independence of the auditors,
the Committee will be recommending the reappointment of PKF Littlejohn LLP as auditors to the Company
at the 2018 Annual General Meeting.
Keith Edelman
Non-Executive Director, Chairman
30 April 2018
25
PENNPETRO ENERGY PLC
REPORT OF THE INDEPENDENT AUDITOR
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF PENNPETRO ENERGY PLC
Opinion
We have audited the financial statements of Pennpetro Energy Plc (the “Company”) and its subsidiaries
(2the Group”) for the year ended 31 December 2017 which comprise the Consolidated Statement of
Comprehensive Income, the Consolidated and Company Statement of Financial Position, the Consolidated
and Company Statement of Changes in Equity, the Consolidated and Company Statement of Cash Flows
and notes to the financial statements, including a summary of significant accounting policies. The financial
reporting framework that has been applied in their preparation is applicable law and International Financial
Reporting Standards (IFRSs) as adopted by the European Union.
This report is made solely to the Company’s members, as a body, in accordance with Chapter 3 of Part 16
of the Companies Act 2006. Our audit work has been undertaken so that we might state to the Company’s
members those matters we are required to state to them in an auditor’s report and for no other purpose.
To the fullest extent permitted by law, we do not accept or assume responsibility to anyone, other than the
Company and the Company's members as a body, for our audit work, for this report, or for the opinions we
have formed.
In our opinion:
• The financial statements give a true and fair view of the state of the Group’s and Company’s affairs
as at 31 December 2017 and of the Group’s loss for the year then ended;
• The Group financial statements have been properly prepared in accordance with IFRSs as adopted
by the European Union;
• The Parent Company financial statements have been properly prepared in accordance with IFRSs
as adopted by the European Union and as applied in accordance with the provisions of the
Companies Act 2006; and
• have been prepared in accordance with the requirements of the Companies Act 2006.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and
applicable law. Our responsibilities under those standards are further described in the Auditor’s
responsibilities for the audit of the financial statements section of our report. We are independent of the
Company in accordance with the ethical requirements that are relevant to our audit of the financial
statements in the UK, including the FRC’s Ethical Standard as applied to listed entities, and we have
fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit
evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Conclusions relating to going concern
We have nothing to report in respect of the following matters in relation to which the ISAs (UK) require us
to report to you where:
•
•
the directors’ use of the going concern basis of accounting in the preparation of the financial
statements is not appropriate; or
the directors have not disclosed in the financial statements any identified material uncertainties
that may cast significant doubt about the Company’s ability to continue to adopt the going concern
basis of accounting for a period of at least twelve months from the date when the financial
statements are authorised for issue.
Our application of materiality
Materiality was calculated at £141,000 based on 2% of gross assets. This approach was considered
appropriate due to where the areas of significant audit risk arose. We apply the concept of materiality both
in planning and performing our audit, and in evaluating the effect of misstatement. At the planning stage
materiality is used to determine the financial statement areas that are included within the scope of our audit
and the then extent of sample sizes during the audit.
26
PENNPETRO ENERGY PLC
REPORT OF THE INDEPENDENT AUDITOR
Independent Auditor’s Report to the Members… (Continued)
Our application of maternity (continued)
We agreed with the audit committee that we would report to the committee all individual audit differences
identified during the course of our audit in excess of £7,050. There were no misstatements identified during
the course of our audit that individually, or in aggregate, considered to be material.
An overview of the scope of our audit
The Company and Group finance function is based in the United Kingdom and a full scope audit was
carried out thereon from our office with discussions with management as required and with information
being requested from the US where appropriate. This gave us sufficient appropriate evidence for our
opinion on the consolidated financial statements.
Key audit matters
Key audit matters are those matters that, in our professional judgment, were of most significance in our
audit of the financial statements of the current period and include the most significant assessed risks of
material misstatement (whether or not due to fraud) we identified, including those which had the greatest
effect on: the overall audit strategy, the allocation of resources in the audit; and directing the efforts of the
engagement team. These matters were addressed in the context of our audit of the financial statements
as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.
Key Audit Matter
How the scope of our audit responded to the
key audit matter
Acquisition of Noble Petroleum UK Limited
During the period Pennpetro Energy Plc
acquired Noble Petroleum UK Limited. This
transaction is significant as through it the
Company now holds Oil and Gas assets from
its
which
shareholders. Before
the
Company was in effect a cash shell.
it can generate
the
returns
for
transaction
There is the risk that the acquisition has been
accounted for incorrectly.
Carry Value of Investment in subsidiaries
Investments
The carrying value of
in
subsidiaries (£7.2 million) represents the most
material amount within the Company level
financial statements. The value of
the
investment is reliant upon the Oil and Gas
assets held within the subsidiaries.
There is the risk that the carrying value of the
investment is impaired.
We performed the following work in order to
address the identified risk:
• Agreed acquisition details to the Share and
Purchase Agreement;
• Considered the accounting treatment of the
acquisition and assessed whether in fell
outside the scope of IFRS 3 “Business
Combinations”;
• Reviewed the calculations prepared by
management in respect of the acquisition
for both mathematical accuracy and
adherence to accounting convention; and
• Reviewed
the disclosures within
the
financial statements for appropriateness.
We performed an impairment review of the carrying
value of
its
subsidiaries. Our work included;
the Company’s
interest within
• Reviewing the impairment indicators listed
in IFRS;
• Obtaining and reviewing the Competent
Persons Report (“CPR”) assessing the
competency of
the
the preparer and
mathematical accuracy of inputs used;
• Obtaining support for ownership; and
• Discussing with management the basis for
impairment
and
challenging any assumptions made
thereon.
non-impairment
or
No indication of impairment was noted from
the work performed.
27
PENNPETRO ENERGY PLC
REPORT OF THE INDEPENDENT AUDITOR
Independent Auditor’s Report to the Members… (Continued)
Other information
The other information comprises the information included in the annual report, other than the financial
statements and our auditor’s report thereon. The directors are responsible for the other information. Our
opinion on the financial statements does not cover the other information and, except to the extent otherwise
explicitly stated in our report, we do not express any form of assurance conclusion thereon. In connection
with our audit of the financial statements, our responsibility is to read the other information and, in doing
so, consider whether the other information is materially inconsistent with the financial statements or our
knowledge obtained in the audit or otherwise appears to be materially misstated. If we identify such material
inconsistencies or apparent material misstatements, we are required to determine whether there is a
material misstatement in the financial statements or a material misstatement of the other information. If,
based on the work we have performed, we conclude that there is a material misstatement of this other
information, we are required to report that fact.
We have nothing to report in this regard.
Opinions on other matters prescribed by the Companies Act 2006
In our opinion, based on the work undertaken in the course of the audit:
•
•
the information given in the strategic report and the directors’ report for the financial year for which
the financial statements are prepared is consistent with the financial statements; and
the strategic report and the directors’ report have been prepared in accordance with applicable
legal requirements.
Matters on which we are required to report by exception
In the light of the knowledge and understanding of the Company and its environment obtained in the course
of the audit, we have not identified material misstatements in the strategic report or the directors’ report.
We have nothing to report in respect of the following matters in relation to which the Companies Act 2006
requires us to report to you if, in our opinion:
• adequate accounting records have not been kept, or returns adequate for our audit have not been
received from branches not visited by us; or
the financial statements are not in agreement with the accounting records and returns; or
•
• certain disclosures of directors’ remuneration specified by law are not made; or
• we have not received all the information and explanations we require for our audit.
Responsibilities of directors
As explained more fully in the directors’ responsibilities statement, the directors are responsible for the
preparation of the financial statements and for being satisfied that they give a true and fair view, and for
such internal control as the directors determine is necessary to enable the preparation of financial
statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, the directors are responsible for assessing the Company’s ability to
continue as a going concern, disclosing, as applicable, matters related to going concern and using the
going concern basis of accounting unless the directors either intend to liquidate the Company or to cease
operations, or have no realistic alternative but to do so.
Auditor’s responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are
free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes
our opinion. Reasonable assurance is a high level of assurance but is not a guarantee that an audit
conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists.
Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate,
they could reasonably be expected to influence the economic decisions of users taken on the basis of
these financial statements.
28
PENNPETRO ENERGY PLC
REPORT OF THE INDEPENDENT AUDITOR
Independent Auditor’s Report to the Members… (Continued)
Auditor’s responsibilities for the audit of the financial statements (Continued)
A further description of our responsibilities for the audit of the financial statements is located on the
Financial Reporting Council’s website at: http://www.frc.org.uk/auditors. This description forms part of our
auditor’s report.
Other matters which we are required to address
We were appointed by the Board of Directors in place of the audit committee on 7th February 2018 to audit
the financial statements for the year ending 31 December 2017. Our total uninterrupted period of
engagement is one year, covering the period ending 31 December 2017.
The non-audit services prohibited by the FRC’s Ethical Standard were not provided to the Company and
we remain independent of the Company in conducting our audit.
Our audit opinion is consistent with the additional report to the audit committee.
Joseph Archer (Senior Statutory Auditor)
For and on behalf of PKF Littlejohn LLP
1 Westferry Circus
Canary Wharf
29
PENNPETRO ENERGY PLC
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Continuing Operations
Administrative expenses
Year ended 31 December 2017
Note
Year ended
31 December
2017
$
Period ended
31 December
2016
$
6
(708,295)
________
(17,599)
________
Operating Loss
(708,295)
(17,599)
Finance income
Finance costs
Loss before Tax
Income tax
Loss for the year attributable to owners of the parent
Other Comprehensive Income:
Items that may be reclassified subsequently to profit
or loss
10
10
9
561,849
(6,823)
________
-
(239)
________
(153,269)
(17,838)
-
________
-
________
(153,269)
________
(17,838)
________
Currency translation differences
19,718
-
Other Comprehensive Income for the Year, Net of Tax
Total Comprehensive Income for the Year attributable
to the owners of the parent
Loss per share attributable to the owners of the parent
during the year
_______
19,718
________
_______
-
________
(133,551)
(17,838)
________
________
Basic (cents per share)
Diluted (cents per share)
11
(0.003)
_______
(132.133)
________
(0.003)
________
(132.133)
________
The notes to the consolidated financial statements form an integral part of these Financial Statements.
30
PENNPETRO ENERGY PLC
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
As at 31 December 2017
ASSETS
Non–Current Assets
Property, plant and equipment
Intangible assets
Total Non-Current Assets
Current Assets
Trade and other receivables
Short term investments
Cash and cash equivalents
Total Current Assets
TOTAL ASSETS
EQUITY AND LIABILITIES
Equity attributable to Owners of Parent
Share capital
Share premium
Convertible reserve
Reorganisation reserve
Foreign exchange reserve
Retained losses
Total Equity
Non-Current Liabilities
Borrowings
Total Non-Current Liabilities
Current Liabilities
Trade and other payables
Total Current Liabilities
TOTAL EQUITY AND LIABILITIES
Note
As at
31 December
2017
$
As at
31 December
2016
$
12
13
15
16
17
18
18
19
20
1,226,647
2,173,533
_________
1,160,508
-
_________
3,400,180
_________
1,160,508
_________
1,537,448
2,073,299
22,073
________
28,112
-
20,904
________
3,632,820
________
49,016
________
7,033,000
_________
1,209,524
_________
908,404
625,504
6,021,575
(6,578,229)
19,718
(266,738)
_________
135
-
-
-
-
(17,838)
_________
730,234
_________
(17,703)
_________
6,092,657
________
1,185,000
________
6,092,657
________
-
________
210,109
________
42,227
________
210,109
________
42,227
________
7,033,000
_________
1,209,524
_________
These Financial Statements were approved by the Board of Directors on 30 April 2018 and signed on its
behalf by:
Keith Edelman
Non-Executive Director, Chairman
The notes to the consolidated financial statements form an integral part of these Financial Statements.
31
PENNPETRO ENERGY PLC
Registered number 05566066
COMPANY STATEMENT OF FINANCIAL POSITION
As at 31 December 2017
ASSETS
Non–Current Assets
Investments in subsidiaries
Property, plant and equipment
Total Non–Current Assets
Current Assets
Trade and other receivables
Short term investments
Cash and cash equivalents
Total Current Assets
TOTAL ASSETS
EQUITY AND LIABILITIES
Equity attributable to Shareholders
Share capital
Share premium
Convertible reserve
Foreign exchange reserve
Retained losses
Total Equity
Current Liabilities
Trade and other payables
Total Current Liabilities
TOTAL EQUITY AND LIABILITIES
Note
As at
31 December
2017
$
As at
31 December
2016
$
14
12
15
16
17
18
18
20
7,027,100
5,700
________
7,032,800
________
13,514
1,194,948
-
_________
-
3,653
________
3,653
________
-
347,904
-
_________
1,208,462
_________
347,904
_________
8,241,262
_________
351,557
_________
908,404
625,504
6,021,575
417,578
(714,397)
_________
116,590
303,677
-
(33,358)
(44,620)
_________
7,258,664
_________
342,289
_________
982,598
______
982,598
______
9,268
______
9,268
______
8,241,262
_________
351,557
_________
The Company has elected to take the exemption under Section 408 of the Companies Act 2006 from
presenting the Parent Company Statement of Comprehensive Income. The loss for the Parent Company
for the year was $669,777 (2016: $44,620).
These Financial Statements were approved by the Board of Directors on 30 April 2018 and were signed
on its behalf by:
Keith Edelman
Non-Executive Director, Chairman
The notes to the consolidated financial statements form an integral part of these Financial Statements.
32
PENNPETRO ENERGY PLC
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Year ended 31 December 2017
Attributable to the owners of the parent
Share
capital
Share
Premium
Convertible
reserve
Reorganisa
tion
reserve
Foreign
Exchange
Reserve
Group ($)
At incorporation
Loss for the period
Total Comprehensive Income for the
Period
Transactions with
Owners
Shares issued for cash
135
Transaction with owners, recognised
directly in equity
Balance at
31 December 2016
Balance at
1 January 2017
Loss for the year
Other Comprehensive Income
Currency translation differences
Total Comprehensive Income for the
Year
Transactions with Owners
Reverse merger
Shares issued for
Shares issued for cash
Share raising cost
-
-
-
135
135
135
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
687,055
303,677
6,021,575
(6,578,229)
191,550
-
29,799
332,969
-
(11,142)
-
-
-
-
-
-
Retained
losses
-
Total
equity
-
(17,838)
(17,838)
(17,838)
(17,838)
-
-
135
135
(17,838)
(17,703)
(17,838)
(17,703)
(153,269)
(153,269)
-
-
-
-
-
-
-
-
19,718
-
19,718
19,718
(153,269)
(133,551)
-
-
-
-
-
(95,631)
338,447
-
-
-
191,550
362,768
(11,142)
(95,631)
881,623
Transaction with owners, recognised
directly in equity
908,404
625,504
6,021,575
(6,578,229)
Balance at
31 December 2017
908,404
625,504
6,021,575
(6,578,229)
19,718
(266,738)
730,234
The notes to the consolidated financial statements form an integral part of these Financial Statements.
33
PENNPETRO ENERGY PLC
COMPANY STATEMENT OF CHANGES IN EQUITY
Year ended 31 December 2017
Attributable to the shareholders
Share
capital
Share
premium
Convertible
reserve
Retained
losses
Translation
reserve
-
-
Total
equity
-
Company ($)
At incorporation
Loss for the period
Other Comprehensive Income
Currency translation differences
Total Comprehensive
Income for the Period
Transactions with
Owners
Shares issued for cash
Total contributions by and
distributions to owners of the
parent, recognised directly in
equity
Balance at
31 December 2016
Balance at
1 January 2017
Loss for the year
Other Comprehensive Income
Total Comprehensive
Income for the Year
Transactions with
Owners
-
-
-
-
-
-
-
-
116,590
303,677
116,590
303,677
116,590
303,677
116,590
303,677
-
-
-
-
-
-
Shares issued for cash
29,799
332,969
-
-
-
-
-
-
-
-
-
-
-
-
-
-
6,021,575
-
-
-
Shares issued as consideration
for listing fees
191,550
Shares issued as consideration
in the reverse merger
570,465
Convertible loan note issued as
consideration in the reverse
merger
Share issue costs
-
-
Total contributions by and
distributions to owners of the
parent, recognised directly in
equity
Balance at
31 December 2017
(11,142)
-
791,814
321,827
6,021,575
(44,620)
-
(44,620)
-
(33,358)
(33,358)
(44,620)
(33,358)
(77,978)
-
-
-
-
420,267
420,267
(44,620)
(33,358)
342,289
(44,620)
(33,358)
342,289
(669,777)
-
(669,777)
-
450,936
450,936
(669,777)
450,936
123,448
-
-
-
-
-
-
-
-
-
-
362,768
191,550
570,465
6,021,575
-
(11,142)
-
7,135,216
908,404
625,504
6,021,575
(714,397)
417,578
7,258,664
The notes to the consolidated financial statements form an integral part of these Financial Statements.
34
PENNPETRO ENERGY PLC
CONSOLIDATED STATEMENT OF CASH FLOWS
Year ended 31 December 2017
Note
Year ended
31 December
2017
$
Period ended
31 December
2016
$
Cash Flows from Operating Activities
(Loss) before tax
Depreciation
Amortisation
Finance income
Finance costs
Changes to working capital
(Increase) in trade and other receivables
Increase in trade and other payables
Trade and other payables on reverse merger
Shares issued to settle professional fees
Cash used in operations
Interest paid
Net Cash used in Operating Activities
Cash Flows from Investing Activities
Purchases of development expenditure
Purchases of property, plant and equipment
Interest received
Net Cash used in Investing Activities
Cash Flows from Financing Activities
Proceeds from issue of ordinary shares
Issue costs
Short term investments
Proceeds from borrowings
Borrowing arrangement fees
Short term investments on reverse merger
Net Cash generated from Financing Activities
Net (Decrease)/ Increase in Cash and Cash
Equivalents
Movement in Cash and Cash Equivalents
Cash and cash equivalents at the beginning of the year
Exchange gain on cash and cash equivalents
Net (decrease)/Increase in cash and cash equivalents
12
10
10
18
10
13
12
10
18
18
17
(153,269)
2,921
5,557
(561,849)
6,823
________
(17,838)
-
-
-
239
________
(669,817)
(17,599)
(439,131)
167,747
(9,268)
191,550
________
(788,919)
(6,912)
________
(795,831)
________
(2,978,956)
(65,065)
89
________
(28,112)
42,227
-
-
________
(3,484)
(239)
________
(3,723)
________
-
(1,160,508)
-
________
(3,043,932)
________
(1,160,508)
________
362,768
(11,142)
(2,073,299)
5,469,506
(270,339)
347,904
________
3,825,398
________
(14,365)
________
20,904
15,534
(14,365)
_______
135
-
-
1,185,000
-
-
________
1,185,135
________
20,904
________
-
-
20,904
________
Cash and Cash Equivalents at the End of the Year
20,904
________
The notes to the consolidated financial statements form an integral part of these Financial Statements.
22,073
_______
17
35
PENNPETRO ENERGY PLC
COMPANY STATEMENT OF CASH FLOWS
Year ended 31 December 2017
Year
ended
31 December
2017
Note
Period
ended
31 December
2016
$
Cash Flows from Operating Activities
Loss before tax
Depreciation
Finance income
Finance costs
Changes to working capital
Increase in funding received from subsidiary undertaking
Increase in trade and other receivables
Increase in trade and other payables
Shares issued to settle professional fees
18
Cash generated/ (used in) operations
Interest paid
Net Cash generated from/ (used in) Operating
Activities
Cash Flows from Investing Activities
Purchase of property, plant and equipment
Interest received
Net Cash used in Investing Activities
Cash Flows from Financing Activities
Proceeds from issue of ordinary shares
Issue costs
Transfers to short term investments
Net Cash generated from/ (used in) Financing
Activities
Net movement in Cash and Cash Equivalents
12
18
18
Cash and cash equivalents at the beginning of the year
Exchange gain on cash and cash equivalents
Net Decrease in cash and cash equivalents
17
Cash and Cash Equivalents at the End of the Year
17
$
(669,777)
2,344
(89)
643
_______
(44,620)
1,218
(10)
92
_______
(666,879)
(43,320)
793,960
(13,514)
179,370
191,550
_______
-
-
9,268
-
_______
1,151,366
9,268
484,487
(643)
(34,052)
(92)
483,844
(34,144)
_______
_______
(4,049)
89
________
(3,960)
________
(4,871)
10
________
(4,861)
________
362,768
(11,142)
(831,510)
383,067
-
(347,904)
________
________
(479,884)
________
35,163
________
-
________
(3,842)
________
-
-
-
_______
-
_______
-
3,842
(3,842)
_______
-
_______
The notes to the consolidated financial statements form an integral part of these Financial Statements.
36
PENNPETRO ENERGY PLC
1. GENERAL INFORMATION
NOTES TO THE FINANCIAL STATEMENTS
Year ended 31 December 2017
The Consolidated Financial Statements of Pennpetro Energy plc (“the Company”) consists of the
following companies (together “the Group”):
Pennpetro Energy plc
Nobel Petroleum UK Limited
Nobel Petroleum USA Inc
Nobel Petroleum LLC
UK registered company
UK registered company
US registered company
US registered company
The Company is a public limited company which is listed on the standard market of the London Stock
Exchange and incorporated and domiciled in England and Wales. Its registered office address is First
Floor, 88 Whitfield Street, London, W1T 4EZ.
The Group is an oil and gas developer with assets in Texas, United States. The Company’s US-based
subsidiaries own a portfolio of leasehold petroleum mineral interests centred on the City of Gonzalez,
in southeast Texas, comprising the undeveloped central portion of the Gonzales Oil Field.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The principal accounting policies applied in the preparation of these Consolidated Financial Statements
are set out below. These policies have been consistently applied to all the years presented, unless
otherwise stated.
2.1.Basis of preparation of Financial Statements
The Consolidated Financial Statements of Pennpetro Energy plc have been prepared in accordance
with International Financial Reporting Standards (IFRS) and IFRIC interpretations (IFRS IC) as
adopted by the European Union and the Companies Act 2006 applicable to companies reporting under
IFRS.
The Financial Statements have been prepared under the historical cost convention.
The preparation of Financial Statements in conformity with IFRS requires the use of certain critical
accounting estimates. It also requires management to exercise its judgement in the process of applying
the Group’s accounting policies. The areas involving a higher degree of judgement or complexity, or
areas where assumptions and estimates are significant to the consolidated Financial Statements, are
disclosed in Note 4.
2.2.Basis of consolidation
The Consolidated Financial Statements consolidate the Financial Statements of Pennpetro Energy plc
and the audited Financial Statements of its subsidiary undertaking made up to 31 December 2017.
The comparative figures consolidate the Consolidated Financial Statements of Nobel Petroleum UK
Limited and the audited Financial Statements of its subsidiaries. This is a consequence of the reverse
merger accounting treatment of this transaction.
Subsidiaries are all entities over which the Group has control. The Group controls an entity when the
Group is exposed to, or has rights to, variable returns from its involvement with the investee and has
the ability to affect those returns through its power over the investee. Subsidiaries are fully consolidated
from the date on which control is transferred to the Group. They are deconsolidated from the date that
control ceases.
Where necessary, adjustments are made to the financial statements of subsidiaries to bring the
accounting policies used into line with those used by other members of the Group. All inter-company
transactions and balances between Group entities are eliminated on consolidation.
37
PENNPETRO ENERGY PLC
NOTES TO THE FINANCIAL STATEMENTS
Year ended 31 December 2017
2.2 Basis of consolidation (continued)
Acquisition
On 17 May 2017 Pennpetro energy plc (“Pennpetro”) acquired 100% of the issued capital of Nobel
Petroleum UK Limited (“Nobel UK”) in a share for share exchange with the shareholders of Nobel UK’s
parent company at that time, Nobel Petroleum Ireland Limited (“Nobel Ireland”). Due to the relative size
of the companies, Nobel Ireland’s shareholders became the majority shareholders in the enlarged
share capital. Pennpetro’s shares were later listed on the London Stock Exchange in December 2017.
The transaction fell outside the scope of IFRS 3 (“Business Combinations”) and as such has been
treated as a group reconstruction and has been accounted for using the reverse merger accounting
method. Accordingly, the consolidated financial statements have been treated as being a continuation
of the consolidated financial statements of Nobel UK, with Pennpetro being treated as the acquired
entity for accounting purposes. Accordingly, the financial information for the current period and
comparatives has been presented as if Noble UK had been owned by Pennpetro throughout the current
and prior period.
Reason for the reverse merger
Pennpetro was incorporated with the intention of obtaining a Listing on the LSE shortly after completing
a reverse merger with Nobel UK Limited by way of a share swap with Nobel UK’s parent company
Nobel Ireland. Nobel Ireland’s shareholders retained a majority interest in the listed Pennpetro after the
transaction.
Business Combinations
The acquisition of other subsidiaries are expected to be accounted for using the acquisition method of
accounting. The consideration transferred for the acquisition is the fair values of the assets transferred,
the liabilities incurred to the former owners of the acquiree and the equity interests issued by the Group.
The consideration transferred includes the fair value of any asset or liability resulting from a contingent
consideration arrangement. Identifiable assets acquired and liabilities and contingent liabilities
assumed in a business combination are measured initially at their fair values at the acquisition date.
The Group recognises any non-controlling interest in the acquiree at the non-controlling interest’s
proportionate share of the recognised amounts of the acquiree’s identifiable net assets. Acquisition-
related costs are expensed as incurred. Any contingent consideration to be transferred by the Group
is recognised at fair value at the acquisition date. Subsequent changes to the fair value of the
contingent consideration that is deemed to be an asset or liability is recognised in accordance with IAS
39, either in the Income Statement or as a change to other comprehensive income. Contingent
consideration that is classified as equity is not remeasured, and its subsequent settlement is accounted
for within equity. Goodwill is initially measured as the excess of the aggregate of the consideration
transferred and the fair value of non-controlling interest over the identifiable net assets acquired and
liabilities assumed.
2.3.Going concern
The Group’s business activities, together with the factors likely to affect its future development and
performance are set out in the Executive Director’s Statement. In addition, notes 3 and 23 to the
Financial Statements disclose the Group’s and Company’s objectives, policies and processes for
managing financial risks and capital.
The Group has prepared cashflow forecasts for 12 months from the date of signing the Financial
Statements. The forecast includes consideration as to the date when oil and gas are expected to flow
and revenues generated and the cost of the delays incurred due to the adverse weather experienced
by the US operation.
The Directors have considered these forecasts and have a reasonable expectation that the Company
and Group has adequate resources to continue in operational existence through 31 December 2018
as projected; however subject to material adverse unforeseen events that may occur, including but not
limited to oil and gas prices and non-operational control of wells. For this reason, the Directors continue
to adopt the going concern basis of accounting in preparing the Financial Statements.
38
PENNPETRO ENERGY PLC
NOTES TO THE FINANCIAL STATEMENTS
Year ended 31 December 2017
2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
2.4.Changes in accounting policy and disclosure
a) New standards, amendments and interpretations adopted by the Group
No new standards, amendments or interpretations, effective for the first time for the financial
year beginning on or after 1 January 2017 have had a material impact on the Group or
Company.
b) New and amended standards and interpretations issued but not yet effective or
endorsed and not early adopted
At the date of authorisation of these Financial Statements, the Group and Company have not
applied the following new and revised IFRSs that have been issued but are not yet effective and
(in some cases) have not yet been endorsed by the EU. The Group and Company intend to adopt
these standards, if applicable, when they become effective.
Standard / Interpretation Title
IAS 7 (Amendments)
IAS 12 (Amendments)
IAS 28 (Amendments)
IFRS 2 (Amendments)
IFRS 9
IFRS 10 (Amendments)
IFRS 15
IFRS 16
IFRS 15 (Clarifications)
Annual Improvements
IFRIC Interpretation 22
Results of the Disclosure Initiative
Recognition of Deferred Tax Assets for Unrealised
Losses
Accounting for Investments - Applying the
Consolidation Exception
Classification and Measurement of Share Based
Payment Transactions
Financial Instruments
Consolidated Financial Statements: Applying the
Consolidation Exception
Revenue from Contracts with Customers
Leases
Revenue from Contracts with Customers
Annual Improvements to IFRS Standard 2014-
2016 Cycle
Foreign Currency Transactions and Advance
Consideration
Effective date
*1 January 2017
*1 January 2017
Postponed
*1 January 2018
1 January 2018
Postponed
1 January 2018
1 January 2019
1 January 2018
*1 January 2017 / 1
January 2018
*1 January 2018
* Subject to EU endorsement
The Group and Company are evaluating the impact of the new and amended standards above.
The Directors do not anticipate that the adoption of these standards, amendments and
interpretations will have a material impact on the Group’s financial statements in the periods of
initial application.
2.5.Revenue recognition
Revenue represents the amounts receivable from operators for the Group’s share of oil and / or
gas revenues less any royalties payable to the lessor or assignor of the mineral rights. Revenue is
recognised in the period to which the declarations from the operators relate.
39
PENNPETRO ENERGY PLC
NOTES TO THE FINANCIAL STATEMENTS
Year ended 31 December 2017
2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
2.6.Foreign Currency Translation
(a) Functional and presentation currency
Items included in each of the Financial Statements of the Group’s entities are measured using
the currency of the primary economic environment in which the entity operates (the ‘functional
currency’). The functional currency of the UK parent entity and Nobel UK Limited is sterling
and the functional currency of the US subsidiaries is US Dollars. The Financial Statements
are presented in US Dollars, rounded to the nearest Dollar, which is the Group’s and
Company’s presentation currency.
(b) Transactions and balances
Foreign currency transactions are translated into the functional currency using the exchange
rates prevailing at the dates of the transactions or valuation where such items are re-
measured. Foreign exchange gains and losses resulting from the settlement of such
transactions and from the translation at year-end exchange rates of monetary assets and
liabilities denominated in foreign currencies are recognised in the statement of comprehensive
income.
(c) Group companies
The results and financial position of all the Group entities that have a functional currency
different from the presentation currency are translated into the presentation currency as
follows:
• assets and liabilities for each Statement of Financial Position presented are translated
at the closing rate at the date of that Statement of Financial Position;
•
income and expenses for each statement of comprehensive income are translated at
average exchange rates (unless this average is not a reasonable approximation of the
cumulative effect of the rates prevailing on the transaction dates, in which case income
and expenses are translated at the dates of the transactions); and
• all resulting exchange differences are recognised in other comprehensive income.
On consolidation, exchange differences arising from the translation of the net investment in
foreign entities, and of monetary items receivable from foreign subsidiaries for which
settlement is neither planned nor likely to occur in the foreseeable future are taken to other
comprehensive income. When a foreign operation is sold, such exchange differences are
recognised in the Statement of Comprehensive Income as part of the gain or loss on sale.
2.7.Property, plant and equipment
Following evaluation of successful exploration of wells, if commercial reserves are established and
the technical feasibility of extraction demonstrated, and once a project is sanctioned for commercial
development, then the related capitalised exploration costs are transferred into a single field cost
centre within ‘producing properties’ within property, plant and equipment after testing for
impairment. Where results of exploration drilling indicate the presence of hydrocarbons which are
ultimately not considered commercially viable, all related costs are written off to the Statement of
Comprehensive Income.
40
PENNPETRO ENERGY PLC
NOTES TO THE FINANCIAL STATEMENTS
Year ended 31 December 2017
2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
2.7. Property, plant and equipment (continued)
The net book values of ‘producing properties’ are depreciated on a unit of production basis at a
rate calculated by reference to proven and probable reserves and incorporating the estimated
future cost of developing and extracting those reserves once production has commenced.
All costs incurred after the technical feasibility and commercial viability of producing hydrocarbons
has been demonstrated, are capitalised within ‘drilling costs and equipment’ on a well by well basis.
Subsequent expenditure is capitalised only where it either enhances the economic benefits of the
development/producing asset or replaces part of the existing development/producing asset. Any
costs remaining associated with the part replaced are expensed.
Net proceeds from any disposal of an exploration asset are initially credited against the previously
capitalised costs. Any surplus proceeds are credited to the Statement of Comprehensive Income.
All property, plant and equipment other than oil and gas assets are stated at historical cost less
depreciation. Historical cost includes expenditure that is directly attributable to the acquisition of
the items.
Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset,
as appropriate, only when it is probable that future economic benefits associated with the item will
flow to the Group and the cost of the item can be measured reliably. All other repairs and
maintenance are charged to the Statement of Comprehensive Income during the financial period
in which they are incurred.
Depreciation is charged so as to allocate the cost of assets, over their estimated useful lives, on a
straight line basis as follows:
Office equipment – 4 years
Oil and gas producing properties held in property, plant and equipment are mainly depreciated on
a unit of production basis at a rate calculated by reference to proven and probable reserves and
incorporating the estimated future cost of developing and extracting those reserves.
The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at each
financial year-end.
Gains and losses on disposal are determined by comparing proceeds with carrying amount. These
are included in the Income Statement.
41
PENNPETRO ENERGY PLC
NOTES TO THE FINANCIAL STATEMENTS
Year ended 31 December 2017
2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
2.8. Intangible assets
a. Development expenditure
Expenditure on the construction, installation and completion of infrastructure facilities such as
platforms, pipelines and the drilling of development wells, including service, is capitalized
initially within intangible fixed assets and when the well has formally commenced commercial
production, then it is transferred to property, plant and equipment and is depreciated from the
commencement of production as described in the accounting policy for property, plant and
equipment
b. Drilling costs and Petroleum mineral leases
The Group applies the successful efforts method of accounting for oil and gas assets, having
regard to the requirements of IFRS 6 ‘Exploration for and Evaluation of Mineral Resources’.
Costs incurred prior to obtaining the legal rights to explore an area are expensed immediately
to the Statement of Comprehensive Income.
Expenditure incurred on the acquisition of a licence interest is initially capitalised within
intangible assets on a licence by licence basis. Costs are held, unamortised, within Petroleum
mineral leases until such time as the exploration phase of the licence area is complete or
commercial reserves have been discovered. The cost of the licence is subsequently
transferred into “Producing Properties” within property, plant and equipment and depreciated
over its estimated useful economic life.
Exploration expenditure incurred in the process of determining exploration targets is
capitalised initially within intangible assets as drilling costs. Drilling costs are initially
capitalised on a well by well basis until the success or otherwise has been established. Drilling
costs are written off on completion of a well unless the results indicate that hydrocarbon
reserves exist and there is a reasonable prospect that these reserves are commercially viable.
Drilling costs are subsequently transferred into ‘Drilling expenditure’ within property, plant and
equipment and depreciated over their estimated useful economic life. All such costs are
subject to regular technical, commercial and management review on at least an annual basis
to confirm the continued intent to develop or otherwise extract value from the discovery. Where
this is no longer the case, the costs are immediately expensed to the Statement of
Comprehensive Income.
Impairment of Non-Financial Assets
Assets not ready for use are not subject to amortisation and are tested annually for impairment.
Assets that are subject to amortisation or depreciation are reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount may not be recoverable. An
impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its
recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to
sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest
levels for which there are separately identifiable cash flows (cash-generating units). Non-financial
assets other than goodwill that suffered impairment are reviewed for possible reversal of the
impairment at each reporting date.
42
PENNPETRO ENERGY PLC
NOTES TO THE FINANCIAL STATEMENTS
Year ended 31 December 2017
2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
2.9.Investments in subsidiaries
Investments in subsidiaries are accounted for at cost less impairment.
2.10.Financial assets
Classification
Financial assets are recognised when the Group becomes a party to the contractual provisions of
the instrument. At initial recognition, the Group classifies its financial assets as loans and
receivables which comprise ‘trade and other receivables’ and ‘cash and cash equivalents’.
Loans and receivables are non-derivative financial assets with fixed or determinable payments that
are not quoted in an active market. They are included in current assets, except for maturities
greater than 12 months after the end of the reporting period.
Recognition and measurement
Loans and receivables are initially recognised at the amount expected to be received, less where
material, a discount to reduce the loans and receivables to fair value. Subsequently, loans and
receivables are measured at amortised cost using the effective interest method less a provision for
impairment.
Derecognition
The Group derecognises a financial asset when the contractual rights to the cash flows from the
asset expire, or it transfers the rights to receive the contractual cash flows on the financial asset in
a transaction in which substantially all the risks and rewards of the ownership of the financial asset
are transferred. Any interest in transferred financial assets that is created or retained by the Group
is recognised as a separate asset or liability.
Derecognition also takes place for certain assets when the Group writes-off balances pertaining to
the assets deemed to be uncollectible.
The Group derecognises a financial liability when its contractual obligations are discharged or
cancelled or expire.
Impairment of financial assets
At each Statement of Financial Position date, the Group assesses whether there is objective
evidence that financial assets are impaired. Financial assets are impaired when objective evidence
demonstrates that a loss event has occurred after the initial recognition of the asset, and the loss
event has an impact on the future cash flows of the asset that can be estimated reliably.
The Group considers the evidence of impairment at both a specific asset and collective level. All
individually significant financial assets are assessed for specific impairment. All significant assets
found not to be specifically impaired are then collectively assessed for any impairment that has
been incurred but not yet identified. Assets that are not individually significant are then collectively
assessed for impairment by grouping together financial assets (carried at amortised cost) with
similar risk characteristics. When a subsequent event causes the amount of impairment loss to
decrease, the impairment loss is reversed through the Income Statement.
43
PENNPETRO ENERGY PLC
NOTES TO THE FINANCIAL STATEMENTS
Year ended 31 December 2017
2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
2.11.Trade and other receivables
Trade and other receivables are recognised initially at fair value and subsequently measured at
amortised cost using the effective interest method, less provision for impairment. A provision for
impairment of trade receivables is established when there is objective evidence that the Group will
not be able to collect all amounts due according to the original terms of receivables.
2.12.Short term investments
Short term investments include amounts held in bank accounts and deposits by financial service
companies that have been approved by the Directors.
2.13.Cash and cash equivalents
Cash and cash equivalents comprise cash at bank and in hand and demand deposits with banks.
2.14.Trade and other payables
Trade and other payables are initially measured at fair value and are subsequently measured at
amortised cost using the effective interest method.
2.15.Borrowings
Borrowings are recognised initially at fair value. Borrowings are subsequently carried at amortised
cost; any difference between the proceeds (net of transaction costs) and the redemption value is
recognised in the Income Statement over the period of the borrowings, using the effective interest
method.
Borrowings are classified as current liabilities unless the Group has an unconditional right to defer
settlement of the liability for at least 12 months after the end of the reporting period.
2.16.Borrowing costs
Arrangement fees and commissions in relation to the Loan provided to the Group by Pennpetro
Bonds II Limited have initially been capitalised in Intangible assets and are subsequently charged
to the Comprehensive Income Statement over the period that the Loan is available to the Group.
2.17.Share capital
Ordinary shares are classified as equity when there is no obligation to transfer cash or other assets.
Incremental costs directly attributable to the issue of equity instruments are shown in equity as a
deduction from the proceeds, net of tax. Incremental costs directly attributable to the issue of equity
instruments as consideration for the acquisition of a business are included in the cost of acquisition.
44
PENNPETRO ENERGY PLC
NOTES TO THE FINANCIAL STATEMENTS
Year ended 31 December 2017
2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
2.18.Reserves
The reorganisation merger as described in Accounting policy 2.2 has been accounted for as a
share-based payment transaction which should be accounted for in accordance with IFRS 2. On
the basis of the guidance in para 13A of IFRS 2, the reverse merger has been treated as a
continuation of the Nobel Group into the Pennpetro Group. The consideration included the issue
of new share capital and the issue of a convertible bond. The total consideration less the share
capital in Nobel UK resulted in the creation of the reverse merger reserve.
The convertible reserve represents the principal value of a mandatory convertible note issued by
Pennpetro Petroleum plc to Nobel Petroleum Ireland Limited in part consideration for the
acquisition of Nobel Petroleum UK under an agreement dated 17 May 2017.
The translation reserve represents effects of currency translation in the year.
2.19.Taxation
The tax expense or credit comprises current and deferred tax. It is calculated using tax rates that
have been enacted or substantively enacted by the Statement of Financial Position date.
Deferred tax is accounted for using the balance sheet liability method in respect of temporary
differences arising from differences between the carrying amount of assets and liabilities in the
financial statements and the corresponding tax basis used in the computation of taxable profit. In
principle, deferred tax liabilities are recognised for all taxable temporary differences and deferred
tax assets are recognised to the extent that it is probable that taxable profits will be available
against which deductible temporary differences can be utilised. Such assets and liabilities are not
recognised if the temporary difference arises from goodwill (or negative goodwill) or from the initial
recognition (other than in a business combination) of other assets and liabilities in a transaction,
which affects neither the tax profit nor the accounting profit.
Deferred tax liabilities are recognised for taxable temporary differences arising on investments in
subsidiaries and associates, and interests in joint ventures, except where the Group is able to
control the reversal of the temporary difference and it is probable that the temporary difference will
not reverse in the foreseeable future. Deferred tax is calculated at the tax rates that are expected
to apply to the period when the asset is realised, or the liability is settled. Deferred tax is charged
or credited in the Statement of Comprehensive Income, except when it relates to items credited or
charged directly to equity, in which case the deferred tax is also dealt with in equity. Deferred tax
assets and liabilities are offset when they relate to income taxes levied by the same taxation
authority and the Group intends to settle its current tax assets and liabilities on a net basis.
45
PENNPETRO ENERGY PLC
NOTES TO THE FINANCIAL STATEMENTS
Year ended 31 December 2017
2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
2.20.Segment Information
Operating segments are reported in a manner consistent with the internal reporting provided to the
chief operating decision-maker (“CODM”), who is responsible for allocating resources and
assessing performance of the operating segments and making strategic decisions. The CODM is
determined to be the board of Directors.
2.21.Exceptional items
Exceptional items are disclosed separately in the Financial Statements where it is necessary to do
so to provide further understanding of the financial performance of the Group. They are material
items of income or expense that have been shown separately due to the significance of their nature
or amount.
3. FINANCIAL RISK MANAGEMENT
The Group’s activities expose it to a variety of financial risks: market risk (including currency risk and
cash flow and interest rate risk), credit risk and liquidity risk.
Market risk
The Group operates in an international market for hydrocarbons and is exposed to risk arising from
variations in the demand for and price of the hydrocarbons. Oil and gas prices historically have
fluctuated widely and are affected by numerous factors over which the Group has no control, including
world production levels, international economic trends, exchange rate fluctuations, speculative activity
and global or regional political events.
a) Currency risk
The majority of the Group’s purchase transactions and expenditure are denominated in US dollars.
The currencies are stable, and any exchange risk is managed by maintaining bank accounts
denominated in those currencies.
Credit risk
Credit risk represents the risk of loss the Group would incur if operators and counterparties fail to fulfil
their credit obligations. The maximum exposure to credit risk is represented by the carrying amount of
each financial asset.
Where the Group is not an operator of wells, the Group’s trade receivables and accrued income result
from contractual amounts due from third party operators. The risk is concentrated between a relatively
small group of operators given the small number of parties involved in oil and gas exploration and
production activities. The Group seeks to mitigate this risk where possible by assessing the credit
quality of the operators and by establishing ongoing and long-term relationships.
Liquidity risk
Cash flow forecasting is performed in the operating entities of the Group and aggregated by Group
Finance. Group Finance monitors rolling forecasts of the Group’s liquidity requirements to ensure it
has sufficient cash to meet operational needs, while seeking to maintain sufficient headroom on its
undrawn committed borrowing facilities (Note 19) at all times, so that the Group does not breach
borrowing limits or covenants (where applicable) on any of its borrowing facilities. Such forecasting
takes into consideration the Group’s debt financing plans, covenant compliance, compliance with
internal Statement of Financial Position ratio targets, and, if applicable, external regulatory or legal
requirements (for example, currency restrictions).
46
PENNPETRO ENERGY PLC
NOTES TO THE FINANCIAL STATEMENTS
Year ended 31 December 2017
3 FINANCIAL RISK MANAGEMENT (continued)
The table below analyses the Group’s non-derivative financial liabilities and net-settled derivative
financial liabilities into relevant maturity groupings, based on the remaining period at the Statement of
Financial Position to the contractual maturity date. The amounts disclosed in the table are the
contractual undiscounted cash flows.
Group
At 31 December 2017
Borrowings (undiscounted)
Trade and other payables
At 31 December 2016
Borrowings
Trade and other payables
Less than
1 year
-
209,974
Between
2 and 3 years
6,654,506
-
-
42,227
1,185,000
-
4. CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS
Use of estimates and judgements
The preparation of Financial Statements in conformity with IFRSs requires management to make
judgements, estimates and assumptions that affect the application of policies and reported amounts of
assets and liabilities, income and expenses. The estimates and associated assumptions are based on
historical experience and various other factors that are believed to be reasonable under the
circumstances, the results of which form the basis of making the judgements about carrying values of
assets and liabilities that are not readily apparent from other sources. Actual results may differ from
these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting
estimates are recognised in the period in which the estimate is revised if the revision affects only that
period, or in the period of the revision and future periods if the revision affects both current and future
periods. In particular, information about significant areas of estimation uncertainty and critical
judgements in applying accounting policies that have the most significant effect on the amount
recognised in the financial statements are described below.
47
PENNPETRO ENERGY PLC
NOTES TO THE FINANCIAL STATEMENTS
Year ended 31 December 2017
4 CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS (continued)
Estimated impairment of producing properties and capitalised drilling costs & equipment
At 31 December 2017, petroleum mineral leases and capitalised drilling costs & equipment on
petroleum properties have a total carrying value of $3,127,966 (2016: $1,158,199), (Notes 12 and 13).
Management tests annually whether the assets have future economic value in accordance with the
accounting policies. These assets are also subject to an annual impairment review by an independent
consultant.
The recoverable amount of each property has been determined based on a value in use calculation
which requires the use of certain estimates and assumptions such as long-term commodity prices (i.e.
oil and gas prices), discount rates, operating costs, future capital requirements and mineral resource
estimates. These estimates and assumptions are subject to risk and uncertainty and therefore a
possibility that changes in circumstances will impact the recoverable amount.
The following estimates have been used by the Directors in determining the recoverability of the
Company’s Petroleum properties. The Source for these estimates is the Competent Persons Report
(“CPR”) prepared in December 2017.
• The Pennpetro Group owns approximately 1,000 leases on 2,500 acres in Gonzales, Texas
• The Group’s Net Working interests are 2,000 Mbbl of oil and 1,000 MMcf of gas
• Base case oil sold is assumed at $55 per barrel and gas at $3.20 per thousand cubic feet
• Oil and gas pricing held constant to depletion in 2031
The total proved future Net Revenue interest after costs as at 1 December 2017:
Undiscounted $62m
Based on the information provided in the CPR, the Directors have determined that the Company’s oil
properties have not been impaired as at the 31 December 2017.
Recoverability of non-producing mineral leases and capitalised drilling costs & equipment
Management tests annually whether non-producing mineral leases have future economic value in
accordance with the accounting policies. This assessment takes into consideration the likely
commerciality of the asset, the future revenues and costs pertaining and the discount rates to be
applied for the purposes of deriving a recoverable value. In the event that a lease does not represent
an economic drilling target and results indicate that there is no additional upside, the mineral lease and
drilling costs will be impaired. The Directors have reviewed the estimated value of the licences and
have concluded that an impairment charge of $0 should be recognised.
48
PENNPETRO ENERGY PLC
NOTES TO THE FINANCIAL STATEMENTS
Year ended 31 December 2017
4 CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS (continued)
Estimated useful lives of property, plant and equipment
Useful lives are based on industry standards and historical experience which are subjected to yearly
evaluation. For producing properties, the Group’s considerations include the lease period of the
agreement, estimated levels of proven and probable reserves and the estimated future cost of
developing and extracting those reserves. Management review property, plant and equipment at each
Statement of Financial Position date to determine whether there are any indications of impairment. If
any such indication exists, an estimate of the recoverable amount is performed, and an impairment
loss is recognised to the extent that the carrying amount exceeds the recoverable amount. The
Directors have reviewed the estimated value of each property and do not consider any further
impairment to be necessary.
5. SEGMENTAL INFORMATION
The Group operates in two geographical areas, the United Kingdom and the United States of America.
Activities in the UK are mainly administrative in nature whilst the activities in the USA relate to
exploration and production from oil and gas wells. The reports reviewed by the Board of Directors that
are used to make strategic decisions are based on these geographical segments.
Operating loss
Depreciation
Capital expenditure
Development expenditure
Total assets
Total liabilities
Operating loss
Capital expenditure
Development expenditure
Total assets
Total liabilities
Year ended 31 December 2017
USA
$
Intra-segment
balances
$
UK
$
Total
$
(39,073)
________
(669,222)
_______
-
___
(708,295)
________
577
61,016
1,908,751
6,612,798
6,114,127
_________
2,344
4,049
-
1,214,162
982,599
_________
-
-
-
(793,960)
(793,960)
_________
2,921
65,065
1,908,751
7,033,000
6,302,766
_________
Period ended 31 December 2016
USA
$
(17,599)
________
1,160,508
-
1,209,524
1,227,227
_________
UK
$
-
_______
-
-
-
-
_________
Intra-segment
balances
$
-
___
-
-
-
-
_________
Total
$
(17,599)
________
1,160,508
-
1,209,524
1,227,227
_________
49
PENNPETRO ENERGY PLC
NOTES TO THE FINANCIAL STATEMENTS
Year ended 31 December 2017
5. SEGMENTAL INFORMATION (continued)
A reconciliation of the operating loss to loss before taxation is provided as follows:
Year ended
31 December
2017
$
Period ended
31 December
2016
Restated
$
Operating Loss for reportable segments
(708,295)
(17,599)
Finance income net of finance costs
555,026
(239)
Loss before tax
________
_______
(153,269)
________
(17,838)
_______
The amounts provided to the Board of Directors with respect to total assets are measured in a manner
consistent with that of the Financial Statements. These assets are allocated based on the operations
of the segment and physical location of the asset.
Reportable segments’ assets are reconciled to total assets as follows:
Year ended
31 December
2017
$
Period ended
31 December
2016
$
Segmental assets for reportable segments
7,033,000
1,209,524
Total assets per Statement of Financial Position
7,033,000
_________
1,209,524
_________
Information about major customers/operating partners
Nobel USA’s ownership interests are 50% Working Interest (“WI”). Nobel has three industry partners
in the project which own the remaining 50% Net Working Interest: Sunrise Energy LLC (“Sunrise”), Av-
Tech Oil & Gas LLC (“Av-Tech”) and Landex Petroleum LLC (“Landex”). Av-Tech provides valuable
experience to Nobel USA, having successfully drilled some 250 wells and produced wells drilled
throughout the subject area. Sunrise is an industry partner and derived its 25% working interest out of
an assignment from the original 75% WI acquired by Nobel USA in November 2016 and is obligated
under all of Nobel USA’s original acquisition of lease terms, which include the Av-Tech and Landex
carry provisions on the drilling and completion of the first two horizontal wells.
50
PENNPETRO ENERGY PLC
NOTES TO THE FINANCIAL STATEMENTS
Year ended 31 December 2017
6. EXPENSES BY NATURE
Group
Legal, professional and compliance costs
Depreciation
Other costs
Total administrative expenses
7. AUDITOR REMUNERATION
2017
2016
$
649,031
2,921
56,343
$
12,700
-
4,899
________ ________
708,295
17,599
________ ________
Services provided by the Company’s auditor and its associates
During the year, the Group (including its overseas subsidiaries) obtained the following services from
the Company’s auditor:
Fees payable to the Company’s auditor for the audit of the Parent Company
and consolidated Financial Statements
Fees payable to the Company’s auditor for other services:
- in relation to transaction services
2017
$
2016
$
27,855
9,268
12,500
-
_______ _______
8. STAFF COSTS
The Group and Company did not incur any staff costs (including Directors) during the year (2016 $Nil).
The Group does not employ any full time employees at its US subsidiaries. Instead the Group uses
specialist service providers to fulfil its well drilling and land management requirements.
Directors’ Emoluments
The average monthly number of staff, including the Directors, during the financial year was as follows:
Group
2017
No.
2016
No.
4
___
2
___
Company
2017
No.
2016
No.
4
___
2
___
Directors
Directors
51
PENNPETRO ENERGY PLC
NOTES TO THE FINANCIAL STATEMENTS
Year ended 31 December 2017
9. INCOME TAX
Tax charge for the period
The tax charge for the year is $Nil (2016: $Nil).
Factors affecting the tax charge for the period
The tax charge for each year is explained below:
Loss for the year before taxation
UK Loss before tax multiplied by the UK tax rate 19% (2016:
20%)
Tax effect of:
Unutilised tax losses carried forward
Income tax charge
2017
2016
$
$
(153,269)
(17,838)
(29,121)
-
-
(3,568)
29,121
_______
3,568
_______
-
_______
-
_______
The Group has UK tax losses of approximately $29,121 (2016: $8,000) to carry forward against future
profits.
52
PENNPETRO ENERGY PLC
NOTES TO THE FINANCIAL STATEMENTS
Year ended 31 December 2017
10. FINANCE INCOME AND FINANCE COSTS
Group
Loan adjustment for effective interest
Bank charges and interest expense
11. EARNINGS PER SHARE
2017
2016
$
561,849
$
-
(6,823)
_______
(239)
_______
The calculation of basic and diluted earnings per share is based on the following loss and number of
shares:
Loss for the year
Weighted average shares in issue
Basic earnings per share (cents)
Year ended
31 December 2017
$
Period ended
31 December 2016
$
153,269
44,295,000
17,838
135
(0.003)
(132.133)
There is no difference between the basic and diluted earnings per share as the effect would be to
decrease earnings per share.
53
PENNPETRO ENERGY PLC
NOTES TO THE FINANCIAL STATEMENTS
Year ended 31 December 2017
12. PROPERTY, PLANT AND EQUIPMENT
Group
Cost
At incorporation
Additions
At 31 December 2016
Additions
Acquired in reverse merger
Currency translation
At 31 December 2017
Accumulated Depreciation and
Impairment
At incorporation
Charge for the period
At 31 December 2016
Acquired in reverse merger
Charge for the period
Currency translation
At 31 December 2017
Net Book Amount
At 31 December 2016
At 31 December 2017
Petroleum
(Mineral
Leases)
$
Office
equipment
$
Total
$
-
1,158,199
________
-
2,309
______
-
1,160,508
________
1,158,199
________
2,309
______
1,160,508
________
61,016
-
-
________
4,049
4,871
454
______
65,065
4,871
454
_________
1,219,215
________
11,683
______
1,230,898
_________
-
-
_______
-
_______
-
-
_______
-
_______
-
-
_____
-
-
________
-
_____
-
________
1,218
2,921
112
______
1,218
2,921
112
_________
4,251
_____
4,251
________
1,158,199
________
2,309
______
1,160,508
_________
1,219,215
________
7,432
______
1,226,647
_________
Office equipment depreciation expense of $2,921 (2016: $Nil) has been charged in administrative
expenses.
54
PENNPETRO ENERGY PLC
NOTES TO THE FINANCIAL STATEMENTS
Year ended 31 December 2017
12. PROPERTY, PLANT AND EQUIPMENT (continued)
Company
Cost
At incorporation
Additions
At 31 December 2016
Additions
Currency translation
At 31 December 2017
Accumulated Depreciation
At incorporation
Charge for the period
At 31 December 2016
Charge for the period
Currency translation
At 31 December 2017
Net Book Amount
At 31 December 2016
At 31 December 2017
Office
equipment
$
-
4,871
______
4,871
______
4,049
454
______
9,374
______
-
1,218
_____
1,218
_____
2,344
112
______
3,674
_____
3,653
______
5,700
______
Office equipment depreciation expense of $2,344 (2016: $1,218) has been charged in administrative
expenses.
55
PENNPETRO ENERGY PLC
13. INTANGIBLE ASSETS
NOTES TO THE FINANCIAL STATEMENTS
Year ended 31 December 2017
Cost
At incorporation
At 31 December 2016
Additions
Less: Participants share of
development costs
At 31 December 2017
Amortisation
At incorporation
At 31 December 2016
Amortisation charge for the period
At 31 December 2017
Net Book Amount
At 31 December 2016
At 31 December 2017
Drilling costs
$
-
________
-
________
Loan
arrangement
fees
$
-
______
-
______
Total
$
-
________
-
________
2,978,956
(1,070,205)
270,339
-
3,249,295
(1,070,205)
________
______
_________
1,908,751
________
270,339
______
2,179,090
_________
-
_______
-
_______
-
_______
-
_______
-
________
1,908,751
________
-
_____
-
_____
-
________
-
________
5,557
______
5,557
_________
5,557
_____
5,557
________
-
______
-
_________
264,782
______
2,173,533
_________
Drilling costs represents acquired intangible assets with an indefinite useful life and are tested annually
for impairment. Drilling costs are capitalised on a well by well basis if the results indicate the existence
of a commercially viable level of reserves.
Impairment review – Property, plant and equipment and Intangible assets
The Directors have undertaken a review to assess whether circumstances exist which could indicate
the existence of impairment as follows:
• The Group no longer has title to mineral leases.
• A decision has been taken by the Board to discontinue exploration due to the absence of a
commercial level of reserves.
• Sufficient data exists to indicate that the costs incurred will not be fully recovered from future
development and participation.
Following their assessment, the Directors recognised that no impairment charge is necessary.
56
PENNPETRO ENERGY PLC
14. INVESTMENTS
Investments in subsidiaries
Company
Shares in group undertakings
At 1 January
Additions
Exchange movements
At 31 December
NOTES TO THE FINANCIAL STATEMENTS
Year ended 31 December 2017
2017
$
2016
$
-
6,592,040
435,060
-
-
-
________ ________
7,027,100
-
________ ________
Investments in group undertakings are recorded at cost, which is the fair value of the consideration
paid.
Under an agreement dated 17 May 2017, between the Company (as the Purchaser) and Nobel
Petroleum Ireland Limited (as the Seller), the Company acquired from the Seller all of the issued capital
of Nobel Petroleum UK Limited, being 100 fully paid ordinary shares, in consideration of the issue of
3,400,000 Ordinary Shares and the issue of a mandatory convertible note to the Seller, which is
convertible into up to 19,000,000 Ordinary Shares. A further 41,600,000 Ordinary shares were issued
under the acquisition agreement, to settle sums owed to the subscribers for advisory, introduction,
broking and financing services to the Group. In addition, 10,000,000 ordinary shares were issued in
consideration for professional fees directly associated with the acquisition.
Nobel Petroleum Ireland Limited was issued with a mandatory convertible note of principal amount
£4.75M as part of the consideration for the sale of Nobel Petroleum UK Limited. This note is convertible
at any time into 19,000,000 Ordinary Shares, calculated at the conversion price of £0.25 per Ordinary
Share. The conversion can be exercised at any time in respect of up to such number of Ordinary Shares
that does not cause the Company to be in breach of its obligations under Listing Rules 14.2.2 or 14.3.2
to ensure that at least 25% of the Company's Ordinary Shares are in public hands or triggering an
obligation under section 85 CA 2006 to publish a prospectus, as more particularly described in such
provisions. If the Note is not fully converted, the Company is required to issue a replacement note in
respect of the balance of the Principal amount, which shall be convertible into the relevant balance of
Ordinary Shares when those terms so allow. The Note contains certain covenants applying to the
Company. It also contains events of default following which the Company would be required to redeem
the Note. The Note is transferrable in whole or in part.
Principal subsidiaries
Name
Nobel
Petroleum UK
Country of
incorporation
and residence
Nature of
business
Registered
capital
Proportion of equity
shares held by Company
UK
Holding
Ordinary
£100
100%
Limited
Nobel USA/Louisiana Oil & Gas Ordinary 100% via Nobel UK
Petroleum LLC
Nobel USA/Delaware Oil & Gas Ordinary 100% via Nobel UK
Petroleum USA, Inc.
These subsidiary undertakings are included in the consolidation. The proportion of the voting rights in
the subsidiary undertaking held directly by the Parent Company does not differ from the proportion of
ordinary shares held.
57
PENNPETRO ENERGY PLC
NOTES TO THE FINANCIAL STATEMENTS
Year ended 31 December 2017
15. TRADE AND OTHER RECEIVABLES
Group
2017
$
2016
$
Company
2016
$
2017
$
Amounts due from Development participants
Other receivables
1,070,205
467,243
_______
1,537,448
_______
-
28,112
-
-
________ __________________
-
13,514
28,112
-
________ __________________
13,514
The fair value of all receivables is the same as their carrying values stated above.
Receivables includes $1,070,205 (2016: $Nil) of recoverable expenses with regard to land lease and
drilling expensed, both in respect of the initial land leases for which operating partner Sunrise is
contractually obligated in regard to the interests it acquired, together with further amounts paid for
additional Land leasing within the Area of Mutual Interest (“AMI”) for which the parties to the joint
operating agreement (“JOA”) are liable in their respective proportional working interests. In the event
of non-payments, such interests are forfeited to Nobel as the primary default penalty provision within
the JOA without further financial obligation, other than the Sunrise obligations under which in addition
to the primary default provisions that prevail under the JOA with regard to payment for drilling,
completion and land leases, a contractual liability for payment in regard to its initial assignment
acquisition remains.
Group
The carrying amounts of the Group’s trade and other receivables are denominated in the following
currencies:
UK Pounds
US Dollar
2017
$
2016
$
13,514
1,523,934
-
28,112
_______ ________
1,537,448
28,112
__ _____ ________
The maximum exposure to credit risk at the reporting date is the carrying value of each class of
receivable mentioned above. The Group does not hold any collateral as security.
The impact of a 10% favourable movement in the US Dollar to UK Pound would increase the carrying
value of other receivables denominated in UK Pounds by $1,351. The impact of a 10% adverse
movement in the US Dollar to UK Pound would reduce the carrying value of other receivables
denominated in UK Pounds by $1,351.
Company
The carrying amounts of the Company’s trade and other receivables are denominated in UK Pound
sterling. The carrying amounts of the Company’s US subsidiary companies are denominated in US
Dollars.
58
PENNPETRO ENERGY PLC
NOTES TO THE FINANCIAL STATEMENTS
Year ended 31 December 2017
16. SHORT TERM INVESTMENTS
Short term investments
Group
2017
$
2016
$
Company
2016
$
2017
$
2,073,299
___ _ ___
-
_______
1,194,948 347,904
______
_ __ ___
Short term investments includes $1,194,948 of cash being held by FHF Corporate Finance Limited on
behalf of Pennpetro and $878,351 of cash being held by brokers Monsas on behalf of Nobel US.
These amounts are held in Pounds Sterling.
Group
The carrying amounts of the Group’s short term investments are denominated in the following
currencies:
UK Pounds
US Dollar
2017
$
2016
$
2,073,299 347,904
-
-
_______ ________
2,073,299 347,904
__ _____ ________
The maximum exposure to credit risk at the reporting date is the carrying value of each class of
receivable mentioned above. The Group does not hold any collateral as security.
The impact of a 10% favourable movement in the US Dollar to UK Pound would increase the carrying
value of short term investments denominated in UK Pounds by $207,329. The impact of a 10% adverse
movement in the US Dollar to UK Pound would reduce the carrying value of short term investments
denominated in UK Pounds by $207,329.
Company
The carrying amounts of the Company’s short term investments are denominated in UK Pound sterling.
17. CASH AND CASH EQUIVALENTS
Cash at bank
Group
2017
$
2016
$
Company
2016
$
2017
$
22,073
___ _ ___
20,904
_______
-
_ __ ___
-
______
At 31 December 2017, the Group held cash of $22,073 (2016: $20,904) in banks with a Fitch credit
rating of A (Stable).
59
PENNPETRO ENERGY PLC
NOTES TO THE FINANCIAL STATEMENTS
Year ended 31 December 2017
18. SHARE CAPITAL AND PREMIUM
Ordinary shares
Share premium
Group
Number of
shares
value
£
On incorporation
-
-
value
$
-
value
£
value
$
-
-
Total
$
-
__________
_______
________
________
_________
_________
Shares issued for cash
8,600,000
86,000
116,590
224,000
303,677
420,267
At 31 December 2016
8,600,000
___________
86,000
_______
116,590
________
224,000
________
303,677
_________
420,267
_________
Shares issued for cash
Shares issued as
consideration for
reverse merger
Shares issued as
consideration for
Acquisition and Listing
fees
2,300,000
23,000
29,799
257,000
332,969
362,768
45,000,000
450,000
570,465
15,000,000
150,000
191,550
-
-
-
-
570,465
191,550
Issue costs
-
-
-
(8,600)
(11,142)
(11,142)
___________
_______
________
________
_________
_________
At 31 December 2017
70,900,000
___________
709,000
_______
908,404
________
472,400
________
625,504
_________
1,533,908
___ _____
Each ordinary share has a nominal value of 1 pence per share.
Share options and warrants
There were no options outstanding or exercisable at the year end. (2016: Nil).
A convertible loan note which was issued by Pennpetro to Nobel Ireland in the Reverse merger of
Nobel UK, may be converted into 19 million ordinary shares if certain conditions are met, at a fixed
subscription price of 25 pence.
60
PENNPETRO ENERGY PLC
19. BORROWINGS
Non-current
Corporate borrowings
NOTES TO THE FINANCIAL STATEMENTS
Year ended 31 December 2017
Group
2017
$
2016
$
Company
2017
$
2016
$
6,092,657
________
1,185,000
_______
-
____
-
____
As at 31 December 2017 the Group had a $5 million Loan Note arrangement with Petroquest Energy
Limited and subject to certain conditions being met, the maturity date is 30 December 2019. The
balance drawn against this loan note as at 31 December 2017 was $3,951,706 (2016: $1,185,000).
On 31 October 2017, Nobel Petroleum LLC completed a Loan Agreement of £2,000,000 with
Pennpetro Bonds II Limited at an annual interest rate of 8% which is due for repayment on 31 October
2020. The balance outstanding on the loan as at 31 December 2017 was $2,702,800 (2016: $Nil).
The loan liability was transferred to Nobel Petroleum USA, Inc. prior to the year end. Arrangement
costs of $270,339 have been capitalized in Intangible assets and are being charged to the Statement
of Comprehensive Income over the life of the Loan.
The credit and borrowing facility are secured against all of the petroleum leases and operating
equipment owned by the Group, together with sales contracts.
The fair value of borrowings equals their carrying amount. Borrowings are denominated in US dollars.
2017
$
Expiring beyond one year 6,092,657
_ ___
2016
$
1,185,000
____
2017
$
-
____
2016
$
-
____
Group
Company
Group
The carrying amounts of the Group’s borrowings are denominated in the following currencies:
UK Pounds
US Dollar
2017
$
2016
$
2,702,800
-
3,389,857 1,185,000
_______ ________
6,092,657 1,185,000
__ _____ ________
The impact of a 10% favourable movement in the US Dollar to UK Pound would increase the carrying
value of borrowings denominated in UK Pounds by $270,280. The impact of a 10% adverse movement
in the US Dollar to UK Pound would reduce the carrying value of other receivables denominated in UK
Pounds by $270,280.
The Dollar loan is the discounted value. The undiscounted value is $3,951,706 and $6,654,506 in total.
Company
The company does not carry any borrowings. The carrying amounts of the Company’s US subsidiary
companies are denominated in US Dollars and UK sterling.
61
PENNPETRO ENERGY PLC
NOTES TO THE FINANCIAL STATEMENTS
Year ended 31 December 2017
20. TRADE AND OTHER PAYABLES
Current
Trade and other payables
Amounts owed to group undertakings
Accrued expenses
Group
2017
$
2016
$
Company
2017
$
2016
$
4,065
-
206,044
________
-
-
42,227
________
-
793,960
188,638
__ ____
-
-
9,268
______
210,109
________
42,227
________
982,598
_ _____
9,268
______
Group
The carrying amounts of the Group’s trade and other payables are denominated in the following
currencies:
UK Pounds
US Dollar
2017
$
2016
$
188,638
21,471
-
42,227
_______ ________
210,109
42,227
__ _____ ________
The impact of a 10% favourable movement in the US Dollar to UK Pound would increase the carrying
value of trade and other payables denominated in UK Pounds by $18,864. The impact of a 10%
adverse movement in the US Dollar to UK Pound would reduce the carrying value of trade and other
payables denominated in UK Pounds by $18,864.
Company
The carrying amounts of the Company’s trade and other payables are denominated in UK Pound
sterling. The carrying amounts of the Company’s US subsidiary companies are denominated in US
Dollars.
62
PENNPETRO ENERGY PLC
NOTES TO THE FINANCIAL STATEMENTS
Year ended 31 December 2017
21. FINANCIAL INSTRUMENTS BY CATEGORY
Group
2017
$
2016
$
Company
2017
$
2016
$
Assets as per Statement of Financial Position
Loans and receivables:
Trade and other receivables
(excluding prepayments)
Short term investments
Cash and cash equivalents
Liabilities per Statement of Financial Position
Financial liabilities at amortised cost:
1,537,448
28,112
13,514
-
2,073,299
22,073
_______
-
20,904
_______
1,194,948 347,904
-
-
________ ________
3,632,820
_______
49,016
_______
1,208,462 347,904
________ ________
Borrowings
Trade and other payables
(excluding non-financial liabilities)
6,092,657
210,109
________
1,185,000
42,227
________
-
982,598
______
-
9,268
______
6,302,766
________
1,227,227
________
982,598
______
9,268
______
22. TREASURY POLICY
The Company and Group operate informal treasury policies which include ongoing assessments of
interest rate management and borrowing policy. The Board approves all decisions on treasury policy.
The Group has financed its activities by raising funds through borrowings set out in Note 19 above.
There are no material differences between the book value and fair value of the financial assets.
23. CAPITAL MANAGEMENT POLICIES
The Group considers its equity to be its capital.
The Group and Company’s capital management objectives are:
•
to ensure compliance with borrowing covenants;
•
to ensure the Group’s and Company’s ability to continue as a going concern; and
•
to provide an adequate return to shareholders.
In order to maintain or adjust the capital structure, the Group may issue new shares or sell assets to
reduce debts.
The Group will continue making interest payments in accordance with financial and non-financial loan
covenants.
63
PENNPETRO ENERGY PLC
24. CAPITAL COMMITMENTS
NOTES TO THE FINANCIAL STATEMENTS
Year ended 31 December 2017
The Group and Company set the amount of capital in proportion to its overall financing structure and
manage their capital structure and make adjustments to it in the light of changes in economic
conditions and the risk characteristics of the underlying assets.
As at 31 December 2017 and 2016, the Group had no capital commitments for drilling and equipment
costs contracted but not provided for.
25. RELATED PARTY TRANSACTIONS
Transactions with Directors
An amount of £10,000 was advanced to Thomas Evans during the Financial year and remained
outstanding as at 31 December 2017. The amount is secured against shares held by him in the
Company and is due for repayment within 12 months.
Thomas Evans is a Director of Pennpetro Bonds II Limited, which provided a £2m loan facility to the
Group during the current reporting period. In his capacity as a Director of Pennpetro Bonds II Limited,
Mr. Evans received director’s fees of £8,000 from that Company.
Thomas Evans is a Director of the following companies which are considered as related parties:
• Pennpetro Bonds II Limited – the provider of a £2m loan facility to Nobel Petroleum USA., Inc.
• FHF Securities (A’Asia) Limited – a shareholder in Pennpetro with a 7.05% shareholding in the
Company.
• Nobel Petroleum UK Limited which is a 100% subsidiary of Pennpetro.
• Nobel Petroleum LLC, which is a 100% directly owned subsidiary of Nobel Petroleum UK
Limited.
• Nobel Petroleum USA, Inc, which is a 100% owned subsidiary of Nobel Petroleum UK Limited.
Transactions with Group undertakings
During the year ended 31 December 2017, Pennpetro provided loans to its wholly owned subsidiary
Nobel Petroleum UK Limited of $489,870 (2016: $Nil) and received loans from Nobel Petroleum UK
Limited of $1,283,830 (2016: $Nil). The amount due to Nobel Petroleum UK limited as at 31 December
2017 was $793,960.
All Group transactions were eliminated on consolidation
26. ULTIMATE CONTROLLING PARTY
As at the Statement of Financial Position date, the Directors do not consider there is an ultimate
controlling party.
27. EVENTS AFTER THE REPORTING PERIOD
There were no significant events after the reporting period.
64